Speech given at the SKAL Club of Hong Kong by highly respected hotelier and mentor, Giovanni Angelini in November 2020.
Warm greetings and many thanks for inviting me to address this important group of top travel and tourism professionals, I am truly honoured to share my views with you.
Today I have been given the task to share with you my views and position on what the travel and tourism industry is facing, and recommendations on what needs to be done to recover from this nasty pandemic that has caused so much damage. This is not an easy task at all, but I will do my best to share my observations and suggestions.
Before getting into details, let’s try to look at this pandemic as a disruptor that brings important opportunities rather than mere losses and do remember that the present situation will not las forever, and that there is a future out there.
In principle, I don’t want to sound negative, but we must accept the reality of the challenges that the industry is facing.
None of us in this room has experienced a pandemic of this dimension. Sure, some of us had to deal with the severe SARS regional epidemic in 2003. But that lasted only three-and-a-half months, and business bounced back quickly. The H1N1 pandemic in 2009 also had limited impact on the Asian travel and tourism business.
With this pandemic, and with closed borders, we all face more questions than answers, and all of us are in the dark about what to do. There is no manual out-there to refer to, and we’re all in this together. On top of this, the world has entered a period of turbulence and transformation.
Travel and tourism rely on stable and predictable situations, but, at present, it is practically impossible to forecast and plan for the next six months, next 12 months, or even longer as the pandemic is becoming endemic.
The virus is expected to be with us for a long time to come, even with a vaccine, so we have to learn to live with it. Most likely, we will all need to be vaccinated on a seasonal cycle.
My concerns are that, for most hospitality-related organizations which mainly rely on international travellers, the worst is yet to come. Up until now, most companies have been able to secure some type of financing and/or cash to remain in business. But all indications are that cash-flow is becoming very tight or not available for many. Then what?
In terms of getting back to some semblance of normal, I don’t expect the situation to improve much before 2022. And as for getting back to profitability, we will have to wait longer.
This year is a total loss for most (if not all) in our business. Next year, we may see a similar situation. Perhaps during the second half of next year, there could be some minor improvements. But most organizations will be in negative territory. Two consecutive years of losses, who can support it?
2022 is expected to be a stabilizing year, with international travellers regaining some confidence and gradually starting to travel again. Profitability, in most cases, will not return before 2023. The objective here is of course, to shorten the timespan from recovery to profitability. And accept that the cost of getting some business back to operational efficiency will be extensive.
We will have to wait for 2024 or even 2025 for international travel to return to the 2019 levels. Because of this, most organizations will have to rebuild their customer’s historical data. Capturing customer’s preferences and new revenue streams are essential as consumers’ habits have changed throughout the pandemic.
Of course, countries with substantial domestic travellers like China, the USA, India, and some European countries may experience a faster recovery but in general, all organizations have to adopt a longer-term view towards investment returns.
But a very crucial question is arising as to who will survive and who will not. Adequate cash flow will be the deciding factor here. We will definitely see a number of mergers and acquisitions, and unfortunately, some bankruptcy too. The closure of Dragon Air, the insolvency of Virgin Air Australia, and the takeover of Asiana by Korean Air are just a few of the big changes we have seen so far. Many cash-strapped/distressed hotels are searching for new partners and/or buyers.
To this date the pandemic has resulted in only a few insolvencies within the hotel industry, and this is thanks in large part to government aids. But that might change as the pandemic rolls on, consumers await the approval and distribution of vaccines and cash flow simply dries up.
As for Asian hotel companies, we could see two very clear patterns – the ones owned by large groups/families will secure the necessary cash flow, while small organizations will find it very difficult to get the necessary lines of credit.
And sadly, we all have to be sympathetic to the many hard-working and committed people within this industry who have lost or are going to lose their jobs and their income. Very sad indeed.
As for small and medium-size Asian hotel groups, they will find it very challenging to compete against large global brands with extensive networks and economies of scale.
To this day, I find it very difficult to understand why most Asian hotel companies have gone into developing new brands and products without first creating a strong and sustainable base with their main brand. We see many small - and medium-size hotel groups with four-to-five products/brands. To me this is wrong; it’s very expensive, confusing to both guests and employees, and it is the fastest way to damage one’s main brand, which, in most cases, is their ‘bread-and-butter.’
I have tried to explain this to many owners, but it looks like that their egos are bigger than themselves (second and third generations in particular), and who I am to tell them what to do? But it really is a pity to see some of the popular Asian hotel brands constantly losing market position and recognition.
On the other side, there are two successful Hong Kong-based hotel brands, the Peninsula and the Mandarin, which are both focusing on one-brand-one-market. Both have enviable reputations as a result. For me, this is the way to go. Do what you do the best, and what you are known for. Do not confuse the market.
We have to accept that with this virus, travel and tourism as we know it may be over – overtourism in particular – and most organizations have to make adjustments to anticipate and respond to trends and expectations. We may see a change in the overall approach to travel in particular toward culture and nature. Social responsibility will come into play and remember that sustainable tourism is always a big drawcard for many.
This pandemic is transforming the world, and on top of the many geopolitical problems we see arising, in most cases we will be faced with high unemployment, social isolation, anxiety and increased poverty too. Therefore, there will be less demand for travel in the short-medium term. Airlines and hotels are the most affected.
The core business of providing hospitality and experiences will not change, but hoteliers need to rethink the whole administrative and economic process. The road to recovery will require organizations to adjust to an operational new normal which includes, amongst others, multi-tasking, efficiency, productivity, and, most importantly, everyone in the organization to take responsibility and accountability for their efforts. Note that the pandemic is accelerating technology-digital-automation transformation and all must respond to it.
The four basic rules of doing business – revenue-cost-risk-profit – will always remain the same, and nothing is not guaranteed. The present situation reminds us to pay particular attention to risks, especially when it comes to proper insurance and safety measures. Do not take anything for granted.
We must accept that cutting costs alone is not sufficient. It’s easy to do, but it’s only a short term solution. Organizations must be clear on their respective competitive advantages and offer something special in order to compete and attract and retain customers.
Rules have to be rewritten, and mindsets have to change. But are the people in the driving seats capable of steering their organizations in the right direction? We must accept that business will not come automatically; we will have to get it in an increasingly competitive environment.
It’s important at this stage for organizations to pick up the pieces and put their houses in order. But are the present leaders able to adjust their business models and recalibrate the core strategies? This is a very important question for owners, boards of directors, and financiers to ask themselves and take action.
Personally, I have not seen anything new and interesting within the industry yet, and I find this concerning. It looks like everyone is waiting, and not sure what they are waiting for. Also, I have yet to see an inspiring leader who can articulately and convincingly present an innovative way ahead.
Trends are changing fast, and it is clear that airlines and hotels will be faced with fewer business/corporate travellers, with an increase in video conferencing, virtual events, advanced technology and automation. Customers will also expect more. There will be new demands for better indoor air filtration (including HEPA or MERV filters and UVC technology), specific wellness services and facilities/health tourism, healthier foods including meat and dairy alternatives, and, most importantly, for consistency in product offerings.
Traveler preferences and behaviours are shifting toward the familiar, predicable and trusted and in response to this, it is a must for hotels to be more authentic, work on relation building rather than short-term focused and transactional.
In short, we must deal with a clear change in lifestyle and consumer behaviour. Designs for new hotel projects will have to change, and focus on efficiency, comfort, and safety – making everything as easy for the customer as possible.
A crisis should bring about a better way of doing things in the future. Now is the time for hotels to correct some of their bad habits – especially when it comes to irritating additional charges for late check-out, in-room minibar, laundry services, airport transfers and so on. These all have to be properly addressed.
And, on a more important topic, when will the industry fully embrace the 24 hours flexible stay, and get away from the staid and unaccommodating 12-noon check-out and not before 2.00 PM check-in?
Properly implemented, this could be a very clear competitive advantage, and it will be appreciated by all customers. It’s not easy to put it in place, but it’s definitely worth looking at.
We have to recognize that the only organizations to survive and prosper in the face of the current and future challenges will be those that are able to be agile and innovative in their response. Do invest more in your people and create a stronger culture in the long run.
Presently, most regional hospitality-related organizations are having to rely solely on the potential of their respective domestic markets, but not all is negative, and we must look at the positives as well. We know that most people want and need to travel, and demand will eventually return.
Looking at the economic prospects within Asia, as compared with the rest of the world, we should anticipate a positive outcome post-COVID. With the spending power of the rising middle class in most areas, the low cost of capital, the low cost of oil, the controlled inflation, the trade agreements (RCEP and others), and most importantly with the ever strong China engine driving the region, all fundamentals are there for a brighter future and a positive impact on travel and tourism. Personally, I believe that Asia will lead the recovery.
As for Hong Kong itself, questions we have to ask ourselves and address include:
- Is the Hong Kong Government (and other regional Governments) taking tourism seriously?
- What will be the impact on the GDP if we include all the spending from visitors and related services/businesses/activities – airfares, hotels, shopping, dining/ entertainment, sightseeing and others?
- Is the present tourism structure/organization efficient? What needs to be done in this area?
- Are the appointed tourism officials responsible and accountable?
- What are the main attractions for foreign tourists to visit in Hong Kong and the region?
- Why are the two largest entertainment parks in Hong Kong losing money? Is it better to fully privatize them?
- Promoting Hong Kong to the right markets is not an easy task (China alone is not sufficient). We have to ask ourselves if the present team and structure is qualified to do so.
- Based on the facts that travel and tourism in Hong Kong involves the livelihoods of several hundred thousand full-time and part-time people and that most sectors within the industry are facing mounting losses and exhausted funds, the government relief funds as announced, are simply not sufficient to prevent further losses of jobs.
- Tourism should not be taken for granted. It requires serious effort, funds and most importantly, qualified professionals, not political appointees...
On closing, it is appropriate to remember that this pandemic has given many of us an enormous appreciation for the preciousness of life and that we have to take care of ourselves and respect others.
Thanks for listening.
A 50 year veteran of the Hotel-Hospitality-travel industry with a wealth of experience acquired in 4 Continents, Asia in particular. A long term resident of Hong Kong and Retired Chief Executive Officer of Shangri-La International.
A board member of several large corporations and member of many industry related and quality management organisations. Founder of Angelini Hospitality, providing consultancy and advisory work to developers and hotels-travel-tourism organisations.
Recipient of two Honoris Causa (Doctorate) in Business Administration and in Global Business Leadership, four Lifetime Achievement Awards, the 2006 Corporate Hotelier of the World, Maestro del Lavoro (2014) and of several other recognitions and awards.