Siddharth Goenka is a Computer Science Graduate from Purdue University, USA, an MBA from Indian School of Business, Hyderabad and a boarding school alumni from the Scindia School Gwalior. He has worked as a software engineer in Microsoft, Seattle, and also as a Management Consultant at Accenture & Carlson Marketing in Mumbai. He moved to Bangalore in 2012 to start Octave Hotels, and turned it around by growing it from a loss-making 39 room hotel to a profit making chain of 7 hotels and 240 rooms.
When the Covid virus first hit the coast, the hospitality & tourism industry was among those hit the hardest. Even with almost two years in, one can expect the industry to take substantial time to recoup. However, the times being tough does not do away with the basic human need to relax. Thus the outlets of entertainment are only growing in these times with travel fast catching up. Even with the vaccines rolling out in recent times, one cannot overlook the fact that widespread travel might not be the wisest choice in the present circumstances which is why the leisure travel industry is witnessing rapid growth in today’s date. Especially with cross border travel on an indefinite pause, the customer base of luxury travel has expanded to accommodate the hopeful international travelers who have now settled for luxurious domestic stays as compensation for their international travel plans.
While it is true that all hotels suffered greatly at varying levels, it was the business hotels that got the shortest end of the stick. Most corporations, large and small, have moved to virtual mediums of operations such as video conferencing and the work from the home model in the wake of the ongoing pandemic. This has acted to reduce the travels related to business by up to 50%. The problem arising from this is that 70% of the hospitality space supply was attributed to business hotels, and now amidst the virtual work norms, a majority of these hotels are struggling to stay afloat without customers and revenue.
To confront this overwhelming shift, hotels of today have little option other than to broaden their perspective and innovate. A calamity need not always be an unwelcome scenario, sometimes it can serve as an opportunity for a business to move on to the next best thing. Some ways in which hotels can use this time to bring out-of-the-box ideas on board and channel them to weather the storm are discussed in the scope of this article.
The primary shifts as expected in the hotel industry can be summed up in three main categories: efficiency, automation, & technology. To achieve the same, there is a need for hotels to adopt concepts that maximize revenue while simultaneously minimizing costs because profit is now the main priority. The fixed costs can be converted to variable costs to rid any possible additional charges and wastages. There is a need for hotels to strike a balance between the use of machines, manpower, technology, and automation that gives the best output with the least possible input, without disturbing guest satisfaction. Firm decisions need to be taken to cut off problematic or loss-making units so as to reduce any income being squandered in wastages.
The manpower strategy of hotels needs to be planned with utmost mindfulness with regard to the possibility of infusing automation in every department. The staff per room ratio will go in a downward spiral as the emphasis of working strategies shifts to achieving ‘more’ with ‘less.’ The teams responsible for reservations and back-office management are usually engaged in monotonous, clerical tasks. This job can thus be shifted to automated mediums such as technology-based reservation systems and chatbots that are based on all-in-one integrated systems. This will allow these tasks to be conducted at a much faster pace and precision and will also minimize costs by cutting down on the need for human resources in the operations of marketing, customer service, and guest relationship management.
The big, comprehensive IT departments that are currently responsible for maintaining the technology as used in the hotels can be replaced by centralized cloud-based integrated systems. This replacement will reduce the need for periodic backup and maintenance. Modern sophisticated systems can be used to centralize & automate functions like revenue management, CRM, and online distribution which will lead to boost productivity & returns. The sizeable teams for sales & marketing functions can be trimmed down by facilitating direct supplier and customer interaction through the use of B2B marketplaces.
Sometimes it so happens that the ancillary units of a business, such as restaurants, bars, gyms, etc., operate at a significantly high cost but do not justify those costs in terms of profitability. This leads to a substantial wastage of funds when these services are being provided in-house. A possible solution is to either outsource or remove these facilities from the product portfolio. Automation can be infused into guest servicing operations like room service, concierge services, check-in-checkout, etc via the use of smartphones, tablets, kiosks, and AI-based tech to increase the efficacy and speed of these operations. IoT devices and energy-saving instruments can be used to cut down on energy costs as they function on a ‘use as you need’ basis. This can work to trim the heavy fixed costs that accompany the traditional large centralized energy units. Hotels need to constitute teams that are lean and efficient so as to bolster guest satisfaction.
The rampant growth of the online business will spell mega benefits for the hotel industry as it will work as a substitute for the fixed costs of forming large sales teams with variable costs of digital marketing. Although OTAs will continue to command a substantial chunk of customers, hotels can still focus on providing direct channels for booking on their own websites and booking engines to lessen the involved distribution costs. As short-term valuation boost ceases to be a metric for success, the use of endless discounting schemes as commonly used by OTAs to attract the masses will also fade. This is expected to increase the maturity and fairness in the distribution pattern of the market. A prominent focus will be on meta-search platforms like Google that will direct customer traffic straight to hotel websites, thereby doing away with the need to pay high commissions to OTAs.
Banks, PE, and VC funds are projected to prefer projects that are more durable, scalable, and profitable rather than eccentric bets that follow a herd mentality. Asset light models like revenue share & management contracts will gain significant popularity for fresh projects instead of outright purchase or lease models. As the profitability quotient of the industry reduces, new projects will either be suspended or converted to relatively less risky asset classifications. Hotels that successfully wither the crisis will bear the fruits once the storm is over and the demand returns.
Every coin has two sides and so does every situation. What you get out of a situation solely depends on the way you choose to look at it. While it is true that the pandemic was indeed excessively harsh on the tourism and hospitality industry, one can still chose to focus on the silver lining here and view these times as a new start calling for innovation. The global pandemic that has overtaken the world recently will be a pivotal moment for the hospitality industry. Instead of looking at this moment as the downfall of an industry, we should focus on this from a perspective of change in path and a new opportunity to innovate and grow.