Part 1

Read the documents provided in Part 1 of the 'Materials'.

Considering your studies in Week 6, analyse the macro environment of an industry in which the company operates.

Guidance:

Part 1

This question asks you to conduct an analysis of a macro environment. First, you should define the macro environment of interest: you will find it helpful to identify the industry on which you are focusing

For your analysis, choose one of the two frameworks for analysing the macro environment as introduced in (STEEPLE OR VUCA).

It is important to support your analysis with evidence from the Materials. . Build a narrative that discusses and evaluates the main forces of change in the macro environment.

Materials

Part 1

1. Return to a world transformed: How the pandemic is reshaping corporate travel

Travel will return. But the recovery will likely take longer than in other industries, and will vary across segments. Business and leisure travel will return at different paces, as will domestic and international travel.

Companies say they plan to turn off their travel restrictions in phases, and are developing decision-making processes and more agile travel policies to account for safety before authorizing travel. Client-facing visits such as site visits and sales calls are likely to return first. Day trips and self-drive travel are likely to return earlier since physical-distancing measures, exposure, and risk will be more manageable. Conferences and industry events will likely be the last to return.

In leisure, we expect that travel to visit friends and relatives will return first, likely by car. Travel restrictions combined with economic uncertainty will likely translate into a higher share of domestic and close-to-home travel. Longer international leisure trips will be slow to return, and travelers will expect greater flexibility in cancelation and change fees. The recovery may include extremely short planning cycles driven by gradual lifts of the travel restrictions and very short booking windows as travelers monitor the situation.

Source: Deloitte (2021).

2 Hospitality and COVID-19: How long until 'no vacancy' for US hotels?

As the threat of illness, hospitalization, and death from COVID-19 wanes, corporate travel demand will likely begin to bump up against two significant limiting factors: sustainability commitments and cost controls.

Sustainability has moved into the corporate mainstream, with more than 400 companies signing a pledge at 2021's Davos World Economic Forum to decarbonize by 2050.

About half of survey respondents say that within the next year, they plan to optimize business travel policy to decrease their environmental impact. Travel ranks among the top targets for corporate environmental harm reduction, along with reducing paperwork and greening supply chains.

Companies looking to curb travel-related emissions say they will do so mostly by limiting trip frequency, drawing on lessons learned during the pandemic.

Two-thirds of survey respondents say renewed attention to cost will lead to limiting trip frequency. But they will also use other levers at their disposal: encouraging more bookings via corporate booking platforms and agents, and opting for more economical travel alternatives.

Source: McKinsey & Co (2020)

3 How Russian's invasion of Ukraine could hurt the travel industry

(CNN) This was supposed to be a year of recovery for a travel industry hit hard by the global coronavirus pandemic. But Russia's invasion of Ukraine may have just changed that. The long-term consequences for the travel industry could be much more far reaching. Here's why:Read Beard (2020) and Warden (2020) for a discussion on the impact of the pandemic on British textiles and fashion industries respectively.

Rising fuel costs will hike travel prices

Global crude oil pricessurged to more than $110 per barrel on Wednesday (2/3/2022) as investors fear Russian energy exports will be limited or halted as a result of the conflict in Ukraine. These price surges will make any type of travel more expensive.

Safety fears could weaken demand

Covid-19 still exists, and the refugee crisis could make it worse

No one likes uncertainty

From investors to travelers, no one likes uncertainty. The war in Ukraine has increased uncertainty over whether port closures and shipping delays will limit deliveries of everything fromwheat to crude to cooking oil.

The uncertainty over what happens next in the conflict is also making people think twice about planned or existing travel plans.

Loss of tourism revenue

According to the Association of Tour Operators of Russia (ATOR), Russians made more than10.1 million tourism-related tripsabroad in 2021.Based on flight bookings as of 22^ndof February 2022 for arrivals between March and May 2022, Russian visitors account for 0.4% of total UK tourism.

Source: CNN (2022)

4 House of Commons briefing paper: Hospitality industry and Covid-19

The proportion of hospitality businesses paused trading during the pandemic has been larger than most other sectors.

The hospitality industry has seen high take-up of UK Government business support schemes such as the CJRS and business loans. The Government has also provided support schemes targeted to the hospitality industry, such as reduced VAT rate, a business rates holiday for 2020/21 (extended to 30 June 2021) and a series of small business grants.

There are two main loan schemes that represent the majority of loans: the Coronavirus Business Interruption Loan Scheme (CBLIS) and the Bounce Back Loan Schemes (BBLS).

The Government established aHospitality Futures Groupthat provides a forum for discussion between Government and industry leaders on possible ways to support the recovery of the hospitality sector following the pandemic.

In terms of support forproperty costs, the Government introduced a moratorium on forfeiture due to non-payment of commercial rent (extended to 31 May 2020), as well as changes to commercial rent arrears recovery, statutory demands and winding up petitions.

The industry has also called for longer-term support through reform of business rates and VAT; for example, UK Hospitality called for the interim 12% VAT rate to become permanent from September 2022.

The industry has highlighted that ongoing uncertainty about rent debt is now the biggest concern of the sector. UK Hospitality and welcomed the Government's intention to launch a call for evidence on commercial rent negotiations stating it hoped this would motivate landlords "to come to the table with meaningful concessions".

Source: House of Commons (2021).

5 Hotel Britain Lite 2021. Revive and thrive - looking back to move forward

Unincorporated businesses and companies will welcome the increased flexibility to carry back losses arising during the period of the pandemic an extra two years. The extended relief will allow for a three year carry back of losses arising in 2020-21 and 2021-22. The relief ranges from up to 2m of losses in each of 2020-21 and 2021-22 to 200,000 of losses depending on company status, unincorporated or members of a corporate group respectively. This will provide some additional cash flow by accessing a repayment of previous tax payments.

Source: BDO (2021).

6 UK household incomes facing biggest decline since mid-70s, says thinktank

The Resolution Foundation said the dramatic increase in global oil and gas prices was forecast to push UK inflation above 8% this spring, causing average incomes across Britain to fall by 4% in the coming financial year - a hit worth 1,000 per household, the biggest annual decline since 1975. [...]

Although the UK sources relatively little of its gas supply from Russia - about 5% of its total imports - fears over supply restrictions amid the escalating conflict have driven up global wholesale prices. ....

However, Helen Dickinson, the chief executive of the consortium, said sales would soon come under pressure. [...] "The cost of living will continue to spiral due to global inflation, increasing energy bills and the rise in national insurance this spring. With households facing lower disposable income, discretionary spend will be one of the first things to feel the squeeze."

Source: Partington (2022).

6.1 The living standards Outlook 2022

Key findings of the Resolution Foundation's Report are:

Part of this living standards hit comes from the policy of uprating benefits with a lagged measure of inflation: in 2022-23, this will cut the real value of the income provided by the benefits system by 10 billion.

Real incomes are projected to also fall in 2023-24, by 2 per cent, driven by weak pay forecasts and the end of the Government's energy bills support package.

Source: The Resolution Foundation (2022).

7 Best practice guide

Even prior to today's disruptive economic and social shifts, emerging technologies and digitalisation were already upending traditional practices, from check-ins to payments. As a global crisis continues, those same technologies are invaluable tools for meeting urgent new guest experiences and expectations. The best part: Not only are they flexible enough to respond to the situation at hand, but they can also help to prepare hospitality organisations for what's to come in the future.

Industry leaders are examining the workflows and mechanics of technology-driven processes like data infrastructure, reservations, event planning, inventory control, competitive price setting, and revenue forecastingand seeking out ways to tie them all together to better serve operations, revenue management, and brand strategy.

Source: Infor (2022).

8 UK Hospitality. Trend spotting: big movements to watch

Technology

The pandemic has dramatically accelerated hospitality's adoption of technology, and CGA Business Leaders' Survey with Fourth shows the vast majority (95%) of bosses think it will be important in their operations after lockdown. The rapid rollout of apps, QR codes and other innovations have made the customer journey look very different in places, and has left guests and operators alike much more confident with digital solutions.

Polarisation

Consumers who saved money in lockdown are looking to treat themselves on their return to hospitality. However, people who have suffered financially from the pandemic will have a renewed focus on value. CGA data shows that while more than half (55%) of consumers plan to spend the same or more after COVID, nearly as many (45%) will be seeking to save rather than spend. The likely result of that is a greater polarisation in approaches and a need for businesses to cater for both ends of the market.

Safety

Hospitality has worked very hard to reassure guests about their safety since the end of the first national lockdown, leading to high levels of confidence in CGA's consumer surveys. COVID will continue to be a concern for many cautious people. The pandemic may also lead to a permanent increase in consumers' awareness of hygiene protocols in venues.

Dayparts

Post-lockdown trading patterns have shown a levelling-out of sales across days of the week and dayparts. Consumers who remain anxious about crowds have moved away from peak trading periods and spread their visits more evenly across the week, and these habits could endure even when the pandemic ends.

Source: UK Hospitality (2021).

9 Responsible Hospitality: The Road to COP26 and Path to Net Zero

The direction of travel within both public and political opinion on climate change is clear. More is now expected from businesses, employers and from Government to take action to tackle the global climate emergency and reduce carbon emissions.

Consumer surveys demonstrate the increasing importance that the public places on climate concerns when making choices on different products and services. Conscious of

this growing demand, businesses across the hospitality sector are alive to the need and opportunity to address their carbon emissions. A recent UKH study found that97%of respondents viewed carbon reduction as an important part of their business model for 2021.

Roadmap for the industry

For UKHospitality, the key piece of work in this area is the sector roadmap that will identify the quickest and most cost-effective route to net zero. This will be done through reductions in water, waste, energy and supply chain emissions. UKHospitality will be working with members, developing a suite of tools to aide them on their carbon reduction journey.

The Government's commitment to carbon reduction and intention to position itself as a world leader in this area has continued unabated by the pandemic. The Sixth Carbon Budget released in April 2021 enshrined in law extremely ambitious climate targets, including a 78% reduction of carbon emissions compared to 1990 levels, building on earlier Government commitments to reach net zero emissions by 2050.

References for Part 1

BDO (2021)Report: Hotel Britain Lite 2021. Revive and thrive - looking back to move forwardAvailable at:https://www.bdo.co.uk/en-gb/insights/industries/leisure-and-hospitality/hotel-britain-2021(Accessed: 12 March 2022)

CNN (2022)How Russia's invasion of Ukraine could hurt travel's recoveryAvailable at:https://edition.cnn.com/travel/article/russia-ukraine-hurt-travel-recovery-cmd/index.html(Accessed: 9 March 2022)

Deloitte (2021)Return to a world transformed: How the pandemic is reshaping corporate travelAvailable at:https://www2.deloitte.com/us/en/insights/focus/transportation/future-of-business-travel-post-covid.html(Accessed: 8 March 2022)

House of Commons (2021)Hospitality industry and Covid-19(Briefing Paper: CBP 9111). Available at:https://commonslibrary.parliament.uk/research-briefings/cbp-9111/(Accessed: 10 March 2022)

Infor (2022)Best practice guide: 8 ways hotels and resorts are achieving resilience in the 2020sAvailable at:https://webassets.infor.com/resources/eBooks/8-ways-hotels-resorts-and-casinos-can-achieve-resilience-in-the-2020s-uk.pdf?v=1643906267(Accessed: 20 March 2022)

McKinsey & Co (2020)Hospitality and COVID-19: How long until 'no vacancy' for US hotels?Available at:https://www.mckinsey.com/industries/travel-logistics-and-infrastructure/our-insights/hospitality-and-covid-19-how-long-until-no-vacancy-for-us-hotels(Accessed: 8 March 2022)

Partington, R. (2022) 'UK household incomes facing biggest decline since mid-70s, says thinktank',The Guardian, 8 March 2022. Available at:https://www.theguardian.com/business/2022/mar/08/uk-household-incomes-decline-resolution-foundation-ukraine-conflict-energy-prices(Accessed: 12 March 2022)

The Resolution Foundation (2022)The living standards outlook 2022Available at:https://www.resolutionfoundation.org/publications/the-living-standards-outlook-2022/(Accessed: 13 March 2022)

UK Hospitality (2021)Future shock: Issue nine - hospitality: COVID and beyondAvailable at:https://www.ukhospitality.org.uk/page/FutureShock-IssueNine(Accessed: 18 March 2022)