seven things to expect for destination travel businesses
By Tom Foley, Senior Vice President of Business Operations and Analytics for Inntopia
We’re providing this narrative as a proactive discussion about the potential impacts of the spreading Covid-19 virus, its economic consequences, and the potential impact on the destination travel industry. This report is based on data from our DestiMetrics service, which tracks activity at 300 properties in 19 different mountain destinations. While it focuses on lodging, the data have strong implications for the broader winter sports industry.
We’re watching the global outbreak of the virus with concern for those whose health is directly impacted, and for the potential impact on the destination travel industry. For the past eight weeks, DestiMetrics has seen no apparent effect on U.S. destination mountain and beach travel. But travel is and will remain at the root of the spread of Covid-19, and the travel industry will be impacted broadly. With 62 percent of guests traveling to DestiMetrics’ client destinations by air, and 21 percent of all guests traveling by air internationally, doubtless the mountain and beach sub-categories of destination travel will be impacted. The only questions are for how long and how deeply.
To help answer those questions, we are digging into our historic data for past events that can guide our thinking, and applying some critical quantitative analysis and expertise to the situation. Our thoughts are below.
From Our March 3 Survey
To measure impacts to date, DestiMetrics conducted a survey of our destination travel clients and destinations on March 3. We received a broad initial response, revealing the industry’s focus on this issue.
Here are some of the key findings:
• 96% either manage hotel/motel or condominium properties
• 61.8% state that at least 51% of their guests use air to travel on some part of the journey to their destination
• 20.1% state that at least 25% of their guests are international travelers
• 65.5% have fielded calls from future guests with concern about Covid-19
• 38.2% have seen an uptick in cancellations for future travel in the past 10 days
• 12.7% are adjusting room rates in response to recent financial market losses
• 9.1% are creating value-add programs in direct response to recent financial market losses
• 25% of DestiMetrics subscribing properties are offering concessions on their cancellation policy, while a further 49% say they are considering offering concessions.
Here's what is behind the numbers, and where we may be headed.
The Setup 1 – The Economy
As the virus’s global spread accelerated in the last 14 days, economic concern surfaced as investors eyed narrowing or closed supply chains, suppressed travel and consumerism in general, the hard cost of disease containment, and no clear picture of when life will return to normal. The result was a dramatic drop in global economic markets that, though triggered by fears around Covid-19, exposed long-standing legitimate concerns with economic conditions. So, what does it mean to resorts?
The Setup 2 – Covid-19
Normally, to answer “what it means” we turn to our long data set for prior economic events to which we can make comparisons. The closest parallel is the aftermath of September 11. That, too, was not solely an economic situation, but also a very emotional one for consumers related to personal health.
At the core, Covid-19 is causing fear of travel—fear of getting sick, fear of being quarantined, fear of making a travel commitment that’s cancelled for any number of reasons, fear of a lost investment—and generally, a gnawing fear of the unknown. For many this is a scary time with a new pathogen that is not yet medically preventable or fully understood, a disease that is circulating invisibly, making no sound, and carrying no banner.
Add sensationalism instead of calm, rumor in place of expertise, and a widespread disregard for scientifically-based information in the age of social media and bloggers, and fears among consumers are heightened.
A One-Two Punch
So now the industry is facing a one-two punch in the travel marketplace: a new virus causing travel fear, and downward market pressures potentially putting economic strain on consumers.
We can’t help but wonder how one addresses this one-two punch, should current conditions worsen.
What to Expect
With that in mind, and looking proactively toward the end of the winter season and ramp-up to summer, it isn’t premature to ponder how a DMO or a property manager overcomes consumer fears around health while also tackling economic concerns. Is an approach that would resolve the economic concerns of consumers enough to also offset health concerns? And vice versa? Or must marketers find a two-pronged approach to address both?
And lastly, there may be a moral imperative at some point. Is there a point at which the element of social responsibility—of not bringing people together in one place—becomes more important than driving business? That question is rhetorical unless epidemic conditions develop within this country, but it’s one worth considering now.
At present, based on how consumers behave and what we’ve seen in the marketplace under other stress conditions, we can suggest some likely performance scenarios. These suggestions assume that Covid-19 continues to spread as expected, and that the economy continues to see instability.
Guests, International vs. Domestic: This seems obvious, but destinations with larger international guest bases, such as those in the Southeast or the more elite mountain destinations in the West, will likely be impacted more significantly by travel bans or fear of travel than those destinations that rely more heavily on a drive market. This is likely to be true irrespective of whether those destinations’ primary source markets are impacted by incidence of Covid-19 or not. The further and more confined the travel, the more challenging attracting the guest will be.
Staying Domestic: U.S. consumers intending to travel abroad this year are more likely to cancel or not book at all and stay domestically, if they choose to travel at all. This will create an opportunity for U.S. destinations to pick up more domestic travelers, partially offsetting international visitation losses.
Drive vs. Pure Destinations: Domestic drive destinations will likely get a relative boost over domestic pure destinations, with pure destination consumers shifting to drive markets as they forego long-haul mass transport. While it’s probable that not all long-haul travelers will shift, what we can't predict is how many will replace their long-haul travel with short haul/drive travel or not travel at all.
Group vs. FIT: Properties or destinations that rely heavily on group, conference, and corporate bookings are likely to feel the effects sooner and more strongly than those with fewer group stays. (Some may be feeling the effects now, as conferences are being cancelled already.) Group stays may be subject to cancellation by operators, the buying group itself, or individuals dropping out of the group stay, resulting in cancelled rooms. Further, a growing number of companies have begun to impose travel restrictions for staff.
Easier Cancellations ... Depending: Properties—and some insurance providers—will be relaxing restrictions around cancellations in an act of goodwill, preferring to rebook or fully refund rather than force payment, in full or part. But as the situation develops, also expect insurance companies to stop covering Covid-19 cancellations booked after a certain date.
Isolation Travel: Properties and property managers with single-family units, as opposed to condominium or hotel/motel units, may fare better as travelers look for a more isolated travel experience away from common areas.
“Un-crowding”: Destinations that feature high-volume recreation areas, such as theme parks, are likely to be more heavily impacted than destinations that offer outdoor, non-group activities.
Does the Data Have Suggestions?
We’ve always urged properties and DMOs to apply the lessons from historic events to help offset the impact of future events, using the successes and failures of the past to inform the present and future. Unfortunately, there are few prior events that pack the one-two punch of the virus and related economic issues. But, citing economic events in the last 19 years, we can offer the following thoughts:
Value add. Value-add mechanisms such as additional nights, free add-ons (tours, tickets, events, meals) is a good way of incentivizing guests to travel. This became a positive tool coming out of both 2001 and 2008, most notably the latter. In that instance, though, value add wasn’t implemented broadly by property managers until the 2011-12 season, and by then, knee-jerk rate cuts were deep enough to create the unsustainable revenue models seen at that time.
Upside: This is a good first step to feel out the consumer before moving on to rate cuts. Downside: It often requires third-party resources and time to implement.
Rate leverage. This tool is the most immediately accessible and most visible to the consumer, but can be problematic when dramatic action is needed for a sustained period of time. As it stands right now, mountain destinations are up about 3 percent in revenue year-over-year for the winter season. Three percent isn’t much to work with, but if properties were to drop rates too much, they may fail to offset current flat or declining occupancy rates in many communities, pushing revenue into negative territory.
Upside: Lower rates attract (or help retain) more consumers. Downside: We teach consumers to expect lower rates. After the crash of 2008, it took until winter 2013-14 for rate to recover to pre-recession levels, a full four years after the recession was over.
This is the most effective option, but a risky one if taken too far, and requires a long view of rate recovery.
Rate, the other option. Alternatively, suppliers can look at rate and raise it, or hold it relative to competition, to ensure they’re getting higher quality out of potentially fewer guests. Some property managers did this in the aftermath of 2008, with limited success and usually in conjunction with unit closures (see next item, below).
There are two issues with this in the current environment: (1) there is rate sensitivity in the marketplace now, and; (2) there is uncertainty about how—or if—this turns into an economic slowing. If Covid-19 is long-sustained and supply chain issues make their way to the marketplace, economic conditions will soften, and consumers will pull back, potentially forcing a race to the bottom on rate for all but the most exclusive or unique offerings. Upside: Potential to protect long-term rates. Downside: Risky.
Changing the calculus—unit closures. In more drastic conditions, where steps to attract visitors are not successful due to economic or health concerns, management of the situation becomes essential. Closure of units changes some—but not all—of the bottom line for property managers and hoteliers, more effectively the latter. Many properties or property managers simply don’t have or don’t want to use this option. Whether it’s feasible varies by business and property type, and we saw it deployed semi-effectively in 2008-09. However, it can result in workforce cuts and make properties appear vulnerable. Upside: Potential cost savings. Downside: Limited application, and limited benefit. If this is your best option, things are very bad indeed.
There are undoubtedly revenue managers and marketers with better and more targeted solutions for the current situation than the modest options noted above. In our position, we can point out what the data have told us in the past, and use that to provide guidance as properties and DMOs make their decisions around dealing with Covid-19 and any ensuing long-term economic consequences.
This will very likely be a long-term event, given the potential impact on global economies and consumer travel confidence. Making sure the industry is prepared, even at this early stage, to make decisions based on scientific fact rather than fiction or rumor, ensuring we don’t repeat expensive mistakes from the past, and being proactive rather than reactive will minimize disruption and its duration in the domestic destination travel market. Inntopia will continue to update its clients and the industry as we monitor the situation in the weeks and months ahead.
NSAA members can access additional resources and information about COVID-19 here: www.nsaa.org/member-home/coronavirus/