5 ways to manage human capital in a difficult economy

There is good news coming out of The Broadmoor in Colorado Spring, Colorado: Turnover is down. Call it an obvious benefit of the downturn, as workers cling desperately to their jobs amid historic levels of unemployment. But for the 95-year-old resort, it’s something of a consistent claim relative to the industry as a whole.

“We have a lot of long-term employees,” said Cindy Johnson, The Broadmoor’s director of human resources. “Average tenure is eight years.”

The Broadmoor's Nancy Johnson has increased training programs during the downturn.
When occupancies, morale and resources are high, facilitating the type of work environment that fosters such long-term employment is easy. Try doing the same as hours get cut, salaries are frozen and coworkers get the ax, and the task becomes a lot more difficult. Yes, the most talented workers might stick around out of fear today, but will they jump ship when opportunities present themselves during a recovery?

That was the question panelists sought to answer Saturday during a breakout session at the Hospitality Leadership Forum in New York.

“You have to analyze your organization. What are your objectives?” asked Alan Momeyer, VP of HR for Loews Corporation, of which Loews Hotels is a fully owned subsidiary. “Figure out in the human resources what you can do that’s not going to send your best people out the door.”

Momeyer and Johnson worked through that analysis with attendees, examining five key topics during a downturn where HR can make or break a talented employee’s long-term retention.

Training. “There was a time when a recession came, the first person to lose their job at a hotel was a training manager,” Momeyer said. Not so anymore. Skimping on training tells employees you’re no longer interested in their personal development and, as a result, their long-term prospects with your company.

“Employees have a long memory,” Johnson said. “Even in this tough economy, they’re going to remember some of those small things.”

Both she and Momeyer recognized this and have kept, if not revamped, existing training programs. At each of Loews’ 17 properties, for example, there is a training manager who works with the hotels’ various departments to sharpen employees’ skills and thus improve the guest experience.

Johnson has actually increased training at The Broadmoor. “We feel we’ll be better-positioned (coming) out of the downturn if we have done this,” she said.

Benefits. As budgets get slashed, so do employee benefits. But again, think about what cutting health care and other plans says about how much your company values its people.
Alan Momeyer of Loews Corporation suspended incentive pay and merit pay increases this year.

It’s something management at The Broadmoor clearly pondered. In evaluating their benefits plan, the only thing they dropped was their full-time employees’ hourly requirements to keep it. The step was deemed necessary because a number of these workers’ hours got reduced, thus putting them under the former threshold for benefits.

Loews also adopted a similar policy and saved money in the process. When it came time to re-evaluate the company’s existing benefit plans, Momeyer and the HR team discovered they were paying too much, so they found a more affordable alternative. It’s something he admitted the company could have done before the downturn but became necessary when times got tough.

Incentive pay and pay raises. Here’s something both Loews and The Broadmoor suspended, at least for the immediate future. Nearly every like-organization has done the same throughout the industry, so it’s not a competitive disadvantage, Momeyer said.

How and when you bring them back will vary. Hourly employees at The Broadmoor will receive merit increases in 2010, and Loews is reimplementing incentive pay next year, though not at the previous target of 20 percent. “The money simply isn’t there,” Momeyer said.

Employee recognition. Loews and The Broadmoor are continuing existing employee-recognition programs. Doing so encourages strong performance and acts to boost morale. It also communicates to your hotel’s other employees that people are your company’s most valuable asset, according to Momeyer.

Communication. “During times like this, you have to communicate even more than before,” Momeyer said. Doing so eliminates the uncertainty and doubt that can destroy employee morale. It also helps you keep your finger on the pulse of your work force to measure its mood and anticipate any problems or complaints. Loews has increased its employee roundtables and internal surveys to meet this end.

The Broadmoor has gone a step further. The resort’s president and CEO, Stephen Bartolin Jr., holds regular meetings to address the concerns of staff and share relevant news and information.

In addition to those meetings, Johnson has overseen a comprehensive communications plan to keep every possible channel open with employees. She urged other hoteliers to do the same.

“Over-communicate, whether it’s in person, a memo, in your newsletter, whatever,” she said. “You can’t let people speculate about how your business is doing.”

‘The single most significant crisis’ of 2010

Like a gladiator returning from combat, the U.S. hotel industry has come face-to-face with a number of considerable challenges this year: dismal demand, plunging rates and lack of financing to name a few. Yet while murmurs of recovery have begun to echo from the masses, the fight is far from over.

Jim Abrahamson, InterContinental Hotels Group
Jim Abrahamson, president of the Americas for InterContinental Hotels Group, made this clear when discussing debt, which he called the “single most significant crisis that’s going to face us this year” during a panel at the AH&LA’s Hospitality Leadership Forum this week in New York.

“Debt is as large and looming as any issue facing our industry today,” he said. “And it’s not just our industry; it’s the entire world of commercial real estate. … We know there is a looming problem with the CMBS market and just general real estate loans.”

The issue was top of mind for Abrahamson, who had recently joined with leaders from America’s top public and privately owned real estate entities to discuss debt with members of the White House Counsel of Economic Advisors and the Federal Deposit Insurance Corporation during a meeting of The Real Estate Roundtable.

“They are very concerned about this,” he said. “… Their prediction as of the end of September is that we could see as many as 500 to 1,000 more banks being at risk of going out of business.”

During the meeting, members of the FDIC said at-risk lending institutions are facing tremendous pressure from appraisals, which are typically revealing enormous losses on invested assets, according to Abrahamson. Banks have begun raising reserves to cushion these financial blows, which could mean less lenient extensions on hotel loans.

“We got a pass this year, generally,” he said. “Banks haven’t been aggressive. They’ve kind of held off. We haven’t seen a lot of foreclosures. We’ve had some, but it’s not been widespread. (But) we have CMBS maturities in 2010 and 2011 that are looming.”

The news isn’t all bad, though. The industry has seen a number of successful refinancings of late, including FelCor Lodging Trust’s successful distressed-debt exchange last month.

But to get through 2010, Abrahamson said the industry has to establish a united front to lobby for extensions of TARP, TALF and other programs to ease the pressure on banks. He tasked the American Hotel & Lodging Association and the U.S. Travel Association with leading the charge.

“If (banks) don’t make it, we ain’t going to make it,” he said. “We have to take this on, because it’s going to be a battle ground next year.”

3 signs of pricing recovery

In thinking about the series of events that ultimately will lead to a recovery in pricing power for the U.S. hotel industry, it seems to me that three intertwined but separate things will have to happen:

1. Demand will have to recover. By that I mean there will have to be a sustained period where there is meaningful growth over previous periods.
2. Absolute levels of occupancy will need to be above a critical floor, which, of course, will vary by market and nationally.
3. Booking windows will have to lengthen to allow revenue managers to achieve desired levels of occupancy without having to practically give rooms away.

Let’s take a little more in-depth look at each of these three areas …

I start first with demand because, regardless of all the other factors, this is the first measure that needs to show sustained recovery. Historically, the industry has been able to maintain or even slightly raise room rates when the demand for hotel rooms is growing; basically, there are more guests in the market than the same time of the previous period. However, real pricing power has been elusive until that demand growth is consistently over the 2-percent range. When demand growth is at or above that rate of improvement, pricing power shifts from the buyer to the seller.

But there is an increasing school of thought that this historical standard may not repeat itself this cycle because the occupancy rates in most markets are too low. The thinking goes that no matter how great the level of demand growth, pricing power will not return until minimum levels of occupancy are achieved. This is an interesting point and one that needs considerable consideration. But I suspect this occupancy effect will be very market specific, mostly depending on the hotel mix and product quality in each market.

A couple of interesting developments in the current hotel cycle may have an unexpected effect on this level-of-occupancy effect. First, compared to historical levels, virtually no hotels are currently closing. Inherently, that means a considerable amount of inferior product remains in supply, and basically the question is whether these properties will stay in customer decision mix in a more robust economy.

Second, during the past several months there has been a meaningful demand recovery in the higher price segments, specifically in the luxury, upper-upscale and upscale chain-scale segments. This, unfortunately, has not been the case in the other three segments. Since pricing power starts at the high end, the fact that demand is indeed beginning to rebound there is an encouraging sign.

The last link in the pricing stability chain is the length of the booking window, which appears to be at all-time low levels. This, in concert with significant declines in the group and meetings business, has left hotels with a very uncertain and uneasy feeling regarding their short-term occupancy performance. With very low visibility in regard to bookings, the typical response is to lower the rate to attract guests. The real problem with this strategy is that it seldom significantly increases share but rather lowers the price point for the entire market as everyone follows suit. This is easily checked at Smith Travel Research because we have the unique ability to examine the performance effect of this behavior. So while it makes for a good story that this behavior “steals share,” the reality is it’s mostly not true.

Additionally, it trains the buyer that waiting until the last possible minute to book a room yields considerable benefit. This buying pattern seems unlikely to change until guests start to get burned by this behavior with either very high-priced rooms or no rooms available.

In conclusion, while we are beginning to see the light at the end of the tunnel, a few more key pieces have to fall into place before a pricing recovery is imminent.

Social web for business travellers 'impossible to ignore'

Social media will become increasingly important for business travellers and their agents, according to a report commissioned by a travel management company.

Advito, which is the independent consulting arm of BCD Travel, released its 2010 Industry Analysis this week.

The study says that it is inevitable that [business travellers] will generate content about their business travel experiences through social networks, just as they do about other aspects of their lives. Travel managers therefore should offer an official channel for them so that the information can captured and used.

A well-executed corporate network could give travel managers information about every hotel within a preferred programme, identifying strengths and weaknesses of the various properties. Similarly, a social network could be set up to float ideas among travellers on issues such as budget cuts, or for travellers to share cost-saving tips.

Leisure operators have started to use user generated content in resort to improve their product. A similar dynamic will emerge in corporate travel, Advito claimed. In 2010, we are likely to see the first examples of feedback from travellers being used in supplier negotiations, it said.

However, managers need to be aware of potential problems, such employees using the network for what is not a core business activity.

However, the conclusion is that social networking will become impossible to ignore in 2010 and that there will be major growth in travel managers creating corporate travel specific social networks.