Take advantage of recession to position for the upturn

Hotel Design issued this article today and I thought it was a fresh perspective that we all should consider. Now is the time to focus on our brand image making sure that it is distinct to your marketplace.

"The recession is hitting different sectors in different ways. In the UK a rise in bookings for domestically based holiday companies is matched by their own growth in investment. Pontins for example have just announced 2,000 new jobs on the back of a 20% rise in bookings for 2009 - a rise replicated by other similar companies. Millions is also being invested in bringing properties up to contemporary standards.

There are dangers for all hotels in a misplaced step, or a panic action. Current figures suggest that the rise in insolvencies (see Price Waterhouse Coopers release attached) is linked not to a major decline in bookings but rather to difficulties with loans. Some company borrowings were secured on property valuations that no longer reflect reality, especially those of the last two years when the property boom was at its peak. A combination of tightening bank lending criteria with falling underlying valuations (according to Christies values fell by nearly 19% in 2008) can lead to foreclosure.

Jeremy Hill, Head of Hotels at Christie + Co, said: “The end of the year brought the first signs that the economic slowdown and the subsequent drop in trading would leave some companies struggling to stay afloat.Folio Hotels, which operated 36 properties across the UK, fell into administration at the start of December, albeit the majority of its hotels have been successfully transferred to new owners. More businesses are unfortunately set to follow, as banks look to sell underperforming assets, in order to balance their pressurised books.”

Many hotel businesses will be tempted to freeze infrastructure investments, mothball new growth hotel projects and defer integrating the latest acquisition. Advertising and recruiting investments are easily cut, as are loyalty programmes for customers and staff. However the businesses that will benefit will take a different approach and selectively invest where others are cutting back.

“Hotel businesses that understand the need to develop and implement new strategies can navigate the downturn in a way that makes the most of the opportunities arising. Those who don’t know enough about themselves or the external market will be inclined to take the path of least resistance, leading to defensive and piecemeal actions which can result in reduced service levels and disgruntled clients. Most damaging of all, these businesses risk losing out to their competitors,” says Stephen Broome, Hospitality & Leisure (H&L) director, at PricewaterhouseCoopers LLP

Experience has shown that deferring refurbishment and lowering the room price, two typical actions by hotels, both lead to increased difficulties and impact quality. They defer the pain as competitors who continue to maintain rates are able to reap the rewards of those rates when the upturn comes, whilst increasing rates without apparent justification can result in customer flight.

The unrefurbished hotel (and bear in mind most refurbs are long overdue when scheduled) will also lose customers to the competition. Most guests recognised when they are in a room with worn furnishings, worn fabrics and carpets despite the frequent operators blindness in this regard. Currently Travelodge for example are continuing to roll out their rebranding through all their chain, whilst Rezidor will continue to invest in their brands unless their occupancy shows an drop of over 40% on 2008 figures, planning on bringing some 22,000 additional rooms on stream this year (2009).



The increased awareness of design amongst the population at large, the rise of the fashion based hotel and boutique chains, have all emphasized the increased appreciation of the value of well maintained, well designed and attractive properties. Failing to keep pace with these developments will enhance the spiral of decline that many poorly managed hotels will go into in a recession.

If occupancy falls why not turn it to advantage and close a whole floor for refurbishment so that when the upturn comes premium rates come with it? After all, with sterling at its lowest for years there is already a measurable rise in tourists entering the UK."

Patrick Goff, Editor