When the history of COVID-19 is written, the hospitality and tourism sector will likely be regarded as one of the most profoundly affected. Indeed, the impact on the hospitality industry is unprecedented in its depth, breadth, and (in all likelihood) duration.
What is less obvious at the moment is that travel will recover, and with it the need for hotels, airlines, and restaurants. When that day arrives, how can hotel owners and operators ensure that transient accommodation can be provided in a safe, efficient, and financially viable manner?
Whatever one's view of the future, owners and operators should begin talking now, about how re-openings will be managed. Legal compliance, guest experience and expectation, brand reputation and standards, and financial viability concerns will collide in ways that even the most experienced hotel executives are unlikely to have experienced. At a minimum, parties should reach a clear understanding on health and safety, employment and operational issues.
Compliance with health and safety obligations
Owners and operators have to understand best practice in the context of legal requirements and how the cost of implementing a new health and safety regime will be dealt with. Most management agreements will place an obligation on the operator to comply with applicable laws, while simultaneously putting the burden on the owner to protect the operator from any third-party liabilities, except to the extent arising from the operator's gross negligence or wilful misconduct.
Considerations are:
- What practices will be put in place to maintain social distancing?
- What is required by law in the applicable jurisdiction?
- What is prudent and consistent with guest expectations in jurisdictions where social distancing is not compulsory?
In Scotland, all operating businesses are legally required to observe social distancing measures for its employees, customers and anyone who physically interacts with the business and its workplace, and failure to do so is a criminal offence. This is a more stringent obligation than in England where social distancing remains Government 'advice' only. Each jurisdiction has its own legal and practical requirements, and operational decisions need to consider these to ensure compliance.
If legal requirements – or best practices – call for a two metre separation between persons, are there hotel services that cannot feasibly be provided without breaching these restrictions? How are customer expectations to be managed if, for example, the hotel gym or spa remains closed?
Similarly, what standards will be put in place to ensure a heightened level of cleanliness? From Marriott's "ghostbuster" cleaner to Accor's cleanliness protocols, the major brands have sensed both a need and an opportunity to reassure potential guests. What increased levels of staffing and investment in operating supplies and equipment will be necessary to address legal requirements and to comply with best practice?
Risk assessments
Before re-opening, every aspect of operation should be reviewed. Operators should revise standard operating procedures to ensure that they remain suitable and relevant to the way in which a hotel will operate once re-opened.
Both parties should consider:
- If staffing levels have changed due to social distancing requirements, are staff adequately trained?
- What impact does working with fewer staff have on risk assessments; for example can a job previously performed by two employees safely be carried out by one?
- If financial pressures lead to reduced staffing and/or longer work hours, are staff adequately trained for new roles they are being asked to perform? If personal protective equipment (PPE) has to be worn by hotel staff, have adequate supplies (of acceptable quality) been secured?
- Are staff adequately trained as to when PPE is required and the specifics of its proper use?
Hotels offer certain services that present less common risks. For example, spa facilities and water storage facilities – has the risk of legionella arising from temporarily dormant hotel water systems been considered? If a hotel has been closed, has the water system been tested and/or treated to ensure there is no increased risk from bacteria in shower heads, spa pools etc?
Consideration should be given to the available insurance cover. With the enhanced risk of infection and injury and the additional legislative duties imposed in certain jurisdictions, comes the potential for prosecution and damages claims. Owners and operators should check that by operating outwith "normal" conditions, they are not doing things that would void their policy or allow an insurer to refuse indemnity in the event of a claim.
Employment
Considerable tension and uncertainty is likely to inform decisions on staffing levels as hotels re-open. Occupancy levels are likely to be low initially and will increase gradually. Operators of luxury and upper-upscale properties will nonetheless press for the full component of services to be available to hotel guests, notwithstanding that they are likely to be underutilised. Employers will need to think carefully about:
- The staff numbers required, in what roles, and how many hours they may be needed each week.
- How to bring back furloughed staff, to make sure decisions are not discriminatory in any way. Is it possible or desirable to rotate staff? This is likely to be impacted by any decisions taken by the government on extending or varying the terms of the job retention scheme.
- The impact of any accrued annual leave when staff return from furlough. Considerable entitlements may have built up during furlough and it's unlikely employers can grant all requests for annual leave at peak times, particularly if operating with a reduced workforce.
- The impact of sickness absence on plans to reopen. It's safe to assume that COVID-19 infections will continue and that staff may need to self-isolate or shield on an ongoing basis.
- The requirement for a sensitive approach for staff who have experienced bereavements or mental health difficulties as a result of the ongoing pandemic and for those who require additional support or flexibility arising from family caring responsibilities (including childcare commitments).
If redundancies are required, employers must ensure a fair process is followed and comply with obligations to collectively consult where more than 20 redundancies are proposed in a 90-day period.
Any variation to employment terms or duties should be set out in writing and agreed by the employee.
If employers find themselves in need of additional staff, they will need to consider what levels of occupancy will drive further hiring. What opportunities exist to rethink traditional roles and job descriptions in order to minimise costs?
Budgets and operational issues
Owners will understandably want clarity on the financial prospects for their investments and the financial demands that will be placed upon them, while operators will be seeking confirmation that sufficient working capital will be made available for the operation of a hotel during what is likely to be an extended period of low occupancy and trading losses. These discussions are likely to be difficult but are critical for both parties.
As a threshold matter, parties should agree the date on which it makes sense financially to re-open a hotel, recognising that "as soon as possible" may not be the correct answer. If, for example, the UK Government imposes a 14-day quarantine on arrivals from overseas, or air travel to the UK remains severely limited, then it may not make financial sense to open a luxury hotel in central London with a client base that is traditionally weighted towards Americans or Middle Eastern visitors. On the other hand, a country house hotel may be well placed to trade profitably if "staycations" are to be the norm for some time.
The budget approved for 2020 will have obviously become obsolete. Cost discipline will be even more important on re-opening and parties should have a general sense of the road they are travelling together. Similarly, operators should be forthcoming on pricing policies and strategies for increasing occupancy and maintaining room rates.
On the revenue side, parties should explore non-traditional opportunities to generate revenue from a hotel. If offices remain closed or limited access, could day rooms be made available for office use? Is there a "ghost kitchen" opportunity? Are there other services that can be provided to offices or residents in the vicinity that would generate some return on the hotel's fixed cost base?
Operators should agree to defer all discretionary capital expenditures and reduce or defer contributions to FF&E reserves.
Some of the more challenging discussions will involve the scope of services to be offered to guests on re-opening. Operators of luxury and upper-upscale hotels will be particularly concerned to protect the "brand standard", with the full range of staffing and services typically offered. Realistically - with the exception of a few hotels where the owner has deep pockets - this will simply not be possible. At the same time, owners must understand that a hotel must provide services commensurate with the brand and its past trading reputation.
For properties in the luxury and upper-upscale sector, how is brand perception managed on a long-term basis? What can operators offer to guests to minimise disappointment, maintain prestige positioning and encourage loyalty in the face of practical restrictions?
A challenge to be met together
With government guidance and requirements in constant flux and the availability of air transport uncertain, the challenges facing hoteliers and investors are likely to continue for some time. On the positive side, the sheer scope of this crisis has brought all sides of the hospitality industry together to seek short-term solutions. Those parties who continue to co-operate and think outside the box are far more likely to survive, and indeed to thrive, as the industry adapts to the "new normal".
