Where do we go from here? A look at the uncertain future ahead

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.

Case studies

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.

Scenario 1: Slow recovery

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:

• "China and East Asian countries start[ing] recovery but supply chains remain[ing] impaired in much of Q2 2020 and consumer spending subdued"; and
• "In the United State and Europe, large-scale quarantines, travel restrictions and social distancing driv[ing] drop-off in consumer spending and subsequently business investment in 2020".

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.

• Quantify demand. The first step is always quantifying demand. As you can see in the heat map below of Berlin after ITB’s cancellation, unpredictable events like the coronavirus impact demand greatly. You'll need to be very plugged into the rapidly shifting demand picture so that you can be ready to respond quickly whenever pockets of demand appear. In the scenario where rebound happens quickly, you need to also act quickly, ideally faster than your comp set.
• Use a concentric approach. As the outbreak fades and restrictions loosen, start targeting in concentric circles from your property. Locals and those within driving distance will always be the first to come back. Next, target domestic travelers within a defined band around your hotel, based on market data showing areas with returning demand. Following that, target the entire domestic market to test the waters. Once that segment shows promise, it is finally time to test demand from your top global source markets.
• Adjust your market mix. To build demand as recovery builds, hotels will open the spigot to OTAs. This is understandable, as OTAs most certainly have a place in a profitable market mix, but must be balanced with direct bookings. Drive traffic to your website through metasearch and digital marketing, with a strong focus on retargeting lookers who have yet to book. These are similar tactics for low-season marketing.
• Protect your brand. Use rate obfuscation tactics, such as bundling food and beverage credits into room packages, so that any discounting is opaque. By using packages to offer value to guests, you prevent any discounting from affecting consumer perception. This also positively impacts RevPAR.
• Look beyond your compset. Make sure to observe any rate changes for wider markets beyond your compset. This gives you an indication of how others are responding to forward-looking demand. For example, compare advertised prices today to where they were seven days ago to see what proportion of hotels are adjusting their prices (and by how much).
• Watch for patterns. Monitor market intelligence for patterns around booking lead times and emerging demand from top source markets, and then lean into those bright spots. As an example, in the data below from the Triptease blog, we see growing interest from domestic travelers and longer booking windows in Hong Kong as travelers gain certainty to book further in advance. Those insights make for great inputs into revenue and marketing strategy.

Scenario 2: Prolonged impact

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:

• "China and East Asian experienc[ing] double-dip slowdowns as economic recovery is derailed and in 2020 and pushed into Q1 2021"; and
• "The United States and Europe experienc[ing] demand-side reductions in consumer and business spending and deep recessions in 2020".

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.

Who rebounds first?

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.

What you need to do:

• Target transient demand first. The data suggests that incentivising leisure travelers with lower rates has the greatest initial impact. It took much longer for group demand to stabilise, so while there are still groups traveling, it will be much more competitive.
• Discount carefully. On the flip side, group segments proved more resilient on the ADR front. This means that you will need to carefully adjust your rates for each segment - and be very careful when aggressively discounting for groups. Could lower retail rates encourage groups to save money by cancelling existing reservations and booking outside of room blocks? It's worth considering this risk when discounting transient rates.
• Luxury performs differently. Higher-end properties in traditional vacation destinations did well after the financial crisis. While ADR dropped sharply, RevPAR was also slightly more resilient and the luxury/upper upscale categories than other classes.

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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.