What we can learn from the past to start recovering from COVID-19’s impact on the hotel industry today
Hotels around the world find themselves facing a unique situation, with huge challenges and difficult decisions to make. A pandemic of this scale is unprecedented and its impact will be studied for decades to come. But in the midst of it, hotels still have decisions to make and strategies to put in place. While we’re in unprecedented times for the travel industry, we can still take lessons from the past.
It’s understandable if you’re overwhelmed or unsure. But there are resources available, both in the form of government and regional policies, as well as the helpful advice of experts who have studied how businesses make a comeback from economic recessions, market downturns, and natural disasters.
Smart cost cutting, according to successful post-recession businesses
Cost-cutting measures are almost certainly every businesses first step. But it’s essential that you don’t value short-term gains over long-term strategy.
In an analysis of businesses’ post-recession performance, Harvard Business Review (HBR) points to what they call “progressive companies,” as the biggest winners. Companies that balanced defensive (cost cutting) and offensive (investments) measures flourished, typically making 10% more in sales and profits.
Companies that performed best cut costs by focusing on operational efficiency rather than permanently reducing their workforce. While some layoffs, both temporary and permanent, may be necessary in the short term, it should not be the core strategy to keep afloat during difficult times. According to the HBR study, companies that reexamined their business model reduced their operational costs permanently, as opposed to the temporary boost of laying off staff.
For hotels, this translates to an examination of everything you rely on to operate your hotel.
- Examining your tech stack: does the technology you’re using to manage and market your hotel efficiently integrate with one another? Does it allow you to effectively communicate with guests, share updates, and promote direct bookings? Are you spending time on manual tasks that could be automated?
- Can you bring down the operational cost of empty rooms? Energy management technology can reduce energy consumption by 25 to 35%.
- Conduct a distribution audit. When travelers are able to visit again, how can you increase your direct bookings to reduce OTA commissions?
Revenue management strategies from past recessions
Every hotel is struggling with the uncertain future. But one thing is sure: we will recover from this, and when we do, people will be desperate to get away from the house they’ve been self-isolating in. After cutting costs, thinking about future revenue is essential.
The one consensus is to avoid slashing prices too quickly without considerable planning. One revenue manager, who worked both in a hotel in Las Vegas after the 2017 shooting and then later in Bahamas after a category-5 storm told Skift, “The hotels who took the most desperate measures with their revenue management strategy in the short run had the toughest time recovering in the long-run.”
It will be tempting to start competing on price immediately to get the first influx of visitors. However, as evidenced by an analysis by STR of post-recession hotels in Chicago, hotels that held their rates within 10% of normal did lose occupancy, but had significantly higher RevPAR than those that cut their rates.
Instead, take a longer term approach. Sherri Kimes, a researcher and expert in revenue management, polls revenue managers every year and compiled recommendations following the 2008-2009 recession. Here are some of her strategies to avoid competing on price:
- Compete on quality with value-adds on booking (breakfast, airport pickups, welcome packages)
- Make use of your loyalty program, if you have a points-based system, incentivize loyal guests with a lower number of points needed
- Reward advance bookings, because following the last recession, booking windows shortened and we can expect the same again
Across the board, revenue managers recovering from previous recessions and from unexpected natural disasters agreed that marketing is an essential cost. Instead of slashing public room night rates, revenue managers stressed a marketing-based approach to recovery. The trick is to be smart about it.
Sales and marketing to recover faster
Keeping your marketing afloat during COVID-19 is difficult, and we know that most hotels are working with a reduced staff. Finding time and resources to focus on marketing right now is a challenge. However, a good marketing strategy is key to getting ahead first.
Taking a marketing approach also means you can avoid the easy tactic of slashing public rates when you open. That may get you an initial boost in occupancy, but will undo any work you’ve done to increase ADR.
In another post-recession analysis, researchers at Cornell Hospitality Quarterly found that hotels’ marketing expenses were a determining factor in post-recession success. While all hotels cut marketing expenses, hotels that made the deepest cuts to marketing and sales budgets had lower RevPAR than those that only made minor cuts.
Reaching an entirely new market segment is a costly marketing endeavor. Instead, take a longer-term approach, using the staff and on-site resources you should already have.
- Given changing travel restrictions, your local market will be able to take advantage of food & beverage, spa, or other ancillary services sooner than travelers, so consider going local for the time being.
- According to the Cornell study, hotels’ sales staff are essential: post-recession winners increased sales expenditures indicating that frontline sales staff, personal contact and negotiations are key to recovery
- Return to your database with the aim of both reaching out to key accounts with a personalized approach, and to clean it up for future use
We’re facing an uncertain future—there are many predictions on when hotels will start to recover, but there are still too many factors to name a date. Now is the time to act to set your hotel up for a swift and profitable recovery. Focus on long-term growth over quick cost-cutting measures, because the future is bright and your future guests are excited to travel soon.
For more insight and strategy in these uncertain times read our other articles on managing the COVID-19 pandemic.