Skills threat that high-end hotels face on closures tied to Covid-19

When India was announcing the partial re-opening of its economy last weekend as it inched way out of the coronavirus control restrictions, health authorities said restaurants would only be allowed to sell take-away food.

In contrast, Health Secretary Mutahi Kagwe, while allowing the hospitality industry in Kenya to re-open, directed that they undergo mandatory testing of staff for the virus, space tables and seats for social distancing and sell alcohol only when a customer orders a meal.

The latter was allowed on condition that such a customer would not be allowed to order alcohol 30 minutes after placing an order. This is what led to the now popular “two sausages and a beer” phrase.

When Kenya partially closed its economy to contain the virus, two industries were among the hardest hit: Travel and hospitality. This was because the country closed its airspace to international flights, meaning that tourism, a key income earner for the country and the hospitality industry, had suddenly been brought to a halt. This was a big blow considering that in 2019, Kenya received 2.4 million visitors, earning the industry Sh163.6 billion.

Restrictions on travel and hospitality, and the cessation of movement in and out of key investment destinations like Nairobi and Mombasa also adversely affected local and international business travel.

“Ninety percent of the revenues for hotels around the world, Kenya included, was erased,” Roberto Simone, the managing director of the Villa Rosa Kempinski, Nairobi, told the Business Daily this week. This has in turn led to a severe stanching of cash flow for the industry.

Without cash flow, it becomes impossible for any business to operate, a situation made worse by the depressed economy caused by the restrictions to slow down the global pandemic.

As a result of the massive loss of revenue, top hotels have, since March, drastically downsized their operations, with some, like the Sarova Stanley, Hotel Intercontinental and the Fairmont Norfolk, closing their doors altogether. Most of them have had to send their staff on unpaid leave while some have shed jobs, and this has led to yet another challenge that is likely to hurt the hospitality industry in the medium and long-term — the loss of intellectual property (IP).

According to Mr Simone, closing down top hotels may not necessarily be the best answer for investment destinations like Nairobi.

“If you close (these) hotels, which are key references for cities like Nairobi, this is like switching off the lights for Nairobi across the hospitality platform across the world,” he said. “If an investor is looking to Africa for post-Covid investment, he sees that in Nairobi, the most important hotels are closing down. So the outlook is negative.”

His views dovetail with the findings of the latest McKinsey report, Re-opening and Re-imagining Africa, which warns that the restrictions on movement are likely to cause the first recession in the continent in 25 years, threatening the jobs and incomes of over 150 million people across theb region.

Hospitality employees are among those already feeling the heat of these restrictions, forcing the government to write to industry players, such as the Fairmont Norfolk, to question the rationale for the termination of employment for all staff.

“The said termination is reported to be on account of the Covid-19 pandemic and the recent flooding of the Fairmont Mara Safari Club. Contemporaneous with the said media reports, this Office has also received complaints from some of the affected employees, who have raised concerns about the lack of due process in reaching the reported decision and violations of their employment rights,” said Kennedy Ogeto, the solicitor-general in the Office of the Attorney-General in a letter to the hotel’s general manager, Mehdi Morad, dated May 29.

LAID OFF

Norfolk has since withdrawn the memorandum sending all workers home as negotiations continue.

The authors of the McKinsey report acknowledge that already, the economic outlook is bleak.

“Globally, while some countries are past their peak rate of infections, concerns about virus resurgence continue to raise uncertainty,” they argue, implying that even the idea of a post-Covid-19 future remains dicey.

One of the unintended consequences of the closure of top hotels is the loss of skilled manpower, trained at great cost to become the best in the hospitality industry. Their knowledge of how to create a world-class customer experience is ranked in the industry as IP.

Unlike other industries, such as manufacturing, the hospitality industry sells customer experience. The more a destination is able to offer a unique experience, the more visitors it is likely to attract both from the domestic as well as the international tourist markets.

When workers in the industry leave or are laid off, this can lead to “de-industrialisation” through which the sector loses high quality staff to others like agriculture or Jua Kali (informal sector).

As a consequence, the sector becomes less competitive over time.

“The loss of IP is turning out to be an important transition point in the sector,” warned Mr Simone.

According to him, the workers who have been laid off by top hotels are unlikely to go back once the economy re-opens as they will have found new sources of revenue in self-employment or other economic engagements.

That would imply that the resources that the industry had in the past invested in training such key personnel would not be available to the industry after Covid-19.

This will further dent the industry’s ability to recover once the global pandemic has been controlled or authorities find ways of dealing with it over the long-term.

Even without the loss of IP, industry players expect that it will take at least 24 months for them to return to 2019 levels, meaning that it is important for them to take a long-term view of the road to recovery.

From an IP point of view, the trend of laying off staff will mean that the hospitality industry will be impoverished. This will in turn affect the quality of customer of experience in the short and medium term and is likely to eventually lead customers to change sentiment, preferences and attitudes, which risk winding back the clock of the gains that cities like Nairobi, among the best destinations in Africa, have built over a long time.

The risk of depressed earnings in the hospitality sector is that it will have a ripple effect on others such as aviation, agriculture, processing and service industries that support tourism.

That is why Mr Simone believes it is important for top hotels to remain open. However, they must ensure that they generate cash flow and protect their bottom lines to justify their operations.

“If we do not open,” he warned, “the business will die of closure.”

Already, other destinations, such as India and Spain, both of which bore the brunt of the global pandemic, are re-opening, including opening their doors to international travellers.

As such, there is need for African countries, Kenya included, to take tentative steps towards re-opening.

KEY INDUSTRIES

This is a view also shared by the authors of the McKinsey report.

“African countries need to find smart approaches to reopen economies in a calibrated way that brings key industries back into operation while ensuring safe ways of working,” they argued, warning that the Covid-19 crisis will likely persist for some time and it will, therefore, be difficult for economies to wait it out.

For operations like Kempinski, the key is in keeping the doors open while securing the health of staff and patrons while also protecting cash flow.

“Think about the future,” Mr Simone said. “Because customer behaviour will change.”