The outbreak of the highly contagious COVID-19 coronavirus, with 170,000+ confirmed cases, has severely impacted routine life across almost 160 countries, which in turn has hit trade, markets, travel - all setting off a domino effect on the global economy.
The first business quarter of any year is critical to accelerating the execution of the annual strategy and requires organizations to hold meetings, attend trade shows and meet new partners.
However, with some of the largest trade shows being canceled and organizations cancelling all non-essential travel, the International Air Transport ssociation (IATA), has predicted that airlines could lose up to $113 billion this year due to COVID-19.
Airlines around the world have either canceled flights or announced price cuts amidst the demand slump.
This is just the tip of the iceberg as tour operators, hotels, airlines and online travel agencies have started taking measures to work with their partners to refund/re-book customers affected by the virus threat.
And all of this isn’t just limited to China and Southeast Asia anymore but is increasingly taking place across the globe according to an analysis done by RateGain on the impact of COVID-19 on the hospitality industry which shows that the room revenue trend (for the bookings made in the month for the same month) reflects a steep decline globally with a 16% month over month, from Jan-Feb 2020 and by over 9% for any date in the next 12 months.
The findings based on bookings processed by RateGain in over 90 countries with more than 50 hotel properties between 1st January 2020 to February 29th, 2020 also confirms that while booking trends in the last few weeks have gone down, the number of cancellations has also increased globally by 53% year-over-year.
Caught in the midst of chaos, confusion and cost of canceled bookings, most organizations have deferred making new strategic decisions and, instead, are more concerned about the immediate future committing resources to additional infrastructure for screening, quarantining and treatment of properties and staff.
However, this is not the first time in this century that the travel and tourism industry is at the center of a crisis and has to deal with losses and have to adapt and survive.
The road beyond a pandemic - how the travel industry has dealt with earlier crises
As most of the industry responds to the crisis, it is important for travel decision-makers and strategic thinkers to think of it is similar to a chicane on an F1 track.
A chicane forces the race drive to slow down and put all their attention in navigating the sharp double bends slow them down; however, a successful driver remembers that the road will eventually straighten out and not get caught up in the bends.
Therefore, just like many obstacles faced by the industry, leaders of all sizes should focus on the journey after the chicane.
At the turn of the century, 9/11 in 2001 and the SARS virus in 2003, were two critical events that impacted travel drastically. While the former jolted the industry to a 50% decline in air and hotel bookings, the latter had an extended effect of six months on global travel and, as per World Bank data, led to a drop of nearly 9.4 million in international tourist arrivals, with losses estimated at between $30 billion and 50 billion.
However, around the same time, we witnessed technological innovation in the industry with a concerted effort to help OTAs such as Priceline and Expedia that had come into the mainstream by the end of the 20th century.
We all know how OTAs helped transform airline and car rental services’ adoption of digital channels to help in selling unsold inventory, as opposed to depending on customers approaching travel agents and tour operators.
With their wide reach, OTAs integrated multiple functions for various traveler segments, combining the functions of marketing, search and booking engines where customers can execute their complete travel plans.
Despite the damage done by SARS in 2003, the travel and tourism industry managed to register immense growth by 2006, with a total contribution of $5,160 billion to the global GDP within the year.
Moreover, the booking revenue of the top four online travel portals at the time (Expedia, Priceline, Orbitz and Travelocity) was $40 billion in 2006, which grew to $46 billion in 2007.
Hertz was one of the earliest adopters of the OTA route to distribution. Its partnership with online travel site Opodo.com in 2003 allowed its customers to get car rental rate quotes upon confirmation of their air travel reservations, based on their final destination and arrival details.
This is not a lone example of the remnants of a health emergency and technological disruption coexisting side-by-side. As the industry recovered, the end of the first decade saw the H1N1 breakout in Mexico leading to multi-billion dollar losses again.
This impact on the industry was made worse by the eruption of Icelandic volcano Eyjafjallajökull in 2010, which led to large-scale disruption of air travel across a large part of Europe for over a week, leaving over 8.5 million passengers stranded. It resulted in global losses of $1.7 billion in revenue for airlines, with over 100,000 flights cancelled.
However, the losses did not stop innovative brands such as Virgin Atlantic invest in social media to form a deeper connect with their customers and drive sales. The company launched a social campaign "Looking for Linda" in 2010, which offered exclusives and promoted a number of its travel destinations.
The campaign garnered 15,000 entries from followers of the brand and grew its social media audience eight-fold. Again, a true example of a brand not getting caught up with the crises but moving forward.
More recently, the deadly Zika Virus, which restricted travel to and from around 60 countries, recorded 26,000 suspected cases in Brazil with an incident rate of 157 per 100,000 when they it was the host country for the 2016 Olympics, again severely impacting travel and hospitality sector in the Americas region.
However, this did not deter the spirit of people invested in creating an exceptional travel experience for guests. For instance, in the same year, Celebrity Cruises enhanced its technological capabilities and brought in greater personalization for its customers through digital channels and mobile applications. This strengthened the brand’s omnichannel approach, helping to target its customers via advanced analytics and giving them a seamless digital experience.
In each of the unfortunate catastrophic instances mentioned above, there was a significant negative impact on the travel and tourism industry in the short term. Public health agencies, governments and industry players worked together to mitigate the situation with the implementation of policies and regulations, devising proactive solutions and weighing out the options carefully.
Today, with lessons learned from the past and an increasingly connected, technologically-advanced world, the industry, as well as the world at large, are better equipped to deal with calamities of a global crisis.
Accelerating after the chicane: A Keynesian vision
While travel and hospitality have been one of the slowest sectors to adopt technology in the last two decades, the ubiquitous nature of the internet and reduced cost of mobility has accelerated innovation in travel technology, creating solutions that allow brands to interact and impact the complete traveler journey.
As the pandemic forces companies to consider cuts on discretionary spending and conserve budgets to reduce the impact on the bottom line, commercial teams would be eager to revisit the drawing board and figure out how they can reduce leakage, stay relevant and be ready to deal with the demand surge when the impact of the virus dies down.
Therefore, with limited spending, what should decision-makers across travel look to solve?
A few strategies that we recommend:
Independent and small hotel chains need to be agile to survive
While hotel chains would recover business from different markets to recover losses, independent and small hotel chains in the affected regions would suffer more in the short term.
However, they can offset these losses by both keeping a close watch on intra-day rate changes as well as get access to analytics that can recommend new demand partners that can drive demand to their hotels.
In a post-corona world agility would a key differentiatorto steer right in front of the traveler, as soon as they get the confidence back to take new trips.
OTA market managers should realign KPIs and monitor what matters
As fear spreads and bookings take a hit, most OTA market managers will find it difficult to deliver on the annual metrics set based on the past year’s performance and forecast.
Therefore it is important to not only re-look at your annual targets but also ensure that your systems allow you to track these KPIs across your markets easily.
Airline e-commerce teams can stop revenue leakage by monitoring unauthorized offers
The virus impacts not all countries and therefore, not all airline routes will be impacted the same way, making it important for airlines to monitor any re-sellers or partners that might be unloading inventory at cheap rates to take advantage of the panic in the market.
Plugging leakage in any channel is critical to improve revenue and make up for losses in other markets
Distribution managers can adapt and connect to the right supply
Tourists traveling to countries with high cases of the virus have been cancelling reservations with some countries experiencing up to 50% reduction in bookings week on week.
In such a situation, OTAs can quickly adapt by getting market insights and identifying new source markets that have relatively fewer cases of the virus and drive demand to these markets to make up for lost bookings.
Car rentals analytics that validates and rectify pricing strategy
With business at airports being reduced, it is important for any car rental company to understand where the demand within a city could come from and how the competition is moving its inventory as well as changing prices to ensure higher pick-ups as well as an increase in revenue
Tour and ferry operators must take global events and weather into consideration
For mid-sized tour operators, ferry operators who are impacted by the influx of tourists and currently facing cancellations on hotels and airlines, it becomes important for them to understand the impact of global events and weather on their forecast and ability to charge a premium on their offering.
These companies lack a system that analyses historical data and factors in events to provide the right price for the right traveler.
The above six strategies are relevant more than ever for travel and hospitality companies to both stop the damage to the existing markets as well as find ways to generate new revenue.
While the Keynes model advocated for increased government spending during a recession to build capability and be ready when demand picks up, the principles of the theory are also applicable to travel industry - to invest in building new capabilities and be sure your teams are ready to tackle competition and ready to perform in a more competitive market.
Today, RateGain is helping over 13,000 brands in travel and hospitality, including 25 out of the top 30 OTAs, airlines, 23 of the top 30 hotel chains, largest tour operators, and all the top car rental brands.
Our easy to deploy and use AI-powered solutions are relevant for any travel brand that looks to prepare themselves better to mitigate challenges and identify new opportunities for revenue creation.
In the end, we believe that beyond products and investment, fostering strong relationships during times of crisis helps our ability to adapt and leverage resources on-demand and help businesses respond to travelers’ needs for a longer period and make every journey and experience memorable.