Below is the transcript of a CNBC interview with Ho Kwon Ping, Executive Chairman, Banyan Tree Holdings. The interview played out in CNBC's latest episode of Managing Asia on 03 July 2020, 5.30PM SG/HK (in APAC). If you choose to use anything, please attribute to CNBC and Christine Tan.
Christine Tan (CT): Mr. Ho, in your 25 years growing Banyan Tree, did you ever imagine the sort of disruption you're seeing right now with Covid-19?
Ho Kwon Ping (HKP): This is the worst crisis that's hit the whole world in probably 50 years or ever since World War II. For my business, it's the worst hit of everyone who has been hit. The only thing that's a saving grace is that there are only two businesses that are probably worse than mine- that is aviation and restaurants.
CT: Were you prepared?
HKP: No, of course not. That's the funny thing about it, isn't it? The whole world was prepared supposedly for a pandemic. I mean, it doesn't need a genius to know that everybody had been predicting that a pandemic was going to happen sometime. But, of course, it was always a question of exactly when. It was like the proverbial San Francisco earthquake. It was going to hit sometime in the next 50 years, but it could be anytime. So, we weren't prepared, obviously not. But we were prepared to the extent that we know that our industry is the most susceptible to event risk. So, we were relatively more careful. We had the protocols in place already. Immediately, we rolled out unpaid leave. Immediately, we did this and that, knowing that in this kind of a crisis, the name of the game is cash preservation. We've been down this line before, but never as badly as it is today.
CT: Which of your 47 hotels around the globe was the most impacted by the outbreak? Did you have to close down a lot of your hotels in a process?
HKP: Virtually every single one of our hotels closed in the beginning because it hit the whole world. Then the ones that we thought would be closed the longest, which were the ones in China, opened the fastest. The recovery has been very patchy and hard to predict. Although now we're beginning to see the shape of it. Of course, any hotel in a large economy with a large domestic tourism component will recover faster. So, our hotels in China all have already come back to some degree of business. Those that are within driving distance of a major metropolitan centre have recovered fully. Those that are in China but you have to fly to are a little bit slower. The ones that are the most difficult, of course, would be those in the ASEAN economies, because those are the ones that have traditionally been most dependent on either European inbound or China inbound. The domestic economies of the ASEAN countries are still not strong enough to generate sufficient domestic tourism, although they're all scrambling to try to do so.
CT: Did you have to deal with any infections at either your office or any of your hotel properties? What health protocols did you put in place to protect your staff and your guests?
HKP: Like everyone, we put in health protocols. We give it a nice name. Ours is called Safe Sanctuary. Every hotel has rolled out their own protocols, which are probably about 75 percent the same. No, we didn't have any infected persons in any of our hotels nor in our offices, whether with guests or with staff. Although every hotel is saying that they have protocols for hygiene. So, I don't think customers are that worried about the hygiene aspect. It's really the fear of flying that has postponed their ability to come back to hotels. They just can't get to the leisure hotels that are only accessible by air. We've seen everywhere, even in the U.S. or China, immediately, almost like instantaneously after the lockdown eases, people get into their cars and they drive to a resort somewhere. So, it's not the fear of the hotels, it's the transportation to get there that is the problem.
CT: Like many in the hospitality industry, Banyan Tree was hard hit, as we talked about earlier, because international travel as we know has been grounded to a halt. How did you first respond to this sudden shift in market demand? Did you immediately kick start measures to cut costs?
HKP: Yes. when you look at a situation like this and analyze, you recognize pretty quickly that you can't do anything on the demand side. Of course, we've done some things that we have been quite successful. We've done the Ultimate Getaway, where others are also doing where you try to presell your rooms with deep, deep discounts. Not so much to try to get the cash in, it's more to try to keep people's interest still alive in travel and leisure. So, we did all those things. But the most important part was to try to conserve our cash. Of course, this crisis has hit harder than any others in terms of its direct impact. We've never even for example in Thailand during the height of the tsunami or the riots and so on, we never had 100 percent closed hotels. We never had zero occupancy. Obviously, we've had that now. We've had to do difficult things. We've actually had to have unpaid leave which was not sufficient. We then had to go out with actual furloughs where we had to actually lay off a lot of our staff, but we tried to mitigate that and still create a culture of cohesiveness among all our associates. For example, in Phuket, we are one of the largest players. By having to still let go quite a lot of staff, we created our own jobs portal called Lagunajobs.com, and that will be, in fact, in all our other integrated resorts in Phuket, Bintan, Lang Co in Vietnam, where everyone who we had to let go, we registered them immediately on this app. The minute that we need any new temps any time - or other hotels can register for us... So, we've become a temp employment agency as a matter of necessity to try to at least make life a bit better for our associates when times get a bit better.
CT: It's a tough process, isn't it? Because you had to let 10 to 15 percent of your global workforce go. How do you feel about having to cut staff at a time like this when you know the market is so bad out there? Was it the last resort you took?
HKP: I think what's very important throughout this whole exercise is actually how do you cut staff. We found not a single person surprised. Anyone who even keep abreast of international events and knows the amount of job losses out there in the U.S., in Europe, in Asia or even among their friends, would know that this is inevitable. Everyone recognizes that if we didn't do what we did, there would be no company for them to come back to. You just can't keep a workforce that's geared for 90 percent occupancy. Because remember that everywhere we were operating, the Covid hit right at the peak of our peak season, which is the winter season. So, we had our workforce geared for 90 percent occupancy, and suddenly you're at zero percent occupancy. Now, you can do that for a little while. But they also know, all our associates know, that this is going to be a very long climb back. So, we've found that having town hall meetings with people, answering their questions with transparency, giving them no false assurances, but every assurance that we give them is not only heartfelt but is backed up by 25 years of crises where we've also had to let people go. Not in such massive numbers but we've also taken them back. So, I think this is a kind of social compact that you need to have in a company. I think leadership by example is important. I took a 100 percent pay cut. Now, obviously, I'm better off than the rank and file associates and so on. But when you live in a world where you've got private equity funds and hedge fund managers that are drawing down $200 million bonuses when they're at the same time retrenching thousands of people, and that actually does go on when they're already billionaires, then it does say something at least that you've got some CEOs who would say, I know I'm better off than you are, but I will still at least symbolically say I'm not going to take any money as long as you are hurting. So, I think those kinds of things are important.
CT: You announced a rights issue to raise 50 million Singapore dollars. Do you think that's enough? Do you think you might have to do more?
HKP: That's a very interesting question. Our burn rate is such now that we think we can - and never say never - we can survive for quite a while longer with zero revenue. I don't want to say the specific number of months, but it's a reasonably long time with no revenue at all. But, if you know the nature of the game changes and the zero revenue continues even longer, then probably we'll have to make further cuts. Even the cuts we're making now, we're still putting a lot of people on unpaid leave but with minimum pay, so that we think will take us through. We'll just have to wing it from here on right. I mean, show me anybody who can tell you and say, Christine, I know this crisis is going to work out this way, this way, this way, I'll show you a person who's basically b**********g. Nobody knows what's going to happen.
CT: And being a journalist, zero revenue, I need to ask you, how long do you think you can ride this out?
HKP: Double digit months.
CT: Double digit months. We're talking 10 months or more. At least a year?
HKP: Oh, yes. At least at least a year. Comfortably, comfortably beyond a year.
CT: So, you think the decisions, the tough decisions you've taken at Banyan Tree are enough for now? You think the worst is over for the group?
HKP: What was important for us was not just cost cutting. The more important part of a crisis, the more painful part of a crisis is the restructuring that you know intuitively you need to do. In fact, even more than intuitively, it might have been restructuring plans that have been sitting there in your drawer that you've been talking with your colleagues for umpteen years and you know that it's going to make the company leaner, meaner, tougher, et cetera, even in good times. But you've never done because either you were too busy or because the pain, pain meaning not just financial pain, the pain of having to restructure for efficiency, were just things that you didn't really want to do so you just kept on delaying it.
CT: So, this is the excuse you need?
HKP: I think it's not an excuse. It's an excuse in some ways, but frankly, it's an excuse only to the extent that you say, well, I don't have to explain it to associates, et cetera. It's more the fact that you recognize for yourself that if you don't do this now, when will you ever do it? It's, again, empty rhetoric when politicians and other people tell you we will come out of it stronger. What on earth does it mean, we're going to come out of this stronger? It's not real. You're actually going to come out of this a lot weaker unless you do the painful restructuring. Whether that being digitalization, and therefore the letting go of many people who are going to be victims of your digitalization, or whether it means restructuring and flattening the hierarchy which we all know we should try to do, but they are going to be victims along the way. So, that part is actually more painful.
CT: Let's talk about demand. Because like many hoteliers, you've also been selling prepaid hotel stay certificates at discounts. What's the response like? I mean, what can you tell us about demand post COVID?
HKP: The response to ours was phenomenal. We sold 30,000 room nights. We also had a crash on our website and all that kind of stuff. So, we're going to do more of it. I think demand is huge. And this is the fortunate takeaway for my part of the hospitality business. The results that we've gotten back indicates to us that the big majority of people clearly think that by end of this year and early next year, things should be okay. So, that's a positive side. So, my sense is that unless there is another outbreak, we should see the light at the end of the tunnel, not the exit of the tunnel, but the light at the end of the tunnel, probably by this year end.
CT: You reported a loss of S$3.4 million in the first quarter. These tough decisions you've had to make, along with the layoffs, along with the cost cutting measures, you hopeful you will be profitable in the next twelve months?
HKP: There's no way. No way. Nobody is talking... well, some people are if you are a tech company that's benefiting from all of this, but if you're a hospitality company, I don't think you're talking about profitability per se, because if nothing else, we've got depreciation costs, interest costs and so on. So, the question for us is two issues. Hopefully, one would like to be EBITDA positive. If you can't be EBITDA positive, which is not even that critical, the real critical part is will you be cash flow positive? Are you strong enough financially with your balance sheet that you can withstand this storm? Then after that, you worry about profitability.
CT: So, when can Banyan Tree be cash flow positive?
HKP: The answer actually is probably after this coming winter season, because the bulk of our operations are still in Asia Pacific. Even if not in Asia Pacific, they are mainly resorts that cater to the temperate climate customer, whether they'll be an Asian temperate climate customer like China or whether it be from Russia or whether it be from the U.S.A. or Europe. So, I think for us in particular, we already knew that the second and third quarters are going to be washouts because it's so soon after the COVID. The domestic market may benefit like our hotels in China, but not our resorts elsewhere. The real test will be this coming winter. Will the Russians come? Will the Europeans come? Will the Chinese come? And we will then be able to see what the following year is likely to be. Now, I can paint you several scenarios, right? The positive one is not a return to normalcy this coming winter. The positive scenario is we can even get up to 30, 40 percent because even if you add them all together, the Chinese market was never more than about 30 percent. If half of them will come, it's 15 percent. How many Europeans would come, fly 14 hours? That's questionable. So, if you can get up to 30, 40 percent, that's already very positive.
CT: So, 30, 40 percent occupancy rate is what you're targeting, you're aiming for to at least be cash flow positive?
HKP: What we're doing now as part of the whole exercise is really reducing our breakeven occupancy. Airlines have this real problem that airlines have got a breakeven passenger load of usually in the 70s: 70 to 80 percent. You have to have an occupancy of that high before you can make a single dollar. Our hotels have traditionally been around 35, 40 percent occupancy. You can break even at the operating level. We're now working to bring that breakeven occupancy (rate) down to the 20s. But for me, it's not an issue of when will I be cash flow positive? For me, the key issue is when will I have visibility as to when the cash flow positivity will be?
CT: When do you hope to get visibility?
HKP: To me, the biggest problem is going to be a return of a second round of virus outbreaks. That's the key question. My own sense is that people are not going to be that scared of flying after a while. IATA and others have shown that you may be traveling with somebody else who's infected and then they may, infect other people when they get to the ground, but the chances of in-flight infection is not that high. So, I think gradually people are going to recognize that. But if there's another outbreak, another Beijing outbreak like we just saw and China closes its borders completely, then all bets are off, right?
CT: Before the pandemic, Banyan Tree was gearing up for its next phase of growth after celebrating 25 years last year. You had plans to open about eight new resorts this year with a vision to double your footprint in the next five years. Are those plans now on hold?
HKP: We cannot ourselves determine whether those plans are on hold or not. We can only determine that if they are our own investment projects. The majority of those are actually projects that are undertaken by our partners. I would say, probably some are on hold, some are going full steam ahead. It depends, I guess, on the state of development. We have five or six projects that are probably supposed to open within the next six months. Those were clearly owners who will try to rush them as fast as they can in order to have less downtime, so they can start getting revenue. Some projects are just on the drawing board, those might be delayed. It really does depend because some of the projects, for example, are "wellness". We've got one or two projects in Masai Mara in Kenya. Another project in Mozambique in a desert. Another one in the Bahamas. There, the owners are rushing as fast as they can because they know business is going to be huge for nature and wellness tourism. Some projects in China, particularly the government-funded ones, they're rushing to do more because, as you probably know, the Chinese government's needing to depend less on exports is really pushing for domestic tourism. So, a lot of state-owned enterprises and state-related enterprises are, in fact, speeding up their projects. We have plenty of projects in China. But then, we also have some owners of projects in China who are private individuals, and their side businesses may have gone bust. So, it really is a case by case situation.
CT: Has the pandemic in your view caused a seismic shift in the industry? As a seasoned entrepreneur with your own hotel brands, do you not have to rethink how you operate?
HKP: I don't think it has caused a seismic shift. Certain aspects of hospitality will be fundamentally changed. If you look at the meetings market in particular and business meetings, I do think that's going to go down by a lot. Big gatherings like World Economic Forum, like other kinds of things which they're hoping to get thousands of people together, I think there's going to be a lot more questioning as to whether those things are necessary, especially many of us like myself hate going to conferences because I waste so much time just getting there and spending time in big conferences. But I've attended a lot of our webinars now because it's so easy to do so. There will still be what they call a MICE market. There'll still be a lot of business for incentives, but pure conferences, I think that will go down.
CT: As a seasoned entrepreneur in the hotel industry, what are some of the valuable business lessons you've learned dealing with this current pandemic?
HKP: The lessons that I've learned essentially are not new. They're reinforcing of lessons I've learned from previous crises. One of them mentioned earlier is to always be expecting a cash crunch to occur before anything else when a crisis happens, to always put cash as much more important than profitability and so on. But perhaps this time round, maybe because we had to do much more in terms of furloughing people and so on, and yet the very sympathetic responses we've gotten from virtually everyone, it just reinforces, in my view, in particular for the service industry and probably for any business, that transparency, honesty and keeping faith with your associates in good times and bad, is the kind of social contract that really underpins the culture of a company and that is priceless. I think a lot of companies don't recognize that. They treat associates as if they are simply cost factors. They add on tens of thousands when they want to be in a gig economy and they want to be the next unicorn. They slash tens of thousands when they think they're not going to make the numbers. And I think if you're in this business, you learn that you cannot always give better salaries, bonuses and so on to everybody. There will be times when you have to let people go. But if you do it and keep faith with your people, they appreciate it. I think that level of transparency is probably critical.
CT: As Executive Chairman of Banyan Chain, what leadership will you provide to steer the group and your employees out of this crisis?
HKP: The most important thing that you have to do is you have to make people believe that what you say is what you mean. I say that perhaps because we actually see very little of that these days. Political leadership, particularly in the West is really bad and it's trickling down, unfortunately, to corporate leadership. If you take the U.S. - Black Lives Matter - how many CEOs are actually doing this? How many how many CEOs have even got the guts to call out Trump when he needs to be called out? So, those of us who are watching the Western world are not particularly impressed by leadership of any kind. So, my sense is that we don't need to talk about oratorical leadership of the Winston Churchill type. We don't need to be riding a white horse and be a Joan of Arc and calling people to arms, simple honesty and transparency to your associates and treating them like people who need to be told the truth and levelling with them. That's not... that's not a tall order for leadership, but unfortunately, it's in very short supply right now.
CT: And finally, you and your wife, Claire Chiang, started Banyan Tree 25 years ago. What will the next 25 years look like as Banyan Tree re-emerges from this crisis?
HKP: Oh, you ain't seen nothing yet, we're only just starting. You know hey, hey, you know, the Japanese did something that I mentioned in my book recently and I thought that is the height of Japanese wisdom. They have now defined old age starts at 75. (CT laughs) Older middle age starts at 65. So, I've only reached older middle age, I still got many years to go. But honestly, when you love this business and in particular, when you have family members, our children who really are passionately loving this business, they're not seeing it as something they need to do because their parents started it, they don't see themselves as custodians. They'd see themselves as taking on the mantle and creating bigger and better things, and we encourage that. We say, if you can build this to be far, far better than what we ever did, more power to you. I think they feel that challenge there. So, in some areas, we talked about restructuring, I have given up a lot of my executive responsibilities to another team. That's part of the restructuring. I still mentor them. I still get involved in strategy, but it's a new ball game. Although joking aside, of course I want to be around for the next 25 years, but you want to create something that will live on far longer than yourself, and that's one of the key things I want to do. That excites me.
CT: Any idea where you and Claire will be 25 years from now?
HKP: Oh, we will probably be celebrating Christmas at the Banyan Tree in Lapland and riding our sleighs.
CT: Mr Ho, thank you so much for talking to me. Please stay safe and well during this time.
HKP: Thank you and bye.
Jessica Tan Shu En
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