The damage caused by Coronavirus are beginning to have really serious repercussions for our sector. Here's how revenue management can limit the damage, together with the hoteliers who will not act instinctively and will find themselves ready at the end of this emergency.
Published on March 17, 2020
In these days when we only talk about one thing, we inevitably find ourselves having to manage the anxieties and panic of hoteliers grappling with the devastating effects that this virus (and its media amplification) is causing to tourism and the economy, more than the health of the population.
And in recent days the question has also surfaced among professionals on how this crisis can be countered and whether all the various possible levers, including revenue management, can still have a usefulness and sense.
Having had the opportunity to work with hotels in various European countries over the past 10 years, I often found myself facing sudden crises following natural disasters, terrorist attacks (Paris 2015, Brussels 2016, Barcelona 2017), tensions or other socio-political phenomena that really brought hotels and accommodations to their knees.
This allowed me to have a history on how the big crises can affect what is the heart of our work, revenue management.
And how often these crises present similar phenomena.
A question that often recurs in our sector is whether revenue management can really serve anything in the face of these gigantic negative phenomena.
In other words, when you are faced with almost apocalyptic scenarios, when the hotels suddenly go from more than 90% of occupancy to less than 10% in some cases, when reservations stop completely or slow down dramatically, what can revenue management do?
There are those who argue that in these cases, revenue management is useless, starting from the assumption that revenue management is only pricing, and that therefore the price lever is ineffective to stimulate a demand that is non-existent anyway.
Given that the Coronavirus crisis will be resolved mainly at the health, political and media level, with revenue management we can only study the situation carefully and daily, keep up to date, hypothesize scenarios and study measures to mitigate the economic effects in the short term, medium and long term.
What can a revenue manager do in the face of an emergency?
First of all, when we are faced with these crises, we must analyze what are the factors that block or destroy demand.
In other words, the objective limitations (e.g. restrictions on transport and flights, prohibitions and restrictive measures of governments, quarantine, company closings, commercial activities and places of aggregation, cancellation of events, etc.) and subjective limitations (psychological fears of suffering damage due to your health and safety or inconvenience).
Depending on how much they affect each other, you can clearly get an idea of how much the demand can be conditioned and with which segments, channels and activities, which scenarios can be profiled, and consequently make informed decisions.
After all, this is also doing revenue management.
Given that for the summer seasonal structures, currently less economically impacted, we only have to wait, for the annual structures or with long seasonality the discussion is a little more complex.
If the hotel empties overnight and your planner becomes a clean slate, what can you do in the short term?
Given that in the very first period of a crisis it becomes difficult to imagine making increases compared to the previous year, rather the goal becomes to limit the damage and losses, what do you do? Are prices going down? Do prices rise? Is the hotel closing? Do you lay off staff?
You don't need to drop prices!
There is no doubt that, where the objective limitations mentioned above prevail over the subjective ones, it is not necessary to bring down the prices.
The truth is that in the face of all these crises, be they terrorist attacks, social tensions or viruses, we almost always have hybrid situations where there are both segments that are exposed to objective limitations, and on which clearly little can be done, and segments which are exposed only to subjective limitations, and on which instead the various levers we know, including revenue management and marketing, still have their fundamental function.
And experimenting is the only way to understand it.
Those hotels that have been able to build a good mix of customers, channels and segments, also according to their brand reputation, type and destination, will surely have more possibilities to withstand the impact, but they will always do so by adopting the levers that we know.
Let’s recover domestic customers before foreigners
But this makes us understand that something can be done to limit the damage, starting to recover domestic customers before foreign ones.
And, as far as possible, also collect the cancellation penalties of those who ask to cancel in the absence of objective limitations, is a legitimate instance in these cases.
Definitely closing the structure completely and cutting staff waiting for better times is the worst choice you can make.
For a variety of reasons.
First of all because by closing it will be difficult to understand when the best times come, the crisis is really over and it makes sense to reopen.
Then because closing online sales inevitably loses visibility and damages the mechanism of ranking on the OTAs in the medium to long term, in addition to losing in the short term potential bookings of customers not exposed to objective or subjective limitations.
And that although they may be much less than usual, they still contribute to keeping the hotel alive.
And then because by closing, all you do is feed that media mechanism that you want to fight instead, or the image of a country in disarray and that seems to be experiencing a war that is not there.
The hotels that will resist the temptation to close will surely be able to enjoy the benefits of the end of the crisis before and better than those who have instead opted for the more drastic solution of the closure and the consequent dismissal of people.
As much as employment and revenues can now give the impression of not justifying the costs incurred in keeping the hotel open, the damages of such a choice in the long run could be greater than the relative advantages in the short run.
Rather, it would be more advisable to take advantage of the situation to anticipate a partial renovation of the rooms and the hotel so as to present themselves in a better guise when the crisis has passed.
These are the scenarios that open "post virus"
Ok, and after? When will the crisis end? When will booking flows resume and hotels return?
Difficult to hypothesize the timing. It all depends on the evolution of this virus.
The best scenario that we all hope is that the measures taken will lead to stabilization and reduction of the number of infections over a few weeks / months, and in the meantime the virus will weaken with the arrival of the heat and the summer.
The worst scenario, and perhaps most likely, is that instead this virus becomes a true global epidemic, which will affect all the countries of the world, even if with a lethality rate (ratio between deaths and infected) irrelevant from a percentage point of view (also due to the fact that the number of infected people is actually much higher than the official one, if we consider all the asymptomatic, those who do not declare themselves and those who in various countries of the world are invited to the auto quarantine without being tested and entering therefore in the official counts).
At that point, however, the global impact of this crisis will lead the various governments to make decisions of vital importance for the entire world economy.
All the media hype about the number of infected people and which country has more than others will lose its emotional relevance.
And all the measures to contain and limit the movement of people will no longer make much sense. Instead replaced by measures of mitigation, common sense (individual and collective) and prevention.
With the aim of no longer reducing the spread of the infection, but slowing it down and spreading it from a temporal point of view to allow hospitals not to collapse and manage that low percentage of more serious cases.
If a vaccine arrives, if it arrives in a year or a year and a half, what do we do in the meantime?
Do we cancel all planetary events? Do we suspend the Schengen Convention?
Do we all barricade ourselves at home for a year and block the entire world economy for a virus that has a lethality rate of less than 1%?
With consequences at that point far more dangerous for the health of mankind than a virus that has such an insignificant lethality rate?
Inconceivable, unsustainable and senseless that such a scenario happens.
We will all likely learn to live with the risk of this virus and the natural instinct to live (and travel) will prevail in a liberating and overbearing way over fear.
Moreover, in today's world we are exposed to risks of far more lethal and frightening phenomena, as unpredictable, such as terrorist attacks or natural disasters, which certainly do not prevent us from continuing to travel. We do not see why a virus that has at least the advantage of being predictable, compared to other disasters, and therefore manageable and controllable, should block the whole human race.
The recovery will take place and will be overwhelming
From a hotel point of view, such a scenario will certainly lead to a contraction in tourism in the world in the first months (as indeed happened after September 11th or during the economic crisis of 2008), but the recovery will be much more overwhelming than how much the collapse was not.
So there you have to be good at managing the effects of the recovery.
Reason why we recommend being thrifty in the distribution of rooms online for the next few months, to avoid getting out of hand at the moment of the disruptive recovery, and selling too many rooms at lower prices than necessary, thus not being able to recover the current losses due to the collapse of demand.
So revenue management still has a utility and sense even in these dramatic situations, when it allows us to carefully monitor the situation on a daily basis, contain losses in the short term, make forecasts and manage in the most profitable way the recovery in the medium and long term, in order to recover what has been lost.
In conclusion, it is useless to hide the evidence, there will be months of suffering, but if we hold on and we are able to not panic and take the necessary strategic decisions on the short, medium and long term, at the moment of recovery (that there will be and will be more irrepressible than the virus), we can recover with interest all that we are losing now.
Fabio Morandin
CEO at MoreHotelier, Outsourced Revenue Management