How has the COVID-19 crisis impacted hospitality service providers? How do you run a business when your clients have no money? Discover some answers in this expert panel discussion, which was part of our special series Leading Hospitality Through Turbulent Times. Report by Stuart Pallister.
Cautious optimism. That was the verdict of both panelists in this session on how hoteliers are coming to terms with the impact of the COVID-19 outbreak. Max Starkov, who founded HEBS Digital (subsequently rebranded as NextGuest), said that some 39% of hospitality employees who were working in the industry in North America before the crisis, have returned to work at the time of this discussion (10 June).
In addition, hotel occupancy rates were back to around 40%, while some half a million passengers a day were taking flights again. Although that is significantly lower than the 1.2 million passengers who used to fly each day in North America, “all of these are positive signs that, on the one hand, the economy is rebounding. On the other hand, travel is also rebounding, which is helping our hotels”. In New York City, many hotels are re-opening cautiously, Max noted.
“It was grim. Even a month ago, it was bad,” said Dr Kelly McGuire, who switched jobs “in the midst of the pandemic” to join consultancy ZS as Managing Principal of Hospitality. “We’re seeing some green shoots and there’s cautious optimism. But I think everybody recognizes it’s definitely a long road ahead.”
Hotels are beginning to open up in a phased approach, she said, adding that the process was speeding up which was a good sign. “But the reality is we’ve got some scary signs, too.”
Hoteliers are concerned about the possibility of a second wave, she said, which would be “devastating” as people would get “even more scared to be back out traveling again. So there’s reason to be optimistic, but we do have a long road ahead. That’s just reality. And we’ll get through it. But it’s not over by any means”.
As to how the crisis had impacted vendors and providers linked to the hospitality sector, Kelly, who was previously senior vice president of revenue management for MGM Resorts in Las Vegas and a vice president at Wyndham Worldwide, said there had been “ripple effects” following the halt to travel, with revenue management and analytics application providers experiencing some belt tightening.
She added, “What was really interesting about this was that some was driven by necessity and some by opportunity, as a lot of these revenue management providers doubled down on R&D. To a certain extent they had to because the whole world had changed; and algorithms needed to adapt to the new normal.”
In effect, there had been “a lot of scrambling around”, Kelly said, to make sure that systems remained relevant. “I think we’re going to see some innovation coming out of this, despite the negative impacts of the belt tightening on the side of the service providers.”
On the technology side, Max said that before the crisis, “most hoteliers still believed that we, in hospitality, were in the real estate business”. However, over the past 10-15 years, hotel guests had become “exceptionally tech and digitally savvy” and nowadays many have better digital amenities, Wi-Fi, and so on at home. “This huge discrepancy went unnoticed in our industry,” he noted.
“It’s time for us to understand that hospitality is a technology-empowered service industry. We’re not a real estate industry and if we don’t change that mentality, we will lose a lot of precious customers to Airbnb and other forms of accommodation that are emerging right now.
“I believe this crisis will accelerate technology adoption at hotels, whether we like it or not,” Max said. “We are a technology-driven service industry. End of story.”
He went on to say that “COVID has changed the whole direction of the industry”. Branded hotels which, pre-crisis, had counted on loyalty members to make up 60% of their repeat business, had been generating the other 40% through direct channels and online travel agencies on a three-to-one or four-to-one basis in favor of the OTAs.
For the independents, only about 10-15% of their guests came from repeat business. Each day, this means that hoteliers at independent properties have to go out and find the other 85-90% of guests. “If I were a general manager of an independent hotel,” Max said, “I wouldn’t want to get out of bed in the morning under that scenario.”
Consequently, independent hotels had become dependent on OTAs for 80-85% of bookings, versus only about 10-15% from direct channels. So a ratio of about five to one.
“Those were the pre-COVID big, hot topics. How do we increase repeat business and how do we lessen the dependence on the OTAs? And, unfortunately, many of the independent hotels have simply given up.”
Now, with the crisis severely impacting hospitality and other sectors of the economy, “the new hot topic is ‘don’t discount your rates’; because discounted rates don’t generate travel demand”. However, Max added, “everybody is discounting rates like crazy”.
An opportunity to pull revenue management out of a ‘rut’?
For Kelly McGuire, who describes herself as an ‘analytics evangelist’, there had been some pre-crisis interest in artificial intelligence and machine learning; but she had felt the “revenue management function in hotels was in a bit of a rut. We’d been talking about total hotel revenue management for 20 years and not doing anything about it”.
She added, “This actually could be revenue management’s finest hour because we have exactly the shake-up that we needed. We need to be agile and adapt. So it’s not just about raising and lowering rates at the weekend but understanding the demand picture, setting up a strategy to address it, and then being agile enough to adapt the strategy.
“If we do this right, this could be the thing that pulls revenue management out of that rut and sets us on the path to do everything we’ve been giving lip service to for the last couple of decades and not really taking a lot of action on.”
The hotel industry is realizing it will have to do more with less and in order to optimize resources, she said, automation will be a real burning need as opposed to a ‘nice to have’.
“We’ll see the industry embrace this after the shake-up and really move forward in a positive way which is exciting. It’s almost a morphing of the conversations I was having pre-COVID; and almost an acceleration. By necessity, companies are going to be driven towards technology-enabled automation of routine tasks,” Kelly said, so that “hoteliers can focus on more complex, more strategic decision-making”.
Given the likelihood of deep staffing cuts and as organization structures change, “I think we’re going to see more supporting technology in the back office now out of necessity. It’s going to make a lot of jobs that were really just data manipulators into real strategists with business acumen, who are really positively impacting the business”.
“So we’re on the precipice of what could be something really great if folks have the courage to take that leap of faith.”
Automation: a cautionary tale
Although AI and machine learning are expected to become increasingly important for business leaders, Kelly said, they have to understand that algorithms are programmed to find the best answer. “We believe they think like people, but they really don’t.”
She then went on to highlight “a great and scary example” of people using the Waze application to navigate out of California wildfires. “But Waze was not programmed to understand fire as a hazard and so the algorithms were sending people directly into the path of the fire, because that was the path that was free of traffic, obviously.”
Here’s an unintended consequence of the AI that a human would recognize and would need to teach the algorithm. We have to keep an eye on these algorithms because there will be unintended consequences if you’re expecting them to replace human judgement, knowledge, and intuition completely.
“When it’s very routine with some human judgement imposed in the development of the algorithms, they can be extremely useful in executing some of those repetitive tasks. But you’ve got to be careful because those unintended consequences are not that unusual. And we’ll see more of them, which will be really fun unless it happens to you.”
Google and consolidation in hospitality
Max sees Google becoming even more dominant in the industry post-crisis. Digital marketing had already seen consolidation and that is likely to continue, along with consolidation in customer relationship management providers, as well as website design and development providers, as an effect of the crisis.
He added that Google “basically ate the lunch” of Kayak, Trivago, and TripAdvisor. “So Google now dominates not only reviews, its market share of metasearch is equal to all the other players combined and Google has integrated all of this into the Google ecosystem, where every interaction with Google – your Gmail, watching a video on YouTube – is analyzed for travel intent and is then used in Google Ads.”
This is one of the things that will definitely accelerate post-crisis. On the other hand, outside of Google, there’s very little left, unfortunately. Consolidation has already taken place in digital and Google has won the war.”
Max went on to say that, with regard to ‘next generation’ technology, “whether we like it or not, we’ll be replacing humans in repetitive and dangerous jobs that do not require a lot of imagination and creativity”.
Before the crisis, around one million hospitality jobs in the US could not be filled – positions such as housekeeping, cooks, and front desk staff at hotels – as “there were no takers. Simply there were not enough human bodies to take these positions”.
After the crisis, he said, hoteliers “will need to lower their costs. And since labor accounts for 35-40% of hotel operational costs, labor will be one of the first to be cut” as employees are replaced by robots in terms of housekeeping, cleaning rooms, and even using robots as bartenders.
Max concluded, “A robot bartender does the work of four bartenders, four times faster and more precisely. There’s no spillage of precious alcohol. So, in such professions, we’ll see more automation and more robots doing jobs. And they’ll do a much better job than us humans.”
And, finally, some careers advice
Kelly McGuire: “I know we’ve painted a grim picture of the need for people in hospitality. However, we will always need people who are comfortable in the ‘new normal’; who understand, at a deep and intimate level, how all the technology applications that we’ve spoken about, connect to this core characteristic of our industry, which is to deliver service. People will always want that human connection at the service level, so don’t be discouraged.”
Max Starkov: “Always focus on the technology behind whatever path in hospitality you choose – whether it’s revenue management or digital marketing. Learn the technology behind it, as this will open more doors to you. Be technology savvy: you don’t need to be a coder or a software engineer, you have to become a technologist, somebody who understands technology and the use of technology for business purposes in everyday functions. Technology will open your career in hospitality in a way that you would never do otherwise.”