Alex Sogno | April 06, 2020
Through Alex sogno
During the COVID-19 crisis, many hotels will unfortunately have to shut down their operations and temporarily close. This may be out of necessity if your forecast suggests that the losses incurred at these low occupancy levels are not sustainable. While closing multiple floors could have saved enough variable costs in the past, the introduction of systems such as LED lights has made these savings minimal and insufficient in the current crisis. In many European countries, such as the Czech Republic and Spain, all hotels have been ordered to close by their governments. While companies like Marriott and IHG have already reopened more than half of the hotels they previously closed in Greater China, we expect more hotel closures in the United States in the coming weeks.
1. Review your current hotel management, operation, loan, or rental contracts to make any necessary adjustments.
Identify any key provisions that may be affected, paying particular attention to “force majeure” or “significantly modified terms” clauses in any agreements listed.
Check your current cash flow to make sure it can meet all immediate needs, such as taxes and payroll. You should forecast your income statement and annual cash flow using multiple scenarios with varying reopening dates. Once these documents are ready, it is important that you let your investors and lenders know what your capital needs might be. This shows that you are proactive, aware of contractual clauses and debt covenants, and that action is taken accordingly. Many banks practice goodwill; see if you can benefit from deferring your loan payments, debt moratoriums, overdrafts and other lines of credit. When entering into new contracts, consider how to communicate regarding the virus, considering that it is no longer considered an unexpected event.
2. Review your current HR needs and any necessary terminations.
Pay attention to current employee benefits, payment addresses, and severance pay options if termination is deemed necessary. Be sure to check and follow your local government unemployment policies and see if there are any programs available to support those made redundant. We also suggest that you consider other working arrangements for your employees; While business and administration staff can work from home, there are always ways to redeploy and improve your operational staff on site. Identify all the essential tasks that cannot be performed remotely and seek solutions with the relevant personnel. We will dig deeper into this topic in an article next week.
3. Contact all suppliers and modify or terminate your order according to your current operating needs.
While variable costs should be reduced immediately, we recommend that you try to limit your fixed costs and explore the possibility of negotiating credit terms or payment reductions. It is best to delay all payments when the hotel reopens when the cash flow is effective again. Your purchasing manager should engage in honest and ongoing conversations with suppliers and ensure their onboarding for reopening. Consider the possibility of buyback programs to reduce your current inventory. Some hotels and restaurants, including Walt Disney World, have received publicity and praise for donating their excess food stocks to local food banks [i]. Of course, be sure to check your government’s relevant guidelines for redistributing surplus food from home when considering this option.
4. Consider your current tenants.
Communication is essential with all retail, F&B or other leased outlets before and during closure. Solve any payment issues that your current tenants may have and will be. We suggest, for example, that you let them pay 50% of the rent and that the rest can be paid monthly until the end of the year. You don’t want to lose good tenants, and goodwill is important, especially when expecting goodwill from your own investors or lenders. Inform them well before the reopening.
5. Contact all pending reservations during the scheduled closing period.
Communicate with the guests and inform them of your reasoning. It is best to be as flexible as possible with reservation deposits and return them as per customer’s request, while encouraging customers to change the reservation at an unspecified date in order to conserve cash. Make sure that your own website has a clear message of the temporary hotel closure when you enter the booking engine, and let the representatives of your OTA channel know as well.
6. Evaluate available insurance claims which may continue to evolve depending on government intervention.
The most relevant policies include business interruption, contingent business interruption and civil authority coverage. [ii]. Insurance coverage varies among operators and it is good to speak with other homeowners. It’s crucial to check the fine print of your business continuity insurance and consider lowering your monthly payments during shutdown as there are no in-house guests.
Be sure to check if the hotel must be occupied at all times for insurance coverage. If so, you will need to schedule a few employees or security personnel to be on the property at all times.
7. Stay informed of all government orders and business assistance programs, and sign up as appropriate.
Follow the regulations on a daily basis, read the decree on hosting providers and their dates of entry into force. Many European countries, including the UK, have extended the deadline or will waive penalties for late VAT returns [iii].
8. Operational procedures.
When cleaning all areas of your hotel, refer to your government guidelines for disinfection and cleaning in public non-sanitary facilities against COVID-19 [iv]. It is recommended that you continue to clean the hotel at least once a week during guided tours when it is closed. Digital checklists for hotel closures, maintenance, cleaning and more are posted on various apps, such as ALICE and the Whispr app offered to Beekeeper customers [v], [vi]. We will post more information when we have fully explored the housekeeping aspect of the COVID-19 calamity.
Here are some examples of actions to take [vii]:
- Empty and disinfect all garbage cans
- Thoroughly clean all areas and surfaces
- Clean, disinfect and remove all exhibits or furniture
- Set the thermostats to ~ 20 ° C
- Set all exterior and lobby lights to timers
- Remove all food from the refrigerator so it can be cleaned and put out
- Disinfect and completely cover all cooking utensils, glassware, cutlery and crockery
- Organize all the furniture in the meeting room
- Unplug customers’ washing machines and close access to water
- Unplug all bedroom lights and equipment
- Remove decorative bedding
- Remove, disinfect and store all guest toiletries
- Flush the toilet regularly
- Lock all rooms and secure all access
- Turn off pool equipment and cover, but keep safety equipment in place
- Post hotel closure signs throughout the property
- Most hotels delay their regular renovations to mitigate Financial Impacts 1 and 2, but you may want to consider small maintenance tasks such as repainting
We encourage you to start planning for a self-imposed or government-imposed temporary cessation. Please contact us at [email protected].
We would be delighted to offer our assistance and tailor a tailor-made action and implementation plan for optimal closure and future reopening.
The references:[i] Johnson, K. (March 13, 2020). Disneyland Resort is donating excess food during temporary closure. [Blog post]. Extract of : https://disneyparks.disney.go.com/blog/2020/03/disneyland-resort-donating-excess-food-during-temporary-closure/ [ii] Wakerley, S., Neighbor, T. (2020, March). COVID-19 – Business interruption and event cancellation. Extract of : https://www.hfw.com/COVID-19-Business-Interruption-and-Event-Cancellation-Mar-20 [iii] Hughes, R. (2020, March 25). COVID-19 VAT measures introduced by EU tax authorities. Extract of : https://www.accordancevat.com/eu/covid-19-vat-measures/ [iv] European Center for Disease Prevention and Control. (2020, February 18). Interim guidelines for environmental cleaning in non-health facilities exposed to SARS-CoV-2. Extract of : https://www.ecdc.europa.eu/sites/default/files/documents/coronavirus-SARS-CoV-2-guidance-environmental-cleaning-non-healthcare-facilities.pdf [v] Sandmeyer, A. (2020, March 24). Beekeeper, Whispr offers hotels a FREE “cleaning to-do list” application to fight Covid-19. Extract of : https://www.hospitalitynet.org/news/4097737.html [vi] Alice platform. (nd). COVID-19 recovery checklist software. Extract of : https://www.aliceplatform.com/checklists [vii] Wyndham Hotels and Resorts. (2020). Checklist for temporary hotel closure.