Financial impact on the hotel industry arising Covid-19

The Covid-19 emergency and its economic impact differs in many aspects from previous recessions not least with its speed of the sharp impact. One common issue arising from the Coronavirus pandemic is that it has put assets that were previously meeting their financial obligations now in a distressed position. Invite CEO Jonathan Woods discusses the area of costs as it applies to the hospitality sector with future blogs focusing on revenues and external financing opportunities.

Jonathan Woods is an experienced consultant within the hospitality sector for over 15 years providing a holistic property management service to hotel owners in Ireland and in Germany. Jonathan has extensive experience liaising with financial Institutions and State bodies in both jurisdictions on behalf of hotel owners. He has also acted as an advisor to the board of directors on the operation of the hotel properties while also providing consultancy services to financial institutions and receivers in both countries. More recently, he has liaised legal advisors to the properties while also providing operational support in the areas of finance, HR and senior executive teams. The portfolio of properties he has dealt with include Hotel Dolce Bad Nauheim, Oakwood Shannon, Radisson in Athlone, Danby Lodge in Wexford, Castle Dargan in Sligo and Drinagh Court in Wexford

There is a significant amount of noise currently regarding what financing will be put in place by the state with specific references to Vat rate reductions, commercial rates rebates together, State Hospitality Vouchers with continuation of the Covid-19 employee subsidy schemes. In our work at the Dolce Bad Nauhein in Germany most of the schemes are being operated by the financial institutions with the state providing 80% security on the Covid-19 loan schemes. This work requires the completion of 5 year business plans as Invite Resorts work through the funding period. This is an area that we will turn to later when details of the various Irish schemes have been published.

The current period is an opportunity to do an in-depth analysis of our portfolio of hotel’s costs base. As revenues have grown year on year for the last 8 years in many hotels there has also being a certain loosening of cost controls within the hotels. We have seen payroll percentages increase year on year in a significant number of hotels. Their will have to be labour readjustments in many hotels in this space as the impact of social distancing and reduced customers on site will have a negative impact. Overhead labour in the areas of Admin, Finance, Sales, Marketing and Maintenance will become a key focus. Of course, there will be resistance as there was during previous recessions but the overhead payroll pre-Covid in place will simply not be possible for the next number of years.

This period of closure is an excellent time to look at our costs on a line by line basis in our P & L. When leading a large hospitality operation many General Managers simply do not have the time to do an in-depth analysis of costs. When have we last reviewed our lift maintenance contract for example or do we simply renew year on year? Many service contracts have termination notice periods do we know when they are? In relation to utilities, how can we limit costs with emphasis first on the fact that we may be operating at lower capacity & occupancy? Can we reduce our fixed element? In relation to food, when did we last do a thorough analysis of our food costs? What controls are in place around the kitchen team regarding purchasing? During the last recession, the Finance Director played an enhanced role in discussions with the Financial Institutions or NAMA but has seen their influence reduced in recent years, they will again come to the forefront in the post-Covid reopening period.

Most hotels have had significant capital upgrades completed over the last few years, there is now likely to be a significant tightening of spend in this area. It is important that any investment is critically analysed in relation to cost savings or through targeting of specific markets that may lead to enhanced revenue generation. Potential areas of focus – maybe energy management or payroll control measures in the cost savings space or specific targeted investment in niche revenue markets in the revenue generation space.

I hope the items listed above are of help as we prepare as best we can for the severe upcoming challenges that our business face.

Leave a Reply

Your email address will not be published. Required fields are marked *