First and foremost, the coronavirus crisis is a human tragedy. Our thoughts and concerns are with all of those affected, as well as front-line workers and colleagues facing uncertain futures. While caring for the sick and reducing community spread are the top priorities, now is also the time to look ahead and start planning for the tough road ahead.
"The near-term is essential but don't lose focus on the longer term. It may sound impossible for management teams that are already working 18-hour days, but too few are dedicating the needed time and effort to responses focused on the longer term." - McKinsey on the business challenges ahead
None of us knows how this will play out. But one thing is for sure: travel is a resilient industry. The bounce-back will definitely happen. It's just a question of when - and how to prepare for the eventual recovery.
To help you navigate the planning process for what's ahead, we've pulled together expert perspectives on different scenarios, as well as some tips when planning for each. As is always the case, filter these through the lens of your home country's unique situation. Adapt your strategy according to the current demand pattern, travel restrictions and forward-looking booking trends.
We're clearly in unprecedented territory. There has never been a moment where travel demand has zeroed out in several regions at a time. The past isn't necessarily the best indicator of future performance. Even so, it can be helpful to look at the past downturns and health events to get some baselines.
Global financial crisis: This is perhaps the best corollary, in the sense that it was a global crisis that rippled throughout economies everywhere. Studies suggest that rates slowly declined for over a year and didn't return to normal levels for another three years or so.
9/11: While this was certainly a shock to people everywhere, travel resumed relatively quickly. While there were fewer people traveling, corporations didn’t restrict travel for long and countries weren't on lockdown. The impact was swift but improved much more quickly than with the financial crisis.
SARS in China: Looking specifically at China during the 2013 SARS outbreak, the country rebounded quickly.
The better case scenario is that the Western countries at the centre of the outbreak get it under control quickly, and the virus doesn't gain a foothold in Africa or Latin America.
What happens: Europe and the United States control the outbreak within the next four weeks. Cases peak in late April and begin to taper off. China avoids a second outbreak as its citizens travel back to urban areas to resume work. We see a 20%+ drop in demand for April.
Travel restrictions are eased, aviation adds capacity and travel starts up by late May or early June. China ramps up soonest, with domestic travel rebounding strongly by the end of Q2. The summer season is mostly a wash, as the rest of the world resumes travel by Q3 and returns to global growth by Q4 at the latest. RevPAR rebounds quickly, as does occupancy; end-of-year down only by single digits in most areas.
Here's the “bull case” according to Cleveland Research Company:
While McKinsey describes a “delayed recovery” best-case scenario, highlighting:
What you would need to do: Even if your top source markets are in recovery, those people may not yet be comfortable either traveling long distances or visiting your region (if it's been especially affected). So you must be strategic as you ramp up and regain momentum. You must also keep in mind that everyone has had a massive interruption in income. Many won't be in a position to spend money on discretionary travel and many companies will be reluctant to invest in business travel.
The worst-case scenario is that this outbreak lingers for the rest of the year and beyond, making deep inroads into nearly every country in the world. While this is certainly not what any of us want to see, it's prudent to prepare for any eventuality.
What happens: Travel will not resume in earnest until Q3 at the earliest, starting with domestic and then long-haul finally seeing growth through Q1/Q2 2021. Global recession puts further pressure on corporations and workers, with many layoffs, bankruptcies and last-ditch mergers reshaping industry dynamics. Full recovery may take one to two years - or longer.
Key points: Group travel struggles to regain footing as does corporate. Leisure travel will be the first to show signs of life as countries emerge from restrictions. Continued global spread depresses RevPAR throughout the summer, leveling off in the fall but still down double-digits year-over-year by the end of 2020.
Here's the “bear case” according to Cleveland Research Company:
While McKinsey describes a “prolonged contraction” worst-case scenario, highlighting:
What you would need to do: In this scenario, you'll need to be as strategic and long-term as possible. It's going to be tough.
Restructure operations. Operations will need to be further streamlined to accommodate the choppy demand. This means that you may need to fundamentally restructure your operation to be lean enough to survive, while still preserving service standards.
Lean into loyalty. Your loyal guests are always a valuable resource -- and that's doubly true in extended downturns. In addition to promotions like double points (if you have a loyalty program) 2-for-1 nights, and generous room/perks bundles, invest in 1:1 outreach to your best guests. Pull a segment from your CRM of the top overall spenders and reach out to learn what may entice them to return.
Promote flexible cancellations. Eliminating cancellation policies or implementing flexible cancellations is always the first move in times of crisis. Continue this strategy to contend with lower demand; if uncertainty is preventing people from committing to a booking, a flexible cancellation policy can influence the decision. Give people the confidence to book and then work with them to make the stay work for them.
Maintain rate parity. In long-term lean times, you’ll need to be especially wary of rate leakage. Monitor all channels and do whatever it takes to keep your rates consistent.
Upgrade your technology. You're going to have to do more with less and technology is ideal for that. Focus first on revenue-generating tools, such as booking engines that are optimized for conversion, automated revenue management software and business intelligence tools that help you get the most out of your data.
Length of stay strategy. In protracted downturns, finding fewer guests that stay longer can be a winning strategy. Orientate a marketing campaign around past guests that have stayed for longer periods of time and also remarketing to anyone who was searching for a long stay on your website. Also: talk to your OTA account managers to run targeted campaigns for longer lengths of stay.
Package holidays. While packages are always a great tool for revenue management, periods of low demand require a rethink. If people are reluctant to travel because of income concerns, you need to really focus on value. Packages targeted to leisure travelers can work really well because people still want to get away. Work on packages for your own website as well as with your OTA partners, who offer “build your own” packages popular with travelers in good times and bad. Be sure to compare your package pricing against competitors, learn which package discounting practices are hidden within, and adjust your approach accordingly.
There are also some very different trends when it comes to which traveler segments and hotel categories rebound the quickest. Seek out data from the 2008/2009 downturn to help understand what to expect for your hotel’s specific category and which segments to target. Again, the same caveat applies: this really is an unprecedented situation so looking to the past can only provide so much.
What happens: Downturns affect each segment and demographic differently. Some sectors will be hard hit (and eliminate business travel permanently) while others will thrive. Same goes for consumers: some will continue to have money to spend on travel and others won't.
Key points: Transient demand generally rebounds first followed by group and then corporate. Luxury properties see sharp drops in ADR but also see demand return relatively quickly.
In a hint of cautious optimism, there are signs that China nearly has the outbreak under control and demand is beginning to return. Data from Rate Insight shows a number of positive shifts in advertised pricing across key markets in Asia: rates have stabilised in Beijing; are slowly increasing in Hong Kong; and have actually slightly increased in key markets, such as Singapore, Shanghai, Seoul, Bangkok and Tokyo.
While we don’t know if these rate changes are premature or suggest a more sustained recovery, they do highlight how different regions are experiencing the impact of the crisis. Right now, it's about finding the bright spots wherever we can.
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