External events can and do have a major impact on hotel operations and while sometimes it can be hard to predict what might come next, there are some strategies hoteliers can employ to ensure the business continues as well as possible.
COVID-19 has already rocked the hospitality industry — with hotel cancellations and even closures. Hilton took the extraordinary step of closing some 150 hotels across China.
“It’s a black-swan event the hotel industry hopes to avoid. Worry and uncertainty over the virus’s short-term and full-year impact on travel permeated Q4 earnings calls, especially for companies with high exposure in Asia. Hotel and flight cancellations were and are widespread across the continent, with both brands and OTAs allowing free cancellations to select destinations,” David Eisen, Director of Hotel Intelligence & Customer Solutions, HotStats, told us at the end of February.
Markets in APAC are the worst hit. China hotels are taking the full brunt of the outbreak, which is understandable as, of the 80,000 cases of coronavirus globally, more than 77,000 are in China. Based on Duetto’s data, which is a limited sample size, hotels in China saw a 29% increase in cancellations in January 2020 compared to figures from the same time last year. The same sample of hotels in China also saw a decline in pace, with rooms booked in January for stays in February, March and April down more than 75%.
Hong Kong, a global financial hub, which was already dealing with protests over an extradition bill, saw its profit per room drop 74.2% year-on-year in January, according to HotStats. For full-year 2019, Hong Kong’s GOPPAR was down 34.2%.
Shanghai was similarly impacted, with total revenue down 22.5% YOY and profit dropping 48.1% year-on-year in January.
Meanwhile, Bangkok saw a 1.1% year-on-year decline in total revenue in January and a 2.3% drop in profit. Tokyo saw larger declines with profit down 3.7% year-on-year.
“People are making travel decisions based on other factors. Rate is on page two, but on page one is, ‘Is it safe?’ And is the location that I’m going to safe? And how do I get there? Do I have to fly through a major airport? Travelers will put safety first,” says Jan D. Freitag, SVP, Lodging Insights – STR.
“The virus’ impact on domestic travel has been smaller, but containing it, and stamping out its spread quickly, is all the hotel industry can hope for to erase what likely will be a difficult Q1, at the least,” adds HotStats’ Eisen.
Adjusting your Revenue Strategy
These are extraordinary circumstances. The hotel industry has dealt with similar; the SARS outbreak in 2003 and Avian Flu in 2009 spring to mind. While we can look back at the historical data for these events, COVID-19 presents a different challenge, not least because the Chinese outbound market has become much stronger and more lucrative.
In 2003, SARS led to a 28% decline in Chinese travelers visiting the US. That was off an average of 200,000 visitors a year. Today, there are close to three million Chinese travelers visiting the US – that’s a very different scenario, and a much bigger impact if we follow the SARS trajectory.
Here are our recommendations:
- Forecast short-term. Our Customer Success team in APAC has recommended to our clients in China and Hong Kong to run on a short-term forecast. What this means is that Duetto will only take into account a few weeks of data and use this to forecast just a few weeks ahead. This enables revenue teams to focus on the exceptional events unfolding. We are also advising our customers in the region to narrow their forecasts through the end of Q2.
- Hold rate. Demand in the region is just not there because of the coronavirus outbreak. Whether you are charging $400 or $100, people will not travel if they feel they are at risk.
- Invest in human capital. While occupancies are low, hotels can use this time to invest in other areas of the business. Use the downtime to cross / re-train staff or get your revenue teams talking to other departments and showing them how everyone can have an impact on the bottom line. This can even be done remotely via conference calls.
- Invest in property. If you were considering a rooms refresh or a bigger renovation, now might be the time to get this started.
- Consider your tech stack. Invest in your systems and technology so that you are ready for the upswing when it does arrive. Use this time to understand what your technology can do for your business.
And while recovery may seem hard to predict right now, hotels still need to be prepared. People will continue to travel, but the patterns of that travel behavior may change. Booking windows may be shorter, travelers may stay closer to home. Hotels who take these changes into account, who stay firm on rate and who spend their time getting to know their new customer demographic will be the ones who reap the revenue rewards.