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The case for temporarily closing hotel and restaurant operations

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OPINION by Bill Barnett

As the final days of disruptive 2020 come screeching to an erratic end, hotel, and restaurant owners are peering into an unpredictable year ahead. Here in Thailand over the past week, the tourism industry has been shaken to its core over an uptick in Covid-19 cases and backroom speculation over fears of another round of lockdowns. (Restrictions, but not full lockdowns, have already been applied by a number of provincial governors, including in parts of Bangkok, Rayong, Nonthaburi and Pattaya)

With domestic tourism being the only operating segment at present, the market reality is that the lag in vaccinations could take 9 to 12 months in 2021. We are now facing a situation that it’s highly unlikely a significant reopening of international travel will effectively gain traction until 2022. What’s more worrisome for hotels that have been trying to survive low-levels of occupancy over the past 6 months is that the combination of anti-travel sentiment and volatile restrictions could see a worsening of trading conditions next year for an extended period. 

No need to put on rose-colored glasses for tourism businesses here and the most relevant concern is how to survive, stay afloat, and manage cash flow. While every situation is different, there is a case for some enterprises to temporarily close and hibernate next year until borders are broadly open again. Did I hear a groan? Yes, reality bites. But the key messaging here is there is no point planning long term if you can’t fund up mounting losses for much of 2021. 

Hotels and restaurant owners in particular now need to assess the situation on the ground. If you have been losing money over the past six months, can you continue to fund cash flow next year,  month after month?  The traditional tourism season in Thailand has shifted, and domestic holidays and weekends are the only real opportunities to claw back revenue. 

Looking at hotels, big-box types versus smaller properties with decentralised systems are entirely different when looking at the viability of closures. Take into account fixed and variable costs and try to come to grips with break-even scenarios and cash resources. If you are in the red, are you prepared to fund up another 12 months of losses?

Moving into the New Year, the expected drop in travel in January onward is looming so it’s critical to do the numbers and decide what strategy is best for the businesses. If bank financing is in place, it’s time to start talking to lenders and if needed secure additional funding. 

In 2020 Thailand’s hotel and tourism industry has stood tall and optimistic. I share the long-term optimism but the prospect that next year could swing downward more is a clear and present danger. Given hotels and restaurants are service-related, the ethics of retaining jobs is critical and has to be a primary focus, but if the operating losses result in later permanent closure, owners have not done anyone a favor by swimming against the current. 

Let’s be clear, I am no in any way advocating the entire industry to temporarily close and retire to a dark room for zoom conferences and endless Netflix episodes. But the message here is if you are losing money now, and likely to be unable to fund a longer period of losses, take action now. In a passionate foray like hospitality, it’s imperative not to let a false sense of pride or fight take over reason and business sense. 

My end of year messaging is just that, be prepared for worse days to come. It’s painful to write but if you plan, strategise and understand there is light at the end of the tunnel but you have to get to the end of the tunnel first, that is what matters. Look at your options in 2021 and I look forward to seeing all of you on the other side.

 

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Bill Barnett has over 30 years of experience in the Asian hospitality and property markets. He is considered to be a leading authority on real estate trends across Asia, and has sat at almost every seat around the hospitality and real estate table. Bill promotes industry insight through regular conference speaking engagements and is continually gathering market intelligence. Over the past few years he has released four books on Asian property topics.

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