The Darwinian laws of a post Covid19 hotel market

The Darwinian laws of a post Covid19 hotel market

The coronavirus has taken an unprecedented toll on the travel industry. At the time of writing this article, every single actor is taking concrete actions and cutting costs in order to keep their head above water. As a hotelier, you most likely also had to make fast and difficult choices to shelter your business from the crisis. This involved an immediacy factor that will often leave you with the nose to the grindstone and unable to craft a long-term strategy. However, and even though the top priority should obviously be keeping your business afloat, it is impossible to achieve a lasting recovery without thinking ahead to the future of our industry. And once we reach the end of this tunnel, which probably will not be soon, the hotels that are unable to adapt to this newborn industry could be headed straight to yet another disaster. The Darwinian metaphor might be the most telling: businesses that no longer fit into a post covid19 travel environment are doomed to slowly but surely go instinct.

At this point, our focus should be to paint the most accurate representation of a post coronavirus travel industry. In order to give such an analysis, we will need to dig into the most impactful consequences of the current crisis. Such brutal fallouts as massive layoffs, string of bankruptcies will be the catalysts giving birth to this brand-new travel economy. On the altar of all these cataclysms, only the most well-suited and efficient strategies will remain. Which is why we will then aim to translate our analysis into concrete actions your hotel can take in order to stay on top of the food chain.

Let us start things off with the facts. What exactly are the impacts of the coronavirus on the travel industry? If we look at each major phenomenon we are currently seeing, we might settle for the following list which is still far from exhaustive:

  • Huge layoffs across all hotels

This may be the most striking impact from the Covid19 outbreak so far. At the time of writing this article, half a million leisure and hospitality workers were let go of their function in the United States alone. Moving forward, it is expected that this number could reach 4 million layoffs worldwide.

  • Global fear amongst travellers

As the lockdown rules continue to evolve very differently from one country to the next, travellers will likely be more and more cautious with regards to their destination. In addition to this, add the fact that no one likes the prospect to fall ill in a foreign country and the predicted aversion to travel feels like a definite impactful factor for years to come.

  • Full stop of travel marketing campaigns

As a logical follow up to this global freeze, OTAs and hotels alike have put on hold their marketing effort (even the hotel.com mascot is going to be practicing social distancing in the coming months). Such a brutal halt will hold far reaching implications that we will cover later this article.

  • Unprecedented revenue loss and occupancy rate drop

Perhaps the most obvious of these impacts is the conjoint drop of revenue and Occupancy Rate. Marriott communicated something between 75 and 90% loss in revenue which will unfortunately by what will be facing most hotels if not more.

  • Chain reaction of bankruptcies

As a direct consequence from what was stated above, hotels are already starting to close down all around the world. In the US, according to Roger Dow, we might be looking 10-15% of hotels going bankrupt (around 7’000 hotels total). In the rest of the world, predictions are also quite dire, with for example 23% for Switzerland and almost 65% for Greece.

Even though it is hard to estimate the covid19 impacts on a global scale, Marriot CEO Arne Soreson stated that the Covid19 outbreak was worse than 9/11 and 2008 financial crisis combined. As a reminder, according to IATA, it took 3 whole years for the travel industry to recover after 9/11. The following graph by the UNWTO gives an accurate picture of the situation:

 

2020 FORECAST – INTERNATIONAL TOURISM RECEIPTS, WORLD (REAL CHANGE, %)

 

This means that in our case, we are looking at a horizon of 4-5 years, which is the prediction of several travel analysts.

Now that we set the stage for the analysis, let us dive into our predicted long-term effect of such impacts:

 

Hotel staff will become scarcer and scarcer

 

The thousand, maybe even millions of layoffs are going leave an indelible mark on the industry. To truly understand the impacts, one needs to take another perspective. All the new unemployed hotel workers now must look for a job which is not going to be in the hospitality industry, at least for the time being. Once the dust settles, they might not want to go back working their old shifts seeing that the hotel industry is so vulnerable and exposed. This job migration means that we will almost definitely see a shortage in hotel staff coming out of this crisis.

You can go a couple way about answering this incoming challenge. One would be to stay close to your employees (in case they are just on temporary leave) and make sure that they will stick with you once the crisis is over. If you had to cut jobs completely, already start being on the lookout for staff so you can reopen your hotel without too much hassle on that end.

The 2nd option is to thoroughly review your staffing strategy. In a post covid19 world, you may want to consider reducing your total payroll through digital labour. New technologies such as automated check-ins, voice assistants and other IOT services are already available and can replace jobs all round your property, from front desk to housekeeping. Even though this may seem like a costly option, it can save you a lot of time and increase savings tremendously on the long term. Similarly, you could also externalize some jobs (housekeeping for example) to specialized companies as a way to both cut costs and gain in flexibility.

 

Direct marketing will be more important than ever

 

Drawing on the fear growing amongst travellers in these troubled times, we can extrapolate that attracting new guests in the future will be no easy task. This huge mentality change will require heavy lifting on the hotel side to rekindle the need for traveling. Instead of only advertising on the web and expecting sales to magically raise, business owners will need to activate their current customer data base through direct marketing. This means taking the matter into your own hands through, for example, emailing campaigns to restore trust amongst your guests. At least at the beginning, this might mean as well reviewing your pricing strategy to reflect the poor environment and stand out from your competitors.

There is also a big probability that OTAs will not be as strong as they were before the crisis. With many of the big players handling the situation rather poorly, notably with regards to reimbursement, we reached a new low of confidence between OTAs and their customers. Thinking ahead, this could imply that hotels will not be able to rely as much on OTAs to fill their rooms. However, this challenge might also serve as an opportunity to diversify your booking strategy. Once again, hotels need to take back control on that end and have a clear strategy when it comes to direct bookings in a post covid19 world.

 

Digital will take over

 

The most crucial challenge coming out of the crisis will be digitalization. In a context of heightened competition driven by pricing and marketing, the hotels making the most out of their digital space will almost always come out ahead. Indeed, by leveraging analytics and enhancing the customer journey, hotels can acquire and retain guests far more efficiently than their competitors.

Concretely, that means working your way to a fully digitalized customer journey. Starting up from the direct marketing we discussed earlier, hotels need to improve customer engagement, through innovative and efficient online communication, be it on the website, by emails, and more. Once you start building up your guest data base, you can take advantage of the information to work on wider pricing/marketing strategies.

Now that almost all hotels worldwide are either empty or on lockdown, is the best time to start the digital transformation you may have been putting off due to lack of time. Such an effort will be rewarded tenfold in revenue and time as soon as we get out of the crisis and the industry starts running again.

 

Key takeaways

 

Let us summarize our analysis into the most important concrete actions you can take to get ready for the post covid19 travel environment:

  • Have a clear staffing strategy for the future (digital labour, externalization of jobs)
  • Enhance customer engagement
  • Personalize user experience by leveraging analytics
  • Work on a direct marketing strategy
  • Diversify your booking channels (+direct bookings)
  • Modernize/digitalize current assets, infrastructures, and processes
  • Adapt your pricing strategy

In conclusion, we know that the travel industry is incredibly resilient thanks to the hard work and endeavour of all parties involved. However, a once in a lifetime pandemic of this importance is bound to leave lasting scars. To shelter your business as well as possible, you need to act quickly and adapt to this ever-changing environment. And even though it is hard to look months ahead, try to always keep a bird’s eye view on the crisis and get your hotel ready for better days, which hopefully will be coming soon.

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