Hospitality was among the first industries to be hit by and likely will be among the slowest to fully recover.
Hospitality was among the first industries to be hit by and likely will be among the slowest to fully recover. All categories are affected from international hotels, restaurant chains, multinational airlines to smaller family-owned restaurants and accommodation. This has happened across the world now with broadly similar dynamics and business consequences. Most Western countries are still under lock down with only a vague hope of reopening in May. Vietnam by responding early, has been more successful than any country containing COVID-19 and recent partial reopening of restaurants, coffee shops, and hotels have given Vietnam a greater head-start over other countries. Hospitality is now seeing a careful recovery and hopes of things returning to normal. The sector is slowly coming back, yet owners are still trying to figure out what will be the “new normal” and how long before demand gets back to pre-crisis levels. So far, strategies implemented by restaurants and hotels are slowdowns or closure to cut-costs, retaining key personnel and preparing for reopening. This has helped overcome the short-term drop-in revenues, but the real question is what level of demand they can expect in the coming months; unsurprisingly in the short-term local demand will be highest and the only one.
According to Mr. Mauro Gasparotti, Director, Savills Hotels APAC, creativity will be key to generating additional revenues: “City hotels need to appeal more to local corporate guests and tourists. ‘Staycations’ shows one way to do this, in which hotels target “close by demand” with experience packages combining Room, F&B and full access to facilities. We expect to see restaurants do the same, with more creative promotions to attract local guests such as cleverly themed weekend brunches. Airbnb establishments may also consider these types of “experience packages”, such as having a private chef on hand.”
With regard to operating costs, owners can partially manage business activities short term with temporary layoff of staff and use of cash reserve, but for the longer term if demand is not rebounding fast, loan repayment and property/land rental will be of a greater impact on the bottom line, especially restaurants and bars. We are hoping Financial Institutions and landlords will work with owners to find mutually beneficial solutions and play constructive roles in the recovery.
MICE business, which includes conferences and events, is expected to be one of the last activities to fully resume operations as it relies heavily on crowds of people getting together. Local MICE, which covers Vietnam and mainly involves local companies, is expected to return when the government deems it safe. Safety regulations will need to stay in place and companies will have to reduce the size of their gatherings. This will affect many sectors, including Real Estate, where the launch of a Residential Project typically involves a crowded event. New formats need to be considered until consumers feel safe in enclosed areas and Government will allow it. Mr. Mauro commented “MICE to be hit by cuts in corporate spending in events and entertainments for at least the next two quarters. We will probably see the return of small-scale events first, as companies celebrate in smaller groups or by separate teams. International events held by multinational corporations with large numbers of international travellers will possibly return only after travel restrictions are lifted and corporate spending rises back to pre-pandemic levels, which may take a lot longer.”
Recovery was initially expected to follow a “V” shape model, which is common in Travel industry and has happened in Vietnam in the past - for example China and Russia inbound markets fell from June 2014 to Jun 2015 but both quickly recovered. However, the situation now is very different, and I believe most hotels and resorts should not expect full recover until well into 2021 as the global economic impact and evolution of the virus are both still uncertain. Safety is a key factor in Travel Industry and people will only travel again when they feel completely safe. As mentioned, we will rely on local demand first, especially younger generations of independent travellers, followed by re opening of some single key countries to slowly come back. That said, looking into the evolvement of other countries like China where the government recently allowed hotels to reopen, it took only six weeks for occupancy to reach 32% by the end of March after the drastic fall of occupancy in the month before and this mainly due to local travellers. That has allowed hotels and resorts to regain business and reopen operations. We hope Vietnam will once again prove to be a successful example for other countries to follow.