As the hospitality industry across Middle East and Africa strives to get back on its feet following the lockdowns imposed to contain the coronavirus, Aleph Hospitality’s Bani Haddad says hoteliers must be shrewd in order to get cash flowing in the right direction again.
As the gravity of the current pandemic began to unfold 13 months ago, hotel owners and operators were presented with a worst-case scenario most hoteliers could have hardly imagined. Being forced to close a hotel or hotels with very little warning and no projection for reopening was a catastrophe business owners hoped they would never have to face.
Of course, everyone understood that a much more acute health crisis was advancing, and the primary concern was to protect staff and guests, but this does not diminish the operational and financial chaos that many businesses were plunged into.
Cash flow was effectively frozen overnight, budgets were rendered irrelevant and thousands of jobs were thrown into jeopardy. Faced with a new reality, hotel owners began to delve into the detail of their P&Ls and seek new ways of saving money in order to survive.
A year on, and many hotels are up and running again. However, for some owners, reopening their doors comes with a huge set of challenges. Many will face huge financial stumbling blocks regarding the working capital required to reopen, particularly when it comes to the funds needed to rehire staff. Others are understandably very risk averse. After all, if the past 12 months have taught us anything, it’s that nothing is certain.
In our experience, having reopened our hotels and taken over the operations of five more properties during this pandemic, there are five main areas that must be addressed before reopening: budget, payroll, facilities, utilities and purchasing.
At Aleph Hospitality, our recommendations are always driven by one core value – whatever budget we develop must at least mean the owner breaks even. We will deliver as much profit as we can, but only if the owner never has to pull money from his own pocket. This involves examining every item in the budget line by line, seeing how the business can operate in a more flexible way.
We have to be conservative. We know that hotel occupancies and performances are going to struggle, at least until the end of this year, and the budget must be aligned with this. At 25% occupancy, a hotel can operationally break even if budgets are planned correctly.
One of the major lines on the budget is payroll. It’s very unlikely that a hotel reopening post lockdown will be able to do so with the manpower it had previously. We would advise opening with a limited number of staff, and depending on local jurisdictions and contractual obligations, reviewing salaries and benefits.
At the same time, however, we have even more responsibility than ever to look after these people, so headcount and remuneration must be reviewed on a monthly basis in line with the performance of the hotel.
This principle of scale also applies to a hotel’s facilities. Capacities based on outdated market research are no good. We need to analyse how many people each restaurant and venue can attract now. Which F&B outlets does the current market dynamic demand? Can we operate spas and health clubs safely, in line with Covid protocols? Where are guests coming from? What level of travel is permitted to the hotel’s location?
Start gradually and only open the facilities that will bring the hotel revenue under every projected scenario.
Keeping parts of a hotel closed also means utilities bills are balanced properly. This could apply to certain facilities or entire floors of a hotel. Where do we really need air conditioning and lighting? Do all swimming pools have to be in operation? What can we save in the back of house?
In our hotels, we have been very conservative and the savings on energy bills so far have been significant, with the added benefit of ensuring our operations are more environmentally aware, too.
Limited F&B operations also minimises the amount of stock that needs to be repurchased.
Now is the time to review all service and maintenance contracts, renegotiating prices in line with the current climate. Again, take a step-by-step approach to ensure unnecessary dollars are not spent on purchasing.
Ultimately, in each of these areas, agility and the ability to change tactics quickly, will be key. Each market still has its own set of sanctions on the hospitality industry and these will fluctuate until there is control over the spread of the Coronavirus not just here, but globally. Hotel owners need to be ready and equipped to cope with this flux, without reaching into their own pockets.
Flexibility is paramount; so if a hotel’s occupancy decreases, so too do its costs. It’s a challenging equation, but one that we believe is possible.
Bani Haddad is the founder and managing director of Aleph Hospitality, a Dubai-based independent hotel management company, committed to maximising asset value for hotel owners in the Middle East and Africa. Aleph Hospitality has 10 hotels in its portfolio and has earmarked a pipeline of 50 hotels in the region by 2025.