Data will save the Travel and Tourism Industry From The COVID-19 shock.
In the wake of the coronavirus pandemic, travel and tourism are one of the hardest-hit industries among all businesses affected. The pandemic has impacted the airlines and hospitality industry severely with projected revenue losses crossing $250 billion.
The tourism industry has built its revenue strategy based on high tourism demand, no border restrictions, and the rising popularity of affordable travel. However, after the pandemic, the face of travel and tourism will change. While travel is easing up post-lockdown, the industry needs to quickly adapt to these changes to jumpstart their business and in time recover the losses.
“You never want a severe crisis to go to waste,” said Rahm Emanuel, the Whitehouse chief of staff during the great recession.
In the last month alone, we saw a few innovative companies in the travel industry invest money in data to prepare themselves for the future. We want to give you insights on how great companies, both small and large, are gearing up to recapture the market after COVID-19.
This blog talks about an unprecedented opportunity for the travel industry in the post-COVID world.
We will split this blog into three parts to help the reader better understand the challenges faced by the industry due to the pandemic and the new and rising opportunities that businesses must leverage to get back on track and gain back consumer trust. We’ll discuss the following briefly:
- The impact of COVID on the travel industry
- The challenges for the travel industry
- The opportunities for the travel industry and where to invest now.
The COVID-19 impact on the travel industry
COVID 19 wiped out the demand side for OTAs, travel marketplaces, and the tourism industry, bringing it to a complete reset. The revenue, demand, and everything went to a reset. Some companies shut the shops and some are barely hanging in.
Let us take a look at the impact the COVID-19 pandemic had on the travel and tourism industry
1. The consumer demand took a dive
Consumer demand is the revenue driver for the travel and tourism industry. Many governments around the world announced sudden lockdowns and grounded travel and tourism activities entirely. These restrictions have diminished consumer demand. COVID-19 is a health concern and restoring traveler confidence is the only way to improve demand.
Many countries started reopening, and the demand is expected to improve. However, some estimates say it will take up to 18 months for the consumer demand to recover. According to OECD, the COVID shock points to a 60% decline in international tourism in 2020. This could rise to 80% if recovery is delayed until December.
The US is open for business and Europe is expected to reopen soon.
2. The Revenue Reset
The COVID-19 crisis led to a complete reset of revenues for all companies in the travel and tourism industry and brought them to a virtual standstill. Steep drops in consumer demand completely stopped the operations of airlines, cruise lines, railways, car rental companies, hotels, and tour operators.
There was absolutely no cash flow, and revenue was reset to zero. Reluctance from people to travel is forcing the companies to think of new ways of generating revenue.
3. Huge unemployment
According to the World Travel and tourism council, COVID might force up to 50 million people out of their jobs in the global travel and tourism sector. We’ve already seen mass layoffs from companies like Airbnb although we appreciate the way Airbnb handled the layoffs.
Job losses are rising due to increased periods of lockdown, thus affecting every level of the industry. Vast closure of hotels, suspension of flights and travel bans have hit a domino effect on suppliers worldwide
The more severely affected in travel and tourism are SMBs such as touring agencies, travel operators, etc.
Even though the business came to a halt, industry expenses continued during the lockdown: salaries, rent, etc. Many companies, especially startups, are expected to go out of business in the next six months.
To give the businesses an economic boost, the US, Europe, and other countries have announced stimulus packages to help businesses. However, as long as the demand problem is not solved, this would not do much good for travel companies.
5. Broken supply chains:
The COVID-19 pandemic has revealed the vulnerabilities and fragilities in global supply chains leading to a wave of economic decline worldwide. To contain the virus spread, many countries enforced restrictions on transportation, which disrupted the supply chain.
Developing countries like India are worse hit due to a nationwide lockdown and cost-driven supply chains. A healthy supply chain is the nerve of the economy and when it gets broken, most industries are affected.
COVID-19 and travel: The challenges ahead
Companies in the travel and tourism sector are facing a lot of unprecedented challenges and scrambling for ways to bounce back into the market. Here are a few critical challenges for the OTAs and marketplaces.
1. Revenue Management:
The revenue has been reset to zero and the current revenue management systems and processes became obsolete. Companies have to build new revenue management processes and systems from scratch. Using old obsolete predictive models will be suicidal for companies.
This is a massive challenge for companies when they are expecting a slow recovery of the market. No one can predict the future but there are some fundamental ideas that will remain relevant. Those are Customer Service, Personalised offers and a bit of human touch. We will discuss it later in the blog.
2. Slow healing
The slow recovery of the market is going to be a pain for marketing and revenue management teams. The experts expect anywhere from 6 to 18 months for recovery. The massive stimulus measures taken by countries like India, the US, etc might speed up the recovery however the market runs on consumer confidence and we’ll have to see how soon the industry is able to restore it.
3. New pricing model
Companies relied on historical pricing patterns and predictive models to set prices. That no longer works because there are a lot of new variables in the equation. Pricing analysts still haven’t figured out how these variables are related.
Pricing analysts used booking volume as a critical component in setting up pricing, which will not work for the next 12 months at least. The need of the hour is a new pricing method that factors in the unknowns and parameters which now matter the most to consumers when they look for a hotel. A Work-from-vacation packaged stay with quality assurances of hygienic food, clean staff, availability of sanitizers, and even condoms into a bundle with better pricing models for a renewed experience is a method to try.
One of our customers used review analysis to find what people need in different locations when they are looking to book a hotel. This is what they found: while some hotels don’t have a big room, others having a big room didn’t have basic amenities like cleanliness. Post COVID-19, visitors laid emphasis on such small aspects in their stay and often voted for extra amenities positively.
So do such a review analysis to find what people are looking for and start providing those immediately.
4. New variables and change in weightage
Post-COVID, discovery, or the way people find rooms to stay will change. We can’t predict how that equation is going to be however we can make some educated guesses. When people search for a room to stay, safety and cleanliness will get more weightage. Being the cheapest won’t work anymore in travel and tourism ( at least for the nearest future).
There are four top opportunities for OTAs, travel marketplaces, and tourism in general. We’ve seen companies investing heavily in those opportunities.
We will discuss those opportunities as individual blogs in the coming weeks. Meanwhile, here is a short brief highlighting these opportunities.
1. Discovery will change from the way we know it:
Discovery or the ability to present your company’s product to the consumer is a big problem for Travel marketplaces. It is going to change the way we know it. Embrace it as soon as possible or it is a mayday call.
New variables are in the discovery equation and many variables seen lightly in the past are getting more weightage. Companies are trying to get data from marketplaces to really understand what customers are looking for and how they can incorporate these into their discovery algorithms. From our initial analysis clean rooms, safety, doctor on call, etc are getting more weightage.
2. Reinventing supplier relations
The post-COVID situation is going to be the new normal for a long time to come. Businesses need to realize the opportunity here and equip their suppliers likewise. Aspects like unhygienic bathrooms, an unsafe environment can be penalized whereas suppliers providing good service need to be incentivized.
One way to do so is by analyzing market data to discover businesses that are not adhering to basic quality standards. Datahut recently started working with a large hotel chain to help them improve supplier relations. This is their number one priority right now with the CIO himself leading these efforts.
A spike in traveler confidence can improve consumer demand. One way to improve the traveler’s confidence is to communicate with them clearly. Reassure them constantly about the hygiene effort taken by the company or the availability of a doctor on call. Uncertain travelers need a definite answer and they won’t have confidence until there is one. Your communication needs to be personalized, and with a human touch if possible.
4.New business lines
Travel companies should look at more business lines. Some companies are already using the increased adoption work from home culture and turning it into a business. One of our customers is planning to launch a beta for work from a beach, which is a package of one month for travelers. People usually jump at such opportunities.
5.Local/ National Tourism will thrive
With the ease of travel restrictions, the local tourism will witness a rise as consumers are now simply looking for new experiences post a months-long lockdown. One of our customers who specialize in providing holiday packages believes the national/local tourism industry is going to flourish.
Are you prepared to serve those local tourists? If not this is the time to think about how you can attract them. Serving the famous Texas Barbecue to a Local might not make much sense but Charcoal Grilled Lebanese Barbecue might be a hit. Understanding the details like this on the preferences of the locals would definitely help.
Time to reinvent obsolete tourism models using competitive analysis
Digital transformation of travel companies, specifically revenue management systems, and pricing systems are dependent on historical patterns, data, and predictive models. The historical data and models are obsolete as the travel industry came to a standstill.
This is the time for companies to reinvent the pricing and revenue management models. They should start with data and insights from the public web. People started expressing their concerns about travel online – in many forms. OTA’s and Marketplaces should mine this data and start finding common patterns. These patterns can be the base for the pricing and revenue management models.
The Competitive analysis used to be primarily about pricing and discounts.
In the post-pandemic world, travelers will look at more aspects like safety and hygiene before booking travel and stay. You should understand what your competitors are doing by monitoring them. Many of our customers are already doing it and are seeing a drastic shift from the historical patterns.
The pandemic will bring long-term changes in the way the world travels. In the post-pandemic world, the smart use of competitor data and consumer trends can pave an improved path for the travel and tourism industries to rise to the challenge and restore newfound confidence and joy in traveling again.