The shape of recovery - and why it may not be the right question to focus on

Image Supplied - William Cairns Photography

Just like the fellow runners, remember there will be other hotels that will be re-opening dissimilar in timing, inventory, strengths, newfound capabilities and immunisation (or the lack of it) to brace for the monumental recovery.

If the graph caught your attention more than the picture with the pathways, you are probably scenario planning. The recovery scenarios during this crisis have evolved in alphabet shapes V, U, W to a Nike (swoosh) and an alphabet E scenario - the last is where you prepare for the best, worst and base case scenario.

The fact is we will only know the shape of the recovery in hindsight once we get over it, but the more important question right now is the path you will take to get there. The pre-crisis market-wide data points were more reliable as free-market forces were at play and hotels were operating on a more level playing field. During the lockdown, most hotels remained closed as they focussed on the most important issue during the pandemic - the people.

But as the focus shifts towards re-opening the economy, travel and tourism industry continues to embrace uncertainty.

Be proactive

As a hotelier, you are should be critically evaluating your options. Market indices may be very different to your revenue and profit/loss reality as different hotels will have a different set of circumstances, and financial backing to drive their strategy. If you have the reserves and are relatively risk-averse, you may perhaps be planning to keep the hotel shut till demand grows substantially.

Identifying the strengths of your new business model and the impact of costs on profitability will be key.

While there are too many variables in trying to plan for various scenarios, it is important to undertake scenario planning and at this stage focus more into looking internally as you see external developments take shape. It will not be a few months but at least a couple of years till the industry goes back to revenue performance of 2019.

Even if revenues go back to that level, profits will take some more time still. There were a lot of financial and marketing lessons to learn from during the 2018 Cape Town water crisis that got even the stabilised hotels adjusted their pricing strategies and segmentation to find a more optimal mix.

Adapt to a more flexible model

Identifying the strengths of your new business model and the impact of costs on profitability will be key. Reducing your fixed costs and adapting to a variable cost model (even for payroll) will go a long way in ensuring stability.

Understanding your mandatory costs (unavoidable payroll, property expenses and debt obligations) and modelling them with the variable costs that increase with higher revenues will give you a better perspective on your ‘affordable payroll cost’ at various levels of occupancy as you go through the ups and downs. Account for higher volatility in payroll costs at a senior management level during the recovery.

Deliberate a domestic tourism strategy

In 2018 South Africans spent R 84bn travellings overseas, combine that with the pent-up leisure demand and you are looking at an opportunity to sustain your business till the international skies open.

The uncertainty of international flight movement considering the travel bans and financial losses in the airline industry should be reason enough to bet on domestic tourism in the short to medium term.

However, if you are going to offer discounted rates and packages make sure you differentiate between your resident pricing and channels to not impact the international rates and positioning. The government will need to play its part in stimulating domestic tourism, perhaps through creating a web portal that allows VAT exemption and minimum or no booking fees.

International travel corridors and outlook

When travel resumes it is likely to be through international travel bubbles/travel corridors for countries that are Covid-19 free and compliant with travel precautions issued by international travel bodies. Australia and New Zealand may become the first example of this model by July. South Africa with its natural diversity and wildlife has some unique advantages of attracting tourism in a responsible and sustainable way.

Our leisure attractions predominantly are not crowded museums and historic monuments but serene getaways with an array of accommodation options accessible through quality international airports. Timely and thorough sanitation measures, tourism plan to sustain and recover the sector, a good e-VISA policy and a targeted marketing campaign (separate for international and domestic tourism) can go a long way in shaping a profitable and sustainable tourism industry in the long run.