In this episode of AHIC Talks, Matthew Weihs chats with Michael Grove, COO of Hotstats on the findings of the recently published Profit Matters Review in 2020. Obviously, on the back of a very difficult year for the industry, the two looked at what the report covered and some of the key operational areas hoteliers could look at going forward. A few other key themes discussed were the return of events and some of the winners and losers in the Middle East and Africa region.
You are now listening to AHIC Talks, Episode 4.
MATTHEW WEIHS: Hello everyone, and welcome to another podcast for the African and the Arabian Hospitality Investment Conference that is coming up in September. I'd like to introduce today, Michael Grove, the Chief Operating Officer at HotStats. Welcome Michael!
MICHAEL GROVE: Hi, thank you for having me.
MATTHEW WEIHS: Absolute pleasure. Now, first of all, for those that don't know, tell us a bit about HotStats.
MICHAEL GROVE: Okay. HotStats we're a global data provider. We collect profit and loss data from hotels all around the world and we offer that back to the industry in the way of benchmarking and market insight, so market level reporting, understanding profitability of different markets. But because we collect the full profit and loss data, it means that it can be utilized for many different purposes in benchmarking also. So various revenue lines and cost lines also. Our focus is very much around comparability because of course, the main challenge of it being profit data means that we need to be able to make sure that we put everything in the same bucket in order to make sure that it's comparable. And really being able to utilize or extend that to the most granular level of data, which hopefully we'll talk about a little bit later. But we've launched our new website, and that's very much the kind of idea behind the new platform.
MATTHEW WEIHS: Now, you've, as an organization has released your profit matters review for 2020. Obviously, a massively transformational year for the industry. Tell us a bit about the report, what it aims to achieve.
MICHAEL GROVE: Yeah, sure. I mean, the annual report is something we've been doing for some time, seven years. We call it the Profit Matters Report. The idea that we would track markets around the world, offer some insight from a top and bottom-line point of view as to what the various stories are emerging from the industry. For 2020 actually, we changed it around a little bit and focused more on the stories themselves from a macro level from around the world, because there was emerging patterns for sure, that we would see from right around the world, and then home in on certain markets under each one of those stories. But the idea of it's an end-of-year wrap-up, we get to share some of the commonality, the common stories from around the world. Allow people to get a snippet of regional context. So I think if you sat there as a hotelier or an owner or stakeholder and you want to understand what's going on outside of the hotel, the asset you're looking after, of course, this allows you to be able to do it. And of course, more than anything, show off the data that we have. Show off the granularity of the data that we have at our disposal.
MATTHEW WEIHS: So what does the report really have to say on 2020?
MICHAEL GROVE: Well, to begin with, it kind of confirms exactly what you said. It was, of course, an awful year for the hotel industry for many different reasons. I think the key stories are the likes of for instance, key cities. They are faring a lot worse than the kind of secondary and tertiary markets. The coastal city resort locations are doing a lot better. You can see that different parts of the world have been able to handle the drop in demand in different ways. Whether that be in government subsidies, or due to the kind of ex parte locations not being able to handle things in the same way that, for instance, somewhere like Europe, or more advanced markets like the US, where there's a lot of variety, even in just one country. I think that it's being able to kind of see the context around the world, learn from different things that have happened, and understand why the data is also difficult to compare from region to region, in its entirety. We really need to understand the detail of it. And I think the biggest one that people have mostly been interested in is this, was not about how quickly we can recover to prior-year levels. This has been how can we become profitable? How can we just stay above the red as it is? And I think that has been very interesting to track from different areas around the world? What is coming out the other side of the crisis? How have the cost basis of hotels changed, the revenue mixes changed? And one thing we saw quite evidently, certainly from places like China, actually UAE in certain circumstances as well, returning quicker from a top-line point of view, and therefore we can see the output of the cost base, the change in cost base and how things have moved there. So payroll has certainly been one. In Europe, it's been difficult to monitor because of the government subsidies. But if you look from around the world, there's organic change. There are, as hotel business models have reset, hotels have closed. When they've reopened, they have reopened differently, different cost base and a different focus from a top-line point of view.
MATTHEW WEIHS: What now are some of the key areas of operations that a hotelier should focus on?
MICHAEL GROVE: I mean, it 1of course, depends very much asset by asset and region by region. Not trying to worm out of that question, but I think it is quite difficult to say for each specific type of asset, I think everyone will appreciate that. I think in the general view, 2020 was almost, I mean, around the world, it was very much rooms. Because that was really the only demand that was around. Social distancing took place in the CMB, in spas and leisure facilities. You know, much of the outlets have either closed completely or have become much more reduced in capacity. It was very much around rooms. And I think that is something that the industry was generally pretty good at anyway, because that's what we've always focused on. But actually, if you look at the prior crisis levels, take the Middle East as a great example of it really. In 2019 and before, the Middle East revenue mix was 58% rooms. So there was still a huge amount of the rest of the hotel to be focused on and to be considered. And I think coming back out at the other end of this crisis now, I think that's become a thing. I think we are total revenue management, we're thinking differently, we can't just copy and paste what happened last year and tweak our strategy, we need a whole new strategy. So I think that TRevPAR and monitoring things from a holistic approach is definitely something considering the cost side of things. But I think the other massive one is going to be the people. You're going to need to attract guests and differentiate yourselves to be able to attract different types of guests. And the same with staffing. We've lost a lot of talent from the industry and I think as we try to go get those back into the industry, you're going to need to be able to differentiate yourself as an employer as well. It's been tough times right around the board, and people have had to make difficult decisions. So we're going to have to convince people that hospitality is still very much a place to build a career. And I think that is in all of our hands.
MATTHEW WEIHS: Attraction of the industry as an employer is going to be a very interesting one over the next few years. And this is one which is close to my heart too, events. You've recently also done a look at the MICE industry for hotels. What is the outcome of that report? What's the potential for the return of events?
MICHAEL GROVE: Well, I think it's very much in the hands of the virus right now and how things are going to move going forward. The various vaccination programs are looking quite positive and it's allowed for certain markets to be able to move ahead. We're all planning, I think I've got six or seven events now in the second half of this year that are almost confirmed to happen as things stand. So I think things are starting to open up, we're seeing pilot events in the UK, of course, events you've already been able to hold in the Middle East and in the Asian Pacific. And I've seen, the football fans going back into stadiums, it's quite exciting for me as a football fan. That's a good example of it. I think the challenge is going to be the locations. You've already seen talking about what's keeping on the football theme. From yesterday, they announced that the Champions League Final won't happen in Istanbul, it will happen in London now. And of course, as great as that is for London, it's awful for Istanbul, but of course, that's very much based on the need for track fans to be able to travel for the fact that Istanbul is seeing a rise in cases and London is seeing a drop in cases. So there is a lot of kind of these things that I think it'll be quite unpredictable from where these things will happen. But certainly, there's pent-up demand, and I think that would have been used a lot. But let's be specific about it. If you look at weddings, as a good example, if you want to hold a big wedding, and you've not been able to hold the wedding in 2020 or even for much of 2021 now, those weddings still need to happen and much of that has not happened. It's been held off until they can hold these events. So I think the social side of things, there will be a lot of pent-up demand. We're all eager to go and meet again. There's a reason why we're still traveling to do these events this year because there is still a lot of gold in being able to meet people and actually be there in person. And I just think that the impact of social distancing for a little while, I think we're going to still feel the impact of that. And I think the other key bit is that, in some ways, the emergence of hybrid events has meant that you're even talking to wider audiences. The event itself is supplemented by the ability to be able to reach out, not just the live event, but also the run-up to the event, the marketing, and the other side of the event. People are still going to want to, if they can't travel for whatever reason, you're still going to be able to offer them something. I think that is seriously an opportunity. But with regards to the return of events, we are already seeing them, aren't we? So I think it's very positive right now.
MATTHEW WEIHS: The response to the event that we're putting on in Dubai in September has been fantastic. Obviously, there's still a bit of uncertainty and that can be from individuals in certain markets looking at traveling to Dubai through to us as the event host going, we hope nothing derails it, or that sort of thing. But the need to get together is obviously pretty apparent but I tend to agree. I think that will remain, the interesting digital world that we've seen over the last year gives us a huge chance to sort of market and have opportunities of bringing others who necessarily wouldn't have made it as well. So there's a secondary market that's alongside these in-person events.
MICHAEL GROVE: Yeah, and I think you guys again, have kind of seen that opportunity, and I think that is definitely something that going forward, conference venues and hotel operators will all need to consider and in some ways are already considering. Investing in those areas, investing in IT and in the ability to be able to hold different type of events, or could be partly a new world for many people. I think it's going to be key, because the data side of it again, you know, you're not going to be surprised to hear me although I'm a hotelier at heart, the data side of that is also very interesting, isn't it? Because you can track things and you can feed people what they want in a better way than you could maybe before the crisis.
MATTHEW WEIHS: Going back to the report and looking at the Middle East and Africa performance, how would you define the sort of winners and losers of it all after the year we had?
MICHAEL GROVE: It's a real challenge in some way because actually the Middle East and Africa started well. The first quarter was the first uplift in the first quarter for some time. We've been on a downward road for some time as a region, since 2014. It was actually a very positive start to the year. I remember presenting in Sharjah actually, in February last year. And so the year had started well, it finished well the prior year, and there was a lot of positivity. And that is not just in the Middle East, that was around the world, we were seeing a decent uplift. And of course, those three months, or two and a half months, were very much dampened quite quickly by the inability for people to be able to travel from the likes of China. And of course, the confidence had kind of quite quickly diminished. So the Middle East as a region ended up around 80% back in profits on the prior year. So all wasn't lost. But again, much of that came from the first quarter, where it was quite profitable. Also knowing that the first quarter is a very strong month in the Middle East as well because it was just before the summer. But then, as you look at the likes of Doha, for instance as a market, and Qatar in general, they did quite well right the way through the crisis. It managed to maintain a GOPPAR for the year of $40. And so very much stayed profitable. I think most of the world would definitely have bitten your hand off for that kind of number. For comparison, Dubai, for instance, and Riyadh finished the year on $25. So again they've stayed profitable but much of that was driven through the first quarter and the last quarter of the year, where things started to move quite nicely.
I think the other thing to consider and again, homing in on the UAE is that, for the first time in some time, the secondary Emirates, outside of Dubai and Abu Dhabi were actually outperforming the key city from a profitability point of view. And in fact, in the summer months, because of the way that they were forced to either closing or totally scaling down the model, they were more profitable than the year before. So actually the few dollars that they managed to achieve in profitability, or even a small loss, not forgetting many hotels in the Middle East lose money during the summer months. It meant that they were able to actually pull back costs in a way they probably would never have considered doing before. So there was a slight bit of a positive I can just throw in there but I guess that was it. And of course, the speed in which the likes of Dubai and Abu Dhabi bounced back, I think, is pretty impressive. And I think it's been quite well handled there and the level of pragmatism and the ability to hold some type of business there, hotels are currently running at a cap of 70% occupancy. And then where you're seeing in many locations in Dubai right now, they are running actually at 70% occupancy. They're having to turn people away because they can't use the extra bedrooms, but at least they are operating at 70%. And I think that's certainly a better middle ground.
The downside is that you do have markets like Muscat, like Oman where the cost base is high, and the demand was very, very low. And you're talking like European level. low. So it has been a real challenge for many markets. We shouldn't forget that by talking about the strong market.
MATTHEW WEIHS: No, no, fair enough. And I suppose finally, I'll throw one at you. Are there any sort of trends that you're seeing now, that you would say, this is where it's going to shape the industry for the next year or two?
MICHAEL GROVE: So if I could think of any of them that is kind of, I guess, in some ways, quite boring to talk about, but it has been very much a trend is it is eating into the fixed cost base of hotels. I think that the ability to be able to break even at a lower point, than we were able to the prior year means that during ramp up now, for instance, at the macro level, the Middle East has seen a 30% change in admin and general costs. That is very significant. And that which we're starting to see there is that eating into those fixed costs that were just there for years and years, and of course, we understand the levels of undistributed costs in the Middle East are higher than they are in Europe and in the US and around the world. So there was more meat on the bone for those hotels to be able to shed I guess, but here we're starting to see now that lower breakeven points from an occupancy point of view with a lower average rate in the current form. And most of that is coming from being able to eat into the fixed costs, which was really necessary. A total reset of the way we budget and build a strategy.
MATTHEW WEIHS: Stay lean!
MICHAEL GROVE: Well stay lean, stay in context. And that's the key one, is that you can't revenue manage like you used to. You can't just take last year, so how things are currently working of course, that segues quite nicely into what we do. But also many other providers. Data is everywhere, and in order to make good decisions at a time like this, where last year is out the window and the budget is almost useless right now is really staying live and following whether that is the guest scoring, the online performance, obviously cost profitability as we do ultimately. There's lots of data in the market and we need to invest in it as an industry because we're not that good at utilizing data to make a proper decision.
MATTHEW WEIHS: And on that note, I'd like to say thank you to you, Michael, for joining us today. Obviously, if any of the listeners would like to get their hands on the profit matters review, then drop me a line, and for everyone else, I hope to see you, with Michael as well because he'll be there too, see you in Dubai in September and thanks again, Michael.
MICHAEL GROVE: Thank you all.
Published 31 May 2021