A Tough Road to Recovery for the Hospitality Industry

Print

As Canadians emerge from their homes this summer after the long COVID winter, they are looking for entertainment – any entertainment. They want to sleep in a bed that isn’t theirs, in a room they didn’t clean. They want to eat a meal they didn’t cook at a table they didn’t set.

And the hospitality industry stands to benefit greatly from all this pent-up energy. It doesn’t mean a complete rebound or a near-normal situation. But the industry is bouncing back to a state that is vastly improved from last year.

With coronavirus restrictions still in effect until mid-June, the Canadian hospitality industry hasn’t really started on its path to recovery. In May, hotel occupancy hit 28.1%, significantly better than 2020 levels, but well below the pre-pandemic levels of 2019.

Market predictions suggest the industry won’t bounce back this year, as travel restrictions keep Canadians at home. The best estimates indicate that Canadian hotel occupancy will increase to roughly 38% this summer. And although Restaurants Canada predicts an upward trend as well, the expect business to remain 20% below pre-pandemic levels.

On the other side of the border, where the recovery is further along, signs are more hopeful. In May, U.S. hotels hit average daily occupancy rates of 59.3%, their highest since before the pandemic. And U.S. restaurant sales were only slightly below pre-pandemic levels.

Managing the hard insurance market

Despite the upward trend, securing appropriate insurance has been a major roadblock for many hospitality businesses across North America. The insurance market is the hardest it’s been in decades, decreasing insurance availability and increasing costs significantly.

While some insurance carriers are simply exiting the market, others are substantially hiking premiums or specifying additional exclusions, including COVID-19 and other communicable diseases. Umbrella (excess liability) coverage is difficult to find. And broker strategies like layering (covering exposures in multiple layers among multiple insurers) are more challenging to create.

On the property side, rates have been a continuing issue – especially with increasing larger claims for natural disaster damages – but they were also aggravated by COVID-19-driven business interruption exposures. Executive liability exposures created by the pandemic are driving directors & officers and errors & omissions coverage up by 50%, too. And cyber insurance is also under pressure, as the growth of technology solutions related to the hospitality industry has led to an increase in cybercrimes, along with premium increases of up to 50%.

The key to the challenge is to work with a broker or risk consultant, an expert on the changes impacting the industry and the logical choice to guide hospitality businesses forward. These professionals are also well positioned to help owners and operators present their cases on successful risk management to underwriters.

Making investments in the future

Although tourism is still slow this summer in Canada, there is a huge pent-up demand for travel and dining across North America. Families are desperate to leave home and see something new. Young adults and Boomers are looking for face-to-face interactions. And business people are looking toward in person meetings and conferences – one of the lodging industry’s profit centres – which may not happen until 2025.

The good news is, many owners and operators took advantage of the pandemic shutdown to make investments in technology and personalized service features, which should position them well during the return to normal. Customer expectations regarding “touchless transactions” and “smart” technology are growing. The “smart” global hospitality market is expected to more than double to $12.727 billion by 2025.

The success of the post-pandemic future is riding on a host of new and added capabilities in terms of guest and staff safety and safety compliance. Even more than the obvious booking and check-in platforms, integrated platforms can track where and when guests use spaces and when they’ve been sanitized, as well as communicate with guests when rooms are ready. Behind-the-scenes operations are facilitated, too, like coordinating with housekeeping and other departments.

Since the guest experience is a driver of success, much of the investment is customer facing now. It’s also driving personalization, another trend that relies on digital solutions. In fact, the top two technology priorities by hospitality organizations are digital analytics (to gain better insights) and the front-end customer experience.

Personalizing the guest experience is easy with analytics data leading the way, especially when that data is informed through persona development. Personas provide a deep dive into customer segments so operators can align services and experiences to those preferences. Given the vast amount of data at a hotel’s disposal, this can be an ambitious undertaking. 

The value of personalization, however, is clear through the return on investment. For example, consider business reviews. One study showed that every one-star increase will boost a hotel’s revenues by 5% to 9%.

Another survey found 82% of respondents will pay a premium for a 4-star rated lodging.

The Canadian hospitality industry has a long road ahead of it, especially with the border with the U.S. still closed. But it’s in a much stronger position than it was this time last year, or even a few months ago. Resilient hotels and restaurants will be able to manage the risks and still come out ahead.