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Wednesday, June 29, 2022

Coronavirus upends revenue management strategies for hotels and airlines

The impact of the coronavirus is shifting daily, as the number of confirmed cases and deaths continues to rise and governments and companies around the globe take steps to address the epidemic.

Now officially named COVID-19 (Corona Virus Disease ’19) by the World Health Organization, the virus has killed nearly 1,400 people and infected more than 60,000, with 447 cases outside China, based on figures released the World Health Organization Thursday.

And WHO executive director of health emergencies, Dr. Mike Ryan, says it is still too early to predict the end of the outbreak.

As the impact of COVID-19 ripples across the globe, it is impacting travel brands across every sector from hospitality to air to cruise to tour operators.

While the ultimate outcome is unknown, it is clear the economic impact will be significant.

China’s travel market is now the largest in Asia and one of the fastest growing in the world, so the losses are expected to be much bigger than those from the 2003 SARS outbreak, which IATA estimates cost Asia Pacific carriers $6 billion in revenue and the National Center for Biotechnology Information says created a global economic loss of $40 billion.

Immediate effects

On Wednesday the organizers of Mobile World Congress, an annual trade show in Barcelona that attracts 100,000 attendees, canceled the event citing “global concern regarding the coronavirus outbreak, travel concern and other circumstances, make it impossible for the GSMA to hold the event.”

Hilton has closed about 150 hotels totaling 33,000 rooms in China. On a call with analysts Tuesday to discuss the company’s latest earnings report, Hilton CEO and president Chris Nassetta says they anticipate a “$25 million to $50 million impact to full-year adjusted EBITDA” and a 1% drop in RevPAR – that is if the outbreak lasts “around three to six months with an additional three- to six-month recovery period.”

Nearly two dozen airlines, including American, United, Delta, Air France and British Airways, have cancelled all flights to mainland China, and many are continually pushing back the date when flights will resume.You haven’t signed up for our daily bulletin?!

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IATA reports that, based on past years’ air traffic data for one week after the start of the Chinese New Year holiday, this year “daily passenger volumes were circa 40% lower compared to where we would expect them to be at the similar stage.”

And the cruise sector has captured much of the global coverage as passengers have been quarantined and ships kept out of ports. In reporting its 2019 full-year results, Royal Caribbean Cruises says, “If these travel restrictions and concerns over the outbreak continue for an extended period of time, they could have a material impact on the overall financial performance of the company.”

Carnival Corporation says much the same, “As a result of Coronavirus, the company believes the impact on its global bookings and cancelled voyages will have a material impact on its financial results which was not anticipated in the company’s previous 2020 earnings guidance.”

Strategic solutions

From the standpoint of revenue management, including pricing and forecasting, coronavirus is a massive challenge for the travel industry – affecting both the relevance of historic data, the ability to predict the future and the need to address cancellations in the present.

“It’s still very early days. The data we are collecting is continually evolving,” says Gary Torres, vice president of global delivery at Duetto

“In a perfect world a forecast of a year is great. This is an unfortunate case where the coronavirus has upset the balance.”

Without a known end to the outbreak or even when travel restrictions will lift – along with the expectation that fear will have a lingering effect long after – Torres says Duetto is shifting to much shorter-term forecasting of just a few weeks ahead for hotel clients in China and Hong Kong and advising them to narrow their revenue forecasts through the end of Q2.

Torres says Duetto’s data shows a 29% increase in cancellations for hotel stays in China in January compared to 2019, and a decline 75% in rooms booked in January for stays in February, March and April. And the impact is being felt elsewhere – Torres says cancellations for properties in the Middle East are up 16%.Focus on pragmatic, customer-centric service.Gary Torres – DuettoShare this quote

For airlines, Aditi Mehta, solutions strategy director at PROS, says it’s important that carriers have accurate data going into their revenue management solution and that they are taking a holistic view of their network so they will be prepared to resume full operations fast. 

“This event isn’t necessarily unique though the impact is pretty large,” she says.

“Several years ago it was the volcano eruption in Iceland that disrupted travel in Europe for several weeks. Learning from that past situation of when travel demand came back and when they were able to resume operations, they can apply that data to future predictions.”

And while systems now use artificial intelligence and other technologies to automate much of the revenue management process, unexpected situations such as the coronavirus require what IDeaS global vice president of marketing Mike Chuma calls a “man plus machine” approach.

“This is where you have be more proactive as a revenue manager to ensure you are reading the signals of data that is coming in from your source markets and your future looks and books,” Chuma says.

“It’s that monitoring and that understanding of what’s happening in your surrounding areas, but also with influence from global macroeconomic conditions and knowing what segments impact your business that is going to help you work with the AI to be able to allow it to react.” 

And IDeaS senior industry advisor Blake Madril says this proactive approach is necessary for both short- and long-term strategies.

“If I know my Chinese travelers are no longer coming to me, I need the system to forecast zero additional demand from that segment… and then retroactively what’s the type of special event, the length of special event, I need to build in order to reference this in the future or next year when we are looking at year-over-year comparison,” he says.

One strategy those we talked to advise against – dropping prices, since it can take months or even years to return to pre-crisis rates once demand rebounds.

“Demand is simply not there. People will not travel to a region if they think there is risk, even if the price is very attractive,” Torres says.

“Focus on pragmatic, customer-centric service. Look at large repeat businesses that have cancelled and maybe relaxing cancellation policies to attract them back in the future, rather than chasing nonexistent demand.”

And even once flights to and from China resume and travel restrictions are lifted, Madril says revenue managers still need to account for the apprehension that will linger among travelers.

“So people need to think about how they will make adjustments for the whole year,” he says.

“The industry has gotten used to flat is the new normal. We say that about ADR, but no one has been anticipating a drop in occupancy. We’ve just been under the assumption that more people around the world will travel more and more frequently, so there is a great risk of a knee-jerk reaction.

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