The ongoing Middle East crisis continues to exert a significant impact on the global #hospitality sector, including several markets in Asia Pacific, with flight disruptions, increased cancellations, and rising travel costs due to rerouting causing industry-wide concern.
As in previous crises, most recently the COVID-19 pandemic, experienced #hotel asset managers are showcasing their value as a steady pair of hands by spearheading the implementation of operational and financial resilience measures to help affected properties weather the storm.
Seasoned hotel asset managers are critical in these situations as they act as a strategic bridge between owners and operators, moving quickly to protect cash flow and mitigating risk and, where necessary, swiftly implementing operational changes.
Allaying Cancellations, Identifying Alternative Geo-Sources & Strengthening the Supply Chain
Several resort-based markets in Asia Pacific, most notably Maldives, have been impacted by the Middle East conflict. The island nation has experienced a sharp decline in visitors due to disrupted flights from Dubai, Doha and Abu Dhabi, with Maldives Ministry of Tourism data showing a 23% y-o-y drop in tourist arrivals between March 1 and 13.
Since the onset of the conflict, hotel asset managers in this and other affected markets have been working closely with operators to implement a strategic approach to risk management. Priorities include understanding operators’ cancellation policies; interpreting guidance on managing disrupted reservations from head offices; and ensuring upcoming guests are rebooked for a later date rather than cancelling their trips entirely.
Other steps include conducting sales & marketing replanning with operators’ commercial teams to put Middle East campaigns on hold and redirect efforts to markets less exposed to disruption. This has led to a stronger focus on boosting marketing and promotion in major Asian source markets such as China, India, Russia and Southeast Asia.
With Maldives sourcing much of its oil from the Middle East and a substantial volume of its food imports transiting through the region, the conflict has severely disrupted the country’s supply chain. Hotel asset managers are working with hotel general managers to overcome bottlenecks and identifying alternative sources and shipping routes, with supplies from Sri Lanka and India now starting to arrive.
Lessons Learned from the Pandemic: The Importance of Cost Mitigation
With the Middle East crisis still only a few weeks old, hotel asset managers in impacted markets are not yet considering aggressive cost cutting measures.
However, cost mitigation is a key aspect of hotel asset management crisis response, with top-line financial struggles caused by sudden crises requiring a rigorous assessment of cost structures. This usually involves transferring as many fixed costs as possible to a more variable cost base to protect the bottom line.
Measures implemented during the COVID-19 pandemic included freezes on recruitment and replacements across all departments to avoid adding to the fixed cost base; reducing casual and contract labour before touching permanent headcount; initiating no-pay leave and accelerating clearing of vacation balances; and holding positions open rather than backfilling roles immediately. Many of these policies have seen a comeback in recent weeks.
CapEx deferral is another important aspect of cost mitigation. During the pandemic, hotel asset managers of affected properties advised that non-critical renovations and regular cycle upgrades be postponed until a time when cash flows became healthier.
Other operational cost controls include adjusting energy consumption (e.g. lighting timers, vacancy checks on unoccupied villas), holding purchases on consumables (e.g. chinaware, glassware, linen) and reducing steward and chef casual staffing.
Conclusion: A Proactive Approach to Protecting the Bottom Line
The situation in the Middle East remains extremely fluid, with Impacts on the Asia Pacific hospitality market highly dependent on both the length and scope of the conflict.
Hotel asset managers will continue to closely monitor developments daily, liaise with peers and converse with operators’ headquarters to ensure they are able to provide sufficient support as well as add value across different regions and assets.
Situations such as this emphasise the value-add that experienced hotel asset managers bring to the table. The very best in their trade are adept at formulating proactive, targeted and rapid responses to protect the client property’s bottom line and safeguard its future value, ensuring owners have peace of mind.
Chris Ely - Follow
CBRE Asset Management I Business Development I Operational and Strategic Planning I Relationship Management
Qinyuan (Sunny) Sun - Follow
