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Future Strategies: Lessons From The Hotel Industry

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The Conversation is an independent source of news and analysis from the academic and research community that works with experts to translate their expertise for the benefit of the wider community. They recently took an inside look at how we can learn from the huge blows the hotel industry has endured, to prepare for future crises.

Arnold Japutra and Ringkar Situmorang discuss that the global pandemic – with quarantine periods, closing borders, and travel limitations – led hospitality and tourism businesses suffering tremendous losses. During the early months of the pandemic, Indonesia’s hotel occupancy rate fell to only 19.7% in March 2020, compared with 52.3% in the same month last year.

Their research explores various challenges hotel managers faced and how they responded to them.

To anticipate problems due to rising infections, Japutra and Situmorang suggest hotel managers take deliberate actions to protect visitors and employees. Given the multi-stakeholder nature of the industry, hotels need to engage with the government and industry associations in formulating policy in times of crisis. They must also align with labour unions to provide safety nets for their terminated workers.

Repercussions And Challenges In The Industry

In March 2020, Japutra and Situmorang conducted semi-structured interviews with hotel managers in three prominent tourist places in Indonesia: Jakarta, Bandung and Bali – to map their challenges and the strategies they devised.

They found that hotels mulled between halting operations or permanently shutting down the hotels. Layoffs impacted all job levels, from the senior management level (50-75% of positions were cut) to the lowest positions such as admin staff (50% of positions were cut).

Another issue was the discord between the corporate offices, regional offices, and property management to open or close the property in the following year. Payments to vendors and suppliers were hampered, raising concerns about future relations between hotels and goods suppliers.

The implemented strategies were a quick adjustment to face the pandemic. But it was harmful to the economy and the sector in the long run. Massive layoffs increased unemployment rates and dragged down economic growth, affecting businesses’ ability to recover.

Current implemented strategies to mitigate the crisis

 Hotels implemented several strategies to mitigate the crisis. First, the hotels’ management limited infection spread in their properties. The interactions between hotel employees and guests are pivotal to meeting guests’ needs during their stay. However, the pandemic disrupted such interactions. Thus, managers enforced safety measures to improve health and safety, including by doing compulsory testing on employees.

While understandable, this could create anxiety for hotel guests and employees. For example, the decision to track guests’ trip history could be intrusive to guests’ privacy and change their perception of how the hotel protects their anonymity and confidentiality. Compulsory tests could backfire because it could result in distrust among employees, who could start accusing and blaming other employees, thus creating a poor work environment.

Thus, hotels must examine further how one policy can affect other issues.

Second, most participants believed they had to compromise their offering to generate income. Several hotels produced new product packages – such as discounted prices – to raise occupancy and revenues. Managers also compromised the services offered, like reducing room cleaning to once every three days and offering frozen food, allowing them to provide lower prices. They also offered rooms for medics and quarantining infected patients.

Compromising services, such as providing frozen food often deemed cheap and unhealthy, might tarnish the hotel’s reputation. Offering the property as a quarantine hotel also could be a double-edged sword. It might help the hotel build its brand reputation and image. At the same time, it can dilute brand equity. There might be a negative perception that the hotel is unsafe because it might carry the virus.

Hence, while applying this strategy, hotel management must calculate whether the benefits surpass the costs.

Third, all participants revealed that hotels had to reduce their labour. They had to furlough employees to balance their financial situation. Another alternative was to provide employees with the option of unpaid and paid leave. Many managers pursued a temporary salary reduction to save jobs.

The decision to lay off employees to minimise labour costs might be crucial in facing a crisis. However, such a decision could lead to dysfunctional management. Laying off employees may also increase the unemployment rate and disrupt the economy, affecting hotels. Hotels, labour unions and the government should therefore work together to find the best solution.

What hotel managers can do to improve these strategies?

 Japutra and Situmorang’s study reveals that the repercussions and challenges provide a complex situation for hospitality businesses. This is because the tourism and hospitality industry cannot be separated from other issues (sociocultural, economic and political).

For example, neglecting health issues to pursue a financial objective would increase the risk of returning to a zero-sum game – both the hotel staff and guests are exposed to health risks, and the businesses might have to face forced shutdowns. Managers should deliberate their responses and strategies cautiously because they can be beneficial and detrimental.

The hospitality industry should work with its stakeholders to find the best solution. It is important to ensure strong coordination between businesses, branch organisations (e.g., associations), and governments. Businesses and branch organisations should also be involved in developing regulations and policies.

During the early months of the pandemic, there were only minimum interactions between stakeholders, considering how uninformed everyone about the virus at that time. As such, hotels could only rely their strategy based on those of their parent companies or other hotels abroad. This situation has improved overtime and the government has started to involve businesses in policy making.

It is also essential to effectively manage supply chain issues – such as food provision and complimentary hotel items – given they were heavily affected by closed borders. For example, managers can phase out “just-in-time” method (buying materials before they are needed) but instead shopping only when necessary, encourage domestic and substitution sources for strategic goods, and accelerate the digitisation of the supply chain. Also, all stakeholders in the supply chain need to develop new agreements to help increase the sustainability of their business, like redesigning their payment structures.

How can the government improve its response?

The government reacted to the pandemic by issuing a Kartu Pra-Kerja (pre-work card) incentive program for furlough employees. This incentive consists of online upskill training and financial benefits. However, most furlough employees hesitated to register because of the complicated process. The incentives were difficult to access because of limited internet infrastructure, low technological understanding, and messy public data.

There is usually a gap between establishing and executing regulations and policies in developing countries. This condition is particularly so in a complex country such as Indonesia, with 34-provincial governments. The central government and local governments should work together to monitor the execution of these regulations and policies.

While the pandemic is seemingly under control, the recent spike in infection cases indicates that businesses should still be wary of potential crises. It is never too late to look back and learn from the past to anticipate what is yet to come.

 

Source: The Conversation

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