Strategy – Tourism Facing the New Reality

Strategy – Tourism Facing the New Reality

According to a World Tourism Organisation report, the COVID-19 outbreak and the subsequently imposed lockdowns have cost global tourism $320 billion in the five months between January and May.  The hospitality sector has suffered significantly because of the pandemic. Empty conference halls, lack of bookings and an uncertain future – that is the new reality for the Sheraton Grand Tbilisi Metechi Palace. General Manager Fred Smits spoke to Forbes Georgia about the existing situation and his expectations for the future.

Research conducted by TBC Capital in July this year found that the average future occupancy rate in Tbilisi’s large hotels was 4%. What is the situation like at your hotel with regards to occupancy and bookings?

The sad reality is that there are no tourists. We only have a certain amount of business-related bookings. Looking at other large hotels in Tbilisi, it is clear that occupancy rates are extremely low. The situation is different outside the capital, which stems from the local tradition of spending the summer holidays in various regions around the country. We, as managers of large hotels in Tbilisi, must face reality. As for my expectations, I believe that there will be slight improvement in September and October when people will start visiting Georgia for business.

Regarding the challenges facing the tourism sector in 2020, a Galt & Taggart report released in June predicts that due to the pandemic, the number of tourists will decrease by 58% globally by the end of the year – a record plunge for the industry. In light of current forecasts, what is your strategy for overcoming the crisis and operating the hotel in an orderly manner?

It is difficult to talk about a strategy at this stage, as things change every couple of weeks in the country. I think it is most important to maintain an optimistic mood and have positive expectations. Clearly it will not be business as usual tomorrow or even next month. Therefore, it makes sense to have calculations in place for next year and to concentrate on 2021. Unless, of course, things take a turn for the worst, as there is talk of a second and third wave of the virus. I also believe that the virus and certain accompanying restrictions will return. Whether it will be as bad as in spring this year, I do not know. However, we are now better prepared for dealing with this scenario.

The pandemic has changed people’s attitudes towards travelling. Trips around the world will no longer be planned with ease, and locations will be chosen more carefully. The business sector must find new and alternative ways of doing business. This does not necessarily mean that we will be leaving the hospitality sector or completely change our current concepts. However, as you can see for yourself, conference rooms are completely empty. I can understand that some people are more scared than others. Last year, when we reopened the hotel after lengthy renovations, everything revolved around social interaction with our guests. Now we must do the complete opposite and make social distancing a central part of our policies. Can you imagine how difficult it is to teach staff how to effectively interact with guests while maintaining a safe distance? Fortunately, I can state with confidence that our main principle remains the same – to create a warm and cosy environment where our guests will feel maximum comfort.

You often say that we must be realistic. What exactly do you mean?

Even if all borders reopen and all flight routes resume, many people will still be sceptical about travelling. I believe that people will refrain from holidaying abroad for at least another few months, regardless of whether or not they are afraid of the virus. I understand where they are coming from. It will take time to get back to old ways, and we are currently analysing all possible scenarios. This crisis will not be over any time soon – not only because of the virus, but also because people have lost money and have become more measured in their spending. This is a large vicious circle where the financial impact is as damaging as the virus itself.

How people spend money is changing, and the only advantage that Georgia has in this regard is the relatively low cost of travel. For example, with the money that people would spend travelling to Italy, they could have aconsiderably longer and better holiday in Georgia. As a result, our hospitality sector could return to normal sooner than in other European countries. We are also seeing a lot of articles being written about Georgia’s success in fighting the virus. We are viewed as a safe country, which will undoubtedly also work in our favour. Speaking of advantages, I would also mention the relatively short flying time from many countries to Georgia as a contributing factor to last year’s tourist boom. I strongly believe that despite the virus, the industry will recover next year.

How busy is the Sheraton Grand Tbilisi Metechi Palace hotel right now? How does the occupancy rate compare to your current resources?

As expected, the occupancy rate is extremely low. Naturally, it would make no sense to expect 50 rooms to be occupied every day, as we know that it is not going to happen. The priority now is to balance our costs and revenue. To be honest, our team was prepared for these developments even before the pandemic was officially declared, so we were not taken completely by surprise. However, if you take our conference room as an example, you are rarely going to find anyone in it now. Last year, even when most people were out of town, we were operating at full capacity as a Hollywood movie was being filmed here and we were hosting the film crew.

Over the last few months, you would have often heard people say that the current crisis may create new opportunities for businesses. Do you share this view?

Generally speaking, you could look for positives and new opportunities anywhere. However, what opportunities can we talk about if businesses cease to exist? This is another issue that we must look at realistically. The only positive effect that the pandemic may have had on the business sector is that it gave us time to think about what we were doing right and what we were doing wrong, and to rectify any mistakes. Under normal circumstances, we rarely have time to think about such issues in depth, but that is exactly what my team and I have been doing.

Perhaps another positive aspect is the fact that we have had more time for training. People view online training sceptically, but we eliminated this stereotype. As for me personally, I seek to use my newly found spare time for developing new relationships. Establishing new ties will become even more important than before.

Over the last few months, the crisis has affected individual employees as much as businesses as a whole. How did you approach the issue of retaining or laying off staff?

We have a certain number of employees working from home. Others have to be physically present in the hotel. I am not going to lie, we have also been forced to put some people on unpaid leave, and not everyone had their contracts extended. This was a natural process of reducing staff numbers in the light of the pandemic and the financial difficulties facing the hotel.Until last week, our active staff were working three days per week, and will now be returning to the five-day work week schedule. Naturally, many of them will not be as busy as before, but that does not apply to everyone. For example, our financial department, still has the same workload as before, while the sales department is even busier than prior to the pandemic. On a personal level, I have been doing and thinking about things that I never took into consideration before. Team spirit is now better than before the pandemic, while staff are noticeably more dynamic.

Let me ask you about the financial impact. We are always interested in figures, and the number of international visitors is expected to decrease by 65% this year, same as the revenue from tourism. Studies show that Adjara, Mtskheta-Mtianeti and Tbilisi will be hit particularly hard.

Let me start by saying that our hotel currently has virtually no income. There are small revenue streams, but they do not even come close to covering our operating expenses. March was a reasonably successful month, but we have been left without income since April. Due to the specifics of our business, expenses do not depend on occupancy. In April, we made 200 rooms available to the state for quarantine purposes, which significantly increased our expenses as we had to feed 200 people three times a day, clean their rooms, and so on. Overall, it had a significant financial effect on our business, but we managed to overcome these difficulties.

Quarantine is over, but we had no revenue during the months of June and July either. We are now having to find a balance between revenue and expenses. We simply have no other option. We are closely monitoring the cash flow and trying to survive with as little pain as possible. I think that people in this industry who are still hoping to obtain revenue this year are mistaken, and their calculations are incorrect. We must ensure that we plan the budget correctly and logically for next year.

What has been the biggest challenge for you as the general manager of a hotel during this period?

I can confidently say that the lockdown and closing of the borders have been the biggest challenges. Setting up a quarantine zone in our hotel was the only solution we could find. As General Manager, I believe I made the correct decision back in January to stockpile face masks, hand sanitisers and all other necessities. It came as a shock when the border closure was announced. I could barely believe that we would have to shut down such a large hotel. I had to put my emotions aside as I had to deal with the second shock of realising that I would be unable to extend some employees’ contracts. When I mentioned team spirit earlier, I was talking about the moment when we announced that the hotel would be turned into a quarantine zone. Approximately 95% of our staff expressed their willingness to stay and work under new terms, even though nobody asked them to do so in light of the epidemiological environment. To be honest, this boosted my spirits and my motivation enormously.

How optimistic are you about the future of the hospitality sector, and what are your plans regarding the hotel?

I would be happy if we can manage to fulfil as little as 50% of our potential next spring. Naturally, nobody knows what will happen even next month, and this may sound strange, but we must promise small and deliver big. When you cannot deliver on your promises, people are left disappointed. It is, therefore, vital to set realistic targets and follow a concrete plan to achieve them. This is the only responsible approach.

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