• Tina Haller, |

Keyfacts

  • Liquidity supply currently crucial for hotel industry

  • Not all business models will have a future after the crisis

  • The right strategy formulated today prepares for the time after the pandemic

The hotel industry is currently in a difficult situation. Hardly any other industry has been so comprehensively affected by the impact of the Covid-19 pandemic. Many hotel operators have already had to take advantage of government aid or rely on additional capital injections from their owners, while others have already ceased operations completely or are increasingly facing the risk of insolvency. 

What are the prospects for the industry and what can every operator do to ensure that their own company benefits?

The right strategy for your business

Covid-19 led to a slump in demand and turnover in the hotel industry not seen since the last world war. Liquidity became the core component of economic activity, limited by things such as high lease or rental payments, which represent fixed costs.

The state, banks, shareholders and business partners have been able to plug monetary gaps, but in many cases measures have arrived late or not at all. While there are hopes for an easing of Covid-19 measures and a subsequent increase in hotel bookings, the repayment calendar for 2021 is already full to bursting with tax, rent/lease and loan payments.

The focus is on the present, and yet hotel operators have to ask themselves what structural changes the crisis will leave behind in the long run - and whether their business model still fits the hotel market of tomorrow. Am I too heavily dependent on the MICE business? Will my own real estate investment offer me more security in the future? Am I perhaps operating hotels with long-term lease payments that are too high? 

Developing a strategy for this is crucial in order to define where your own company should be in the short term, and above all in the medium and long term.

Ensure transparency

Understanding one's own financial and - especially - liquidity situation and comparing it with future risks and opportunities is a prerequisite for making good decisions. And not just selectively, but on an ongoing basis. The unpredictability of the current crisis has shown that many hoteliers did not fully understand, or at least did not have in mind, the drivers and dynamics behind their revenues and costs.

Even from a position of strength, it is important for hotel operators to conduct scenario analyses and establish liquidity planning. This should show flexibility in the assumptions so that movements in turnover and costs can be mapped - including repayment plans - and financing gaps can ultimately be highlighted. This will not only increase your own planning security - even in a difficult market environment - but will also make you much better informed vis-à-vis property owners and financing partners. 

Create transparency so that you can derive measures for yourself and communicate them to third parties.

Engage in active stakeholder management

The Covid-19 crisis has shown the importance of communication and trust in relationships with stakeholders. Many short-term savings to improve liquidity require the understanding and cooperation of business partners - not forgetting your employees. To gain this and to act in the spirit of a long-term partnership, you need the trust of all stakeholders in your business model and how it will likely develop. This trust can be achieved by formulating transparent and resilient assumptions on which to base development planning.

Develop your strategy, create transparency about the ways to get there and convince your internal and external stakeholders of the resilience of your plans.

Focus on a clear capital structure and sufficient liquidity

You have identified your potential funding gaps and your short-term goal is to maintain liquidity. Even though many of your actions may have been triggered by the crisis mode, you should always keep in mind the opportunities for profound change. With this in mind, short-term cash measures, such as a sale-and-leaseback transaction or the collection of bridge capital, should be examined for their long-term nature or alternatives. The aspect of valuation or pricing mechanics is a key issue in these times, and a portfolio adjustment should always feed into your overall strategy. 

A savings analysis of the cost apparatus can reveal restructuring potential and, for example, can offer opportunities arising from the digitalisation of processes. As a rule, all plans and measures require investments in the first phase, i.e. usually additional capital. This can come from many sources, be it debt capital, the sale of a minority or majority stake to a third party or a joint venture with a strategic partner. All capital providers will assess the resilience of your business model, albeit with different focuses. In all cases, the capital should fit your strategy.

Strengthen your company by shedding ballast, optimising your structure and consolidating your performance potential with the right capital.

Think growth even in the crisis

Any hotel operator that maintains liquidity, engages in sustainable stakeholder management and secures capital with an aligned interest profile can use this strength to seize growth opportunities that emerge in the market. We are in a liquidity crisis that is putting many hotel operators under pressure and in some cases forcing them out of business. Obsolete business models or substandard properties can make a takeover attractive, and need not be an inevitable trigger for such setbacks. With management know-how and available investment capital, returning such operations to the market represents an interesting growth scenario.

We see a lot of capital in the market looking for partners with a sustainable growth perspective thanks to a resilient business model, transparent planning and strong stakeholder management. Take advantage of this opportunity - not least with your existing stakeholders in mind - to emerge from the crisis in good health.