How is the Czech economy? How the country’s most important companies are doing. And how do its bosses, those who head these companies, see the present and future of the Czech Republic? That’s what the latest series of interviews and articles, which you can find here on Forbes.cz, will seek to answer.
We contacted dozens of women and men who run Czech businesses. And not only the biggest ones, but also medium-sized ones and from various fields. We want to know their experience of the most difficult year of the last decade, we want to know how they have changed and where they are going. We want to know how the backbone and brain of the Czech economy works and how the whole country works and will work.
We believe you want to know that too. That’s why every day you will find an interview, article, podcast or video featuring the CEO of an important and interesting company. Women and men who run businesses, women and men who run the Czech Republic. Extremely important and essential figures who also shape our prosperity, our future, our destiny.
“Now that our sales are at zero, it sounds like Elon Musk’s story about going to Mars,” laughs Lazarov in the new, unexpectedly cosy lobby of Prague’s brutalist colossus Pyramida. The manager, who started his career in the hotel business twenty years ago at the Marriott in Prague, has not lost his optimistic faith in the future.
How ready are you for Monday’s hotel opening?
I believe it’s good. We have made major construction investments. In the past two years, we have carried out extensive renovations of five of our hotels, investing nearly one billion crowns. The interiors have changed beyond recognition and the first reactions of our guests were very positive.
Have Orea hotels been open in the past seven months, or have you locked up and turned off the heat?
With the exception of two hotels, the Pyramida Hotel in Prague and the Orea Congress Hotel Brno (formerly the Voronezh Hotel), we have indeed closed fourteen other properties. Two years ago, I wouldn’t have believed such a thing. During the covid crisis we went through three stages in Orea.
The first one was about survival. We hoped that it would be a short episode and tried to preserve jobs at all costs. Sometime in the middle of last April, it was clear that we believed in a miracle. I wasn’t getting much sleep at the time. During the first reorganisation we had to say goodbye to a hundred employees. However, we took care of them fairly, which brought us a lot of positive feedback.
Then came the first reboot and record summer attendance at the resorts. The autumn wave was about something else, we tried to learn from the previous experience and think more conceptually and strategically. How we can respond to the situation in the long term and how we can adapt.
What have you come to?
Last summer confirmed to us that people want and will want to travel. In today’s uncertain times, this gives us some confidence that our business is still promising despite the current turbulence. Otherwise, I personally see the future of the hospitality sector in digitalization and personalization of services. We’ve fallen a bit behind here in the past. Today we collect data, but we do not know how to work with it sufficiently. That should change tomorrow.
What do I mean by that?
These may be small things, but they will significantly shift the perception of the quality of customer service. So maybe we’ll know that you like to use spa services. So when you arrive in Špindlerův Mlýn at the Orea Resort, we will not be able to arrange a free massage. On the other hand, we will offer you a tailor-made package as early as five days in advance.
We want to move all transactional business to mobile. Customers don’t need someone at the front desk to check their ID or take their order at the table. This can be done online or via QR codes. The staff will have that much more time to attend to the needs of the guests. We want them to be ambassadors for the region, able to recommend personalised experiences to clients that they won’t find in the books.
Orea’s hotel portfolio consists of one third mountain resorts, spa houses and large congress hotels. How are the different segments of your business coping with the situation?
Definitely the resorts are the best because we see leisure demand coming back first, and we expect to exceed 2019 very soon. City hotels will miss international clientele and big events, so it will take a few years to return to 2019 levels. Despite the expected increase in home office work, we believe that teams will want to spend real, quality time together. The traditional spa clientele is not travelling at the moment, but we believe that next year the situation may stabilize.
During the lockdown, we had ample time to look into the basics of our business and realize that the needs of a business, spa and resort client are completely different. We didn’t make that distinction before, which was a mistake. That is why we have divided the operation into three segments. We want to offer a couple of services that will be common for the whole chain, for example that the first coffee is on us, but at the same time the client service will be tailored to the segment.
Are you also considering changing your structure, for example to strengthen the leisure segment?
We definitely want to look for new opportunities. We are trying to look differently at spa destinations, which have so far been built mainly on healing springs and traditional spa clientele. However, in Mariánské Lázně, for example, it was already declining before the covid. However, Mariánky is within driving distance from Prague, has beautiful nature around it and offers potential for other types of guests. Those who want to slow down, relax.
Last year, people began to discover Mariánské Lázně in a different way, families with children and cyclists arrived. We would like to attract them in the long term. After covid, the home office will probably be reflected in our work habits, thus expanding the space for remote work, long weekends mixing work with rest.
We currently own five hotels in the city and then we have two development projects in operation. The construction of the 160-room Broadway Hotel – it already has planning permission and we are currently discussing financing. Then there is an ambitious project that includes connecting the main street with another street, revitalizing the park, actually a multifunctional piece of the city with residential housing and shops.
It’s a long run, and we would certainly like to invite other partners to join us. Three years ago, the appetite to invest in such projects was high on the market, but today investor confidence is waning. We need her back.
Do you have a recipe for how to do this?
If we liken the hotel business to a patient, he’s still on pulmonary ventilation. Only when all the compensations are finished and the restrictions are relaxed will we know what value is in the hands of whom. I believe that the basis of everything must be a satisfied guest, who alone reliably generates power. That is why we need to continue to invest in real value even in a crisis. If you don’t take shortcuts, it will come back to you.
Perhaps we are now seeing a real return on our investment in children’s play areas and animation programmes in resorts where we have had a programme every weekend for years, not just during the holidays. Our bookings for the summer season are already higher than in 2019 and happy families are returning to us.
What about the former St. Gabriel’s Monastery in Prague’s Smíchov district, which the Cimex group, to which Orea belongs, bought in 2019 from the Czech Post for CZK 350 million? Do you still have hotel plans for him?
For now we use the area as an event space, it is rented by filmmakers. We already have an architectural design for a five-star hotel on the table. There too, we are rethinking how to create long-term value. How do we set up the mix of functions, how much hotel capacity, how much housing, how do we make the basic assumptions work. It’s a bit of a crystal ball divination, there are a lot of unknowns in play as to how the world can change after covid.
In Orea you can rely on strong shareholders from Cimex Group, do you see the crisis as an opportunity for more intensive growth?
There are still key projects in the Group’s portfolio that we want to redevelop. At the same time, we plan to launch a new sub-brand, Orea Place, next month. It will be about smaller apartment-type operations with a kitchen and fully digitized service. At the beginning we will have three buildings, two in Prague and one in Mariánské Lázně. At Orea Place we want to collaborate with other Czech brands to create an authentic experience.
Are you afraid of a price war in Prague?
I’ve experienced several of them over the years and they are certain to do long-term damage to all of them. We can blame ourselves for the fact that despite the huge demand, which even the increase of beds through Airbnb to double, Prague is still a relatively cheap destination. I think we need to stop thinking short-term, transactional and about discounts, but about creating long-term value for guests.
In this way, we would like to gradually incorporate ten more plants into the network. We have hotel know-how and are ready to support investors who have a more aggressive investment approach. Whether in Prague or in foreign resort destinations that are well connected from Prague and where Czechs like to go. We already serve 700,000 guests a year and this is a good base for expansion abroad.
The size of a hotel operating company is crucial to its success, although we are currently paying more for it. In the Czech Republic, we ran into limits in compensation programmes, which we could only draw up to €1.8 million. As a result, EBIDTA Orea Hotels fell by CZK 250 million year-on-year and the operating loss had to be rehabilitated by our shareholders. In Germany or Austria, the limits were much higher, up to ten million euros.
Cimex Group has other hotel investments in its portfolio in the USA and the Caribbean. With this global perspective, how do you see the hotel investment market evolving?
At the moment it is still frozen and there is great uncertainty. Owners are working with 2019 values and don’t want to discount, investors are willing to buy but only at a discount. And so everyone waits. At the same time, the first signs of inflation are appearing. If everything around here gets more expensive, 2019 prices may not be inflated at all in another year. Personally, I expect the investment market in Prague to start moving during the first quarter. But I expect bigger transactions in 3 to 4 years at the earliest.