2 June 2020 | BI and data analysis, Revenue management, Industry news
Shanghai is China’s most important industrial and commercial city. It serves as a tourist hub for Asia and is a key city in the Asia Pacific region for international events and conferences. COVID-19 impacted China in late January 2020, and the negative effects on the tourism and hospitality industry nearly instantaneous, with booking cancellations, group wash, domestic and international travel bans and restrictions.
With early signs of recovery now showing across China (domestic airlines have 60-70% seats filled compared to April), this article looks at what levers and tactics hoteliers should deploy using the data available, as well as forward facing strategies that can positively impact the bottom line at both the hotel and corporate level.
Revenue and Commercial leaders rely heavily on historical data to predict the future. This forms the basis of weekly forecasts, monthly promotions and yearly budgets. Historical patterns provide insight into segmentation pick-up, booking window, lead time and market performance.
In this new-normal, reliance on historical data to drive future performance no longer applies. Here are the new metrics that matter:
What hotels are open in my market?
What channels are they selling in?
What are the pricing changes that competitor hotels are making? And how frequently are these changes happening?
Is my hotel segmentation still the same or are some market segments picking up faster than others?
In contrast to Beijing (where approximately 55% - 57% of hotels only were open until the end of March) Shanghai hotels remained more positive and the city saw over 75% of hotels remain open through March - a 20% difference in the number of hotels that were open between the two cities. This is attributed to the fact that Shanghai is a commercial and business hub. With travel between provinces restricted since the end of January, many hotels in Shanghai housed intercity guests who could not return to their hometowns. Shanghai also had a compulsory 14-day quarantine for all international incoming travellers, at hotels on their own expense.
In full monthly terms, Shanghai witnessed a drop of -13% in the number of hotels closing due to the virus between January and February. As the market normalises, hotels reopening are experiencing an average of +3% uplift each month from April to July 2020.
With the onset of restrictions and cancellations in bookings, there was a large increase in the number of hotels closing their doors to guests. With the slow pace of recovery two months after restrictions were lifted, hotels have begun opening for business from April onwards.
With hotels re-opening, pricing strategy remains volatile and fluctuates on a daily basis. This aligns with the data, where we note hotels are trying to capture any business they can (e.g. hotels dropped rates on average -25% mid April through end May.)
Event cancellations continue to impact pricing for the hotels. Prime examples are the postponement of the China International Medical Equipment Fair (CMEF Spring) and the CES Asia Conference.
With markets recovering, the guest business mix will change significantly. As the propensity to travel and book will be vastly different from pre and post restrictions, hotels must continue to monitor their occupancy build up from transient and group segments.
Each of these segments has very different lengths of stay patterns, booking window, day of week movements and geographical origin of business. One key area that should not be forgotten is the marketing budget. More than ever, a hotel's marketing team is vital in being able to generate demand from markets and segments we see positive traction from.
Each of the key metrics deserves regular review and strategic focus:
How is the guest booking behaviour changing? Should we focus on direct or drive online channels? Have we looked at the overall value proposition of the booking channel?
What is the lead time of bookings and how is seasonality playing its role in the customer booking process?
With most events either cancelled or postponed, can we entertain new market segments to mitigate the shortfalls from other depleted segments?
If your hotel was largely reliant on air crew, it will be a number of months - perhaps up to a year - when air travel will start generating to pre COVID-19 periods. If the air crew segment is not generating base business, can we begin to focus on drive by market, smaller meetings?
In the graphs below, we can visualise how the Shanghai market is moving toward a rebound:
The transient segment has a short lead in comparison to the group segment, which books in advance. Jan to May 2020, transient segment outweighs the group segment.
Hotels currently have a significant amount of group business on their books. Organisers seem optimistic for the future months and it is evident where the wash factor is not yet seen in group cancellations.
Should hotels start to see group cancellations, commercial teams must plan a multi pronged approach to securing transient demand. Pricing of room rates, cancellation policies and flexibility in rate will be key.
Length of Stay (LOS) patterns go hand in hand with weekday and weekend stay patterns. Corporate travellers drive weekday business, while groups and leisure guests drive weekend business.
With restrictions in place from the end of January through March, the transient base was largely eroded. This is seen in the declining 1-3 days stayed business percentage.
The labour day holiday was mandated to 5 days in 2020 by the Government to boost domestic leisure. Most hotels promoted the 4-6 day minimum LOS as is evident in the month.
August and September show a balanced mix of the LOS patterns in a hotel.
Shanghai is not a leisure driven market yet, hence weekday bookings percentage outweighs that of weekends.
Visitors into the city on business would return home for the weekend. Locals will also travel for weekends outside of the city if at all then staying in hotels on weekends.
Day of week is also impacted by the segments that make a hotel's business mix.
Key feeder markets for Shanghai have been Japan, South Korea, US, apart from domestic.
With travel bans in place, there will be greater reliance on domestic market demand. China is therefore buoyant through April. This will continue to grow and dominate as normal market conditions prevail and lead times become shorter (transient travellers book much later than groups).
Of the key feeder markets, Japan will start to grow sooner than others.
The restrictions have shortened the booking window even further across segments. A primary reason is the hesitation travellers are exerting before travelling and booking hotels in uncertain times.
In the period March to April, the booking window is shorter versus the months of January and February, as the plans for Chinese New Year were made by travellers in advance.
For the transient segment, hotels are seeing little to no pick up on the date of travel or a day out. The majority of pick up from the transient segment is witnessed 3, 7 and 14 days outside of arrival.
The transient segment saw a spike in cancellations in January. The same spike is seen in June, where cancellation is attributed to transient segments from postponed events.
There is a drop in cancellations from Groups segment - with a consequent booking activity towards the later months. This can be attributed to the wash and the rebooking of group blocks for events being moved from early in the year to latter months of 2020.
With the market changing rapidly, historical data cannot be heavily relied upon in shaping and forecasting forward looking demand. There are numerous factors that hoteliers need to consider when shaping future pricing strategies to help re-build their business as recovery takes shape.
The market data snapshots below include multiple sources such as hotel web searches, online reviews, flight data, events, holidays, alternate lodging stock, weather forecasts etc. This provides a more granular perspective of market insight, including:
How is the current market demand?
How should hoteliers review their business operation’s model and allocate resources?
Which areas in Shanghai city will recover first in the upcoming months?
Which hotel chain properties should go back to full force?
In the heat maps below, we’re able to observe which areas will be showing recovery first.
January to April: High to Low Demand
May to September: Demand Returns
As restrictions set-in, what was previously a high demand period around the Shanghai domestic and international airport precinct soon witnessed demand depleting with cancellations.
The area saw low demand dates through from Jan 29, 2020 through April 1, 2020.
The easing of restrictions is showing positive activity around bookings and hence impacting the demand levels for hotels. April to September is showing recovery once again.
The domestic airport - HongQiao and international airport - Pudong are seeing a surge in demand from air travel and transient stays. The commercial centre of Xuhui District is positively impacted by corporates and transient leisure.
Hotel conference bookings have increased 65% since the middle of April through May. Governmental regulations and precautions like social distancing, temperature screenings before entering venues, and strict regulations for events have led to an increase in confidence and optimism.
Pick up in the transient segment is always last minute, closer to arrival. Demand in this segment is still weak as travellers remain cautious. As businesses start opening, Hotels will see a growth in this segment - cancellations will not be as high as earlier and bookings will be last minute but confirmed.
The fact that the percentage of group room nights is strong between June through September is encouraging. It reflects the positive sentiment in the market.
With increased of Japanese travellers, the confidence from Shanghai’s feeder markets will only grow and help to increase hotel occupancy and ancillary spend.
Marketing will be key for hotels if they are to push occupancy levels. Demand creation will happen through domestic leisure and value added packages will assist creating domestic demand so it can be serviced by other departments in the hotel.
Hotels need to be nimble in forecasting for the future months as the events are open to the potential risk of either being cancelled or moved all together into 2021.
Based on all the data available for Shanghai, the city is showing signs of normal trading from late in Quarter 2 and early Quarter 3 2020.
At present, Shanghai is moving toward a quick and strong recovery compared to other cities in China - it’s showing a progressive rebound in the hospitality industry. Previously, “Wuyi” holiday had seen the results of increased occupancy rates by encouraging and promoting domestic travelling. Now, local hoteliers are confident that the “golden week” in October will nearly have the city back to a relative level of normalcy.
Credit to: Amit Peshawaria, Angelika Sharma, Sze Shiang Koh and Anthony Martely.
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