Coronavirus COVID-19 and the Travel Industry: How Hotel and Travel Companies Can Manage Business Disruption
[Latest update: 6 April 2020]
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Table of Contents – Coronavirus COVID-19 and the Travel Industry: How Hotel and Travel Companies Can Manage Business Disruption
- Why We're Tracking This
- The Bad News
- The Good News
- What You Can Do To Help Your Hotel Manage Through Coronavirus
Coronavirus COVID-19 and the Travel Industry: Overview
Travel and tourism make up about 10% of global GDP, according to World Travel & Tourism Council (WTTC). And that number grew faster than the global economy in 2018. Again according to the WTTC, travel accounts for one job out of every ten around the world and an additional "one in five new jobs were created by the industry over the last five years." So, travel is a huge deal. And anything that disrupts travel, by definition, is also a huge deal. Which brings us to the outbreak of the novel coronavirus COVID-19. For instance, GBTA (The Global Business Travel Alliance) stated that the impacts from the virus to business travel alone could be as much as $47 billion. Again, that's huge.
The Latest on COVID-19 and Its Effects on the Travel Industry
First, some background. To paraphrase Bones McCoy, here at Tim Peter & Associates we're consultants, "not a doctor." Lots of our clients are in travel, tourism and hospitality. It's an industry we're deeply passionate about. And we're trying to do our part to help our clients – and the industry as a whole – weather any storm around COVID-19. We're not making any predictions around what will happen with COVID-19, when its impacts will fade, or other medical information. For that, we recommend you check with the World Health Organization (WHO), the U.S. Centers for Disease Control or your local health officials. The CDC in particular also has a great set of resources and FAQs for travelers that are worth reviewing.
Similarly, we're not economists. However, we do know some really good ones. The Conference Board has a list of possible ways that we might "reboot an economy in free fall" that is worth a look. None of the scenarios pictured are necessarily rosy. But they offer several outcomes you can expect for each of the likely ways that the economy will recover once the immediate health crisis has passed.
We're also not looking to catalog all of the stories about COVID-19 and its impacts to the travel industry. The fine folks at Phocuswire have a great liveblog for all the latest stories and HospitalityNet is offering a fantastic round-up of news stories and advice that is well worth your time. The last thing we want to do is ratchet up fear about this situation. This situation is already disruptive enough; we don't want to make it any worse than it is.
Instead, our intent is to update this post regularly over the coming days, weeks and months with tips and insights to help you navigate the business impacts associated with the novel coronavirus COVID-19 so that you can:
- Understand the bigger picture around novel coronavirus COVID-19
- Properly assess the likely impacts to your business
- Mitigate the risks and manage your business appropriately through this (potential) crisis
What Hotels and other Travel Businesses Should Do About Coronavirus COVID-19
Finally, here are a series of tips, techniques, and links to case studies to help you manage through the coronvirus COVID-19 crisis and the eventual recovery. We have been updating this section regularly during the last few weeks as the impacts have become clearer and will continue to do so as better insights emerge into how long the crisis will last.
Before the recovery can occur, at least three things need to happen:
- Each market needs to address any underlying health situation.The situation will not get better until medical authorities can control the disease itself.A full vaccine isn't likely until somewhere in 2021 — if ever. But we're starting to see some areas have success in controlling the spread and effects of the illness. As national, state, and local leaders learn from these successes and implement appropriate next steps we may see reductions in the extreme "social distancing" that is causing so much pain to the travel industry. Some markets appear to be reaching peaks in the health demand, so hopefully that signals a positive development.
- Guests have to have the money to travel. The forced shutdown of many "non-essential" businesses has created unprecedented effects on the economy. The Washington Post noted a couple weeks back that "a record 3.3 million Americans applied for unemployment benefits" two weeks ago and that "Many economists say this is the beginning of a massive spike in unemployment that could result in over 40 million Americans losing their jobs by April." For context, "During the Great Recession… the worst week for jobless claims was 665,000. Last week the nation saw five times that amount." Even worse, an additional 6.6 million workers filed for unemployment last week. These last two weeks combined are greater than the total number of unemployed during the Great Recession. How long it takes for workers to get back to work as local communities rebound will play a big role in how long it takes for them to be able to travel again. Hopefully, government stimulus and other interventions limit the downside economic effects enough to ensure sufficient demand exists. Obviously, time will tell. And, even if they're able to travel, there may still be one lingering effect
- Guests must not be afraid to travel. This represents the biggest wildcard at the moment. Even once the immediate health effects have been addressed and guests have the money to travel, travelers may still have lingering concerns about the risks. There's simply no way at this point to predict how it will take. In all likelihood, guests will split into one of a few sub-groups:
- More adventurous types who, tired of weeks or months of forced isolation, can't wait to get back on the road.
- More cautious types for whom the current crisis will shape their longer term behaviors.
- A third set that falls somewhere between the first two.
I can't predict which one of these groups will be most dominant. Past experience suggests that we'll see recovery in luxury travel first though, so it will be worth watching those travelers as we get into late April or May to see which group(s) take a leading position — or if some other as yet unknown set emerges. Watch your denials report and web traffic to see if there are any "green shoots" popping up out there.
What Your Hotel Should Do During Coronavirus and to Prepare for Recovery
For now, here are some best practices you can follow to minimize the effects to your hotel or other travel business:
- Don't cut your rates. Anytime business softens, an easy "fix" is to offer deeply discounted rates to your guests. The theory behind this action supposes that you can use lower rates to attract attention and steal market share from your competitors. Except that most of the time it doesn't work.
While you may experience a short-term lift in occupancy, competitive hotels typically react swiftly and lower their rates to avoid any lost share – before you're able to gain any long-term benefit from additional occupancy. Instead, all you've succeeded in doing is driving down rates for the market as a whole. It leads customers to put less value in your product overall. And it reduces your ability to market or serve customers effectively. We call trying to capture share by lowering rates "the race you can't win." Our advice: Don't run that race.
Underscoring this point, research from Cathy Enz, Linda Canina, and Mark Lamanno at Cornell and STR found "the best way to have higher revenue performance than your competitors is to have higher rates. A hotel should not drop its prices below those of its true competitors if it wishes to enjoy a RevPAR premium" [PDF link].
Revinate also outlines some of the challenges that hotels face when aggressively cutting rates during a soft period. The bottom line is that you're not going to influence a non-economic decision with an economic solution. As noted above, two of the three big issues driving travel decisions are the current health crisis and, longer-term, any fears guests have as we begin to recover from that crisis. Wait on using rate as a lever until it's absolutely clear that only economics influences your guests' behaviors. One thing you can do, however, is…
- Consider offering value-adds instead. Continue any promotions you have in the marketplace (unless of course, they reference "sick deals" or some other truly unfortunate turn of phrase). But also look at including value-adds in your offers to attract attention and interest from potential guests. They can help you differentiate your product from your competition, increase the perceived value your guests and travelers will receive, but also help you maintain rate in the marketplace. It's tougher for guests to place a direct value on a spa, dining, or event credit included in their stay – and tougher for them to compare your offering 1:1 with competitors.
Value-adds allow you to drive interest in your property, but don't carry the same risks associated with cutting rates. They can make the difference for many guests while giving you more control over your price in the marketplace for the longer term.
- Control your costs. This one is obvious, but it's important to remember how important it is to control your costs at any time – bus especially during a crisis. A few ideas that may help:
- Have a zero-tolerance policy against sick employees coming to work. Make your sick employees stay home. Seriously. We fully recognize the challenges that exist in a tight labor market. But sick employees run the risk of infecting guests and their fellow workers, each of which introduces a host of additional problems. If you can afford to pay workers for their lost time, we'd recommend it. You'll engender greater loyalty and increase retention overall. But, in any case, make sure that employees who aren't feeling well stay home.
- Take rooms out of service. This one's tougher for some properties, but if you have rooms that need renovation or repair, slow periods are the perfect time to get those done. You can improve your property's overall service and experience without sacrificing additional revenues.
- Review your insurance and other financial tips. Is coronavirus COVID-19 part of your coverages? Are you able to recoup any losses from business interruption insurance or similar? While insurance is unlikely to cover all your costs, they may help lessen any economic burden COVID-19 places on your business.
- Market efficiently and effectively. One cost you absolutely don't want to cut is your marketing spend. Yes, you absolutely must monitor and control your expenses during any economic disruption. But evidence shows that travel companies that continue to invest in marketing during a downturn significantly outperform their competitors in both the short and longer-term. Research from Amrik Singh at the University of Denver and Chekitan S. Dev at the Cornell University School of Hotel Administration shows that "The results of this study show significant differences between winners and losers when measured by top-line indicators (Average Daily Rate [ADR], RevPAR, TRevPAR) and profitability (GOPPAR and NOIPAR). Winners were also found to spend significantly more on marketing than losers… total marketing expenditures are significantly and positively correlated with RevPAR, GOPPAR, and NOIPAR [during a downturn]. This finding implies that an increase in marketing expenditures has a positive effect on revenue and profit." [PDF link]
- Tips for how you can market your hotel most effectively
- Leverage your content marketing strategy to tell a great story about your destination and brand. Screen Pilot has developed a tremendous set of resources for hotel marketers working their way through the current crisis. Their "Hotel Marketing COVID-19 Resource Center" is one of the best I've seen. In particular, they've got an amazing piece on how to use content marketing effectively during this period that's well worth your time. Fuel Travel also has a great Crisis Management for Hotels Resource List filled with excellent insights and ideas.
- Don't disappear from social. Screen Pilot also put together an outstanding set of recommendation on how to effectively be "aware, available, and agile" on social. Many of these include items addressed above such as "encouraging consumer confidence" and using your FAQ pages to reassure guests. But the whole set is excellent and truly worth your time. You can check out their advice here.
- Use email effectively. Email is always one of your best marketing and communication tools. But what's the right way to use email right now? Revinate offered 6 fantastic tips forwriting a guest focused email during coronavirus that you should definitely bookmark and refer to often during this situation.
- Think about adopting a "Fast Follower" approach to the recovery. This one is more of a suggestion than a recommendation. But it's likely someone in your market will be the first to try to commercialize and capitalize on the recovery… and will do that too soon. This remains a rapidly evolving and emotionally charged situation. Jumping the gun on selling risks a negative backlash from those still coping with the crisis or concerns around coronavirus. We'd strongly suggest you let someone else in your market be the first to take that step. As long as you put together the right plan and prepare to launch quickly when the recovery starts to take hold, there's little downside that anyone will beat you to capturing your fair share of the demand when it exists. Plan to be a "fast follower" and you should be fine.
- Manage Google appropriately. It’s no secret that Google continues to play a huge role in the travel industry, especially during the Covid-19 situation. I’m sure that we’ll one day go back to talking about them as a bad guy, but for the moment they’ve put together a handful of excellent resources you should use to ensure you’re making the most of their tools during this highly disruptive period. These include:
- Some handy guidance for updating info and temporary closures for businesses affected by COVID-19 on Google My Business. Along with your website, Google My Business is probably the best resource available right now for keeping guests and other customers up-to-date right now. Make sure you check out Google’s advice here.
- This terrific article on navigating your paid search campaigns through COVID-19 from Google Ads Help. There’s an argument to be made — and I would make it in some cases — for keeping at least some paid search running right now. These Google Ads tips will help you manage most effectively regardless of what you do.
- Useful information from the Official Google Webmaster Central Blog on how to pause your business online in Google Search if that’s necessary. Think through how you’re managing your communication with guests around this situation and only pause what’s absolutely necessary. But follow Google’s advice in those cases to ensure you’re in the best position when you’re back in business.
- Start planning ahead. It’s very early to start talking about recovery. At least forecasts suggest that we’ll be in lockdown mode until mid-June — or possibly later. However, even though we’re likely at least a couple months away from any recovery starting, it’s not too early to start planning for that recovery when it comes. To that end, HospitalityNet has put together a World Panel discussion around “Your Post-Crisis Top 3 Digital Marketing Action Plan.” It contains great advice from industry heavyweights including Max Starkov, Loren Gray, Osvaldo Mauro, and our own Tim Peter. There are a number of excellent ideas in there for you to explore when you’re ready. And, if you have the time right now, that might be a good time to start planning ahead for the eventual, inevitable recovery.
Amazingly, it's still somewhat early days of novel coronavirus COVID-19, especially here in the Americas. But some things are starting to become clearer. It's increasingly less likely that this event will blow over with only short-term effects. And it remains possible that we will face a longer-term disruption or ongoing challenges every flu season from COVID-19.
What's more certain is that travel businesses and hoteliers who plan ahead, keep learning, control their costs, work to maintain rate, and continue marketing effectively will likely weather this storm – as well as any others that come along.
We'll continue to update this blog with additional techniques, tips, and strategies you can use to manage through this situation. And we'd love to hear from you. What's working for your business? Where have you found success in driving revenues and profitability? Drop us a line at firstname.lastname@example.org. We'll be sure to share that here and keep the conversation going.
Past Coronavirus COVID-19 Coverage
We originally put together the following items to educate readers on the novel coronavirus COVID-19. There's now lots of coverage out there about what's going on with the illness and its economic effects. However, we're keeping these following sections available for your reference if you need them:
The Bad News About Coronavirus Covid-19
Let's start with the bad news. And, I'm sorry to say that there's a fair bit of it. The disease originated in Asia and, as you might imagine, that's where the greatest impacts have been felt so far. But, health officials are tracking rising numbers of cases in Europe, the Middle East, and the Americas, with, for example, California monitoring at least 8,400 people for the coronavirus. This sudden spike – which is expected to get worse – is leading many businesses to restrict or cancel conferences and business travel. Some of these include:
- ITB making the extraordinary decision to cancel ITB Berlin, one of the world's largest conferences for travel professionals
- The cancellation of Mobile World Congress – another massive telecom conference – which Skift calls a "Foreboding Sign for Events"
- Microsoft pulling out of GDC 2020 due to coronavirus concerns
- Facebook deciding "to cancel the in-person component of [its developer conference F8 this year."]
- Organizers asked for event cancellations for 2 weeks amid coronavirus spread
- IBTM postpones IBTM Asia Pacific 2020
- Coronavirus fears trigger key event cancellations at IP Week | S&P Global Platts
Again, Phocuswire's liveblog can help keep you up to date on additional cancellations that might matter to your business.
Impacts to Travel Businesses from Coronavirus COVID-19
A number of news outlets are also rounding up stories around the impacts from COVID-19 that may be worth checking out. We'll update these as needed over the next few days/weeks, but mostly these are to give a sense of the overall travel industry effects of the virus:
- Online Travel's eDreams Odigeo Sees Bookings Tumble After Coronavirus Outbreak
- Israel advises against foreign travel over virus concerns
- How Bad Will It Get for Airlines When Coronavirus Hits the U.S.?
- Why is Coronavirus Forcing Planners to Cancel Events?
- Coronavirus: How the outbreak has shaken up the tech industry – The Verge
- Insurers rush to strip coronavirus from event-cancellation cover – Reuters
- Here Are All the Major Concerts Canceled Due to Coronavirus (Updating) | Billboard
- Coronavirus: United cuts Barcelona flights after Mobile World Congress canceled
The Good News about Coronavirus Covid-19
Thankfully, it's not all "doom and gloom." Here are a handful of positive – or at least neutral – stories that show how some events and travel businesses are managing through the crisis. We'll highlight specific case studies where relevant:
- Skift reports that Marriott is already reopening China hotels during Coronavirus crisis
- IndieWire says that SXSW Is still happening, despite 'handful of cancellations' due to Coronavirus
- Skift also says that Japan insists the Tokyo Olympics will go on despite escalating virus worries. We're going to watch this one closely. The Olympics are due to start July 24, 2020. If you figure it will take 60-90 days for any major reschedule/reshuffle, than broadcasters, national Olympic committees, and athletes will need to know any changes by May 24th at the latest, with April 24th the more likely date. This represents a significant milestone in indicating how individual countries are managing the crisis – and whether its impacts are only short-term or will persist for a while.
- Finally, the blog at Event Manager reports that event cancellations from Coronavirus rekindle interest in online events. This story, about "rekindling interest in online events," of course still isn't great news on its face for hotels and other hospitality businesses; folks conducting events using remote tools don't typically represent a revenue stream for the travel industry. So, even as various industries manage to deal with the fallout of COVID-19, individual hospitality providers could still face challenges in driving revenue and profitability.