On March 16th 2020, Governor Cuomo decides to close all restaurants, bars and hotels in New York City as a response to COVID-19. “We had two hours to advocate for the hotel industry and get the authorization to keep our doors open” says Vijay Dandapani, President of the HANYC.The fact is the members of the oldest and most prestigious hotel association in the US will soon host frontline medical workers and house homeless people throughout the pandemic.
Considering New York City is ahead of many other cities in the world in terms of reopening process, this conference was the opportunity to get Dandapani’s testimonial. His expert voice, together with the views of Hervé Houdré, former hotelier and CEO of H2 Sustainability Consulting, provided an instrumental compass for hospitality players in other parts of the globe.
Prior to COVID, the average occupancy rate in New York hotels was 90%. It dropped overnight to 15%. The average RevPAR declined from $275 to less than $50. Dandapani expects a full recovery by 2025, maybe 2024. “That’s a crucial difference compared to the previous major crisis, he says. After 09.11 and 2008 financial crisis, occupancy never dropped below 60/70% and we recovered within 18 to 24 months. I don’t think it will happen this way after COVID”. An interesting fact is the disconnection between restaurants and hotels: restaurants are now full speed in New York City (with new outdoor dining rooms that increased their capacity), but hotels remain with a low activity (around 55% occupancy rate).
The fact is this crisis came after years of decreasing profitability in the sector, to a point that important hotels are facing a lack of liquidity that evolves into solvability issues. Now the city has an unprecedented number of permanent hotel closures. Hotel transactions basically stopped : “the average price per room dropped from $600K to $350K: owners are reluctant to sell until there is a price recovery” explains Dandapani.
From a consumer perspective, will COVID structurally modify the mix? In terms of product, the main evolution is about contactless check-in and focus on sanitation. In terms of pricing, luxury and premium hotels maintain their rates as the market is still very low (very few business travelers, no international trips). For communication, a budget of $30M is planned to promote the New York experience and get rid of the images broadcasted during spring 2020.
Behind the scene, hotel owners can rely on the industry workforce: higher wages than Federal and State minimums make the attractiveness of the hospitality job market. The HANYC list 2 major challenges for the coming years :
- Business wise, leisure travelers represent only 40% of the revenues of the city. How to make the corporate travelers come again to NYC as trade shows were transferred to more open cities?
- On a social note, how to secure the city from crime and solve the homeless people situation as 4 to 5000 people are sleeping in the streets every night.
In this context, the two speakers insist on Sustainability as a factor for change. Some hotels close permanently because they cannot reach the requirements of the Net Zero Carbon Vision of the City of New York for 2050. But “Sustainability is also a lever for restoring profitability by savings on energy, water and waste management” Houdré says. Is it at the core of the consumers expectations and are they willing to pay? “We don’t know, but it’s coming and, from a corporate standpoint, in front of two comparable offers, the Purchasing Manager will choose the sustainable hotel” concludes Dandapani identifying it as an asset to make the difference tomorrow.
Alexis Milcent (H.05)