Научная статья на тему 'The impact of the Covid-19 pandemic on the hotel industry in Indonesia'

The impact of the Covid-19 pandemic on the hotel industry in Indonesia Текст научной статьи по специальности «Экономика и бизнес»

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Covid-19 pandemic / hotel management and operations / health protocols / cost saving / pricing strategy

Аннотация научной статьи по экономике и бизнесу, автор научной работы — Septi Fahmi Choirisa

The Hotel Industry has had numerous detrimental consequences from the worldwide crisis of the Covid-19 pandemic. This study aims to examine the impact of the Covid-19 pandemic on hotel management and operations in Indonesia. A qualitative approach with semi-structured in-depth interviews was conducted with 13 managerial level participants in the hotel industry. This paper reveals that health protocols, pricing strategies, and cost-saving alter everyday management strategies. This study contributes to the management and operations strategies literature by untangling the dynamics of the pandemic situation. Furthermore, the suggested areas can help hotels recover from the Covid-19 pandemic by expanding the knowledge base. This study gives practical insight to support the hotel sector's development and sustainability.

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Текст научной работы на тему «The impact of the Covid-19 pandemic on the hotel industry in Indonesia»

Economics, Management and Sustainability

journal home page: https://jems.sciview.net

Choirisa, S. F. (2022). The impact of the Covid-19 pandemic on the hotel industry in Indonesia.

Economics, Management and Sustainability, 7(1), 86-94. doi:10.14254/jems.2022.7-1.7.

ISSN 2520-6303

The impact of the Covid-19 pandemic on the hotel industry in Indonesia

Septi Fahmi Choirisa

Universitas Multimedia Nusantara,

Jl. Boulevard, Gading Serpong, Kel. Curug Sangereng, Kec. Kelapa Dua, Kab. Tangerang, Prop. Banten, Indonesia

Sep ti. choirisa @umn.ac.id

OPEN ^^ ACCESS

Article history:

Received: March 02, 2022 1st Revision: April 10, 2022

Accepted: May 17, 2022

JEL classification:

L83 Z32

DOI:

10.14254/jems.2022.7-1.7

Abstract: The Hotel Industry has had numerous detrimental consequences from the worldwide crisis of the Covid-19 pandemic. This study aims to examine the impact of the Covid-19 pandemic on hotel management and operations in Indonesia. A qualitative approach with semi-structured in-depth interviews was conducted with 13 managerial level participants in the hotel industry. This paper reveals that health protocols, pricing strategies, and cost-saving alter everyday management strategies. This study contributes to the management and operations strategies literature by untangling the dynamics of the pandemic situation. Furthermore, the suggested areas can help hotels recover from the Covid-19 pandemic by expanding the knowledge base. This study gives practical insight to support the hotel sector's development and sustainability.

Keywords: Covid-19 pandemic, hotel management and operations, health protocols, cost saving, pricing strategy

1. Introduction

The worldwide tourist and hotel business is still reeling from the spread of Covid-19 and large-scale travel bans. The hospitality industry is one critical sector for many countries that were immensely destroyed by the crisis of Covid-19 in a particular region and has shown on a global scale. According to Gloria Guevara, President, and CEO of the World Travel and Tourism Council, the epidemic has put "50 million employment at jeopardy around the world. Due to the Covid-19 global health catastrophe, the travel and tourists' sector is "already facing collapse" and "in a fight for existence." (Guevara, 2020). Hotels are particularly vulnerable to a drop in tourism and travel and a slowing economy (Hoisington, 2020). The Covid-19 pandemic has dealt severe blows to hotels worldwide, with events being canceled or postponed worldwide and hotel occupancy rates plummeting. Compared to the year before the pandemic, the Revenue per-availability room (RevPar) at Marriot hotels fell by nearly 90% in Greater China and 25% in other parts of the Asia-Pacific region in February 2020 (Wallis, 2020). RevPAR is expected to drop in the United States, Europe, and Asia as leisure and business travel is postponed or canceled due to Covid-10 fears (Courtney, 2020).

Corresponding author: Septi Fahmi Choirisa E-mail: Septi.choirisa@umn.ac.id

This open access article is distributed under a Creative Commons Attribution (CC-BY) 4.0 license.

Moreover, Hotel profits in the United States, Europe, Asia, and the Middle East have dropped by 100 percent or more year over year, according to HotStat data (Simon, 2020). There have been dramatic decreases in occupancy, average daily rates, and RevPAR worldwide. Hotels have taken several steps to reduce the impact of Covid-19 on their operations, including furloughing employees, cutting costs, and shifting their focus to online (Peterson, 2020). Indonesian government rigorously enforced its ban on foreigners entering the nation at the start of the first and second weeks of April 2020. This foreign prohibition has influenced airlines' refusal to operate international flight routes, resulting in fewer foreign tourist arrivals and lower tourism industry profits, such as lower occupancy rates. According to the Indonesian Hotel and Restaurant Association (IHRA) chairperson, the government's stimulus package for entrepreneurs is insufficient to combat the coronavirus outbreak because the most significant issue for enterprises in the tourism industry is their staff's income.

Moreover, IHRA showed that 1,226 hotels are out of employment due to the closure of their workplaces. The amount may rise. These employees do not have a source of income. It is not possible that a slew of social issues has surfaced (Soehardi & Untari, 2020). In the context of consumer behavior, Covid-19 has influenced hotel consumer consumption behavior worldwide, with consequences for the hotel business in the future.

In the new normal management system, Deloitte (2020), the hotel industry should prioritize hygiene in their business models since customers are increasingly concerned about health and infection risks. Many people worldwide have adopted distance learning and working from home due to social distancing norms and stay-at-home mandates. It is unclear which habits will persist once the pandemic has passed. Because the crisis is still ongoing, the economic, financial, psychological, and sociological trajectories of Covid-19's impact on consumer behavior are likewise unknown (Cross, 2020). The phenomenon of the pandemic era has impacted hotels' strategies to sustain operations in a crisis circumstance. The World Health Organization (2020a) defines health as complete physical, psychological, and social well-being and sickness absence. Numerous scholars have studied the impacts of Covid-19 on various sectors, including tourism and hospitality, as one of the critical sectors in countries. However, few of them explored the Indonesian hotel industry, which comprises two sides of different practices. Therefore, this paper aims to examine the impacts of the Covid-19 pandemic and its strategies from both management and operations sides. Furthermore, this paper details specific areas to provide insight for academics and practitioners to navigate hotel management during and after the Covid-19 pandemic based on a literature review on the impacts of large-scale public health crises and current trends in the hotel industry (Jiang & Wen, 2020). Accordingly, this study focuses on hotel managerial level in the management and operations departments by answering the following research questions:

1. How did the Covid-19 pandemic impact management and operations in the hotel industry?

2. What aspects of hotel management and operations were affected by the Covid-19 pandemic?

2. Literature review

2.1. The impact of Covid-19 on the hotel industry

In the tourism and hospitality industry, which has a massive investment in the hotel, tour agencies, and airline firms, the Covid-19 has had a severely detrimental impact on both businesses, employees, and customers (Bahar & Celik Ilal, 2020). Covid-19 has altered or adversely impacted the hotel business and may influence future management strategies (Choirisa & Situmorang, 2020). As the demand for hotel rooms remained decreased (Song et al., 2011), as a result, hotel room rates and occupancy percentages fell (Kim et al., 2005). Hotel occupancy rates in Indonesia have decreased from 20 to 40 percent since the emergence of Covid-19 in January 2020. According to Indonesian Hotel and Restaurant Association (IHRA), Bali, Manado, Jakarta, Riau Island, and Sulawesi were the worst affected areas (Agustina & Yoshintha, 2020; The Jakarta Post, 2020a).

Therefore, the hotel industry has encouraged staff in particular departments such as reservation, accounting, and human resources to work from home during a pandemic in the interest of health and cost savings (Demir et al., 2021). Besides employee efficiency, one of the high-priority measures in both stages is lowering the number of office hours or working days. However, reducing the labor force through unpaid vacation becomes the following priority action at the pandemic stage. This is related to the labor costs, which accounted for roughly 50% of operating costs (Mandelbaum, 2017); using the two strategies can significantly lower operating costs during a crisis. In contrast, even though Del Mar Alonso-Almeida and Bremser (2013) disagreed regarding cost reduction through lowering customer added value, a study conducted by Lai and Wong (2020) has shown that hotel managers supported limiting facility maintenance to cost-saving management.

Moreover, hotels aggressively slashed labor and maintenance costs as the pandemic dragged on. General Managers predicted a surge of resignation shortly along with the situation. On the other side, the impact also affects the hotel rate strategy; Lai & Wong (2020) conducted a study in Macau and found that reducing the hotel prices increases demand. However, after reaching the pandemic stage, they realized that marketing strategies would be ineffective in raising sales, so they decided to save marketing expenditures for post-pandemic preparations. In the same vein, Kim et al. (2005), at the end of the SARS crisis, many hotels in Korea provided cheap rooms and effectively increased occupancy rates to levels seen previous to the pandemic.

According to the new standard systems, hotel hygiene and cleanliness have increased since Covid-19 can be transferred by touching the virus-infected surface (WHO, 2020b). Hotel surfaces are more likely to be filthy, have more significant germ counts, and provide possible disease transmission vectors (Park et al., 2019). Moreover, Covid-19 infection could be possible via aerosol transmission through central air conditioning (Zhang et al., 2020). Many studies have found that general hygiene and cleanliness are essential factors in guest hotel selections (Lockyer, 2005). On the other hand, few researchers have rarely addressed the hygiene and sanitation of individual hotel sectors (Park et al., 2019). As aforementioned, hotel surfaces that receive much human contact are more prone to be contaminated by touch (Park et al., 2019) and become sources of infectious disease transmission such as Covid-19 (Chen et al., 2020).

Increased cleanliness and sanitization to prevent disease transmission can be promoted as a selling feature during and after the pandemic, given the increased demand for hotel hygiene following the Covid-19 outbreak (Jiang & Wen, 2020). According to Zemke et al. (2015), young travelers and women of all ages would be willing to pay a premium for better disinfection in their rooms. A study conducted in Spain found that the most vital relationship variables were between sanitation and healthcare measurements and mass testing. This exposed the hotel sector's responsibility to implement the WHO health protocols (Rafael et al., 2020). Hence, the three most significant aspects that affected the management and operations department were financial, including cost-saving and pricing strategy, and additional services required for hygiene and cleanliness. These components potentially influence the hotel industry's new management system.

3. Research methodology

This study took a qualitative approach to encourage participants to communicate their thoughts and feelings based on their personal experiences and viewpoints. Semi-structured interviews to gather information from hotel managers and operations departments are applied to this study. Participants were invited to consider how Covid-19 will affect their management and operational process in the hotel industry. The questions were mainly related to the business analysis and its impacts from a management and operations point of view. The participant's demographic, namely works experiences, position or level, property' star, and background, were asked at the beginning of the interview process since the participants had to be experienced and involved as decision-makers in developing hotel strategies.

Table 1: Profile of the participant

Age Experiences

Initial Hotel Type Gender (years Education in Hotel Position

old) Industry

RP S-star hotel Male 35-40 Undergraduate 15 General Manager

PP 3-star hotel Male 35-40 Undergraduate 14 Corporate Director of Sales

IK S-star hotel Male 35-40 Undergraduate 20 Corporate Revenue Director

RZ S-star hotel Male 40-45 Undergraduate 12 Corporate Revenue Director

JF S-star hotel Male 40-45 Undergraduate 15 Director of Sales

NN S-star hotel Male 30-35 Undergraduate 12 Human Resource Manager

MS S-star hotel Female 30-35 Undergraduate 9 Senior Sales Manager

WS S-star hotel Male 35-40 Undergraduate 14 Sales Manager

YL S-star hotel Female 30-35 Undergraduate 10 Sales Manager

RS S-star hotel Female 25-30 Undergraduate 6 Marketing Communication

Manager

MK S-star hotel Male 30-35 Undergraduate 9 Event Manager

AS S-star hotel Male 30-35 Undergraduate 10 Revenue Manager

AF S-star hotel Male 25-30 Undergraduate 4 Operations Manager

Thirteen management and operations hotel department participants were interviewed between the first to the third quarter of 2020 through email invitation that included study information. Table 1 presents the participant's demography information. More than 60% of the participants were middle-level managers, and the rest were from top-level management. Then, almost two-thirds of the participants experienced more than a decade in the hotel industry. There

were also participants from the corporate level who handled more than one property with diverse hotel types. The interviews were conducted through an online meeting application named zoom and lasted an hour to almost two hours. They agreed to be recorded and permitted to be transcribed. During the interview, the transcription and data evaluation were carried out simultaneously.

4. Finding and discussion

4.1. Health protocols

4.1.1. Hygiene and cleanliness

Hospitality services, particularly the hotel industry, are under severe constraints, and a "new normal" must be established. Hotel managers are figuring out how to maintain activities safely while the pandemic continues, and there were no supported strategies as a backup or how things will turn up. Hygiene and protection measures currently become safe customer experience design due to the Covid-19 pandemic (Angelo et al., 2021). All the hotel managers communicated that the new health protocols are being implemented to minimize the risk of Covid-19 transmissions. Cleaning and sanitation and protective equipment for employees, guests, and facilities are part of these protocols. One of the International hotel chains informed that they partnered with disinfectant vendors to provide amenities for their property. They ensure employees and guests periodically facilitate hand sanitizer, masks, and other sanitation equipment.

The new normal has been implemented since the Covid-19 rise in Indonesia. The hotel vastly adapts the health protocol and applies periodic sanitation with disinfectant to all hotel facilities. In addition, there is extra care required by sterilizing our rooms for specific days if we find a positive guest stay in our hotel. (NN)

Most of the participants were not employ the technology system to support their operations in the context of hygiene and cleanliness. In fact, technologies have been applied to other countries in order to support hotel operations on a day-to-day basis. However, the Indonesian government provides the CHSE (Cleanliness Health Safety, and Environment Sustainability) for standardized protocols that have been evaluated and assessed to get customers' trust and secure feelings. According to data from June 2021, Indonesia recorded around 2.689 hotels that have been certified CHSE, including those located in Indonesia's super-priority destinations (Ramadhian, 2021).

4.1.2. Social distancing and protection measures

In Indonesia, the hotel industry employs several methods to ensure safe customer experiences stay. Based on the interview analysis, it was feasible to study and identify hotel management's most common safety measures. Hotels are redesigning guests' services eliminating crowds to maintain social distance, as shown in the following examples:

New normal has challenged us by providing only 50% of the building capacity. In addition, we put a divider on every restaurant table, arranged physical distancing seating, and monitored crowds, informed guests about social distancing rules with our security team. (RS)

Many Indonesian hotels were not applied the technology implementation to reduce the risk of crowds. The human touch in a personal sense was preferable to be employed in operations. In fact, a study conducted by Hilmi & Qiulin (2021) found that self-service technology such as voice-control systems to control and prevent infection is particularly beneficial to maintaining social distancing.

4.2. Cost saving

The efficiency in the hotel industry has received a significant impact Covid-19 pandemic. In a devastating period, hotels need to change their strategies to survive low business demand. One of the key performance indicators for a hotel business is occupancy. Hence, occupancy for hotel management is critical (Saleem & Al-Juboori, 2013). It can determine whether hotels can run smoothly or not in operations in terms of financial, human resources, and cost. Several hotels prefer to close their operations because the income cannot exceed the fixed expenses such as wages, electricity, depreciation of assets, and other costs. According to Salanto (2020), around 25-star hotels in the capital city of Indonesia were temporarily closed, and nine hotels were converted. In contrast,

numerous hotels remained open during the Covid-19 pandemic with cost efficiency management. However, they need to limit the following aspects enduring their existences.

A. Operations cost

Maintaining quality in the Covid-19 pandemic has challenged hotel managers. They faced the reality of low revenue and mandatory new implementation for additional hygiene and sanitation cost that affect many of their operations:

On the hotel operation side, the room division strategies were closing several floors to maintain the electricity cost, maximizing to run the hotel in one building or tower so that the other could be shut down. Also, the food and beverage department minimized its cost and budget. In addition, the hotel management decided to find other efficient vendors to get a better rate, such as TV cable and food vendors, and apply saving energy systems for guests and employees. (AF)

B. Labor-cost

As the hotel industry attempts to recover from the Covid-19 outbreak, it will need to reconsider its business strategy because human resources are well behind the rising demand. Many of the participants believe that the difficulties in making a decision are having to lay off their employees and adjust their capability to fulfill some positions as following concerns:

It was a tough decision that this catastrophe cost unemployment. Since our property was temporarily closed, unfortunately, only ten people were employed by the company. (RP)

Involving labor unions was our approach to ensure that they understood the situation. Conducting general staff meetings lead to both sides' agreement on an unpaid leave system and eliminating the daily worker or part-timer to save the permanent staff. (NN)

Since many hotels suffered to cover their fixed costs because of low occupancy, they made the salary adjustment to fit into the business. Hotels currently need to adjust the employment scheme for Work From Home employees to reduce the usage of hotel fixed costs, cut salary or service charges, maximize job positions and eliminate unnecessary expenses (travel costs, paid leave, and other expenses).

All employees have been affected by Covid-19, the differences only by management policy to cut down the percentages based on the employee levels. Most of the percentage was imposed on the top-level management. (IK)

Moreover, several hotel managers emphasized their teamwork on a new scheme for multitasking personnel. It did not happen to the operations staff but also to the management team.

Suppose the department needs around three staff in charge for 8 hours. We only accommodate a maximum of 2 persons with at least 30% occupancy; below that level, we only have one person in charge. To cover that shift, the other employees who have similar shift schedules, regardless of their departments or specialties, need to back up and help each other. (NN)

4.3. Pricing strategy and market penetration

One of the most often highlighted themes in this study was pricing strategy. Four subthemes belonging to pricing strategy were identified, namely price war or competition-based pricing (11 comments out of 13 participants), cost-based pricing (9 comments out of 13 participants), value-based pricing (8 comments out of 13 participants), and demand-based pricing (7 words out of 13 participants. The competition-based pricing discussion focused on the hotels' competitive positioning in a crisis. The underlying of this subtheme is that there was panic action to sustain hotel operations and maintain their existence in competition. The Corporate Director of Revenue put hotel rates at war to collect the reservation and make it hard to decide between wins or losses.

The devastating period of the hotel price war should have greater attention from the Indonesian Hotel and Restaurant Association (IHRA). There should be pricing limitation rules so big hotels do not compete with low rates. The 5-star hits 2-star hotel rates, it is highly possible for people to choose a 5-star hotel to get full benefits. We were struggling to fight with

the competitors. Many hotels chaos and decide to shut their operations; only the fittest will survive. (RZ)

The option to drop the lowest hotel' rates were temporary to lift the occupancy by discounting rooms, food, and beverages. This wanted to look at the customer willingness to buy promotions when the rates are reduced significantly. The senior sales manager of the international hotel chain expressed the sales and marketing department strategies as follows.

The only promotion that succeeded during the pandemic was when hotels offered cost-based pricing. We provided almost 70 percent of our rack rate with a minimum 2nights stay. We have seen that particular market was had buying power since we demand them to pay upfront. We limited the reservation by only accepting a maximum of 10 rooms in a day. It filled 2% of occupancy to cover fixed expenses. This ran for one-month promotion and was valid for a year stay except for blackout date periods. (MS)

This pricing strategy is based on the perceived value of the product or services provided by the hotel to targeted customers. Most of the comments on this subtheme were about hotels' efforts to provide value for their guests through add-on services such as residential package benefits, speed internet, private pool areas, and other services.

We have seen the opportunities during work from the home scheme and online school. For people who have boredom staying at home, we offer valuable staycation packages, including speedy internet services, and rooms include three meal services; breakfast, lunch, and dinner at rooms. This indeed discounted rate with additional services rarely provided in normal circumstances. (AS)

Demand-based pricing was criticized as ineffective during the Covid-19 crisis due to a lack of demand from most market segments (Gullet and Chu, 2020). Many participants have shown concern for powerless low rates that were still not attractive to the market due to unpredictable situations at the beginning of the pandemic. Various packages have been offered, such as "Buy Now Stay Later," "Stay now, pay later," "Flash Sale," "Best Deal," and "Staycation."

The market has a low response to several packages, especially in small cities. Resort hotels were even more desperate since they depended on the occupancy rates from tourists, whereas locals have the weak buying power to stay in a hotel during a crisis. In a top tourism destination, our occupancy dropped to a single-digit percentage. (YL)

According to a staycation study conducted in Indonesia, perceived behavioral control was the most significant variable for Z generations to travel during a pandemic (Choirisa & Rizkalla, 2021). Hotels can consider altering their market segmentation to generations that potentially support business in crisis circumstances. Market segmentation is key for hotels to survive. Many hotels suffer from employing conventional ways to approach their non-regular and non-listed corporate. On the other hand, the business can drop for not changing the way they were. Therefore, they faced the reality of having unusual market segmentation.

Domestic guests were our primary market. However, the opportunity to grab international guests came from an embassy and an international company or multi-national company that employs expatriates. For guests who could not travel abroad due to government restrictions, their organization asked for corporate long-staying rates or self-quarantine. (JF)

It was frightening to sacrifice the hotel's image over revenue. Therefore, we took the new market segmentation for national and international's corporate employees that need accommodation during rapid tests or medical checks instead of quarantine guests. (AS)

There were rules between the hotel as one of the unit properties in international chain hotels or local chain hotels and the head office. On the one hand, unit hotels tried to figure out the market demand during a crisis in order to maintain their business alive. On the other hand, the survival kits will not work without head office approval. One of the participants was an employee who works under corporate hotel management and explained that:

To type the right market during the Covid-19 pandemic, we communicate intensively with our head office team to plan, review, and decide our next move, considering marketing tools,

promotions, budgeting, and business strategies. They monitored our performances and supported management tactics to operate unit businesses. (RP)

Many managements and operations managers aim to identify the new services cape specifically and solutions to gain their revenue in order to turn the business back into normal situations. Although there are several aspects to be improved, such as technology implementation, communication, and psychological side for employees' well-being, the Indonesian' hotel industry has shown that their new strategies in management and operations have resulting positive movement.

5. Conclusion

The Covid-19 outbreak has hampered hotel operations and possibly put some of them out of business worldwide. Hotels need to be fully aware of the new regular hotel system adjusting to the pandemic to better innovation (Choirisa & Situmorang, 2021). The aspects above that might alter hotel strategies need to fully identify the benefits and drawbacks for the hotel itself. First, hygiene and cleanliness, it is suggested that the hotel can potentially use the technology since it is essential to defeating Covid-19 optimally. Such as robotized-Artificial Intelligence as touchless service delivery, crowding control technologies, and other technological implementation possibly reopened tourism and its economy (Sigala, 2020). Secondly, the hotel also needs to consider the customer value above the cost-efficiency. However, it can be challenging for management to provide the standard services due to a lack of staff and budget, but hotels can adopt and apply new methods to deal with the situations. Lastly, although hotel rates are struggling to reach the previous level before the pandemic, hotel managers should pay attention to covering fixed costs and their positions among the competitors to maintain sustainable management during and after the crisis.

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This study provides a theoretical contribution to the hotel industry, especially to Indonesia's hotel management and operations strategies. Moreover, the findings derived from this scale enable the re-conceptualize the term the new standard, pricing strategy, and cost-efficiency. Apart from the theoretical implications, this study also offers significant managerial consequences in the context of both management and operations. Giving shed light on hygiene implementation, marketing strategies, and financial savings to minimize the risk of the Covid-19 pandemic. This research has certain limitations. The generalizations of these findings should be limited to the Indonesian hotel strategies context. It is suggested that future studies can broaden the global context to get holistic perspectives to understand international hotel strategies better.

Acknowledgment

The researcher expressed gratitude to hotel managers involved as participants in this work. Also, this study was fully supported by the Research Centre of Universitas Multimedia Nusantara.

Conflicts of interest

The author declares no conflict of interest. Citation information

Choirisa, S. F. (2022). The impact of the Covid-19 pandemic on the hotel industry in Indonesia. Economics, Management and Sustainability, 7(1), 86-94. doi:10.14254/jems.2022.7-1.7

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