David and Catherine talk to Thomas Willms, CEO of Deutsche Hospitality, about what it means to lose the freedom of travel. Referencing Germany’s history and the restrictions that existed prior to the fall of the Berlin Wall, Willms says this is a particularly tough time for consumers right now.
In China, too, he says it’s been tough rewinding of the clocks to an era of border and state controls. He is optimistic, however, that travel will return due to our innate curiosity and desire to see the world. By September, he hopes leisure travel will start to come back, followed soon after by business travel; however, large-scale meetings and events will likely take significantly longer.
David Keen 0:08
Hi, this is David 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 0:08
Hi, 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 0:44
Good morning, Thomas Willms, Chief Executive Officer of Deutsche Hospitality, such famous brands is as Steigenberger Hotels, Intercity, Jaz, Zleep and Maxx by Steigenberger. Thomas, good morning.
Thomas Willms 0:59
Good morning, David.
David Keen 1:01
How are you doing? How is it in Munich?
Thomas Willms 1:05
It’s sunny and warm, and business is down, and that is what’s depressing me personally as hotelier. Not easy to cope with the situation, but we have to live with it.
David Keen 1:17
How far Thomas, are you able to measure the economic impact of the virus on travel in Germany in the next two to three months, and going forward to the end of the year and beyond?
Thomas Willms 1:31
Crystal Ball I’m David. Looking at our travel industry globally, compared to 1950. We have grown 50 times over the last 17 years. So travel is one of the key industries for us, and our business has almost come to a standstill. So looking at the damage the virus could cause, well I think not only speaking about it spread to one of our key achievements of global community — the freedom of traveling — which is very important also for this country in Germany.
Thomas Willms 2:03
But we also see a precise indication, what the economic damage that the virus course in the world. And in Germany, we have about 2.8-3 million people working in the hospitality sector. Most of our hotels, not only ours in the in the country, are closed — restaurants and bars anyway. So if you want to add a number, 90% of revenue is gone for the next hundred days. That is April, March and May, and we don’t know what June is going to do.
Thomas Willms 2:35
Associates are staying at home, but there’s a good government support here to support the people financially and we’re topping it up. And our big goal is not to cut the jobs, because economic advcie, cutting jobs would even be worse for the economy. And Germany is also one of the top outbound countries — don’t forget that. And so there even would be a bigger impact on on short or leisure travel.
Catherine Monthienvichienchai 3:03
Thomas, hi. You talked about this idea of the freedom of travel. What do you think that’s doing to people’s psyche when they have had this freedom taken away from them, and how quickly will they want to get back to traveling when it is possible, when borders start to open again.
Thomas Willms 3:19
They are so desperate. I mean, this is a social sort of issue. And I like to mention this freedom of travel because Germany, because of our history and, you know, the split of the countries for so many years. In the eastern part of Germany, people were not allowed to travel at all. So, this freedom was earned over the last years, and when the war broke down, so it’s even social-wise, a big issue. Now, having people at home again, partly in small apartments and not being — well, you cannot go out to the supermarket and not be able to travel. And Germany is one of the top three nations of travelling outbound, so they allow us to travel for leisure. And obviously also for business
Thomas Willms 4:06
So not easy Catherine, what’s happening at the moment. So we hope, and I think we have to stay disciplined, to make sure, morally, we don’t go back to another lockdown. So, I think that’s why we’re doing quite okay here, being disciplined to ensure it’s only 100 days, or maybe 120 days.
Catherine Monthienvichienchai 4:27
And how, during this lockdown, are you keeping morale up? Keeping spirits and energy levels high when pushing the importance, getting very depressed and very isolated?
Thomas Willms 4:38
Yeah, morale of course is a key we are dedicated to. Our goal as I said to maintain jobs. I think if you lose your jobs, it’s even harder to keep the morale up. So, but as the virus went globally, we took a topsharp look at what what could we do so the top management. Started myself — all the general manager — we took out 20% of our allowance, our pay, our salaries for the next three months. And at the same time we decided to support the employees even higher, not only on the government in support, which is about 60 to 67% of their net. So we’re adding another 20% to all [our teams] to bring them through the crisis.
Thomas Willms 5:20
We do video messaging, I do GM calls. We have online training seminars to keep them alive, like we say. And obviously we are also working to openings and new hotels, and working on reopening schedules, so it’s even motivating to work up reopening schedules. And any hotel wants to be the first one to be reopened, but that plan cannot be done at this stage.
David Keen 5:49
So Thomas, just also going back a little bit to the the idea of the freedom for travel or freedom of travel, and how that relates to the new normal. Do you think that, obviously over the last 40 years or since the wall — no sorry, 30 years — since the wall came down, have we taken for granted the freedom for travel? And will this freedom for travel. Be imbued in purpose in populations, whether it’s business or leisure travel in the future?
Thomas Willms 6:27
Well I think China is another even bigger example. China, 100 million people are traveling already. And it’s only a small percentage of the population, and we have more Chinese travelers than Americans at the moment. At least we had them to January. So look at the country — the young people, they like brands. They like the freedom. They like to travel. They’re curious. They’re well-educated. They have the money now. The middle class has risen. So they traveling the world. And so this could and will, hopefully, happen to another country as well.
Thomas Willms 7:10
So politically This is so important to know that back to borders controls, and even sometimes in-state controls, you know, because states are fighting within the countries. So, this is something which is — so it’s not only how do we fight the virus. It’s only — there are many households, we know that by this statistic. There is, you know, fear. There is crime. There is people, you know, being so close together with the children not going to school. So it’s even worse than freedom of travel to stay home. It’s, I think, a terrible thing at the moment, so we have to watch this very carefully.
Thomas Willms 7:55
The good thing is, I think travel will always survive. People are so curious people are just waiting to get out again. So let’s hope for August/September that that will happen.
David Keen 8:05
We’ve been talking about the bridge between the what we’re calling the analog and the digital age or the pre-virus and post-virus age, and the new normal which we’ve talked about a little bit with the freedom of travel. How else do you imagine the new normal, after the next two or three months and beyond that?
Thomas Willms 8:05
I think, first we have to manage the fear, and then markets will come back, so did the desire of distance space to continue within accommodations and companies are coming. So business trips will be kept, i think pretty low. On the other hand, people have to go back to business, so the economy is down.
Thomas Willms 8:56
Some say leisure travel will come first. But I think leisure travel will come in the new normal to the domestic markets first. I think people will not go to fancy places and to unknown resorts at the first sort of instance. I think you’ll go to the normal, I think, brands will will be strong, because they are trusted. And so I think people go to places they have known in the new normal first.
Thomas Willms 9:27
The last thing which will come back, I fear, because it’s a big segment for us is, is fairs, conventions and meetings. So this sort of big gatherings, big parties, that will be the last segment coming back I think to our industry.
Catherine Monthienvichienchai 9:45
And given — talking about business traveling and meetings — given that a large number of your hotels do rely on that sector, how will you. How will you shift or adapt your offering to deal with that change in demand?
Thomas Willms 10:00
Yeah, it’s a huge segment, so the fairs — all fairs have been cancelled so far — starting at ITP and IHS. And external events, which which is important for Germany like, the Oktoberfest, 6 million travelers, most of them coming from abroad, will not happen.
Thomas Willms 10:18
So, we will not concentrate on on meetings and segments. I think there will be small meetings. On this video conference like we doing today might be not good for our industry. But people will go back. They want to see each other they want to speak to each other they want to eat and dine at wine. So, this will be, I think will happen in the next eight to 12 months. But before that, only smaller meetings will take place, so we are we are here for that and thre are some salespeople targeting these groups, but we will not have functions of 800 people very soon.
David Keen 10:58
Do you feel that loyalty to brands and the brand equity that you’ve built, with Steigenberger or with Intercity or with the other brands, will see you through in the future? Or do you think you need to adjust these brands in order to attract, obviously, a far lower demand.
Thomas Willms 11:25
I think loyalty is king, is king. And we have convinced our guests for the last 90 years to stay with us and build up this loyalty, and we’re just about to launch a new loyalty programme. So having contact and this trust to your consumers, to your customers, to your guests is key. I think the success of a loyalty programme depends on the fact that the program is designed to match the needs of the consumers and the needs for the company, and we are ready for that. And we’ll benefit from these guests, I think
David Keen 11:59
It was an opportunity for you with the new loyalty program to adjust that programme to speak more emotionally to your guests.
Thomas Willms 12:12
As I said David, you know that the trusted element of the company, and I’d like to say it again, who has been successful over decades, is something which will pay off, I think. And of course was emphasised for all of my colleagues and other brands, but I think this will be the key for the next couple of months to get your customers back. We are constantly also writing to them as we speak, so we — in social media, we are keeping the contact with them, and they are giving us that sort of loyalty back already in their communications.
Catherine Monthienvichienchai 12:51
And Thomas looking at your pipeline and your development plans, how much has that being curtailed or stored or put on pause for the foreseeable future, or you do still have a number of projects that are moving ahead?
Thomas Willms 13:05
Well that’s the interesting and good thing, is we’ll give it to our development teams, we have about 80 projects we’re working on actively. And so the developers are actually looking forward to the next stage.
Thomas Willms 13:19
I think there will be a couple of takeovers, probably. Banks will not loan that much money at the moment to new projects, but that as we know, the the supply over the last five years has been tremendous. And so demand has to catch up. So I think there will be a consolidation going on at the moment. Our projects are all on, so nothing has been called off and we are preparing it. They are delayed a little bit from the construction point of view, because pipelines of supply for materials have been delayed a bit. But the projects should all open on time, and new products are still coming by the date.
David Keen 14:02
Thomas, in terms of the Huazhu acquisition earlier in the year, and the recession, and the inevitable opportunities that are going to come out of the recession, do you see Deutsche Hospitality becoming, perhaps, more aggressive in the development world as we go forward?
Thomas Willms 14:27
We have never done stupid deals. We always hae looked at long-term deals, and we have built up our brand portfolio over the years to have the portfolio from luxury all the way down to the economy now. Which is good for us. I think, and we know, travel managers are tough. The companies are not doing good and these times. Economy hotels will come back earlier than luxury hotels, this is a normal sort of situation we had an earlier crisis, like the Lehman, or like 911. And I think we set up perfectly for that environment.
Thomas Willms 15:04
So also with the acquisition of Zleep Hotels, ee didn’t have an economy brand before. We have now 12 hotels and we have another 12 in the pipeline already is. We are geared up for all the markets. On the leisure segment I think Steinberger will do well as said earlier. For business travel will be focused on Intercity and also Jaz.
Catherine Monthienvichienchai 15:27
And looking at operations within your hotels and how you’re preparing to reopen when that time comes, what big changes do you think you’ll need to undertake to be ready for the changed consumer and the fears they may still have about the virus.
Thomas Willms 15:42
Closing hotels, you have books, actually — by the books to close and for crisis manuals, crisis manuals for 100% closing of hotels. It’s always, give a bit conversions and saving money. You will get 10/20/30%, so reopening is another special task. We open new hotels but re-opening hotels is sort of different. I
Thomas Willms 16:06
think the behaviour of guests and the expectations on hygiene will change. So I think the way of people checking in, technology, more cashless situations, will be changed sort of in the day-to-day work of our associates. If you think about, also in Europe, people like to hug each other. You know, in France, or all under Belgium, to kiss — handshakes in Western Europe — for all these behaviours.
Thomas Willms 16:35
Also you have some in certain trainings in receptions and bars and restaurants, have to be reset. Distancing in bars and clubs, in restaurants, are the new normal, probably, for the next couple of months. So we are working on these manuals. If you open hotels, how do we open it? And I think the hotel restaurants are more spacious than small restaurants, out of the street. But I think that hotels can actually do something beneficial for that social distancing, still enjoying the dinner or your drink and being sort of separated for a while.
David Keen 17:15
Do you anticipate a serious price war in the German — in the the DACH market?
Thomas Willms 17:21
Yes I do. That’s the downside of course of the crisis. The guests come back. We all would say, “No, let’s not do it. Let’s keep the prices at a decent level, but that will happen — yes.”
Thomas Willms 17:34
Because there will be pressure on — from companies. If you look at the value destroyed on Wall Street and the stock market at the moment, so the companies will have to save travel. And usually you save in meetings and flights and then meals. And there will be a typical price war.
Thomas Willms 17:53
That’s why I said economy hotels would be would be back earlier, because travel managers would put out big restrictions that will be less business-class travel. There will be less luxury, less five-star segments that we have to live with for the next couple of years, I think.
David Keen 18:10
And how do you see the impact of the virus on the OTA and our consumer interaction with the OTA,
Thomas Willms 18:20
The OTA is suffering like they hotls do at the moment, so we can feel that and see that. I think the loyalty to the brands will even improve. I think, if we do it right, which I think we will, in strong brands with a good loyalty programme. But it might be harder for OTAs to get the business back.
David Keen 18:49
And Thomas, one final question, in terms of the domestic market in Germany: Where do you see it within Germany, where do you see the greatest opportunity for domestic to come first? Well it because it’s the summertime in Bavaria? Will it be in the north? Where — how do you see that evolving? Berlin, perhaps?
Thomas Willms 19:12
July and August for Bavaria, and for the North Sea — for the Baltic Sea — very important sort of period. So if leisure travel is not coming back in July and August, the hotels will be in big trouble. Because that’s the key — that’s like for Frankfurt and Munich, for September October is for the resorts, the summer obviously. And the Easter business, is gone already. And also, and of course these sort of areas are weak.
Thomas Willms 19:41
So I think the measure will come first, and people would stay in the country. They would stay in Austria; they would stay in Switzerland; and they will stay in Germany. And the same applies for the other neighbouring countries. They will not cross borders. And as I said, then business travel — there willwill be pressure on business travel, because people need to do business again. And the last one will be meetings, convention fairs. This will be the most difficult segment for us.
David Keen 20:08
Thomas burns Chief Executive Officer of Deutsche Hospitality. Thank you for sharing your views on The Future of Travel. Stay safe and take care.
Thomas Willms 20:18
Thank you, Catherine. Thank you, David.