Forecasting for success in the hospitality industry against a backdrop of uncertainty has been saved
Forecasting for success in the hospitality industry against a backdrop of uncertainty
COVID-19 has brought about an unprecedented level of uncertainty in the hospitality industry globally. Short and longer term trading performance have become near impossible to predict, given constantly changing government restrictions, in response to a virus whose behaviour is still being understood.
Deloitte’s European Hospitality Sentiment Survey showed that 90% of respondents expect disruption to continue until mid-2021, with 51% of respondents expecting recovery to 2019 levels to happen only by 2023 at the earliest. Additionally, we are seeing a shift in consumer behaviours over the span of the pandemic, accelerating the importance of responding to certain trends such as an increase in digital adoption and a change in mobility patterns1 which may lead to a prolonged impact to business travel.
Forecasting is more important than ever before
Getting forecasting right assists with financial and operational decision-making and can mean leveraging a slim window of opportunity or missing out entirely. CFOs continue to focus on defensive strategies at the start of 2021, with 49% and 46% of CFOs rating ‘increasing cash flow’ and ‘reducing costs’ as strong priorities. With the roll-out of vaccines, hoteliers must grasp the window of opportunity that leverages the pent-up travel demand when and where possible. Accurate and timely forecasting can help:
- Identify levers that are within control: Revenue management will be one of the key levers that hoteliers have at their disposal to stimulate demand and drive recovery over the next 12 months. Forecasting will enable the application of dynamic pricing and identification of cash flow required to survive and investments needed for competitive advantage.
- Identify operational improvements: Further disruption from the pandemic expected, therefore building resilience into processes (technology, supply chain or work force) will be crucial in weathering potential storms. Forecasting can support rethinking current cost models and provide a platform to explore improvements.
- Identify strategic moves for the future: Hotels must adapt to changing preferences. Serviced apartments and open air hospitality venues have shown more resilience during the pandemic, with over half the operators surveyed reporting that at least 75% of their portfolio remained opened during the lockdown period2. Hence, thriving in a post COVID-19 world will require a shift of focus and an ability to pivot operations, whether that is in the form of exploring a new hospitality product or considering a new operating model. Forecasting can provide a baseline to map out new strategies.
Factors to consider
There are several considerations to make when forecasting your future performance and it is crucial to take the time to consider each of the relevant areas that may impact hotel performance. Below are a few examples of factors to consider:
- Domestic vs international demand: Domestic drive-to locations and staycations have performed much better than hotels reliant on international travel over the past year. With constantly changing rules between borders and travel corridors, tourists are less inclined to risk travelling to a region and not being able to return back to their home country. Additionally, mandatory quarantine when arriving in certain countries prevents visitors from having a proper holiday experience. Visit Britain expect that in 2021 £9.0 billion to be spent by inbound tourists and £18.0 billion in domestic overnight tourism spending3.
- Country/Region: Recovery speeds for different countries will vary; with the continued closure of international borders and consumers’ fear of flying, regions that are more reliant on domestic travel e.g. North America, are likely to fare better than others. From an international travel standpoint, hospitality executives in Asia-Pacific are more optimistic of a recovery in 2021, partly due to China and Singapore’s quick response to COVID-19 while both Latin America and Europe were slower to act. Additionally, the faster rollout of vaccinations in the UAE and Bahrain indicate that demand could return sooner.
- Hotel type and Micro location (i.e. central/resort): Open-air hospitality venues (e.g. ski-lodges, beach resorts) will be more resilient over the coming year because they can comfortably provide a spacious guest experience compared to hotels located in city centres and urban areas. The future travel trends point towards adventure and authenticity and COVID-19 has sped up demand for ‘experience holidays’ that are in remote locations and closer to nature. A study in the US showed a shift in preferences away from Urban location post COVID (36% vs 15%) while resorts have increased from 43% to 51%4.
- Rooms vs Food & Beverage (F&B) focused: While urban based hotels may struggle in retaining demand in the short term, there is potential solace through their F&B offerings which can benefit from the local population. Despite the obvious dip related of COVID-19, search traffic for local restaurants and food offerings have increased over a five year period. Hotels have taken advantage of this by diversifying their offerings through take-out, home delivery and home dinner kits. Hence hotels with a larger F&B presence are expected to perform better over the next 12 months.
- Tourist/Meetings, Incentives, Conferences and Events (MICE) based: Hotels that have historically been ‘business-focused’ due to their proximity to major institutions and conference centres will continue to struggle over the short term. The rise of virtual meetings has resulted in some questioning the frequency of both face to face meetings and business travel while hybrid events involving in person and virtual attendees will be a fixture in 2021. Corporate travel is forecast to reduce in number of trips and extend in terms of length of stay. Based on a recent survey by SKIFT, 44% of consumers would be willing to travel for a leisure trip over the next 6-12 months, compared to only 25% willing to make business trips5. While the Cornell centre for hospitality research conducted a survey in September 2020 and found that there was a significant reduction in preference of in-person meetings for distant business events in the next 3-12 months falling from 93% to 26%4. Additionally, there is now a lot of evidence that employees can work remotely and remain productive. Hence, we expect to see more ‘smart travel’ in the future, where travel will be more carefully managed by organisations6. Therefore a rising consciousness of sustainability and reducing carbon emissions may result in a longer lasting impact for these hotels.
Navigating a business during these turbulent times can be very challenging especially when several factors are out of your control. The hospitality industry will continue to face challenges and those who consider the above trends and adapt their mind-set will be able to come out of the crisis with a competitive edge. Conversely, hoteliers who wait and do not leverage opportunities will find themselves in a difficult position when the industry recovers.
Deloitte has helped clients navigate an uncertain landscape over the last 12 months, obtaining valuable insights and, alongside our dedicated data analytics & modelling team, providing data driven results. Through our experience of previous black swan events, specialised industry knowledge and utilising our complex modelling and machine learning capabilities, we can narrow the gap between uncertain estimations and achievable solutions. Only once a clear pathway to recovery is identified can we shift our focus onto value creation, using our suite of proven techniques to preserve the value of your company, improve working capital and identify and implement a pathway for recovery. For other insights and more information about our services, visit out Transportation, Hospitality & Services website.