Seán Worker of T5 Strategies puts the coronavirus pandemic in a business context and looks at ways that companies in the hospitality sector can adapt and survive.
The world is taking another hit of a magnitude yet to be revealed. Sadly, we are feeling the human and financial toll of a pandemic. This piece is a commentary offering business context on the situation and how to extract energy to power forward.
This can be a time of reinvention, not just a reboot of business as we know it. Are you preparing to reinvent rather than simply survive?
This is not the first time that global economies have been tested. The 1972/3 oil and political turmoil, 1987 Black Monday, 2000 dotcom bust, 9/11 terrorist attacks, the Icelandic volcano 2010 [planes grounded for three to four weeks], and the 2008-2009 financial meltdown are all examples of trying global economic events. What separates Covid-19 from the others is how rapidly it has scaled and grabbed our attention impacting our daily lives and threatening our livelihoods. The new variable – this is a global pandemic and is affecting all levels of business and society including the restriction of personal movement and the closing of borders, unprecedented in modern times. How flat the earth has become.
What has changed in the financial landscape that makes this latest crisis of even greater concern in comparison to some of the others? According to Ruchir Sharma, chief global strategies at Morgan Stanley: “In key ways the world is now as or more deeply in debt as it was when the last big crisis [2008] hit. But the largest and riskiest pools of debt have shifted — from households and banks in the United States, which were restrained by regulators after the crisis, to corporations all over the world.”
Why is this is important? First, this risk is not as discoverable as much of the debt is buried inside private companies rather than publicly traded companies. Second, many companies such as UBER, OYO and WeWork are becoming protagonists in the “The Growth Story”- so potentially overleveraged as they tend to report success based on “Revenue Run Rate” or Gross Transaction Value “GTV” – suggesting that grabbing market share over a pathway to profit is preferred.
The Zombie companies have poor cashflow and high debt leverage – therefore a marginal drop in revenue – cash – equals little or no ability to support the debt and supplier payments. You have met these folks at the bar! So, lets address the horror. Many companies will likely consolidate or fail and unemployment levels will rise. Governments and central banks are bracing for these events, as witnessed by the stimulus packages being rushed through their political systems.
So here we are, and yes, my friends, our travel ecosystem has skidded from 120 KMPH to a full stop in three seconds. Most of the indices have reached Bear territory down around 30 per cent and oil prices have plummeted. Travel and hospitality are tanking. Hilton’s CEO, Chris Nassetta, was quoted after the recent White House meeting that there are hotels running in the nine to 11 per cent occupancy range and later Delta Airlines announced that were cutting capacity by 70 per cent with other airlines reporting similar capacity hits. The International Air Transport Association (IATA) predicted the COVID-19 outbreak could cost airlines $113 billion in lost revenue. In the UK, travel industry experts have expressed concerns about Chinese tourists being kept at home. There were 415,000 visits from China to the UK in the 12 months to September 2019, according to VisitBritain. Chinese travellers also spend three times more on a visit to the UK the the average, at £1,680 each, a value of £700 million, now for all practical purposes, gone!
Fear itself is a virus, fight the infection!
Fear and anxiety are grabbing the headlines now; we are in a state of fear! Business owners small and large are asking themselves: “How will my business survive?” Valued employees, displaced, cashflow constraints, demand collapse, uncertain supply impacts, countries shutting borders, debt payments, lease payments and payroll all due…overwhelming right? Maybe.
In the words of Winston Churchill: “Do not let us speak of darker days; let us speak of sterner days, these are not dark days, these are great days.”
T5 TIPS:
1. Be a Leader – Be transparent and authentic. Trust is the currency to find the “Sterner” days. Involve your teams, landlords, bankers, franchisees, family, customers and suppliers in your truth. Now is not the time to hide behind the “mask”. This is reciprocal. Plan for the worst and the best may well be close by.
2. Be empathetic – everyone we know is worried about something, losing a loved one, losing a job, juggling having the kids at home, school closings, making the mortgage, saving your business. Listen and help where you can, be a connector.
3. Build the near future –
• Business continuity plan (BCP) = survival and REINVENTION. If you have BCP, execute and iterate. If you do not have one, build it fast and engage a professional to help deliver it. Be humble. Ask for help. This is the first step to survival and REINVENTION- Even amid crisis make the time to envision your future. Without that vision you’ll simply Reboot rather than REINVENT.
• Cash is everything – develop a 13-week cash flow forecast – budgets are extinct for the foreseeable future, update daily if necessary, but minimally, weekly. Get a professional financial analyst to help if needed.
• Make cash elastic – How?
• Employers (a) – Tell the business truth and ask for ideas to gain unity within your community. Communicate frequently and often.
• Employers (b) – Address staff levels immediately. Downsize fast but do everything you can to identify and protect the team members that are the heart and soul of your business. They must want to be in your company when it “REINVENTS” – this CRISIS will end, and you need your best people to “REINVENT.” How can you keep them engaged and paid? You might be surprised that even if their Salary is less due to the cash restraints of the company, that they stay at your side. The rules are likely to be rewritten, remember them when your business thrives once more, pay it back!
• Suppliers – stay connected. Apply the principals under point two, your BEST Suppliers are equally important as your BEST employees.
• Customers – The market has shrunk, fast, but you are still trading. Get even closer to your customers as they need your help to find solutions and they will remember your proactive engagement. The business rules arising from this crisis will be dramatically different and the strongest will survive. Treat your customers as you do your employees and suppliers.
• Banks – renegotiate terms now – get to the head of the line. Deliver a comprehensive and truthful view of your business. Keep in mind that ALL rational Central Banks and Governments are passing legislation to fund this problem, secure your restructured funding package including small business loans
• Landlords – renegotiate leases now with your landlord. Empty buildings do not cover overhead, sensible landlords get it.
• Barter: So, what! If you have hotel rooms, hostel beds, coworking desks, coliving spaces, serviced apartments, restaurant seats empty…BARTER. Check out www.barterco.com,www.better-barter.com and others like www.imsbarter.com
• Demand – Find demand wherever it is. Get cash in the door, sell your way through this and hustle. A word of caution; according to STR and others, typically dropping price alone does not drive demand. Value does. Get creative and deliver a REINVENTED and energised experience to your customers. As an example, The Butler House restaurant in Spring (Houston TX, USA) took over the parking area next to its restaurant and popped up a drive-in movie theatre. Social distance, entertainment, community goodwill, and food delivered to your car. Customers are experiencing their own pain and have little or no appetite to listen to yours, be part of their REINVENTION and they will remember that your Business was part of their survival. Crisis is a builder of community and trust.
Now looking forward, because there is always a future and the future is reshaped by the survivors and thrivers. Elon Musk, a reshaper of our time said: “If you get up in the morning and think the future is going to be better, it is a bright day. Otherwise, it’s not.”
My colleague Bob Hecht, a former senior partner with Alix Partners and a specialist in crisis management, has noted: “Out of crisis comes opportunity. Dressing today’s issues in yesterday’s solution does not present a fashion statement.” Remember REINVENT not REBOOT.
T5 Reinvention tactics:
1. Companies are hiring: Amazon is hiring more than 100,000 employees – they may have to relocate for short periods of time. Accommodation brands – who’s made the call?
2. Working from home – not everyone is cut out for this – coworking. what are you doing to offer hot desks in your social experiences once the quarantines have lifted? Hoteliers, could hotel rooms be a home away from home office spaces and conform to social distancing” requirements? Even Starbucks might like this idea.
3. Covid-19 – According to the World Health Organization COVID-19 has yet to reach peak in the Western world. Would hotels, Airbnb and vacation rentals make capacity available for patient overflow? Who from the travel tech world is agile enough to adapt a CRM to connect this product type to WHO and local Governments or health systems? Will Health systems and governments buy hotels/lease or the equivalent due to this new reality?
4. Trust and safety. Travellers must trust that when travel starts again, and it will, that the properties have been sanitised and certified? Who will manage this massive task and how? Who will trust mattresses and other surfaces despite the medical evidence that COVID-19 appears not to thrive in a luxury mattress! Is your company even thinking about how to re-establish trust? What’s the plan to invite locals and travellers to visit your property versus your competitors? Are open houses, trust parties and community get togethers on the table? Will you be the first to help reignite your neighbourhood when self-quarantine ends? It will end btw. What marketing gurus are developing award winning campaigns now?
5. Renovation time – money will be cheap. SBA and other loans will be available. I appreciate that it is hard to even contemplate this right now, however, will your firm take advantage of the empty capacity and renovate – REINVENT. When demand comes back your business will be that trending, safe and trusted experience.
Fear and panic have gripped every country everywhere. We find ourselves entering a new phase where collaboration and TRUST needs to be established and REINVENTED. Confidence, much like reputation, has been destroyed in less than four weeks, essentially overnight. Covid-19 is very real, and fear is an equal, if not worse, partner of destruction. As Franklin D. Roosevelt taught us: “The only thing to fear is fear itself.” Let us not speak loudly of the darker days; let us speak of sterner days, these are not dark days, these are great days that lie ahead. REINVENT and bypass the REBOOT.
**Stay connected for regular updates over the next few months. Please send me what you are doing to REINVENT with a few comments and images @ sean@t5strategies.com
