Covid-19: the long-term implications of social distancing

The hospitality industry as a whole is feeling the impact of Covid-19, with many hotels, restaurants and pubs incapable of overcoming the pandemic. In fact, recent figures from the leading UK hospitality trade association’ estimate that up to a third of the sector is at risk of permanent closure.

Social distancing and travel bans have had a catastrophic impact on hotel occupancy rates since the suspension of trade in late March and UK Hospitality has demanded urgent action to defer rent payments that have built up during the coronavirus outbreak.  A further extension to the employee furlough scheme may also be necessary for businesses which may be forced to continue social-distancing measures as late as Christmas, long after the rest of the country has emerged from lockdown.

The hospitality and leisure sector, including hotel owners, has faced many challenges over recent years and at Quantuma we have seen first-hand how businesses have fought really hard just to survive. The sector has been challenged on a number of fronts with adverse weather conditions, skills and labour shortages as a result of Brexit, a rise in food and beverage costs, unfavourable exchange rates and internet comparison websites driving down prices. The devastating effects of the pandemic could not have come at a worse time and will no doubt be the final nail in the coffin for many, resulting in significant job losses. We are already seeing this in the pub and restaurant sub sector and expect hotels to follow.

Many hotels cancelled bookings and returned customer deposits up to June and are now concerned about the bookings they have in place for July, August and September. Unless social distancing restrictions are relaxed they are likely to experience a second wave of cancellations.

Some businesses will not emerge from the other side of this crisis unless legislation is introduced to support them, such as allowing rent to be deferred to the end of leases. For hotel owners, the safety of staff and customers is paramount and the practical challenges of reopening in a safe way should not be underestimated. Hotels and guest houses catering for the older generation are likely to be even more severely impacted as those customers look to isolate for longer, possibly until a vaccine appears.

As hotels prepare to re-open on 4 July, they are introducing measures to protect staff and visitors.  These include a minimum 24-hour period between guests vacating a room and the next ones arriving, staggered check-in times, protective screens at reception, new signage, the availability of hand sanitiser and staggered meal times. However, unless the two-metre social distancing rule is relaxed by the time hotels, pubs and restaurants re-open, most venue capacities will be severely restricted having a direct impact on revenues that may take some considerable time to return to previous levels.  This in turn will cut margins and the mountain of debt that has built up over the three-month lockdown period will simply be too high for many to repay.

Most Britons who had planned a holiday in the UK this year believe that it is now unlikely to go ahead with only a minority who have cancelled holidays looking to replace them.  In addition, the traditionally busy months of October and November for larger hotel venues hosting corporate events are seeing bookings cancelled as uncertainty continues.

Although government measures have stemmed the flow of insolvencies, many businesses that have successfully applied for Government support including the retail, hospitality and leisure grant of up to £25,000 and the Bounce Back Loan Scheme report that cash is already running out. If the social distancing rules remain at two metres and the furlough scheme closes on 31 October as planned there will be huge redundancies across the whole sector.

It is the smaller hotels, guest houses and bed and breakfast venues who are most likely going to suffer and struggle to survive a summer of closure. For smaller operators offering a cosier setting, social distancing will be harder and those establishments are at a higher risk of collapse than larger, branded hotels because they simply don’t have the space to adapt or the cash reserves to fall back on.

By Graham Randall, partner at Quantuma