Hospitality Industry
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Hotel market analysis: 8 ways hotels should combat the crisis

EHL Insights
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This article delves into the Darwinian laws of a post-COVID-19 hotel market. Emerging from the global economic shutdown, many tough choices for hoteliers lie on the road ahead to a sustainable and profitable business. An analysis of how Covid-19 has affected the hotel market and the importance of adapting to new parameters in staffing, marketing and technology to avoid extinction.

Impactful consequences of the current crisis

The coronavirus has taken an unprecedented toll on the travel industry. At the time of writing, every single actor has been taking concrete actions and cutting costs to keep their head above water. As a hotelier, you have most likely had to make fast and difficult choices to shelter your business from the crisis, involving an immediacy factor often leaving you with nose to the grindstone, unable to craft a long-term strategy. However, 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 unable to adapt to this reborn industry could risk heading straight into yet another disaster. The Darwinian metaphor might be the most telling: businesses which no longer fit into a post-Covid-19 travel environment are doomed to slowly but surely become extinct.

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

Let us start with the facts. What exactly are the impacts of Covid-19 on the travel industry? The following list, far from exhaustive, is based on the major phenomena currently playing out:

  • Huge layoffs across all hotels

This may be the most striking impact from the Covid-19 outbreak so far. At the end of April, 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 among travelers

As the lockdown rules continue to evolve very differently from one country to the next, travelers are likely to be more and more cautious with regards to their destination. In addition to this, no one likes the prospect of falling ill in a foreign country. The predicted aversion to travel feels like a definite factor for years to come.

  • The halting 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 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 somewhere between 75% and 90% loss in revenue, which will unfortunately be what most hotels are facing, if not more.

  • Chain reaction of bankruptcies

As a direct consequence to 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 7000 hotels in total). In the rest of the world, predictions are also quite dire, for example 23% for Switzerland and almost 65% for Greece.

Even though it is hard to estimate the Covid-19 impacts on a global scale, Marriot CEO Arne Soreson stated that the outbreak was worse than 9/11 and the 2008 financial crisis combined. As a reminder, according to IATA, it took three whole years for the travel industry to recover after 9/11. The following graph by the UNWTO gives an accurate picture of the situation:

Darwin1

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 have 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 impact, it’s important to take a practical perspective: all the newly unemployed hotel workers now must look for a job which is possibly not going to be in the hospitality industry, at least for the time being. Once the dust settles, they might not want to go to their old shifts seeing that the hotel industry is so vulnerable and exposed. This job migration means that we are likely see a shortage in hotel staff coming out of this crisis.

You can go a couple of ways to 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 stick with you once the crisis is over. If you have had to cut jobs completely, start by already being on the lookout for new staff so you can reopen your hotel without too much delay on that front.

The 2nd option would be to thoroughly review your staffing strategy. In a post-Covid-19 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 in 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.

New global measures will need to be factored in

As we are approaching a progressive lockdown exit, the travel environment will have to undergo major regulation changes to ensure a lasting recovery. Concretely, new hygiene measures such as the use of face masks and the need for sanitizer dispensers imply that you should already be looking at securing the adequate material for your hotel. In order to respect social distancing, you might also want to take actions such as setting up marking tape on the floor and plexiglass shields for the reception desks. Keeping a close eye on the evolution of your country’s legislations will be key to making sure that your hotel is able to open safely and on time.

Moreover, the post-Covid-19 environment will bring about new values and social codes. In addition to being more careful regarding the hotel hygiene and safety, guests will want to avoid human contact as much as possible. Effective communication will be essential to assure guests that your hotel is doing everything to keep them safe and secure. Training your staff to stay on top of these new norms can also go the extra mile to show that your hotel aims to provide the best possible service.

Direct marketing will be more important than ever

Drawing on the growing fear among travelers in these troubled times, we can deduce that attracting new guests in the future will be no easy task. This huge shift in mindset will require heavy lifting on the hotel side to rekindle the need and desire to travel. 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 also means reviewing your pricing strategy to reflect the poor environment and stand out from your competitors.

Furthermore, there is 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 in regard to reimbursement, a new confidence low-point has been reached 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 as before. 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-Covid-19 world.

Digital will take over

The most crucial challenge coming out of the crisis will be digitization. In a context of heightened competition driven by pricing and marketing, the hotels making the most out of their digital space will 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 digitized customer journey. Starting with the direct marketing we discussed earlier, hotels need to improve customer engagement, through innovative and efficient online communication, be it via websites, emails and the like. 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, this 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 Covid-19 travel environment:

  1. Have a clear staffing strategy for the future (digital labour, externalization of jobs)
  2. Respect the new social norms and regulations
  3. Enhance customer engagement
  4. Personalize user experience by leveraging analytics
  5. Work on a direct marketing strategy
  6. Diversify your booking channels (+direct bookings)
  7. Modernize/digitalize current assets, infrastructures and processes
  8. 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. Even though it is hard to foresee the months ahead, try to always keep a bird’s eye view on the crisis and get your hotel ready for the incoming rebound.

In the past, the use of hotel technology has too often been regarded as non-essential, either too time-consuming or too complicated to be worth the effort. In a post pandemic world, the efficient use of said technology will be the only thing standing between a hotel’s steady ascension towards profit and a slow inescapable fall towards bankruptcy.

 

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