We are on the front lines of what is likely to be a significant downturn, and travel is the canary in the coal mine. The airlines will be impacted the most, but hotels and F&B businesses are not far behind. Covid-19 has already caused serious disruptions to the travel business. It’ll get much worse before it gets better.
The impact of this downturn will be magnified for some. For example, businesses that rely on Chinese visitors will be severely affected. Small, regional airlines may go under. Routes will be cancelled. This will impact smaller destinations that rely on these flights. Australian tourism is still reeling from the summer’s wildfires. The Covid-19 could be a death knell for some of those businesses.
Lessons from China
It’s hard to understate the size of the Chinese market, especially for the U.S. The National Travel and Tourism office estimates that Chinese visitors account for 7% of all overseas visits. The more you rely on Chinese travel, the more you will be affected. Travel to China is restricted by the airlines, and within China more severely. There is no immediate fix for this. It’s a tough pill to swallow, because travel has seen the most growth in the Chinese market over the last 15 years. This means the effect will be magnified compared to SARS in 2003, when it was a much smaller share of the market. If you have a lot of exposure here, this will be your focus. If you have a hotel in China, you are likely seeing an 80-85% drop in revenue and bookings, as we are seeing with some of our clients.
Looking further at the SARS outbreak, it’s interesting to note that it had both a positive and negative impact on the hotel industry in Hong Kong. This is a good analysis that looks at the overall impact on the local hospitality business. While there was the expected loss of revenue and jobs, the crisis became a catalyst for entrepreneurship and innovation that left an enduring, positive legacy on the industry. Some examples include developing new cleaning services, renting rooms for business in shorter durations, improving differentiation through cleanliness, finding more local markets to operate in, developing new channels with the local government, partnerships with DMOs, etc. The hotels that weathered the storm, were the ones who innovated. In crisis, there is opportunity. Those who leveraged the opportunities fared better.
What Lies Ahead
We are not in the fortune-telling business. But there’s a lot we can glean from earlier viruses like SARS and MERS. History will be our guide. We can also lean in our collective expertise in the travel business.
Most of these recommendations come from the business side. Our strategy team will also weigh in, separately. They’ll provide tactical advice for your advertising and digital marketing.
The majority of our customers are in the United States, so we have more insight into this market. We are not seeing a high degree of confidence out there. This appears reflected in the financial markets. We think there are three reasons. One, there is an anti-regulatory regime in power. This has affected preparedness and response. Two, the degree of polarization erodes social cohesion, trust and communication. Those are impediments to solving a health emergency. Three, the US economy was already a tinderbox waiting for a spark.
Going out on a limb, I have a hunch that hotels in the US can expect some help though. The situation for small businesses and the larger economy will force Congress to act. That means a major stimulus package is coming. Whatever comes out of Congress, it’s going to include provisions that are very friendly to hotels. Why? Because hotels are being hit especially hard, and the President is a hotelier with an already struggling hotel chain. You can probably connect the dots from there.
Bottom line: this is a global health crisis. Travel is a wonderful thing that connects us all. But in many cases, countries will have to choose between the health of their citizens and their economy.
- The travel industry has successfully navigated two similar outbreaks (SARS 2004, MERS 2012-present). Remember that this is a temporary setback. We are likely to get through the worst part in less than 6 months. Don’t neglect decisions that affect future business. Make sure you are looking after the long-term health of your business.
- The overreaction and panic over the virus will cause more harm than the virus itself. It’s important that this is communicated internally to your staff to reassure them, and so their reaction doesn’t cascade down to your customers. Don’t ask every member of your staff to wear masks, for example.
- The CDC has recommended against travel in only China (and Hong Kong), South Korea, Italy, Iran, and Japan. There is little risk outside of these countries. Remind people.
- The feeling of safety is what will make people travel again. Make your guests feel safe on property. Say things that make them feel safe. Put hand sanitizer around the property. Show that you are cleaning more frequently – and not just at night. The visibility of the cleaning will do more to improve confidence than the cleaning itself.
- Don’t shy away from talking about the virus. Be open and transparent. Talk about it openly, and deal with it head on to increase the confidence of our customers.
- Right now people are in watch and wait mode. Many are hemmed in by the cancellation policy, or their travel is too far in the future to be sure about cancelling. Reassure your customers through communication, and relax your booking policies. Post it on your website. Think about waiving change and cancellation fees. Change your policies in a way that will encourage travel.
- Avoid activities, events, and programming that require close contact or large gatherings.
- Focus on local business that’s not affected by travel restrictions. Local markets are not spending overseas; how do you get them to spend locally? Reach out to past local customers.
- Look at transportation options to your property; can they be promoted in any way? Are you communicating this to your guests?
- Talk to your DMO to see what initiatives are in place to promote local business. Can you be a participant?
That’s a lot of doom and gloom, but there is a silver lining. We are expecting a big rebound after Covid-19, as we saw after SARS. This will mean a doubling or tripling of business for many. It’s also why you need to keep up your visibility through your marketing and advertising. Hotels that spend significantly more on marketing in the downturn can get 18.5% higher RevPAR compared to hotels that cut their marketing spend.
Lastly, we remind you not to panic. As a business that’s gone all-in on travel, we heed our own advice. This is temporary. You will feel some pain now and will have to make short-term decisions. That’s necessary. But stay the course. Keep your future in focus as you consider things that affect your long-term health. We’re here to help.