This is likely the most challenging budget season yet. Navigating the 2022 budget negotiations will require all stakeholders' unwavering focus, understanding and collaboration.
Mitigating risks has an entirely different meaning for the year ahead. Everyone’s budget meetings will likely include the following hot topics of discussion:
- Employee and management retention (and recruiting) are at the core of any hotel operations strategy.
- Market share capture is king.
- Management of expenses in uncertain times requires unprecedented accountability.
- Even the most thoughtful opening of amenities and food-and-beverage outlets can become a strain for any gross operating profit margin gains.
- Adequate maintenance expenditures and action plans are necessary to push cycle renovations ahead.
- Liquidity concerns will keep us up at night until the spring.
With employee turnover at an all-time high and unprecedented labor shortages, it is tempting to budget unsustainable wage increases. We ask our operators to present and implement cultural and tangible employee experience changes to help retain and recruit. For example, flexible work schedules (i.e. a four-day week), concrete plans to improve working conditions and reduce work-related stress, addressing post-COVID fatigue, employee recognition (i.e. quarterly incentive programs) and creatively reviewing college recruiting and alternative immigration programs.
Despite forecasting a gradual progression of occupancies, upward wage pressure and supply-chain disruption-related inflation, by combining (where possible) reductions in management headcount and implementing cross-utilization of resources, our asset-managed hotels aim to achieve total departmental productivity nearly flat to 2019. Limiting the return of brand standards and implementing creative cross-utilization of staff will ensure per-occupied-room expenses will get closer to 2019 levels. Budgets should be developed to minimize cost structure to the lowest possible level and include efficiencies gained since 2019.
The signs of performance improvement are noticeable and celebrated across all hotel types, segments and locations. However, the recovery timeline will vary by market and individual hotels because the post-COVID operational ramp-up will be highly dependent on the asset location and positioning: urban center, convention center or leisure destination.
The most successful budget negotiations will necessitate management companies and hotel teams embracing a new era of budget preparation where zero-based budgets are thoughtfully developed and the hotels get the buy-in of ownership on the top-line assumptions before the development of the full budget.
Some hotels are achieving extraordinary revenue-generating index levels. These hotels have a culture of dynamic revenue management and are led by creative and highly proactive general managers. Winning the market share game in 2022 needs a revenue manager to be empowered to leverage all the tools at their disposal, to think outside the box to find a direct path to leisure demand and to make quick decisions to take advantage of any last-minute demand swings.
Achieving and exceeding market share goals for premium and luxury hotels will require returning as close as reasonably possible to pre-pandemic services, brand rituals and ancillary amenities. Carefully delivering on the brand/positioning promise will assist hotels in pushing average daily rate despite limited compression. The good news is that talented operators are finding ways to open amenities and outlets without jeopardizing GOP margin gains. Additionally, facilities/amenities fees should be reimplemented—if your hotel has a legitimate amenity package, there is no reason to wait.
When it comes to asset preservation and delaying cycle renovations, asset managers should partner with facilities management professionals to comprehensively review each property's annual CapEx budget and ensure the preventative maintenance budget, repairs and sustainability measures are adequate. There is an acute need to extend the life of the product, equipment and mechanical, electrical and plumbing systems and to find economically viable solutions to remedy any deficiencies.
Lastly, the 2022 budget package should include a detailed cash forecast; without another Paycheck Protection Program round in sight, focusing on keeping cash burn down is paramount.
Andrea Grigg is JLL Hotels & Hospitality’s senior managing director and global head of hotel asset management.