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    The hospitality industry in 2021 anticipates slow recovery with continued uncertainty and further pre-opening delays. Destination Review had the opportunity to meet Mr. Mauro Gasparotti – Director of Savills Hotels Asia Pacific. Mauro is in charge of Savills Hotels SE Asia advisory business and is an expert in the Hospitality market in Viet Nam. He had some very interesting thoughts on the present situation and the outlook for the local industry. He provided much-needed clarity but the broad thrust of his advice to hoteliers was to make ready for the future.

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    _Q1

    Hotels are faced with hard choices, but some essential things to consider are:

    First is to cut operating costs. Most upscale hotels are trimming back major expenses, the majority of which are labour costs. There have been a lot of layoffs. Key personnel are working reduced shifts and multitasking service areas. Some hotels are operating under division heads without a GM.

    With every overhead under scrutiny, the value add of hotel facilities are being weighed against maintaining successful operations. So they may choose to close some facilities. For example, some are making use only of the all-day dining restaurant only for breakfast, which also means other restaurants may be shuttered. Meeting areas and other services like spa may be reduced as well as minimizing the number of open floors. The key outcome is increasing operational efficiency. What is happening is hotels are gradually turning into limited-service or selected-service projects. However, when the market recovers, this management structure and approach will need re-evaluating. Fixed costs are not easily avoided as routine maintenance is essential to retain asset appeal, and reputation. 

    The most extreme approach to cost cutting is entirely closing the hotel. Very limited upscale 4- or 5-star hotels would choose this route as it is the most extreme option as it will make the re-opening more difficult and still require regular maintenance work. However, local hotels and 3-, possibly some 4-star hotels are more likely to choose to temporarily close, especially those previously reliant on overseas and business trade such as those in Ho Chi Minh City, Nha Trang or Da Nang.

    Hotels are also looking for new ways to create revenue. Given the demand shortfall, some hotels with low customer expectations are lowering rates to capture previously unavailable market segments. Personally, I do not advocate this, but the reality is, many hotels have already pursued this approach to adapt as best they can to a very different business environment. Usually, hotels tend not to lower rates as increasing them again can prove very difficult. However, we are not in a normal market situation. By lowering rates, hotels shift their original category for access to a different and wider range of customer segments. The tricky part is with guests becoming accustomed to lower prices, that will affect the perception of ‘value” when the full price is reinstated.

    Another common solution to create revenue is promotions, such as full packages with complimentary one-night stay and F&B benefits. Some hotels are developing innovative approaches to incentivizing appeal – for example, Intercontinental Phu Quoc are offering to pay for your return flight tickets as part of a three-day getaway.

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    Q2

    It is very challenging to change client targets and see overnight success if the original and core target was previously MICE and corporate travelers. At some hotels, over 55% of their guests were corporate travelers, which as you can imagine is a big hole to fill. As these hotels were positioned to accommodate this demand, this is the group they are familiar with. These projects will first need to reduce rates to better capture leisure travelers or shift to local business clientele. However, those hotels that previously depended on higher proportions of corporate guests are facing a stark choice – with business travel recovery remaining uncertain whether they should keep their original orientation.

    There are two other things impacting corporate travel: corporations making their own spending cuts and also, changing consumer behaviors. Cutting travel is typically the first thing that happens under an economic crisis, corporations will lower their travel spending budgets. However, the biggest impact on corporate travel could come from forced changes to interaction. People are becoming very familiar with Zoom, Microsoft Team, and other kinds of online interactive video technologies – which raises the question, are face-to-face meetings still required? We see this as the most significant threat to corporate travel in the future. Eventually, it will return, but mid-term changes in the way we travel for business are intimidatingly new.

    My feel is business travel remains important and face-to-face meetings are vital to business relationships. Also, people like to travel, the growing new category of “bleisure travelers”, a portmanteau meaning travel for business but extending their stay for leisure activities will still exist. Also, as company communication technologies improve, “work from home” or remote working using Zoom, Skype or Teams, etc., will see hotels start promoting “work-from-hotel packages”. These are reasonably priced long stays with appealing working environments. Some chains in other countries are already adopting the “Work from Hotel/Resort” to adapt to the enforced remote working trend.

    There are two other things impacting corporate travel: corporations making their own spending cuts and also, changing consumer behaviors. Cutting travel is typically the first thing that happens under an economic crisis, corporations will lower their travel spending budgets. However, the biggest impact on corporate travel could come from forced changes to interaction. People are becoming very familiar with Zoom, Microsoft Team, and other kinds of online interactive video technologies – which raises the question, are face-to-face meetings still required? We see this as the most significant threat to corporate travel in the future. Eventually, it will return, but mid-term changes in the way we travel for business are intimidatingly new.

    My feel is business travel remains important and face-to-face meetings are vital to business relationships. Also, people like to travel, the growing new category of “bleisure travelers”, a portmanteau meaning travel for business but extending their stay for leisure activities will still exist. Also, as company communication technologies improve, “work from home” or remote working using Zoom, Skype or Teams, etc., will see hotels start promoting “work-from-hotel packages”. These are reasonably priced long stays with appealing working environments. Some chains in other countries are already adopting the “Work from Hotel/Resort” to adapt to the enforced remote working trend.

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    Most importantly, each destination in Vietnam should do more to attract tourists instead of pushing the onus to hotels. Da Nang has done well in the past organizing for example mass appeal events like firework festivals. Other destinations need to step up their efforts to promote local travelling with dedicated events or activities.  Some worldwide destinations, to really incentivize tourists, promote not only the country but also its destinations. Destinations should find their own unique tourism promotional approaches and appeals, for example, developing food festivals or events that tourists would love to attend but were not previously aware of so that hotels can also benefit from them.

    Q3

    Every country has its own drive-by destinations. The trend appeared long ago, lost a bit of ground when budget airlines started to grow, but it only increased in popularity this year with people understandably wanting to avoid airports. Besides, there is now an extensive range of transport options such as buses, coaches, private cars and railways that allow easier movement of tourists.

    Viet Nam is yet to fully develop its drive-by destinations. Vung Tau and Ha Long Bay are probably the first two that started besides the main cities. However, entertainment offerings in both are quite limited, the time it takes to drive there is also very short so most tourists tend to see them as day trips only and not stay overnight. This may change as both destinations, along with several other drive-by destinations will extend their offering both for entertainment and for accommodations quality and variety.

    Mui Ne was one of the first drive-by destinations. There was already a decent beach and nice boutique hotels dating from 15 years ago. It was easy to go for the weekend. Back then, it took about 5-6 hours to get there and thankfully it has become far more convenient since. Mui Ne does not have many entertainment activities as it mostly focuses on resorts, so still lacks what a destination should have. However, major new projects in planning by leading developers, with extensive facilities will see a great deal more entertainment options become available.

    Ho Tram is also a nice drive-by destination with a good beach, and quality resorts like Meliá, and Grand Ho Tram. These are essentially destination resorts as tourists arrive and just stay there as there is little offering outside. A differentiation is needed to make it worth the trip in terms of F&B appeals and attractions. Ho Tram may take some time to become a proper destination but the potential is definitely there.

    In the north, Sa Pa has drive-by destination potential especially for hiking, mountain biking, wellness, etc. Getting there used to be arduous but has since become easier and much faster. The actual definition of a drive-by destination is broad, it could easily apply to resorts within 20 minutes of the city. For example, Bangkok has city hotels and resorts along the river just 30 minutes from downtown. Ho Chi Minh City and Hanoi have no such thing yet. Mia Saigon in Thao Dien, district 2 has recently become quite a popular weekend getaway.

    View the full presentation about Vietnam hotel market updates in Meet the Experts Conference of Mr. Mauro here: https://youtu.be/kk8Ff14Knt4

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    Q4

    The star grading system is used to indicate positioning and the minimum level of facilities. However, it has never helped inform consumers of exactly what to expect. Nowadays, there are multiple ways for them to review the hotel before they arrive – on OTAs like Agoda which have prior guest reviews, pictures and videos to consider before booking. However, developers need to know how to classify their own product rather than just using 3-, 4- or 5- stars. More work is needed to really identify where in the category their hotel actually fits so that they can then provide a far more refined product. Thinking of a hotel as just a roof over your head where you can sleep is wrong. The reality is a hotel can be much more, as long as its developers and operators understand where its potential lies.

    Once they identify this direction, designers and operators will easily understand what to do. The whole process becomes more efficient. Products that emerge are optimized and consumers know what to expect. 

    If the hotel has a good product, which is just not simply categorized in 3-, 4- or 5-star but one that has its own distinct ‘personality’, they can run the business easier, even under the tough situation like these days. If they have a well-designed hotel – which there are only a few of in Viet Nam – and offer the right price, they will have a lot of customers who want to simply try the experience. A good to high-level wellness resort would do well in Viet Nam. Once the ‘project-personality’ is identified in the initial business model, everything has to match that, including design, operation and brand. The result is a far more carefully planned and optimized product.

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    For Development planning, hotels need to have the right products when the market is good as well as when it is bad. Those who build the hotel in the right way from the beginning already have a competitive advantage, much better selling price and be in a much better position than those who just copy others and do a “no soul” hotel. So if you are entering the industry, it does not matter whether your hotel is a 3-, 4- or 5-star hotel, just make sure to do the right thing from the beginning.

    I would advise to look harder for opportunities in periods like this instead of focusing on “risks and issues” only. There is a great competitive advantage that can be created in a period like this. For some, it may be the time for training or renovation, rebranding, etc. There are lots of opportunities and hotels need to not only recognize them but be bold enough to make them happen.

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    The final advice is to stay informed. You really need to keep yourself updated because rebound and recovery may come at any time. If you follow the first two pieces of advice, building the right thing and capturing the right opportunities, staying informed will see you fly when recovery happens. To be specific, stay in touch with the news, consultants, operating team and owner/operator relationship.  When recovery comes, if you have had the right products and have not wasted this period, being updated will place you squarely in the frontline, refined and ready to reap the benefits. Remember the old adage, “failure to prepare means preparing for failure”.

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    Thank you Mr. Mauro Gasparotti for your valuable opinions and advice!

    TAKE-A-SIP: Hotels should look for opportunities even in a tough situation like this

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