Hotel Management Guide for Surviving a Recession [+checklist]

Management
Hotel
Published on:
January 17, 2024
Read Time:
24
min

Hotels have been around awhile—in fact, you could say the hospitality industry has been operating since 15,000 BCE when caves in France were used to accommodate members of visiting tribes.

In the centuries that this business has existed, it’s gone through many ups and downs: the industrial revolution, global strife, numerous pandemics, and several recessions.

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Through all of it, the hospitality industry has carried on, with savvy managers and leadership teams finding ways to navigate their operations beyond these massive roadblocks. 

Some industry ups and downs are inevitable and unpredictable. But even though the details of a coming recession can be hard to predict, there are several general indicators that economic decline may be on its way. Experts use these indications to assess risks and plan appropriately, and with the right understanding and education, hotel managers can do the same to better navigate their team through the struggles of a recession.

In this article, we’ll discuss the ins and outs of recession: what causes it, how you can spot the signs, and how hoteliers can stay prepared to survive, and even thrive, beyond the resulting economic strife. 

To continue your learning, check out our comprehensive Hotel Operations Management Guide as well as our Hotel Maintenance Management Guide

What is a recession?

US Recession History Timeline since 1980
US Recession History Timeline since 1980

There are a few different possible definitions of a recession, but generally a recession results from a lengthy period of economic decline. When a nation’s economy experiences negative gross domestic product (or GDP) for at least two economic quarters economists declare a recession. According to the National Bureau of Economic research, a recession is ultimately a significant, widespread decline in overall economic activity that lasts for several months. 

A recession that lasts longer than a year is usually understood as a depression—The Great Depression is a prime example of this, having lasted about four years. But the length of recessions greatly varies. Some are long, and some are short; some have long-lasting economic impacts while some are less impactful and forgotten relatively quickly. In any case, a recession isn’t over until economic growth returns. 

Recessions cause falling retail sales, rising unemployment rates, and slower supply outputs. They’re considered a regular part of the business cycle, as well as an integral part of the expanding and contracting nature of national economies. But the commonality and inevitability doesn’t make them any less painful. Both large businesses and individuals alike can experience numerous negative impacts as a result of national recession. 

What causes a recession? 

Recessions result from a variety of causes. A recession can come on very quickly from the sudden economic shock of rapid technological change or happen gradually as a result of steadily climbing inflation rates. There isn’t a set formula for how recessions happen, but there are a few economic events that generally precede them. 

More often than not, recessions are brought on by excessive debt, asset bubbles, over inflation or excessive deflation, and major technological change. Let’s take a closer look at how some of these things can lead to a recession: 

💸 Excessive Debt

Remember the housing crisis of 2008? High loans and high debt rates that homeowners couldn’t pay led to foreclosures and bankruptcy, and the housing bubble burst. When debt outweighs a business or individual’s ability to pay, growing debts default and tank the economy. The large disparity between accrued debt and what’s being paid creates a crash. This is how the housing crisis between 2007 and 2009 led to The Great Recession

🏘️ Asset Bubbles

When investors get too optimistic during strong economic climates and begin making investments based on emotion or excitement, it overly inflates certain markets and can quickly lead to negative economic consequences. Exuberant stock market investments inflate asset bubbles so much that, when these bubbles burst, panic selling and rapid stock changes crash the whole market, leading to economic recession. 

📈 Over Inflation or Deflation

When there isn’t a proper balance with demand and pricing, over inflation or deflation can cause serious economic consequences. Inflation is an upward trend in pricing over time that is typically in response to rising costs. When extreme inflation couples with a decline in economic activity, it creates an imbalance that leads to recession. We’ve seen this happen a number of times in U.S. history, but most recently we’ve experienced this in rising gas prices.

On the other hand, deflation results from prices declining over time, and it can put economies in an even more compromising position than extreme inflation can. When prices decline for long enough, so do wages, which results in less economic activity—leading to more deflation and further reduction in wages that eventually result in severe economic recession. It’s a cycle that can be incredibly hard to break out of once it’s begun. Even leading economic professionals have limited solutions for dealing with the harsh cycle of deflation. 

📲 Technological change

Advancements in technology help improve people’s lives and simplify many processes—but extreme technological advancements can also cause economic shock. During the 19th century, for example, labor-saving technological developments made entire professions obsolete. When roles and jobs are simplified or even eliminated it often results in high unemployment rates. This sudden shock to employment has been shown to lead to economic recession. 

How can you identify a recession is coming?

While it’s hard to truly be able to predict a recession, there are several indicators that leading economic experts use to understand the direction national economies are going and help spot early warning signs of impending recession. Using our established understanding of economic cycles through history, we can identify patterns that have led to recessions in the past and help operations better prepare for the possibility in the future. 

Some key identifiers to keep an eye on include watching for inverted yield curves, declines in customer confidence, increases in the consumer price index, dops in the leading economic index, sudden stock market declines, and rapidly rising unemployment rates. Let’s take a look at some of these identifiers and how you can use them to better anticipate economic direction. 

📉 Inverted Yield Curve

Forbes explains that “the yield curve is a graph that plots the market value—or the yield—of a range of U.S. government bonds, from notes with a term of four months to 30-year bonds.” Yields generally stay on the higher end for longer-term bonds when the economy is functioning normally. However, when long-term yields are higher than their short-term counterparts, it demonstrates investors are concerned a recession is on the way. This is known as an inverted yield curve, and it’s been used to predict recessions in the past. 

🙎🏻 Decline in Consumer Confidence

Lower economic activity, or lower spending, slows down the economy, and more often than not a drop in spending indicates a decline in consumer confidence. Because consumer spending is the key driver of the U.S. economy, a sustained drop in consumer spending spells economic trouble. The economy works on a balance of give and take, so if consumers don’t feel confident spending money, it’s a pretty good indicator that a recession is on the way. 

🤳🏽 Increase in CPI

The consumer price index (or CPI) indicates the price variation of retail goods and other purchases made by consumers. An increase in CPI means that average prices over time have increased, which eventually should lead to a change in the cost of living and income. But when CPI remains high while cost of living continues to increase with a decline or little to no change in income, it can lead to a disparity in economic ability that eventually results in recession. 

🧨 Drop in Leading Economic Index

The leading economic index (or LEI), released monthly by the Conference board, seeks to predict economic trends. It looks at data like how many people have applied for unemployment benefits, how many manufacturing orders are occurring, and how the stock market is performing. If the LEI demonstrates an overall decline, it’s a pretty good indicator that economic trouble is on the horizon. 

💰 Sudden stock market declines

On its own, a sudden decline in the stock market is a pretty powerful indicator of possible recession. Investors are known to sell parts of or even sometimes all of their holdings when they’re anticipating an economic downturn. This is why stock market performance is so often coupled with our understanding of economic health. 

📊 Rising Unemployment

Whether or not the risk of recession has been formally announced, if people keep losing their jobs, it doesn’t look good for the economy. Rapidly rising unemployment rates are a leading indicator of economic distress. Consumer buying power is often determined by wages—and if consumers are hemorrhaging wages, they can’t make purchases with the same confidence. Even just a few months of steady job losses can point to impending recession. 

How long will the recession last?

No one can ever know for certain how long a recession will last, but we can look at previous recession data to get a general idea of these economic cycles. The New York Times reports that, “on average, recessions since World War II have lasted just over 10 months each.” But like anything else, predictions vary widely depending on the circumstances. 

While recessions generally last over a period of months, The Great Depression lasted for about four years. The length of time is what makes this event an economic depression rather than a general recession. But it does a good job of demonstrating the broad ranges of time in which economic events can transpire. 

The two most recent recessions in history demonstrate just how much these timeframes can vary. The first most recent recession—the worst recession that the U.S. has experienced since The Great Depression—was The Great Recession of the early 2000s, which lasted for about a year and a half after the housing bubble crashed. In contrast, the recession that began during the height of the COVID-19 crisis in February of 2020 lasted only about two months and was the shortest recession in U.S. history. 

Now, in 2022, experts point to strong evidence that we’re on the precipice of another economic downturn. CIO Morgan Stanley suggests that the fundamentals are all strong, stating that “several economic factors point to a less severe recession, should one come to pass” and citing the robust shape of labor market dynamics, housing and auto industry activities, and corporate revenues all point to favorable outcomes. 

How do recessions affect the hotel industry? 

Recessions generally lead to a reduction in travel and tourism, and past economic downturns have inevitably resulted in many negative impacts to the lodging and tourism industries. During the recession that took place between the years of 1990 and 1991, U.S. hotel occupancy rates dropped below their break-even point, leading many hotel firms to file for bankruptcy. During the economic crash of 2008, even upscale four-star and five-star properties suffered from a sharp decline in corporate travel and rising cancellations.

Gaming hotels also experienced a huge drop in gambling and game revenue. Though historically hotels with casinos have experienced less overall financial loss during recession than hotels with no gaming amenities, casinos still experienced high levels of debt and major drops in cash flow. 

Hotel Recession Statistics from 2008 (Kimes, Cornell)

An international study conducted by the Center for Hospitality Research at Cornell found that on average, following a recession, ADR (Average Daily Rate) had dropped by 12.6%, occupancy had declined by 7.4%, and RevPAR (Revenue Per Available Room) had decreased by 14% at slightly varying rates around the world. The average length of guest stays also tends to stay low during times of economic crisis, and customers tend to book their stays closer to their arrival dates to ensure travel plans don’t change and they don’t lose out on money.  

Because many hotels adjust their ADR to remain competitive and draw guests to their property during times of recession, price wars between hotels also become an issue for property managers during economic distress. This increases the pressure to reduce rates drastically, but it also presents potential problems, such as long-term impacts to hotel reputation, decreased consumer confidence from drastically changing rates, and the ability to maintain rate integrity that doesn’t decrease the overall value your property offers. 

How can managers prepare for a recession?

Managers can help to prepare their hotel for a financial recession by focusing on increasing “financial slack.” Focus on using existing assets to maximize sales revenue and avoid expansion or excess spending. This can help to create some budgetary wiggle room that may offset or help balance losses resulting from recession. 

Additionally, managers should work to develop clear standard operating procedures (SOPs) to make it more likely for hotel teams to survive high turnover and staff shortages. SOPs keep everyone on the same page and streamline hotel operations to reduce miscommunication, increase accountability and autonomy, and decrease handover risk. 

Next, hotel managers can measure operational costs and analyze performance data to identify any areas for cost cutting or improved efficiency. Employing a digital hotel operations software like Xenia not only helps to increase efficiency with one easy to use tool—it also helps to surface hotel asset health and cost information, employee performance details, and more, so you can gain clear visual insights into processes and respond more quickly. 

Finally, managers should prepare for the possibility of pricing changes and examine their competitive strategy. Look at what similar hotels have done to successfully navigate through this situation in the past. If you can, get an idea of what other local hotels are doing to keep an eye out for specials and pricing changes in your area that may be leading toward more competitive pricing deals. Use this information to strategize and plan with your financial team. 

What can a Hotelier do to survive the recession?

Though there’s only so much anyone can do to to future-proof operations for a recession, there are a few key things hoteliers can focus on to survive impending recession: 

💸 Discounting

Consider discounting your ADR. This can help to encourage consumers to travel in order to take advantage of specialized pricing while they can. When you’re considering discounting, just keep in mind that your discounts should maintain brand consistency and ideally should not impact your hotel’s reputation. You’ll also want to keep an eye out for the beginnings of price wars between competing properties, and plan for how you’re going to respond to competitive pricing. 

📱 Marketing Initiatives

In addition to discounts and special pricing, your marketing team can start planning for special marketing initiatives to support the development of new market segments. If your property has primarily been marketing rooms for business travel, conferences, or events, for example, you may decide that now is the time to market towards individuals seeking unique, affordable travel experiences. Look at where the market is taking dips, how air travel and car rentals are affected, and who is more likely to make purchases during this time—these things can help you identify your next promotional plan. 

🏨 Obscuring Room Rates

To sweeten your offerings and keep from reducing your ADR too much you can create value-adding packages or bundles such as rates that include discounted, specialized amenities or  reduced room rates for booking a certain number of days at once. This can help to obscure the cost of rooms while still giving consumers an exclusive deal. 

✂️ Cost Cutting

Probably the least preferred way of future-proofing your property for recession is cost cutting. No one likes to have to make budget cuts, but sometimes it's necessary to create financial wiggle room and preserve the long-term survival of your property. This can mean reducing the number of staff you have at a property, decreasing hours, or focusing on improving efficiency. 

🛏️ Compete on Quality

Sometimes it isn’t just about cost—even in times of financial concern, people want ways to escape the humdrum of day-to-day life and live in luxury, even if just for a moment. And other people simply prefer not to sacrifice luxurious lodging preferences. Upscale properties can use this to their advantage by centralizing quality as their main differentiator over competitors. 

🤗 Focus on Loyalty Program

Finally, hoteliers should prioritize customer loyalty if possible. It’s typically easier to keep loyal guests through times of economic turmoil than it is to secure new customers. Focus on loyalty programs that benefit your existing clientele and encourage new guests to regularly repeat business with you. Create benefits and prizes that excite your guests and drive how they secure exclusive or specialized discounts and bundles. Make sure you create great guest experiences for loyalty members too, so they encourage others to take part in your program. 

How Digital Hotel Management Solutions Help 

It can seem counterintuitive to spend extra time and money adopting a new technology at your hotel to help prepare for a recession—but streamlining property processes, empowering existing employees, and improving overall efficiency are some of the best things you can do to reduce operational costs and stay prepared for financial changes. 

Xenia Hotel Operations Platform

Digital hospitality operations solutions like Xenia are simple enough that your entire team can start using it almost immediately, with tools powerful enough to handle the management of your entire operation, from top to bottom. With Xenia, you’re able to track and manage tasks, create and complete work orders, take care of inspections and audits, increase employee accountability and autonomy, analyze asset health and performance data, and more, all in one place, directly from any laptop or mobile device. 

Xenia Hotel Task Management App

Even if your staff starts to dwindle, you and your team will be able to make the most of the resources you have available and increase efficiency across your property with work tracking tools for every use case. Xenia allows you to communicate with your entire team instantly via digital messages and announcements for quick updates and questions anytime, anywhere. Plus, you’ll be able to see who is actively online and available for fast task assignment. And with easy-to-access, customizable checklist features, everyone stays aligned on SOPs.

Xenia Checklist Builder and Library
Xenia Checklist Builder and Library

To top it all off, Xenia’s flexible analytics suite lets you dive deeper into property and performance data. You’ll be able to view asset health, process times, maintenance reports, and more, for better future planning and improved pattern recognition—so you’ll spot repeat issues before they become larger problems. 

Xenia provides one single source or truth for every hotel operation, and with a dedicated customer support and onboarding team, you’ll be able to get started in no time. Visit our website to learn more and book a product demo any time. We’re here, ready to help you protect your property and plan for every possibility. 

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