This article by Arnold Japutra, Lecturer at the University of Western Australia and Ringkar Situmorang, Lecturer at Universitas Multimedia Nusantara originally appeared in The conversation The 4th of July.
The hospitality industry is among the sectors that have taken the biggest hit in the early months of the COVID-19 pandemic. With the recent increase in new infections, here’s what we can learn from their experiences to prepare for future crises.
The global pandemic – with quarantine periods, border closures and travel restrictions – has resulted in huge losses for hotel and tourism businesses. In the early months of the pandemic, hotel occupancy in Indonesia fell to just 19.7% in March 2020 from 52.3% in the same month last year.
Our research explores the various challenges that hotel managers have faced and how they have responded to them.
To anticipate problems due to rising infections, we suggest that hotel managers take deliberate measures to protect visitors and employees. Given the multi-stakeholder nature of the industry, hotels need to engage with government and industry associations in formulating policy in times of crisis. They must also align with unions to provide safety nets for their laid-off workers.
Impacts and challenges in the industry
In March 2020, we conducted semi-structured interviews with hotel managers in three top tourist locations in Indonesia: Jakarta, Bandung and Bali – to map out their challenges and the strategies they came up with.
We found that hotels were considering whether to stop operations or close hotels permanently. The layoffs have affected all levels of employment, from the senior management level (50-75% of positions have been eliminated) to the lowest positions such as administrative staff (50% of positions have been eliminated).
Another issue was contention between corporate offices, regional offices and property management to open or close the property the following year. Payments to vendors and suppliers have been hampered, raising concerns about future relationships between hotels and property suppliers.
The strategies put in place were a quick adjustment to deal with the pandemic. But this has been detrimental to the economy and the sector in the long run. The massive layoffs have increased unemployment rates and dampened economic growth, affecting the ability of businesses to recover.
Strategies currently being implemented to mitigate the crisis
Hotels have implemented several strategies to mitigate the crisis.
First, hotel management limited the spread of infection within their properties. Interactions between hotel employees and guests are critical to meeting guest needs during their stay. However, the pandemic has disrupted these interactions. Thus, managers have applied security measures to improve health and safety, in particular by carrying out mandatory tests on employees.
While understandable, this could create anxiety for hotel guests and employees. For example, the decision to track guest travel histories could breach guests’ privacy and change their perception of how the hotel protects their anonymity and confidentiality. Mandatory testing could backfire as it could lead to mistrust among employees, who might start accusing and blaming other employees, creating a poor work environment.
Thus, hotels should further consider how a policy may affect other issues.
Second, most participants thought they had to compromise their offer to generate revenue. Several hotels offered new product packages, such as discounted prices, to increase occupancy and revenue. The managers also compromised the services offered, such as reducing room cleaning to once every three days and offering frozen food, which allowed them to offer lower prices. They also offered rooms for doctors and quarantined infected patients.
Compromising services, such as the provision of frozen foods often deemed cheap and unhealthy, could tarnish the hotel’s reputation. Offering the property as a quarantine hotel could also be a double-edged sword. This could help the hotel build its reputation and brand image. At the same time, it can dilute brand equity. There might be a negative perception that the hotel is unsafe as it might carry the virus.
Therefore, while applying this strategy, the hotel management must calculate whether the benefits outweigh the costs.
Third, all participants revealed that hotels need to reduce their workforce. They had to lay off employees to balance their financial situation. Another alternative was to offer employees the option of paid and unpaid leave. Many managers have pursued a temporary pay cut to save jobs.
The decision to lay off employees to minimize labor costs could be crucial in dealing with a crisis. However, such a decision could lead to dysfunctional management. Laying off employees can also increase the unemployment rate and disrupt the economy, affecting hotels. Hotels, unions and the government should therefore work together to find the best solution.
What can hoteliers do to improve these strategies?
Our study reveals that the repercussions and challenges create a complex situation for hotel businesses. Indeed, the tourism and hotel industry is inseparable from other issues (socio-cultural, economic and political).
For example, neglecting health issues to pursue a financial goal would increase the risk of reverting to a zero-sum game – hotel staff and guests are exposed to health risks, and businesses may have to deal to forced closures. Managers should deliberate carefully about their responses and strategies, as they can be beneficial and detrimental.
The hospitality industry should work with its stakeholders to find the best solution. It is important to ensure good coordination between companies, sectoral organizations (eg associations) and governments. Companies and industry organizations should also be involved in developing regulations and policies.
During the first months of the pandemic, there was minimal interaction between stakeholders, considering that everyone was misinformed about the virus at that time. Thus, hotels could only base their strategy on that of their parent companies or other hotels abroad. This situation has improved over time and the government has started to involve business in policy making.
Effectively managing supply chain issues – such as food supplies and free hotel items – is also critical as they have been heavily impacted by border closures. For example, managers can phase out the “just-in-time” method (purchase materials before they are needed), but buy only when needed, encourage domestic and substitute sources for strategic goods, and accelerate digitization of the supply chain. Additionally, all supply chain actors need to develop new agreements to help increase the sustainability of their business, such as revamping their payment structures.
How can the government improve its response?
The government has responded to the pandemic by launching a Kartu Pra-Kerja (pre-work card) incentive scheme for furloughed employees. This incentive consists of online refresher training and financial benefits. However, most furloughed employees were hesitant to sign up due to the complexity of the process. Incentives were difficult to access due to limited internet infrastructure, poor technological understanding and messy public data.
There is generally a gap between setting and enforcing regulations and policies in developing countries. This condition is especially true in a complex country like Indonesia, with 34 provincial governments. Central government and local governments should work together to monitor the execution of these regulations and policies.
While the pandemic appears to be under control, the recent surge in infection cases indicates that businesses should always be wary of potential crises. It is never too late to look back and learn from the past to anticipate what is yet to come.