The hospitality sector could perhaps top the list of sectors affected by the pandemic. The revenue and profits destruction in the sector is irreparable, and the hotel companies are now trying to find new ways to control their costs, and look out for inefficiencies. Take Lemon Tree Hotels, for instance, which has about 5 per cent market share in the branded hotels segment. The hotel chain had a revenue projection of Rs 1,200 crore for FY21, but due to lower demand, and weak room rates, the company is expecting to clock just Rs 400 crore.
"Our occupancy today on full operations inventory is 50 per cent. Normally, Lemon Tree does 80 per cent. So it is 40 per cent down, but prices are about 40 per cent down too. On a combined basis, our revenue is 36 per cent on room basis of what it should be," says Patu Keswani, Chairman and Managing Director at Lemon Tree Hotels at a Business Today panel discussion recently.
Keswani also says that the hotel chain's staff-to-room ratio was one. It had 8,000 rooms, and about 8,000 staff broadly. Post-COVID, the company realised that it can operate at a staff-to-room ratio of 0.7 which means that 30 per cent of the staff is excess in the system. Though the company is not laying off people because of that, it has a bunch of hotels opening up in the next two years (about 20), and so it would not need to hire new staff for those hotels.
"The productivity improvement is a part of them (staff) because people are multi-skilling. The culture-building of multi-tasking is going to play an enormous role for us going forward," says Keswani.
Just like the entire hospitality sector, the initial few days after lockdown were highly uncertain. Shortly after the lockdown, Keswani says, his company started thinking of steps that it would take for different levels of revenue destruction. Then, the other issue was debt. Unlike most large hotel companies like Marriott, Hilton or Hyatt, 70 per cent of the Lemon Tree Hotels are owned by the company, so it has a large amount of debt on books.
The first thing it did was to rationalise the fixed costs. Nearly 800 people at the senior level (or 10 per cent of the workforce) were asked to take pay cuts. Why? Their salaries were about 45 per cent of the total company payroll. Within these 800 people, the salary cuts were in the range of 50-200 per cent. This brought down the wage bill significantly.
The other thing that the hotel chain did was to postpone the renovation of its hotels. For instance, it usually renovates all hotels once in six years. Last year was taken as a gap year where none of the hotels were renovated. "We kept the low-demand hotels in a form of coma. In a 100-room hotel, we kept 20 rooms open, and ran them at lowest-possible cost. What I found, and I am sure every company found this, that there is an enormous flab that builds into the system over time, especially if you are starting to do well. We identified as much as we could. Now we have 100 per cent inventory open," says Keswani.