Robert Williams and Lada Shelkovnikova, partners at Withersworldwide, assess the impact of the Covid-19 outbreak on operators and the hospitality industry as a whole, and the measures employers and hoteliers ought take to manage the health risks and concerns of travellers.
The tourism and business travel sector feel the pain quickly whenever there is a constraint on international or local movement. As Covid-19 spreads, global travel is deeply affected. In many markets, passenger flows and property occupancies have weakened as travellers, businesses and governments make hard, though, predictable choices.
For the travel sector in Hong Kong (2019 protests) and Australia (bushfires) in particular, this comes at an already challenging time. It is likely some businesses will face cashflow difficulties.
What are we seeing?
Businesses in the hotels and resorts accommodation sector are focusing on Covid-19 at many levels as they work through the short- and longer-term implications of this epidemic.
As an employer…
Workplace legislation in most jurisdictions imposes a duty to look after the health, safety and welfare of employees as far as reasonably practicable, and we are seeing that as a key focus. Some concerns are less obvious at first glance, such as discrimination against perceived Chinese nationals and data protection issues around health declarations from clients and employees.
Employers may want to consider:
- Staying abreast of current status and recommendations from local and international health organisations, and ensuring relevant internal communications are made regularly.
- Educating staff to spot symptoms in themselves and other staff as well as incoming guests. Some operators may obtain medical advice to support the education efforts, including making the use of wipes, masks and other materials available and/or mandatory.
- Restricting travel. Many businesses, including our own, have put the brakes on non-essential travel within Asia, and in some cases, more broadly. We hope that business travel will rebound strongly and swiftly once positive data emerges and confidence increases.
- Checking health, long term disability and life insurance policies and any limitations in those policies. Do they cover epidemics? Is there a limit on the number of staff who can draw down benefits at any one time?
- Implementing enhanced hygiene and property cleaning programmes.
- Providing a safe workplace free from discrimination and harassment at a time of heightened tensions. The origins of Covid-19 are centred in Wuhan, China, and many assume that persons from mainland China or who have been in contact with Chinese nationals are more likely to be carriers of the disease. Spiked fears may cause many to overlook the fact that recent travel history should take precedence over the actual or perceived nationality of the individuals. Employers should be mindful to ensure that nobody is unduly discriminated against or harassed on grounds of nationality.
- Asking appropriate staff to work from home. This may not be an option for on-property roles, such as housekeepers, chefs or waiters, though some businesses still need to consider managing their staffing complement if the downturn is prolonged.
When looking after guests, hotel operators may want to consider:
- Accepting government-related quarantine business. Some hotels have been asked to accommodate at-risk travellers in isolation. Corporate accounts, FIT guests and hotel staff are likely to have strong views on potentially sharing any perceived risks.
- Issuing declaration forms to staying guests and transient visitors, and seeking health and travel history information, to assist tracing at-risk individuals where a suspected or positive case arises in connection to the hotel. Care needs to be taken to only seek information that is permitted under applicable data protection laws, and dissemination and destruction of such information must be conducted in accordance with those controls. Medical information is particularly sensitive, and hotels must handle such data with care.
- Ensure crisis management protocols and infrastructure are available to support on-property teams with the consequences of a suspected or positive case in accordance with relevant local protocols and/or best practice.
- Given this is unlikely to be the last such epidemic, develop a workable crisis plan that feasibly gathers and assesses information, balances risks, and introduces measures to protect as far as possible one’s business, staff and clients.
For owners and operators…
Currently, no market or geography looks immune to Covid-19. The scale of negative impact for some will be significant and long-lasting, especially considering that China has become a key tourism source market for many destinations. Owners and operators must keep in mind some key considerations in the running of their business:
A. Coronavirus outbreak as performance test releasing event?
It comes as no surprise that epidemics cause owners and third-party operators to reach for their hotel management contracts and check the force majeure events that release operators from any performance test or hurdles. We expect many hotels in Asia and beyond will have their performance test for the 2019/2020 financial year knocked out by Covid-19, especially where they have a single-limb GOP test (actual vs budgeted).
B. Budget deviations to prevent emergency
Hotel owners should expect shortfalls against budgeted performance as the spread of the outbreak impacts travel and bookings. Departures from approved budgets caused by emergency situations are permitted under most hotel management contracts.
In addition to the increase in expenditures to manage the emergency situation, cashflow and the GOP margins will be affected with revenues dropping as hotels witness travel bans, cancellation of stays, MICE events and weddings. Cashflow challenges at some properties will cause operators to make working capital calls on owners, particularly as most operators are issuing refunds for advance bookings and events.
C. Plugging the gap
Operators and asset managers are being asked to assess the likely impact of Chinese inbound business being withdrawn for 1Q and 2Q2020. In a number of markets, last year’s guest data shows that it will have a material impact on revenues, and the lower occupancy is expected to limit rate growth. Operators will look to adjust their marketing strategies to target domestic and other source markets to mitigate the loss from Chinese inbound business.
Government tourism marketing agencies have a strong role to play in mitigating the impact of Covid-19, as does the international effort to contain its transmission and spread.
The sector is in for a challenging period ahead. Owners and operators must remain vigilant as the Covid-19 situation continues to evolve and mitigate any potential risks, whether in health, safety or operations.