From a professional standpoint, as difficult as this pandemic has been, everyone learned fundamental lessons by watching how the hospitality industry responded, from navigating how to operate a property with a skeleton crew to planning a budget on the heels of the lowest top-line in recent history.
This has, of course, presented challenges to the planning of 2021 operating budgets where historically our industry has relied on previous year’s performance, padded for inflation. Today’s environment has set the stage to adopt a zero-base budgeting model and to rethink and question the fundamentals of hotel labor modeling entirely. Despite all efforts, we are submitting budgets that, at a gross operating profit level, are down 85 percent from 2019.
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While there is a collective optimism as to a demand rebound for the second half of 2021, there’s also an acute need to look at every dollar within this year’s budgets and medium-range forecasts, focusing on keeping cash burn down and to slowly and responsibly start adding back services and staff as demand recovers. We anticipate that there is probably still between nine to 18 months of continued depressed performance. With that in mind, our approach to the budget season has been straightforward. We took the view that each ancillary service (spa, private dining, restaurants, etc.) is a stand-alone business module and will reopen when they can break even and be accretive to the bottom line. Within our entire 100+ property asset management portfolio, we’ve requested no padding with a focus on having a realistic top-line view. As stated earlier, a lot of energy was placed to build staff and expenses from scratch.
While everyone was expecting a resurgence in COVID-19 cases leading to new restrictions in the winter, no one was predicting a mid-November surge. Budgets were built in September, and then suddenly, new restrictions and closings with more quarantine requirements have made the budget process all that more interesting. Many properties are coming back to us asking for more money off the top line. Many owners are delaying their reopening timelines or considering shutting down their hotels again for the winter. This is making the budget season more intense and lasting longer than ever, with more rounds of deliverables and tough negotiations.
