• Anemona Knut

Interview of the month - Covid-19 and its impact on hospitality

Dr. Rachel Wang – senior lecturer in Finance, The Oxford School of Hospitality Management, Oxford Brookes Business School. Rachel is Senior Lecturer at Oxford School of Hospitality Management, Oxford Brookes Business School. Her research focuses on the financial management of organisations in the context of hospitality and tourism. She leads and teaches on a number of Undergraduate and Postgraduate modules and also supervises undergraduate and postgraduate students. Rachel is a member of Editorial Board for the Journal of Tourism and Hospitality and member of the Scientific committee of ICHIRE, EuroCHIRE, Global Conference on Hospitality, Tourism, Events and Leisure Management.

The Initiative: Dr. Wang, the current situation is a worry to us all. We worry about the future of our industry but we also worry about the state of the economy after the crisis passes. You have been observing the situation as it was developing. Were you worried about the impact of the virus already when it was spreading in China?

RW: Yes, it is correct, I was observing the whole thing, since the beginning. From the moment of the outbreak in Wuhan, in mid January. I was very moved to see the country going into lock down so quickly, and it wasn’t only the centre of the epidemic, but the whole country. I was then talking to my friends back in China, some of them from cities where only single cases were recorded, but still the whole urban areas were locked down. I was worried to see the measurement taken in China being so extreme and very strict. Natural for me seemed looking into the data, and this is when I saw the virus causing the huge 89% drop in hotel occupancy on the Chinese market. The situation in China has started to settle, most of the cities are back to normal life, the government is looking into reopening of schools and universities. However, looking at the data, the lifestyle is yet to reflect this. Businesses are picking back, but it is happening very slowly. The people’s confidence to go out, to travel is not there yet. I was trying to find out how long it would take for the market to recover from the pandemic, so I have reached back to the data from the SARS epidemic in 2003. SARS picked up very quickly, it has spread over the entire South East Asia – from China, through Hong Kong, Thailand through to Malaysia and Indonesia. SARS killed less than 800 people, so it is obviously less severe than Covid-19, however the curves might prove very similar. The virus emerged in November, the peak was in late February and in July WHO declared SARS outbreak contained. It took further 6 months for the hospitality market to go back to normal occupancy

TI: Some people were actually mentioning we could face the same economical crisis as severe as the one in 2008, or even one a bit more severe. Looking at the hotel industry, do you think we will be as affected, or more effected than 12 years ago?

RW: Looking back to the financial crisis of 2008 it took most of the countries two times of the downturn to get the full recovery. For US economy it took 2.5 years to go back to normal, for EU it took 3.5 years to go back to normal, but can we compare this critical event with current Covid-19? Why, I don’t really believe so. First of all, because what we are dealing with now is a virus, we have a clear enemy to fight, not a mechanism that needs to stop its run. So it is not an problem of economical nature that will have further implications, it is a health crisis that will cast a shade on economy. I don’t believe the virus could change the customers behaviours as much as the mortgage crisis did in USA. I believe once the virus is contained, people will go back to their normal lives for as much as they can. The business travel industry will wake up with all the big conferences, conventions and events going back into calendars. So it will pick up quicker than back in 2008.

TI: But as you mentioned, we have to expect the economy to slow down. We see how the small businesses in our sector are struggling now, how they fight for survival. Do you think the governmental support is going to be enough to save the small players?

RW: I can see the government is addressing the issue as they started recognising the importance of our industry, however the schemes are not ready and not all the issues have been addressed. I feel the small businesses will really struggle, and I don’t believe 3 months support is going to be enough. The business is not going to pick up in three months. Although the income will start after the lock down is lifted, however the initial movement is going to be slow. For the businesses to survive the help should continue for at least 6 months after the virus is contained, or even up to a year, but I doubt the government will be able to provide support for such a long time.

AK: What would be your personal advise for small business owners? What are the most important things they should do and what are the most important things they should always avoid doing?

TI: At this point, I really have to give a very personal advise, as this is after all a health crisis. I need to give this situation more of a life than just business perspective. I would say – stay positive, stay resilient and stay healthy – this is the most important thing nowadays. However, if I had to pick one advise for the small business owners, it would be cut your overheads for as much as it is possible. Preserve as much cash as you can at this point. You will need the money to re-open your business, to re-approach your guests and redesign your strategy.

AK: At the moment there are two different approaches in business – some of the business owners are transforming their services to a different sector – let’s say home deliveries, grocery stores, a lot of bakeries are turning into home baking schools. The others say – because we can essentially only break even, we actually prefer to close. So which option is better in your opinion, and if there is no clear answer – what are the pro’s and cones of each strategy?

TI: Although the first option seems very natural to those who never stay still and coherently disagree with the option of complete closure of the business, there are some issues with it. The new business models do not work for all the type of guests and not in all areas. The success of sudden change in operation relies too heavily on the instant change of customer behaviour. Chanigng a restaurant into take- away only might prove challenging, especially now, when the main enemy we are all facing – the virus, is a hygiene issue to a certain point, and not everyone will trust new place with the food. Too many questions remain unanswered – who cooks it, what are the hygiene standards – there is very limited trust nowadays. The data shows the peak of the outbreak is yet to come within the next few weeks, until then I would expect people’s trust to be limited. However, maybe after the virus outbreak curve starts falling, the businesses should start slowly getting ready to go back to normal with their operations. Deliveries might be the option then. Small steps into figuring out how fast will the business pick up. A small business owner might want to minimise the time of being closed, but also to try to avoid the worst outbreak of the virus, as this should be the time to take care of own family and staff too.

TI: Looking back into the data study of SARS, what were the behaviours during that epidemic. How long did it take for the customers behaviours come back to normal? Is it possible that this outbreak might change some customers behaviours permanently?

RW: In the mid March 2003 WHO announced SARS pandemic and on 5th July WHO announced the situation as controlled, it gives us the period of 4 months that had the most impact on business levels. Before the SARS outbreak, the average occupancy rate was 60-80%, and by the time the virus was contained, the occupancy went back to 40-45%. By September the occupancy was back to the numbers before SARS. The worst was the situation two months into the outbreak. In most of the affected cities, the hotel occupancy was down to single digits. I think, if we look close to SARS data and compare it to the latest Covid-19 data from China, the curves look very similar. Since January, the hotel occupancy in China has dropped by 89% and early March shows the lowest point. However now it has already started picking up a little bit. However, I’m afraid the impact of Covid-19 is much more severe than SARS, as Covid-19 is a global pandemic and it develops with different speed in different parts of the world. We can see similar curves between SARS and Covid-19 in case of Chinese market, as it is very specific. The domestic demand in China is very high, so as far as the country comes back to norma, the Chinese market will pick up too. But other markets, especially European and American are very much dependent on the international market situation. Therefore, the impact of Covid-19 will most definitely will be more severe. However, I was also comparing the Chinese market Covid-19 curve to the situation in Italy, and the uplifting observation is these two countries reactions seem similar too.

TI: How is the guest engagement affected by the whole situation?

RW: I was talking to STR, they are one of the biggest data providers for the hotel industry. I was actually on their webinar for the last couple of weeks and since the beginning of the year, they were running the survey on people’s intention to travel. Obviously since the beginning of the year, the meaning of this survey has completely changed. The intention was to research people’s will to travel over the next few months, but now this survey has changed into finding out the intention to travel after the Covid-19 situation. The good news is that the current data shows that 50% of people show the intention for travelling more than they previously planned (leisure trips), 20% say they will keep the plans the same, 30% say they might take fewer international travels. This is the data from the Chinese market. So you can see the Chinese are quite willing to travel internationally. This might be something positive. On the other hand, the isolation and the virus will not damage the relationships between the business and their guests. I actually can see the virus makes people more aware of the things so far taken for granted. For example flying – we were thinking we can just go to the airport and fly anytime, we can meet our friends anytime in the restaurants and cafés. The virus made us realise how important place these places and services take in our lives. So I am actually thinking, the customers could probably appreciate more the way the restaurateurs, hoteliers and this industry contributes to our usual lifestyle. There might be better engagement of the guests if the company maintains the communication with the guests throughout this difficult time.

TI: Throughout your studies of the data, what would you say was your best find yet, with regards to Covid-19?

RW: I won’t say there was anything striking and strange, however the whole situation made me rethink few things. The most interesting I guess is the realisation how important our industry is, and how it much it actually contributes to the global economy. A lot of times people think this industry is lower entry, and it is not very skilful. Then came the closure of the airports, the falling of the airlines, the restriction on different country boarders. This situation is new to all of us, and we should take this period to rethink what we have done in the past, and what we can do in the future. Should we be changing the business model – can we expand? Should we increase our online presence, maybe we should engage more with the customer virtually? How can we be more creative? Shall we look into using the available technology? This is the time to check it all out. When we are busy in our day to day operation there is not that much time for the side works, to look around and explore.

TI: You just said we are often regarded as a industry with low skilled workforce, so there goes my last question. Do you believe the current situation might impact the way our government perceives so called ‘low skilled’ workers and could perhaps revise their recently announced immigration policies?

RW: Because I’ve been teaching at the university for the past 5/6 years I can see clearly the numbers of students applying for hospitality studies are dropping, especially when it comes to EU market. And this is worrying. It is visible that the young people nowadays opt for different career paths such as technology, media, or this kind of new fancy jobs. I can certainly see there might be even worse employment situation in our industry after the Covid-19 is controlled, which will mean there will be a huge demand vs. supply of the labour. This problem will change the way how people in the industry will be paid. I don’t think it is only a political agenda, but more than anything – a social agenda. How much people can get? I expect the change will come but from the bottom, from the people. It will start with the financial status of our industry, this will then impact the social status and last it will reach the political agenda. Maybe the people’s recognition of the industry will help us realise how important we are maybe we will be able to encourage more kids to study the program, to offer to work in the industry. That’s what I am hoping is going to happen.

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