[City spotlight] Orlando's eye on recovery, Florida

Across every district and segment in the hotel industry, the ongoing uncertainty surrounding COVID-19 has leaders searching for a glimmer of light at the end of the tunnel. Those who have kept their businesses operational through the government restrictions have been working around the clock and overseeing every department. Team members who stayed onboard, stepped up, doing everything in their control to protect the safety of their team members and visitors. All eyes are now on recovery and how the local market is responding to the most recent developments.

While travel came to a standstill and numerous leisure and tourist attractions closed, Orlando hotels were never mandated to do so by the state or local government. In full Phase 1 of the reopening plan detailed by Governor Ron DeSantis, restrictions are now being lifted as detailed below:

• May 4th, 2020 - Restaurants were approved for dine-in at 25% capacity, with no maximum set for patrons dining outdoors assuming adherence to mandatory CDC guidelines for 6ft social distancing. Retailers were approved to welcome patrons at 25% occupancy.
• May 11th, 2020 - Barbershops & Salons were approved to reopen. Lynx and SunRail resumed operation of normal schedules and all routes.
• May 18th, 2020 - Restaurants & food establishments were allowed to increase indoor seating capacity to 50% with outdoor seating encouraged while following social distancing guidelines.
  • Retailers were also approved to increase capacity to 50%.
  • Gyms & fitness centers were approved to reopen.
  • Professional sports venues were permitted to open and operate for training and events maintaining compliance with CDC guidelines.
  • Museums were permitted to operate at 50% capacity. Counties were told to seek approval to operate vacation rentals.
• May 21st, 2020 - Universal Orlando Resort submitted planned reopening dates to Mayor Jerry Demings and The Economic Recovery Task Force.
• May 22nd, 2020 -The State approved plans for reopening Vacation Rentals. Fun Spot America reopened.
• May 23rd, 2020 - Gatorland reopened with all employees required to wear a mask while encouraging all guests to do so.
• May 27th, 2020 - Walt Disney World & SeaWorld Orlando presented their planned reopening dates to Mayor Jerry Demings and The Economic Recovery Task Force.
• June 5th, 2020 - Universal Orlando Resort will welcome guests back to all parks with detailed procedures for team member and guest safety (e.g., required temperature checks & face masks, virtual queues, online food & beverage ordering, and contactless payment).

The initial strategy for Orlando hotels will center around targeting drive markets, primarily leisure business, and then phase into the larger regional domestic market moving into the early fall. The early and short term successes of these roll out plans, together with the eventual opening of international borders, and the trust of those guests in the early successes, will determine what other travelers will return and when.

Hotel opening statistics throughout the crisis

While hotels and resorts were not mandated to close, many did after Florida’s “safer-at-home” order was issued in the first week of April. It initially led to a slower reaction in hotels closing doors, with some optimistic adjustments.

Accepting that the sudden and dramatic loss of business was uncontrollable, many local properties opted to house essential workers. In some areas, this included medical professionals and construction crews. Others were able to capture some displacement in areas where closures were more widespread.

Following the announcement of the “safer-at-home” order, the market open rate for May 1st, 15th, and 30th dropped an average of 5.67% week over week (April 6th to 13th). It fell an additional 4.33% the following week (April 20th). The data suggests that many hotel owners and operators were evaluating the situation day by day, waiting as long as possible before making the difficult decision to close their doors.

During the last week of April, the open rate for the first two weeks of May was approximately 73%, while the open rate increased to 79% for the second half of the month. The strategy for reopening seems to have shifted between April 13th to 20th as we saw the peak open rate of 97% move from June 1st to June 15th week over week (with the hotel open rate for June 1st dropping to 93.91%).

Hotel opening statistics as restrictions were lifted

As phase 1 of Florida’s reopening plan officially began on May 4th, there seemed to be greater confidence in a July 1st reopening date with only 75% of hotels open on June 1st, 78% of hotels open on the 15th, and 96% open on July 1st. The open rate for July 1st held static through the week commencing May 11th while the data suggests that additional hotels planned to reopen with a 91% open rate for June 1st and a 95% open rate for June 15th.

As of the date of this analysis, 72% of hotels in Orlando are open. The open rate for June 1st is currently 81%, increasing by 7% points for June 15th, and we see a much more significant jump up to 97% on July 1st.

Preparing for recovery

While this is an unprecedented time, Orlando tourism may very well rebound more quickly than other parts of the country. Closures, layoffs, and furloughs, while still significant, were not as substantial as other major North American markets such as New York, New Jersey, and California. Floridians are not strangers to major disasters that have shaken the industry over the past decade. Hurricane Irma in September of 2017 was chief among them, resulting in a loss of $1.5 billion in visitor spending, falling 9.5% year over year (Visit Florida, January 2018).

Numerous hotel owners and operators interviewed for this article state that they have taken this opportunity to expedite planned renovations or rebranding in preparation for demand to return. Some have boldly eliminated certain discounted rate plans to focus on their ideal clientele moving forward. There will also be a huge investment in touch less technology (e.g. digital check-in, keyless entry, voice-controlled in-room amenities) and potentially robotics to service guest needs with limited human interaction.

While a warm welcome and personalized experience will always be important, hotels will undoubtedly need to reposition themselves to meet the shifting priorities of their customers, with safety and security being paramount. Travelers will seek assurances in confirming future bookings, expecting clear and detailed messaging about new cleaning protocols.

For corporate or franchised properties of major US chains, this messaging is typically provided and advertised across brand channels. Independently owned and managed properties, accounting for 40% of hotel inventory across the US, may have a significantly more difficult time getting the word out compared with the major chains. Their communication channels are more limited and ad buys will likely be overshadowed by the greater financial resources of the major brands.

Independent operators will nonetheless benefit overall from the assurances given to the traveling public of the significant industry-wide priority accorded to safety. In effect, the truth of the adage “a rising tide raises all boats” will redound to the recovery of major brands and independents alike. It seems reasonable to assume, however, that the independents will see a steeper climb to reach pre-pandemic demand levels.

In an effort to foster confidence in the travel experience, hoteliers across the industry have implemented the “Safe Stay” protocols detailed by the American Hotel and Lodging Association (AHLA) in conjunction with CDC recommendations for continued social distancing. The biggest challenge for hotels in adapting to these new operational practices will likely be in their catering and Food and Beverage departments. Buffet breakfasts, typical of most limited service and extended stay properties, may very well become a thing of the past.

Many hotels have shifted to a boxed breakfast option during the pandemic, which could actually reduce costs and drive additional revenue to the bottom line in the long term. Filling a property with considerable event space is an even greater challenge, though many hoteliers have proactively reworked their meeting capacity charts to abide by social distancing guidelines, and are offering nuanced options to meet the unique needs of their clientele.

With the shifting operational infrastructure, it’s reassuring to hear that numerous properties are bringing their teams back and shifting their focus to the retraining and onboarding of new associates. It is an essential time for leaders to get a good temperature check across their teams and lay the cultural foundation that will support “the new normal”. “Social reflexivity”, the psychological aspect most important in high functioning teams, is contingent upon eliminating dysfunction upfront.

While this leadership practice is not isolated to post COVID-19 success, it will impact a business’s ability to “weather the storm”. Pivoting in response to rapidly shifting market conditions and travel intent, hotel professionals will need to consider alternate streams of revenue and likely redeploy their sales and business development teams accordingly.

July weekends begin to look up: 90 Day Demand Outlook

Using our Market Insight solution to evaluate the 90-day outlook (as of May 25th), we observe that while demand levels remain very low through June, there are reassuring signs of elevated demand through the weekends in July and the first two weekends in August.

Being a drive market for surrounding cities, Orlando has the benefit of a base of residents who will be “itching” to travel, and they are far more inclined to take a “staycation.” Though a Memorial Day weekend rise didn’t materialize, the 4th of July is looking more promising. Expectations regarding the “typical” booking window will need to be adjusted as businesses will be more short-term as confidence slowly returns, but the demand data for July does provide a reason for optimism (see figure below)

As we see in the following illustrations, projected demand for June 13th dropped further, week over week, with hotel restrictions being reduced by 12%. This is consistent with the cancellations of June’s largest conventions:

The cancellation of both the ACE20 Annual Water Works Association (AWWA) Conference & Exposition and The National Fire Protection Association (NFPA) Conference and Expo(planned for the 14th-18th of June,) would have generated compression across the market. Through May, approximately 25% of hotels adjusted their rates for these dates. There were positive rate adjustments of approximately 8.28% across these dates during the month of May. The average negative rate adjustment was 4% higher at 12.19%.

Arrival Date June 15th - demand before and after the event cancellations

How are hotels adjusting their rates over the next 90 days?

A snapshot of rate adjustments for the next 90 days as of May 25th illustrates that since the beginning of May when Phase 1 began, hotels have been very cautious about modifying their rates. Many of our partners have shared that they are really focused on identifying the rate at which rooms will book, regardless of what small share that might be.

The essential focus is on remaining competitive within their immediate market to ensure they can capture whatever business is out there. Rate integrity should be maintained as we move into recovery mode, especially while inventory restrictions are in place. As demand returns, online promotions will no doubt be more aggressive and staying in control of inventory and parity will require an even more concerted effort.

As of May 25th, approximately 78.5% of hotels have continued to modify their rates for June, 88.8% adjusted rates for July, and 89.7% for August.

% of Orlando Hotels Changing Rate (Next 90 Days)

In the snapshot of rate adjustments taken on May 25th, a larger percentage of hotels adjusted their rate in June than July, though we see a spike of 8-12% when moving into the first week of August. Consistent with the conservative strategy visible here, hotels are likely waiting to see how quickly Florida is able to move into Phase 2 of the reopening plan, and how the theme park re-openings will trigger domestic demand.

In the last two weeks of May, the average positive rate change for June arrival dates held steady at approximately 8% as did the negative rate change, though at a higher percentage (11%).

The gap between positive and negative rate changes in July closing a bit with the average positive rate change increasing to 9.5% and the average negative rate change reduced to 10.3% over the last two weeks of May. While there is less negative rate change in July, it does appear that hotels are strategizing around domestic weekend travel, with a higher negative rate % on average for Fridays and Saturdays. As demand is holding, for now, hotels are counting on a spike in short term bookings.

With the exception of the first two weekends in August, demand is still soft across the remainder of the month. Hotels are modifying rates at a lower percentage, with positive rate increases lower at 7.3% and negative adjustments down at 9.6%. With the current level of uncertainty, it comes as no surprise that hotel owners and operators appear to focus on rate strategy for 30-60 days rolling.

How to stay competitive in a challenging conditions

Based on the lower price point and reduced turnover model (for extended stay properties), it is likely that returning demand for the remainder of the year will funnel into the lower priced segments. Travelers, still gaining confidence, may also be attracted to villas and short term rental properties - perceiving these lodging options as more private and less risky in exposure to the virus. With low occupancy and considerable closures across the luxury and upper priced segments (due to more considerable operating costs) it will be worth monitoring to see if demand funnels into these segments moving into 2021.

The luxury and upper priced segments have far greater flexibility in adjusting rates to come down to their floor, whereas economy properties can only reduce rates so much. Consumer’s perceived value will increase as a result, and excite customers to take advantage of lodging experiences that they might not have been able to afford previously.

The variability of phased openings across the US has introduced a considerable degree of uncertainty about the movement of demand over the summer months. That demand will increase seems reasonably assured, but the extent and the speed of recovery is a multifactorial puzzle.

Absent a vaccine, news of ongoing outbreaks renders the entire demand landscape extremely volatile. For hoteliers, the best advice is to follow the “ABCs” of recovery: Assurance, Benefits, and Creativity. The traveling public will want to experience visual leadership around safety and cleanliness (e.g., pillows wrapped after cleaning, touch screens covered on arrival of the next guest, etc.).

Staying competitive will also demand keen attention to redefining the property’s unique value - what the customer experiences as novel benefits of one property over another (e.g., providing hand sanitizer and masks in each room, gloves for those who choose to use them, etc.). The goal needs to focus on making it easy to have a good time and not worry about the potential for infection.

Assuming assurance and distinctive benefits, creative use of technology and new practices become the force multiplier. Properties that show a flair for the creative and innovative will be distinguished and benefit from the recovery (i.e. customizable breakfast menu options rather than buffet style).

On-property leaders are in a difficult position, juggling the directives from senior leadership to resume normal operations as soon as possible, paired with their concern for the safety and well being of their team and guests. As new operational procedures are implemented, leaders must focus on empowering their associates through internal alignment and redeploying key talent to short term and alternate sources of business integral for post-COVID-19 success.

Demand will be far less predictable in the short and immediate term. In developing a post-COVID-19 strategy, hotel leaders can no-longer benchmark against previous years, nor base demand predictions on historical data. The real task ahead for leaders in the industry will be to create demand rather than wait for it, while basing investments on dynamic demand models that capitalize on real-time data to track market behavior and optimize revenue.

Credit to: Kristen C. LaBelle