Running a global hospitality business in a pandemic
Dillip Rajakarier, group CEO of Minor International, on why strong cash management, weekly planning, and a focus on local markets have been key to managing through crisis.
This interview is part of the Inside the Mind of the CEO series, which explores a wide range of critical decisions faced by chief executives around the world.
Minor International is a hospitality industry powerhouse. Based in Bangkok, Minor operates more than 530 hotels in 56 countries, with a large presence in Asia (where it operates chains across the region, including the Anantara luxury hotel brand), Europe (where it runs the NH chain of hotels), and Africa. The company also owns brands in the well-being and lifestyle sectors and runs 2,300 restaurants. Founded in 1967 by American William Heinecke, who was then 17 years old (hence the name Minor), the company began as an advertising and cleaning business. A decade later, Minor began its journey into hospitality, opening a resort on the coast southeast of Bangkok, in Pattaya, that today is part of Minor’s Avani chain. In 2019, the company’s group revenues reached US$3.8 billion, with profits topping $343 million.
Then came COVID-19, and the hospitality industry, which traditionally accounts for 10 percent of global GDP, was hit hard. According to the United Nations World Tourism Organization, international tourism was down 70 percent in the first eight months of 2020. Travel restrictions, lockdowns, and a climate of fear have caused occupancy rates in hotels to plummet and restaurants to morph into takeout and delivery operations. For the first six months of 2020, Minor reported an operating loss of $270 million. Dillip Rajakarier, who took over as group CEO in January 2020 after having run Minor’s hotel business since 2011, has been in crisis mode ever since.
As the company has developed its Business Beyond COVID strategy, planning cycles have been shortened from years to weeks, costs have been cut, and credit lines have been secured. The good news for Minor was that it had already made progress in digital transformation; back-office employees made a seamless transition to remote work. And because it operates in China, Minor saw the pandemic coming and was able to quickly roll out health and safety programs across businesses and continents as it spread.
Rajakarier spoke with strategy+business on a video chat about how Minor has survived an unprecedented industry disruption — and his plans for the company to come back stronger.
S+B: COVID-19 has been particularly hard on the hospitality sector. How has Minor coped?
RAJAKARIER: We’ve tried to deal with COVID-19 from a guest- and employee-safety perspective, focusing on health and hygiene. We have installed many systems and processes within our hotels, our food business, and also our retail business. We were fast to react, because we’ve got just over 90 restaurants in China, and they went into shutdown in early February. We took some of the best practices we learned there to other parts of Asia and then to Europe as COVID spread.
In China, we worked with the local health authorities and government agencies to ensure that we were fully compliant from a health, safety, and hygiene perspective in all our hotels and restaurants. We then rolled out standards, systems, and procedures to ensure that our guests and our staff were protected and felt safe. But now, the COVID situation is turning into an economic crisis as well.
S+B: What will that mean for the industry?
RAJAKARIER: Some of the smaller brands are suffering, because they’re not able to come to grips with the new standards of health, hygiene, safety, and sanitization. We’re looking at it through our guests’ eyes. For example, we have technology that we use to clean and sanitize our rooms. And once it’s done, we put a seal outside the door so that the guests know that their room was fully sanitized. Of course, all this comes at a cost. And this is why I believe some of the small operators who don’t have access to these systems and procedures will find it hard.
S+B: More specifically, what has been Minor’s reaction to the sudden collapse of the sector?
RAJAKARIER: In some countries, governments enforced a lockdown, so we had to close our hotels. In others, it was not viable to keep the hotels open because the occupancy was falling off a cliff. So, we came up with our Business Beyond COVID plan. It has three clear phases.
Phase one was all about conserving cash, cutting costs, reshaping the business, and using technology as a tool. Phase two was all about strengthening our cash positionPDF, our liquidity. We took measures to make sure that we’d have enough cash to see us through at least two years. Phase three is about our rebound.
The first phase was to ensure our staff and guest safety. We quickly implemented the hygiene regimes in our hotels, as I explained, and had back-office staff work from home so that business was not interrupted. On the food side, we shifted the focus to deliveries and pickup and saw a fourfold increase in our delivery business from pre-COVID.
We knew revenue would be variable, but we were certain of the costs. We took some strict measures in terms of cost control from a payroll perspective, and managed a savings of 30 to 35 percent. We divided our staff cost control measures into three phases too: permanent staff reductions, temporary reductions because of COVID, and an assessment of whether we needed permanent staff back within the next three, six, or nine months. We re-planned and resized our business accordingly. It meant we had to make difficult decisions.
We also looked at operating costs. Most of our food outlets are operated out of rental spaces, and 240 of our 530 hotels are on a lease. We had to quickly negotiate with the landlords. And wherever the hotels were open, we were able to push domestic business, because we knew there was no regional business and there was no longer international business. And we pushed our wellness offerings because people are now much more focused on looking after themselves.
S+B: You talked about shoring up finances in phase two. How long do you think those kinds of controls will be necessary?
RAJAKARIER: Whether we like it or not, the next 12 to 24 months are going to be very bumpy, and everyone needs to plan for that. Our goal is to get back to at least 2019 levels in three years. We also see that recovery varies by region.
We will be focused on domestic markets, because those are key. And then, when the regional markets start to open, we will focus on the regional markets. We don’t see long-haul business going back to the way it was. So that’s how we have planned our forecast, in terms of the liquidity plan, our strategic plan, and also our funding plan. We managed to raise a lot of money, but we also need to make sure that we don’t breach our covenants. We had a waiver for this year, so now we’re already looking at next year to see how we can manage the terms of our covenants if the business doesn’t pick up.
You have to plan your business at a granular level on a day-to-day basis. But you also need to look at the next year or the next two years to make sure that, at a strategic level, you’re in compliance with your covenants, you’re in compliance with your funding, and you have enough cash to see you through.
S+B: What about phase three?
RAJAKARIER: Here the brand is key, and the brand values are key, and we have to deliver the experiences as well. The guests who are now coming to our hotels, even though we’re running at 10, 15, or 20 percent occupancies, they still get that Anantara or that NH experience, which is key to maintain. And we can ramp up easily. We were able to open hotels with 48 hours’ notice, just as we were able to close hotels with 48 hours’ notice. So we are quite flexible.
At the moment, the hospitality sector looks “doom and gloom.” But we all know that the hospitality business will rebound sooner or later. And this is based on our experience with other health crises such as SARS [Severe Acute Respiratory Syndrome in 2002], our experience with bird flu [in 2005], our experience with MERS [Middle East Respiratory Syndrome in 2019]. Yet we fully understand that this is a global pandemic situation unlike the others, which mostly stayed in Asia, and that it will also evolve into a global economic crisis.
We’re planning for both the short and the long term to make sure we are ready. We know that once the pandemic is under control, whether there’s a vaccine, better treatment, or widespread immunity, business will come back. We have to make sure that when we look at the business in the short term, we focus on survival, but we also have to look at the business in the medium and the long terms, which means sustaining our brand and market presence.
S+B: What role does leadership play in tackling a crisis?
RAJAKARIER: From a leadership perspective, we are quite fortunate. Our corporate offices are in Thailand, but we operate what’s called a hub-and-spoke structure. In the countries where we have a strong presence, we have hubs. For example, in Australia we have a hub that controls about 60 hotels and 200 food and café outlets. Our hubs, which are also located in Asia, Africa, the Middle East, and Europe, have full operational support, human resources, finance, technology, and e-commerce.
During the work-from-home period, we had virtual meetings on a daily basis so that everyone was aware of what was happening around the globe. Information is very powerful these days, and you can see how information travels. And we shared best practices from a cost control perspective and from a health, hygiene, and sanitization perspective. And that was important for us to establish within the leadership structure, so that the leaders in the different hubs could be really agile.
S+B: What are you doing about forecasting in this topsy-turvy world?
RAJAKARIER: Forecasting now is looking at your business on an almost daily basis. Most leaders should be able to fly at ground level and should also be able to fly at 30,000 feet to look at the strategy and to look at the overall picture. But at this time, we all have to fly at ground level, to make sure that we are protecting our business.
Forecasting now is looking at your business on an almost daily basis. Most leaders should be able to fly at ground level and should also be able to fly at 30,000 feet to look at the strategy.”
We used to review an evolving five-year plan every year. How are we going to win? Where do we have to play to do all the things we want to do? This year, we’ve postponed that discussion, because I think planning is totally beyond our radar. Instead, what we are doing is having weekly and monthly updates. And based on those, we’ve written three scenarios: worst case, best case, and an optimistic case.
The leaders of each of the hubs are able to make a decision based on…which scenario they are facing. For example, in Thailand, some of our resorts are doing quite well because of the domestic business. We look at the forecast, and we can see that the staff are still on pay reductions, but we can relax these pay reductions as the business grows. It’s done on a hotel-by-hotel basis.
S+B: What role will technology play in your rebound phase?
RAJAKARIER: Part of our five-year plan before COVID centered on technology. We knew that technology is a catalyst, a springboard we can take advantage of. We are quite advanced on the technology side. We revamp our websites every year. We increase bookings on our own booking engine; that is, we manage to drive more traffic through our brands as opposed to online travel agents. And we’re constantly looking at expanding our loyalty program.
Because of COVID, this digital transformation is getting accelerated. It’s not by choice; it’s by force. We have to be innovative and we have to be driven by technology. For example, we’ve introduced a Fast Pass, so you can go online, book and choose your room, and when you arrive, you get your keycard to open the room, and when you leave, your bill is sent to you by email. It’s touchless and very high tech.
We are also using AI to help with finance. Bank reconciliations used to be done by a team of people, and it took time. Today we use AI, and it’s done daily or even hourly. We are much more effective and much more efficient. It also helps to reduce our payroll or head count. In the old days we might need 50 people, but today we can manage with five.
We’ve introduced clusters to consolidate our back-office services. And we use AI in marketing. We’re looking at big data and analyzing it to see how we can segment our customers and really target the messaging so that when they get an email, they don’t delete it. We don’t want to offer honeymooners our family vacations.
But with a guest experience, from a brand perspective, we have to be careful, because we cannot compromise our brand values and our guest experience. Here we need to make sure that the human touch is still there. Because at the end of the day, people go on vacations. People go on breaks to talk to human beings. They don’t want to talk to robots.
- Deborah Unger is a senior editor of strategy+business.
- Nicolas Mayer is a thought leader in PwC’s tourism practice. Based in Dubai, he is a partner with PwC Middle East.