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Re-opening hotels during COVID-19 restrictions: insights from China
Insights from the Chinese market
Mairea Doyle Balfe
, one of Crowe’s hotel and hospitality specialists, interviewed international colleague, Zoe Wu, Executive Director with Horwath HTL China on a recent webinar to gain insights from the Chinese hotel market on re-opening and trading within COVID-19 restrictions.
At the end of February, the Chinese hotel sector closed for an average of just under one month. In many ways their market has been impacted less than the Irish market but Zoe Wu was able to share a number of the lessons learned from their market, which has been open and trading since the end of March.
Managing and optimising cash flow – revenue and costs.
To maximise revenue, Chinese hoteliers are investing in understanding the various subsectors of the domestic market better while borders remain closed. To stimulate demand they are offering a range of incentive packages. By offering more flexible cancellations policies they are able to encourage advance purchase and are selling staycation packages for several months down the line. While the leisure segment has been a key focus, domestic commercial travel has recovered to 70-80% per-COVID levels for cities.
Hotels are also being more flexible when it comes to a delivery service from a range of external F&B suppliers. Even the luxury market are offering a curated external delivery service as well as online shopping – where loyal customers can buy a wide range of hotel merchandise. This is particularly important for the luxury hotel sector, which is not rebounding as quickly as the mid-tier market, as they are more reliant on international travellers. Online retail sales are a new and expanded form of revenue generation for this classification.
To curb costs, hoteliers are focusing on labour cost controls and streamlining their staffing structures. Hotels are encouraging greater accountability for each business unit or department within the hotel, giving them P&L responsibility. Many hotels had a phased opening with a number of floors and areas only opening as demand picked up. Owners are renegotiating with operators and conducting a review of existing management agreements.
How is recovery going?
Over the last 10 weeks, larger first-tier cities have recovered roughly about 40-50% compared to 2019. These cities are slower to respond as the international market is a critical source of demand. Regional leisure destinations have recovered quicker due to the domestic demand for staycations. This market has been further buoyed up with extended public holidays that the government implemented due to COVID-19. This was a successful government support and during these peak periods some hotels in leisure destinations had 90% occupancy levels. The third main market are provincial capitals, who have seen occupancy bounce back to 50-60%, mainly due to internal business travel.
The conference and meetings market is not responding as quickly due to COVID restrictions on public gatherings. Smaller meetings, like board meetings, and more intimate weddings are happening, but no larger conferences.
The impact on average daily rate (ADR) has been muted for first-tier cities but second-tier cities have had to reduce rates. YOY averages are expected to see declines due to the forward selling of heavily discounted incentive packages.
Revenue is expected to drop by 50% across the board in 2020, with the luxury sector being hit the worst due to the drop in demand from international travellers. All spas and swimming pools remain closed for the foreseeable future.
Operating within COVID restrictions
Hotels are coming to terms with a wrath of new costs due to the implementation of strict government COVID safety and cleaning protocols. Many hotels are streamlining their organisational charts and reassessing their operating models to keep costs down and ensure a sustainable profitable business into the future.
With a socialist government and strict labour laws many of the sector’s workforce remain employed, with as many as 90% of employees back working and at least 60-70% kept on during the height of the crisis.
Many hotels are actually investing in systems and technology to reduce the need for physical human contact. For example, robot services for deliveries and room service along with self-check desks are being rolled out, particularly within the mid-tier hotel sector. The expectation is that this initial cost outlay will be rewarded with longer-term sustained cost savings.
China is ahead of much of the world when it comes to the mandatory wearing of masks and conducting temp checks at hotels and other public settings. Each citizen in China has also been issued a QR code to better enable tracking, tracing and quarantine protocols. These QR codes will have colour coding for provinces, indicating the potential risks of that area. There is not travel in/out of Beijing, for example, since the recent outbreak.
Domestic and international travel
The expectation is that outbound international trips will only start once receiving countries open up travel bans and the flight frequencies return to normal levels. Chinese people are still interested in overseas vacations and a large percentage of students study abroad so the Chinese market is still expected to be a strong driver for outbound travel.
Interestingly, airport hotel occupancy has remained strong with the domestic flight schedule back to normal levels. Also, a lot of airport hotels are assigned as quarantine hotels, predominantly mid-tier, and are not open to general guests.
How has the government supported the sector?
Local government at the provincial level have encouraged domestic spending through cutting the work week by half a day – making the weekend two and half days. Government has also offered tax breaks and deferred tax payments for at least six months in order to help with cash flow. Financial aid and support schemes are also available.
What does the future look like?
The Chinese have the mentality that ‘No crisis will last forever’. Most forward-looking businesses are asking themselves, ‘When this is over where do I want my business to be?’ It is not about adapting to this current crisis but more about using this as the opportunity to adapt the business model to be leaner and more resilient going forward. With recovery not expected until next year this is the mindset that will see businesses navigate the current challenges and emerge stronger when a full recovery takes place.
At Crowe we have vast experience in providing hotel owners and funders with asset management, operational analysis and property turnaround advice. Our team assess the full spectrum of strategic possibilities to identify the best options for each asset to maximise return on investment. If you need support in devising the reopening strategy for your business please contact a member of our Hotel Tourism and Leisure team.
About Horwath HTL
Horwath HTL is the world’s largest hospitality consulting brand with 45 offices across the world providing expert local knowledge. Since 1915 Horwath HTL have been providing impartial, specialist advice to our clients with a focus on hotels, tourism and leisure consulting.
Crowe's Mairea Doyle Balfe, in conversation with colleague Zoe Wu, Executive Director with Horwath HTL China
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