As consumers face the prospects of deciding when to travel, who with and how (by road,rail,sea or air) and worrying whether they could be turned back before departure if a temperature is detected, suppliers are grappling with how best to reassure clients that risk is minimised by dealing with hygiene factors as a key element of their offer. Measuring risk has therefore risen high on personal agendas and will influence behaviour and marketing messages. Our images highlight the conundrum-gingerly cross the ravine and/or stay out of the water?
The Panel for Travel & Hospitality (PATH to Reset) groups recent discussion reviewed various factors that will influence outcomes on the road to a new reset of the sector in the coming months and years. Here we summarise some key insights and food for thought as the story evolves:
Decisions to travel or stay elsewhere will vary according to age, health and sensitivity to risk:
- Many customers will seek local or national destinations-staycations are ‘in’, but memories are short for some. Once Government restrictions are lifted, human behaviour will kick back in especially amongst younger age groups. Hong Kong is an example where social distancing rules disappeared overnight in some areas-partying took place. If this is replicated elsewhere younger groups may both travel and resume take up of hospitality offerings.
- Demand will however be curtailed in some markets due to the effect of job losses and a lack of disposable income. Time lags will kick in as customers who had already made bookings will wait for refunds from cancelled holidays before re-booking.
- An unfortunate but perhaps indicative benchmark of how markets may respond can be taken from tourism's exposure to terrorism which provided examples of how peoples’ behaviour and confidence changed over time e.g. Tunisia is back on the map for holiday makers after a period in which other destinations replaced it due to events there some years ago.
- The events business (World Travel Market in November is an important date) could be hit hard in the short term but whilst Zoom may have captured the imagination people to people contact is needed to bring suppliers and buyers together.
Currently administrative chaos exists as customers, travel companies, airlines and Online travel agents are in a circular flow of claims and refunds sorting out trips that have been rescheduled or cancelled:
- Uncertainty continues until responses by operators to compliance and safety standards is clearer. Flare up in the virus in ‘clean’ destinations could still jeopardise trips at short notice putting holiday bookings at risk.
- ‘Selective tourism’ is occurring-where countries or destinations are encouraging demand from certain markets and not others, influenced by risk factors, ‘safety’ factors and desirability.
- Quarantine policies and how they will be enacted remain unclear. They will impact on the appeal and accessibility of different locations/destinations ‘A day trip abroad could result in 2-4 weeks quarantine’.
- Pent up demand does exist and will feature most strongly in the leisure and short haul sectors with the young most likely to be less risk averse. Group tour business is however effectively dead for this year due to the need for planning, marketing and preparing programmes in advance-whereas individual leisure and business travel will react differently. The cut off for 2021 programmes is probably Sept 2020 so some clarity is needed soon to ensure next year’s programmes are planned and put in place.
- How travel will work in practice-coach vs air vs rail all offer ‘different environments’ and some may be seen to be more user friendly than others and a practical side effect of the crisis is that travel insurance is becoming unavailable or more expensive for over 60’s.
- We’ve reclaimed our city but inherited a ghost town’ (Barcelona article.) ‘Venice had become Disneyland without the inhabitants’ ...there is a need to learn from the lock down. (Tourism press)
- Destinations ability to attract demand will differ due to variables such as their reliance on long term v short term inbound travel and their mix of leisure or business visitors.
- ‘Blue skies, clean water’: The environmental, cultural and economic impact of mass tourism (both good and bad) is likely to be subject to further review in some destinations. This will influence tourism marketing and management going forward.
- The importance of the sector to the economy is highlighted for all to see, for all the wrong reasons. The hospitality and travel sectors are major employers worldwide and there are serious risks to employment as cutbacks may be implemented throughout these sectors.
- Cities are getting their property portfolios ‘back’ as some investors shy away from the Airbnb model to longer stay business models. Views differ on how the crisis will change the fundamentals of demand in this segment: on the one hand, some consumers may see private environments as ‘safe’ whilst others may put their trust in brand propositions put forward by apartment and hotel operators.
4. The Hospitality/Customer Interface:
People are sociable animals and want to interact-this is the appeal of restaurants, bars and hotel lobbies -they are often sexy, buzzy places offering a desirable environment. The risk is that Social distancing could kill off demand by creating sterile environments. ‘Hospitality becomes Functionality’.
- ‘Covid certificates’ are a possible solution to projecting standards of cleanliness and providing reassurance to customers. In our view these are most likely to be engineered by brands rather than government. However, will they regain consumer trust?
- The challenge to operators is to ensure that what you come for (atmosphere) does not become ‘sterilised’. This will include a rethink on business models and service levels (even upscale hotels where high service levels and human interaction have to date been a key differentiating factor may see their core offer change).
5. Operating Businesses:
The immediate challenge is working out how to break even once things loosen up. Cash flow is the dominant issue for existing businesses with some already over leveraged or over rented and a fundamental restructuring was overdue.
- The shape of their current capital structure, strength of their balance sheets and the investment time horizons of their existing owners will all impact on the potential survival of some brands in hospitality and travel. June is a critical date when second quarter rents will be due and will be a telling time for many landlords. Rents may need to be staggered as at this stage general cash flow status is hard to gauge therefore any potential rental proportion of that is also hard to judge.
- Safety, hygiene factors and reducing fear by gaining trust will drive many operational and marketing initiatives. Sanitised areas will be required for both staff and clients alike.
Buying hotels is a long term game. A 20- year time horizon drives developments so most investors looking to acquire or develop are unlikely to impose changes on physical structures until things are clearer
- F&B is however at risk-the breakfast buffet is in existential danger. To a lesser extent restaurants and bars generally in the short term will see casualties and rethinking of business models. Could specialised operators with very specific business models and skills emerge as an outsourced solution?
- More technology and automatic door opening, keypads and ingenious ways of including sanitisers in day to day items are seen as ‘in’ whilst the buffet is seen as ‘out’. Open plan, shared workspace areas -the latest trend -will be under review.
In recent years investors turned to hospitality as an alternative to retail and offices. Now the risk is that they may turn away to logistics, delivery companies and IT driven companies.
- For existing businesses, debt providers are trying to offer interest & capital holidays but probably can’t sustain this long term. Moratorium on debt payments are being sought by owners and operators as cashflow has dried up. Mexican standoff situations are emerging whereby a lose lose situation leads to stalemate (any party initiating aggression might trigger their own demise). Mezzanine funding is putting refinancing under threat as banks see their position squeezed and investors could lose out if companies go under.
- For new or existing developments funding is very challenging. Most developers want to proceed, but in reality, many new developments are likely to be put on the back burner unless already well advanced and/or backed by long- term well-funded investors
- Acquisition opportunities will arise (some major players/owners are already in Chapter 11). Mergers and acquisitions will be fuelled as opportunities are identified for well-funded entrants to the sector.
- In an age of uncertainty with this many variables, estimates of recovery remain a ‘best guess’. Pricing will be hard to assess, and valuations will become a key issue. When does demand return? at what price? and will existing business models even allow for profit to be made with social distancing in place? What estimates for cash flow measurement are to be used and at what yields? Until some degree of certainty returns, no benchmarks exist.
Despite all of the above, the future shape of the industry will be exciting driven by a global and ever-growing tourism industry and a fundamental desire for people to meet people and enjoy themselves. We look forward to playing a part in in resolving the current challenges and the innovation that follows it.
We welcome your views and comment. Do contact us on 00447785 514831 or email@example.com to discuss any issues arising from these thoughts which we will share with our panel (see below) who we thank again for their active participation and input.#stay positive #pathtoreset #travelandhospitality
Mario Bodini, Richard Bursby, Douglas Grant, Liz Hall, Dexter Moren, James Munro and Gerard Nolan.
Photos by Lubo Minar on Unsplash and Michael Shannon on Unsplash