Has the closure hindered reopening?
As the vaccine roll out continues to gather pace and we begin on the road-map out of lock-down, it seems the UK hospitality industry, particularly hotels, has a challenging year ahead.
Hoteliers are cautiously optimistic that pent up demand, postponed weddings, other events and an increase in staycations will see a substantial rise in bookings from mid-May when we move onto ‘step 3’ of the Government’s plan.
However, faced with at least another 4 months of social contact restrictions in some form and with more stringent curbs on international travel likely to be in place for much of the year, it may be that this optimism is short lived and occupancy rates do not recover sufficiently to make inroads into the losses sustained over the past 12 months.
Hotels that are focused on international business, city centre locations or luxury experiences are likely to fair worse than those targeting UK holidaymakers.
There is also is the question of liquidity. With many hoteliers having accrued additional liabilities since the first lockdown not only will they need working capital to support reopening and increasing occupancy but they will also need to find a way to pay down liabilities. For those that have benefited from CBILS, these will soon start to need servicing although there are expectations of further flexibility being introduced in the impending budget.
There is still much uncertainty and it is unrealistic not to expect some casualties but as always the best prepared are likely to survive and will no doubt come out of this stronger. There are actions that you or your clients should be taking to ensure they are on top of the pile
Leasehold hoteliers must engage proactively with landlords to renegotiate lease models, working together with landlords to share the burden of recent events has to be the most important step. Focus landlord discussions on those sites that provide the greatest return. Where significant rent arrears have accrued, recognise that landlords themselves are likely to be under pressure and offering to service these arrears in some capacity may result in better terms in the long run.
Freeholders with financing obligations should take the time to fully understand their covenants and the options available. Whilst lenders are currently being more lenient on breaches it is only a matter of time before they look at enforcement methods where appropriate, particularly as there is more confidence in asset values and their recovery. As tempting as it may be to look at alternative lenders for re-financing it is important that you seek advice on this to ensure the right long-term structure and negotiate the best possible terms.
The acquisition market is currently quiet making it difficult to sell off less desirable sites so think creatively about repositioning these offerings. On the flip-side those able to further invest should look at UK locations as it is likely the staycation is here for the foreseeable future.
Re-budgeting is key during this time. To have the best chance of coming through this process hoteliers need to go back to basics and work on a zero budget basis. Hoteliers and investors need to justify all costs from the bottom up and decide where costs can be cut. For example toiletries on offer, additional cocktail bars, maid servicing frequency, gastro offering e.t.c .
Costs need to be assessed on what the hotel needs and the revenues they return whilst still giving guests what they want. E.g. can you move the cocktail bar into the lobby bar in the short term to reduce staff etc.
Short term adjustments and flexible budgeting are essential until occupancy levels normalise and cash flow is under control.
Hotel Occupancy and Re-forecasting daily / Weekly
Now is the time to streamline your business model as much as possible and think differently about how you work going forward. Hotel occupancy forecasts should be undertaken daily/ weekly and any capital expenditure assessed and potentially postponed in the short and medium term.
Costs should be focused on the ability to act with speed as and when legislation around COVID-19 changes and re-positioning the brand/ hotel for the staycation or alternative use.
Forecasting and strategy reviews need to be undertaken weekly, a ruthless approach will need to taken when prioritising. Speed is essential in keeping on top of costs.
Ignore previous marketing data
Probably one of the only times this will ever be said ! but unfortunately customer behaviours you may have seen previously will be almost unrecognisable over the next 2 years at least. Your clientele may completely change and in turn their use for your facilities may change.
Again speed and weekly strategic meetings regarding ongoing marketing and customer positioning is essential to capitalise on quick returns. The older generation may remain sceptical for sometime regarding travel so marketing efforts may need to be focused on a younger generation in the short term.
Whilst the government has provided support schemes such as the Job Support Scheme, which have provided vital lifelines it is important that nothing is done without careful planning. Making claims to HMRC is complex and wrongly filed claims may only result in further issues down the line.
Staff are often seen as the quickest way to cut costs, but with a resurgence of demand just round the corner. It is worth thinking about how detrimental having a lack of or untrained staff could be. Its best to seek advice about restructuring staff working hours and contracts.
In recent years, Moorfields has advised a number of hotels and can happily provide re-forecasting advice, advice on making claims to HMRC, debt/equity raising or restructuring advice and even advice on formal insolvency methods.
Please view some of our recent cases.
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