Stay positive and look for opportunities

Last Updated
14 May 2020
Share

“We must look up,” explains Choe Peng Sum, CEO of Pan Pacific Hotels Group, in our latest episode of The Future of Travel. Speaking to David and Catherine, he acknowledges that we’re in the midst of a crisis of unmatched magnitude, but he is optimistic that recovery will come in 2021. The question is whether or not we’re ready for it.

Choe concedes the importance of conserving cash, but he stresses that you can’t just hide away and do nothing. He sees commercial opportunities – not only due to low interest and exchange rates – but also in the way hoteliers do business.

Choe says the hotel industry has traditionally been very backwards. He hopes this crisis will open our minds to doing things differently, whether that’s that means rethinking booking platforms or simply reassessing the importance we place on looking after our teams, our guests and the wider community.

TRANSCRIPT

START AUDIO

David Keen 0:10
This is David Keen. At QUO, we’ve worked for the last 20 years with many of the world’s best known travel brands. During this unprecedented global crisis, our world of travel has changed, possibly irreversibly. This series will see us speak with many global leaders to understand how they see the future of travel.

David Keen 0:33
Good morning, Choe Peng Sum, the chief executive officer of the Pan Pacific Hotel Group from Singapore. Welcome to The Future of Travel. I’m with Catherine Monthienvichienchai, chief branding officer, and we are very grateful, Peng Sum, for you joining us this morning.

Choe Peng Sum 1:04
Thank you so much for inviting me, David and Catherine. Really appreciate it.

David Keen 1:10
Peng Sum, how are things in Singapore where, from everything that we’re hearing about from the recent spike in cases, the Singaporean government seems to have been incredibly well-prepared or perhaps better-prepared than many other governments around the world for a crisis of this kind?

Choe Peng Sum 1:32
Well, you know, I think WHO, World Health Organisation, has really brought up Singapore as an example of how we can treat the virus. But I tell you the recent hike in the foreign workers dormitory has put a kink on that reputation. In fact I think BBC came out with a story of how the government had missed out, you know, such an obvious crowded area. And it has. I mean, I think they are close to about 300,000 foreigners housed in so many dorms in Singapore. And right now, our numbers have just spiked to about—not just—but you know, 12,000. So it’s—who knows how many more with… because they’re rapidly testing all the dormitories. They’re just going full out to make sure that, you know, they isolate this group. But that has really caused some concerns, you know, everyday to be in about 900/1,000. But majority of the cases of course, sort of linked to the foreign workers’ dormitory, which of course highlights, you know, the kind of living conditions they were in—crowded, and you know.

Choe Peng Sum 2:53
But everyone’s stepping up now. The normal in cases I think are about maybe 18 to 20 per day. So, but, frankly, if you ask me, I’m very thankful. I’m thankful to the government of Singapore because you know right from the very start, you know, can you imagine, you know, for the tourism industry? They knew that airlines and tourism will get really hit – F&B, restaurants – and they came up. Can you imagine: 75% of payroll is being absorbed up to a certain cap by the government, right up from March till… well, as you know from October, right up to December. I think it’s September.

Choe Peng Sum 3:01
So, it’s amazing that long-term help is there, and I’m also thankful that the government has fully paid and funded actually for quite a number of hotels who have returning Singaporeans on isolation. This is funded all the way to May, and I don’t know maybe, hopefully, it might go on. But you know hotels are running almost full and I’m thankful that the staff has a job to do. We’re able to keep all our 6,000 staff gainfully employed. We’ve been helped, in a way, and I’m thankful. I suppose, with this kind of confidence, when the travel ban lifes, we know people will see from a very positive point of view.

David Keen 4:36
Peng Sum, the economic consequences of the virus—not just in Singapore, but obviously regionally and, of course, globally—going to probably, we all believe, going to be more severe than anyone can imagine. How long do you think the tail of the crisis is, and how severe do you think it’s going to be for the travel business, not just in Singapore, but in the other markets in which you operate?

Choe Peng Sum 5:06
I think where nobody expected this and I think I call this the unprecedented crisis, because our only experience really is during SARS, and it happened in Asia mostly. SARS affected close to 8,000 people—800 deaths, maybe 27 countries. Can you imagine this coronavirus? It’s close to 210 countries. It’s reaching almost 2.8, and some say is going to reach 3 million people. Two-hundred-thousand deaths—the magnitude and scale is so different from SARS. But SARS, of course, had a V-shaped recovery. At least from my experience, you know by me and June, it just came back up. Travel started, people started business as usual, and lift it up. But I think this will be around for some time. Just the magnitude is unbelievable. It’s touching almost every country. I can’t believe it.

Choe Peng Sum 6:19
I suppose, people are so fearful, that even long-term travel will be affected. Can you imagine? Economy class, you’re sitting next to a person—I mean so tight. The moment someone sneezes or blows their nose, I think it would be pandemonium. Will airlines kind of keep a space in between? I don’t know. Cruises are out of the question. I think it’s gonna really affect cruises. I think that, you know, we will be in it, or for a long ride, but I can only take example from China properties.

Choe Peng Sum 6:59
In February, we closed all our China properties. They were the first to be hit. We had paycuts or pay freezes. We went on minimum crew but we still kept all our staff—but locked down. But you know we started opening about a month ago. And right now, most of our properties in China are 40%, some even more—50%. It’s amazing that I see what are called green shoots, and perhaps that’s the kind of hope that we have, that while we are not out of this, it’d be a long time to come—the eradication of this, unless someone comes up with a vaccine.

Choe Peng Sum 7:46
I call it green shoots. I think there will be countries who have taken the medicine—huge lock down—that could see green shoots coming up. I see China. I see probably Germany, some parts of Europe are slowly coming up. Australia, they took the hard road. I think they are going to come up. But these green shoots… a lot also depends on the domestic market, because that’s when people will start to travel within, not too far out, not long ball. So, end of the story, anyone’s guess.

Catherine Monthienvichienchai 8:26
Pens Sum, within PPHG, you have a very diverse portfolio. You have a number of different brands. You cover both short-stay and long-stay. You’re spread across a lot of different markets. How do you think that has helped you during this crisis, having that diversity?

Choe Peng Sum 8:38
I think it helped a lot. First of all, we were thankful that a lot of our properties are also serviced. We call it ‘serviced suites’. Just like in SARS, when someone is staying on business for long-stay, you don’t just check out when there’s a crisis. You continue, and you try and hold the fort. That’s what we see in our serviced suites. A lot of them are still doing well, having their long-stay guests. But of course if they stretch for, I don’t know, another six months, I’m not sure. I’m glad that we have a mixture of hotels, a mixture of service streams now. Also, we have [properties] in different locations.

Choe Peng Sum 9:30
So an example situation in the States: we actually closed most of our properties in Seattle, in Vancouver, Whistler, in Toronto, and, you know, are locked down and people are not not staying and not travelling. So in China, we closed and now we reopened. With the rest of it, we’re trying to keep open, because at the moment there’s some business. I think we’ll try and keep the staff. We’re trying to keep the people. But you’re right, sometimes diversity around—different service suites, hotels—I think that helps.

Choe Peng Sum 10:08
But this particular crisis is unprecedented. I tell you what, when China and Singapore, came down hard, I flew to the states and said, “Come on guys, you guys better help Asia.” And they did. They were 90%. A matter of months in America. And then I flew to Australia—so far away. Nothing happened. And they actually hit 90%, all of them, you know. And before I knew it, they went down again. So okay, I mean we talk about strategy of diversification. Well, this is something different.

Catherine Monthienvichienchai 10:48
And also a company, PPHG obviously has a lot of assets. And I think we’ve seen a lot of hospitality groups in recent years moving towards this asset-light model, and actually you’re quite asset-heavy, in comparison. How has that set you up during this time as it is you think it’s to your benefit that you have these assets, because a lot of people are talking about the new economies will need—you know, having reserve having assets will become much more important than perhaps in the past.

Choe Peng Sum 11:14
Yeah that’s an excellent question, and I’ll answer it in a few ways. Number one: we have about close to 50 hotels—70% of which are owned right now. And that’s great in good times. So I’ll explain later how it’s affecting us. Out of the 70% we own, 80% of that ownership actually is based in Singapore and Australia. All right. Now, I’m thankful because, you know, the Australian Government is supporting a lot of our hotels by the housing—returning Australians are…. The Singapore government is housing, you know, returning Singaporeans as well.

Choe Peng Sum 11:59
And they’re paying 100% for all the rooms in a hotel. I mean, in such a situation, we are so thankful. Because 80% are in countries where the government is totally supporting our… can you imagine, when you own a hotel—not only the fees, but the profits are being brought back. In such a crisis, you know what’s the most important? Cash flow. And I don’t care about non-cash. Cash flow makes or breaks the company in crisis.

Choe Peng Sum 12:31
And I’m glad that 80% support. And 80% of our hotels being full—I mean full, government paid. We are in a position of cash flow positive. Can you imagine? I’m thankful. I’m thankful, because where else? Fees can drop, because, you know, the moment—and they expect you to do that. If, for example, we have a management contract, even if they don’t ask, we will say, “Well, during such a crisis, we’re going to lower our fee to help you, so the staff will benefit.”And so fees will drop. When you own a property and it’s running, the cash comes, and we are able to keep cash flow positive. And everyday we have scenario planning, the escrow committee meets and we go through cash flow. That’s the most important. We need to make sure we’re cash flow positive.

Choe Peng Sum 13:34
Something also that we learn is very important: when you own so many—asset-heavy—the problem is if we over-borrow. Now, the bank is not going to be—well, okay we belong to a bank—but I’m just saying that banks might not necessarily be—how do I say it? They might not be that understanding, forgive the loan or whatever it is. I mean they’ll start to call. And companies that are over-leveraged… And fine, I mean, for when it’s doing well you want to grow, you buy more and you buy—not only single hotels, you buy chains. Now that’s heavy. And in such [a] crisis, it might affect the cash flow. It certainly is dangerous. And so one of the things I’m thankful you know for Pan Pacific Hotels Group is that our debt-to-equity leverage. Whereas some are on one is to one. In those you borrow to the hilt of your net asset value. We only 30%, so we are thankful that we are cash flow positive. We’re thankful that our leverage is low enough, yet we’re growing. My whole topic here is, you know, watch out for cashflow. Watch out for leverage. And I’m just thankful.

David Keen 14:57
Peng Sum, does the crisis—and given everything you’ve just said, and in terms of the 70/30 split between asset-heavy and asset light—and the crisis itself present opportunities, acquisition opportunities? Again, in all humility, does it present situations where, in some countries… We were talking yesterday in Germany that 70% of hotel-management companies might not make it through. How are you viewing that?

Choe Peng Sum 15:32
Oh it’s very, very important. And I call this a ‘contrarian management attitude’. It’s important to conserve cash. Every time we meet in the morning. We said, “Okay, let’s go back to all our vendors. Let’s go through all our expenses. Let’s go through all our labour costs.” We don’t leave any stone unturned, because cash is important. But at the same time, to just hide away and be in a closet and not doing anything, I think, is foolhardy.

Choe Peng Sum 16:09
If we have our gunpowder dry—we have some savings, some money—I think we should really look at opportunities. We are looking at opportunities right now in the UK/Europe. The interest rates have dropped, and guess what—the exchange rate has dropped tremendously. Now, those who have dry powder, with funds ready, it’s a great time. Unless it’s the end-of-the-world theory. Then fine, I mean let’s all just go to our bed and rest, and then wait for the doomsday. But I don’t think so. And a lot of people say that by 2021, there could be recovery. So, we must at this time look up. I don’t think there is a fire sale yet, but it’s a good time to look up.

David Keen 17:09
In these developed economies—or in other economies—in terms of the drop in value of commercial real estate. Again, it must present opportunity.

Choe Peng Sum 17:20
Absolutely. Of course, there’s also two sides to the coin. Now, if we own investment assets—for example service suites versus hotels. Hotels are GPD property. Plant and equipment, where you depreciate. Whereas in long term investment, like serviced suites, are valued every year. The valuation could drop in such times for those assets will hold as long-term. But at the same time, there are opportunities, like you say, and it behooves us to go and look out for opportunities, right now. A lot of people might be cash-strapped. A lot of people could be… yeah, so we look up.

Catherine Monthienvichienchai 18:10
If you think about your brands and your portfolio, and you think about the future of travel and potentially the changed consumer, and how, and when and why we’ll be travelling in the future, how many are your bands to shift and pivot to accommodate that changed consumer? What kind of strategies are you thinking about to be ready for travel when it does return?

Choe Peng Sum 18:34
I think right now it’s so, so important to reach out to even customers. Because I think the—the ‘new normal’, I call it—the new normal will be that people… And when they start travelling, or when they start moving, will be definitely more conscious about social distancing. I don’t think they will go into a cruise in that immediate timeframe. I don’t think long-haul travels will be that fast. Maybe they’ll try and baby steps—two-hour, three-hour trips, maybe. But there’ll be a lot more conscious of cleanliness, a lot more conscious of “What would the hotel do for me?” And and I think this time, our brands need to show a few things that show that we care. Now you know something? Even right now, how we can for our staff—I mean, we’ve got 6,000 staff, right? We want to make sure that the employees and… they’re there. We do Microsoft Teams meeting every time—every week, every month—with them. We have a Facebook—what is it called?—a closed Facebook [group] that we communicate. And the sending pictures—what they do, and all that.

Choe Peng Sum 20:05
And so it’s important—how we take care of the staff, and how we take care of the community. For example, we are producing 1,000 bento lunch boxes and dinner boxes—to the foreign workers, to the needy, to the underprivileged—from our kitchen. And it’s amazing. The staff are all excited. Pan Pacific Perth was the first hotel to take in the homeless in the [… ] hotel with a heart. And people say, “Are you serious?” But you know the GM was there at 5am in the morning, welcomed them as VIPs personally, brought them up, housed them. Because the government was afraid that if there are too many. You could be a virus [situation]. And then someone actually wrote to the hotel, “Says for the first time, I was treated like a real human being.”

Choe Peng Sum 21:06
I mean, I think it’s great—really wonderful—to look beyond ourselves right now. And you know something? Looking at the environment is so important, because when people are conscious that is a fragile world now. We don’t take it for granted, and the more we are conscious of looking at the environment and all…. And so long story short, if we can demonstrate to everyone—and we don’t do this just because we want to demonstrate, but if we’re doing it, why not show it?—that we care. That we look at individuals, and we look at the environment, and if you start to travel, you probably can trust a company that looks after the staff, looks after the environment, looks after the guest, looks after the underprivileged.

Choe Peng Sum 22:05
In the meantime we enjoy all the social media floating around about what everyone does. So that’s great.

David Keen 22:13
One last question, Peng Sum. And really, thank you so much for being so animated. We’ve only got a couple of minutes left. But I know it’s close to your heart. Is the shift between OTA direct and contract revenue going to change post-crisis?

Choe Peng Sum 22:32
I take an example from, you know the food delivery that we are facing in Singapore. For instance, Food Panda, Grab Food—in Singapore Food Panda, Grab Food, Deliveroo are doing very, very well. And all of a sudden, there was a huge outcry from the [food] companies. They take 30% commission from companies, even in such times. Of course, it’s justified—”We need to pay the staff” and all that. But all of a sudden, then I see other platforms come up: Food Tasters, Foodo—10%. But I tell you, they’re doing so well. When we call them, I want to include more of my restaurants in essence, I’m flattered. Can you give me two, three weeks, and they said, well the time is over. But anyway. they’re doing so well, and I think that while OTS will still be around, you know something? I think people will open their eyes to other platforms.

Choe Peng Sum 23:42
At the end of the day, it is technology, and technology can be copied. As long as there’s ease-of-use, and, and that’s important. But the hotels need to do something. The problem with hotels is that we’re sometimes so backward. [… ] in airlines, years ago before hotels adopted new management and dynamic pricing. And so we need to make sure that we are above the challenge of the OTAs as well. While they exist and we need them, we need to improve ourselves as well.

Choe Peng Sum 24:16
And one of the things that I see, potentially going forward, is a lot of these strategic alliances. I know with global hotel lines where 35 CEOs from hospitality become CEOs of hospitality companies. Finding ways to try and get together to make it easy to make bookings. To make it easy to have a platform that replicates. And I think what this virus has done is, let us rethink our whole thoughts about business itself. And I think if anything—I mean, it’s not a good thing—but if anything, this thing has helped us open up our minds to doing things differently.

David Keen 25:02
Peng Sum, thank you so much for sharing so animatedly and so passionately your thoughts on the future of travel. To you and so all of the Pan Pacific Hotel Group teams wherever they are in the world, we wish you only the best, and stay safe, and we’ll see you soon.

Choe Peng Sum 25:18
Thank you. Thank you so much. Thank you, David. Thank you, Catherine.

END