We are now in the midst of a pandemic, the likes of which few alive today have ever experienced. COVID-19 has spread to every corner of the globe, causing health care and economic devastation.
The hospitality ecosystem has been particularly hobbled, with hotels being one of the hardest-hit sectors. Due to travel and social distancing restrictions, the movement of people has come to a standstill in much of the world as countries close their borders to visitors. A recent Pew study found that by April, over 90% of the world’s population – a staggering 7.1 billion people – lived in countries with some measure of restriction for arriving travelers, with roughly 3 billion people living in countries with borders completely closed to non-citizens and non-residents.
The hospitality industry finds itself in a very precarious situation. Not surprisingly, a special forecast from STR and Tourism Economics has surmised that due to the COVID-19 outbreak, the hotel industry is projected to report significant declines across demand, occupancy, ADR, and revenue per available room (RevPAR) in 2020. Some leading brands themselves have already said they are expecting revenues to decline by an unprecedented 70%.
It is true that the hotel industry has weathered many storms and has dealt with different crises and viruses before. After 9/11, flights were down by 30% YOY for the rest of September, and in 2003, the SARS virus resulted in a 50% decline in hotel bookings. That drop of nearly 9.4 million in international tourist arrivals resulted in losses estimated at between $30 billion and $50 billion. While the hotel industry bounced back in both cases, it has never seen a black swan event like this one. Never has the entire globe been forced to stop entirely like this and the current slowdown is on an incomparable scale to previous events.
Impacted by the effect that the lockdown has had on bookings and revenue, hotels have been left with little option but to take steps such as out floors, suspend dining and event services, furloughing of staff and even temporarily closing.
Over the next months and quarters hotels will have to deal with the new normal – lower occupancy rates, lower ADRs and many premium rooms and suites remaining empty. Research from CBRE is predicted that it will take approximately 6-10 months (starting June) for US hotel demand to begin to recover, and 12-16 months for ADR and RevPAR to recover. In different forecast scenarios, CBRE indicates that occupancy may actually not recover to pre COVID-19 levels until 2023 with researchers are predicting that travel industry recovery might be worse than 9/11, going beyond a three-year recovery cycle to about five years (2025) for the industry to recover to levels before the pandemic.
The specific impact of COVID-19 on an individual property will depend on the characteristics of that property, its market and its location. Some hotels will be more vulnerable, such as those dependent on group business and markets that depend on air travel. Hotels that can rely on transient segments, “drive to” markets/resorts, economy and midscale properties are deemed less vulnerable and are expected to recover faster. Markets with more relaxed distancing measures will see more leisure traffic and will see a sharper recovery line than others. Overall, the recovery will be uneven across the country.
In addition to demand drop, the current pandemic environment may permanently alter consumer behaviour. Post-COVID consumers will focus less on material possessions and more on experiences. Many sources, such as Juliet Kinsman for Condé Nast Traveler have noted that post-lockdown travelers will be more thoughtful with their travel spend. They will be considerably more risk averse and will look for quality to ensure their safety and well-being.
As we begin to flatten the curve, proactive planning for the rebound in travel will help hoteliers make up for lost revenue. Combined with the inevitable pressure on rates, the revenue challenge will require hotels to innovate in order to compete and survive. A key focus will be on upselling.
Pre-coronavirus, the majority of upselling was manual and mostly attempted at the front desk upon check-in. However, with new social distancing, hotels must reconsider the traditional front desk interaction with guests who will no longer want to wait in-line or linger longer than is necessary in the lobby. Similarly, pre-pandemic upsells and upgrades came with a plethora of “unwritten” rules of how and when they could be offered such as; upgrades are mainly used to free up overbooked standard rooms; upgrades can be given to the guest at no additional charge; and upgrades to expensive suites are reserved for loyalty members only. These “rules” may become roadblocks to revenue recovery.
Upselling goes directly to the hotel’s bottom line, but for most hotels, upselling is not seen as a regular source of incremental revenue – mostly because it requires a lot of manual work in order for it to be efficient and integrate with daily revenue management. “Many of the traditional upselling technologies that some independent hotels use still rely on hotel management to manually approve upsell transactions,” say Shannon McCallum, a 35-year hotel industry who most recently oversaw operations at MGM Resort’s Aria and Vdara. “Often, management simply doesn’t have the time to manually intercede on these offers. For properties not using automatic upgrade technology, the guest experience is not great. A guest may think they have agreed to purchase an upgrade only to find out at the front desk that the upgrade is no longer available.”
Upselling needs to become efficient – and by efficient we mean intelligent and automated. To do so, hotels require a reliable forecast of room-by-room occupancy, complete with the pace of arrivals and departures for the upcoming days. Accurate forecast data puts hoteliers in a better position to see rooms that are readily available to upsell. “In larger properties, occupancy is constantly changing, which has an impact on the upgrade situation,” continues McCallum. “Upsell technology should be able to flex with changes in occupancy in the moment so offer availability is confirmed for the guest and management doesn’t have to hand-hold the process.” However, forecasting is only half of the equation. The right upsell offer has to be made to the right guest at the right time in order to optimize conversion.
Traditionally upselling is blind, with broad assumptions made about guests prior to an offer. As such, there is a high probability that upgrades are offered to the wrong person (or not offered at all) resulting in a low conversion. But by uniting forecast information with guest data and AI, hoteliers can effectively produce an offer that matches the price with the arriving guest’s willingness to purchase an upgrade. Variations in offer timing (i.e. time of day and proximity to arrival) will also impact conversion.
Pre-COVID, we already knew that the majority guests sought personalization and digital experiences, so in a post-COVID world (where guests will want to limit exposure in high-touch traffic areas of a hotel), there will be a greater interest in digital self-service interactions that avoid human-to-human contact. Plus, it has been already shown that allowing guests to browse and purchase at their own pace in a self-service environment results in higher conversion than the pressured front desk interaction.
In summary, it’s clear we’ll never return to the old version of ‘normal.’ Post-crisis hoteliers need to be very asset-specific and adopt a sales-oriented attitude. Those who follow the old rules of upselling will be at a competitive disadvantage. The more accurate and efficient you are with your upselling, the more attractive an upgrade will look, the higher the probability a guest will spend more and ultimately increase the revenue of your hotel. With the right technology tools in place, offers aligned with real-time decisioning can be generated and flex throughout the guest lifecycle, ensuring that right deal is offered to the right person at the right time.
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