The COVID-19 pandemic has caused an unprecedented crisis in the travel industry. Major US airlines have eliminated as much as 40% of domestic flying and canceled most international flights. To help US carriers avoid bankruptcy, the government has approved $58 billion in aid. Hotel occupancy rates have taken a nose-dive as well. Revenues per available room in the United States plunged 84% the week of April 11 according to data company STR, and Disney’s theme parks may not reopen until 2021. The pandemic has also had a devastating impact on ride-sharing apps, vacation rentals, and car rental companies.

How should a hospitality industry CFO respond to ensure his or her company emerges on the other side of the COVID-19 crisis?

Wei Ke

So far, the focus for travel companies has been on closing operations while ensuring they can still cater to the flood of customer calls about refunds, re-bookings, and cancellations. Travel companies must also focus on cash and revenue preservation while reducing costs. They have to take steps to adjust their offerings, redefine pricing strategies, and focus on maximizing customer lifetime value.

The following are six action points that travel company CFOs must prioritize.

Stop Discounting  

A critical initiative at this stage is to redefine pricing strategies. This includes stopping price discounting. Most travel companies have in place a revenue management system that adjusts prices daily based on changes in demand, competitor action, and other factors. Many of these systems will respond to quick and large deviations by dropping prices in an attempt to stimulate demand. However, this demand crisis is not price-driven. Dropping prices is the wrong response. Instead, travel companies should switch-off any price discounting triggered by these systems, and revert to manual pricing or even leave prices unchanged. In some cases, such as in the last scheduled flight to repatriate ex-pats, significant price increases should be capped to avoid being perceived as profiteering.

Promote Value

Dimitris Hiotis

Promotions should not be price-driven during this crisis. A price drop will not shift the needle on demand. Instead, since there is relatively ample capacity available, travel companies should offer value-driven promotions like a free upgrade to a higher class or a better room. Rather than a considerable price reduction, a better experience will be far more appreciated. This is the time to win customers for the future.

Upsell and Cross-sell

In instances where people are still booking holiday and travel products, companies should ensure they upsell ancillary products, which typically carry a higher margin. This will help sustain cash flow and preserve profitability. However, upselling is only effective if is relevant to costumers. For example, up-sell a bigger room to a family, or a room with a nicer view to a couple, and not vice-versa. Companies can also use gamification to incentivize purchases. 

Offer Flexibility, Remove Barriers

The crisis has created considerable uncertainty among consumers. People are wondering if they will go on holiday again or if they can travel abroad. A lot of travel offerings like airfares and hotel bookings have product variants that come with penalties and conditions that discourage changes, cancellations, and refunds. Sticking to such a product set-up is leading to drawn-out fights as reported by news outlets. It also creates a barrier that prevents customers from booking future travel now. Travel companies must move to flexible conditions and offer to not charge customers for changes or cancellations. This will encourage customers to book future travel today. This will provide travel companies an opportunity to secure cash flow now when it is more critical.

Extend Loyalty

Daniel Biffl

The crisis has thrown a wrench in travel reward loyalty programs. Loyal customers can no longer maintain their usual frequency of travel and are at risk of losing their status. Most major airlines have extended the benefits or the validity period of their loyalty programs, scoring considerable brownie points with loyal customers. Some, like Aegean Airlines, have gone even further. Aegean’s customers have the option to donate miles to healthcare workers to go on holiday after the crisis, which Aegean matches three times in return for every donation. These kinds of offers can give travel companies a considerable boost in customer loyalty.

Incentivize Future Purchases

Let’s face it, it will take some time before we travel again. However, that is not stopping anyone from dreaming of sandy beaches to escape the isolating conditions of the lockdown. According to Sojern, U.K. searches for holidays to Spain in 2021 are up 1,600% compared with last year, and holidays to France up by 409%. Travel companies must launch 2021 programs earlier than usual. They must also expand the options for people to book 2021 holiday and travel plans now.

For people who want to cancel 2020 travel plans, this is the time to incentivize alternative behaviors. For example, instead of a refund, offer customers a higher-value voucher to book travel in 2021. If someone paid $1,000 for a holiday in 2020, extend a credit voucher worth $1,250 for a holiday in 2021 in lieu of a refund. This protects the cash situation for the travel company today while incentivizing customers to rebook in 2021 with the same travel company.

For most of us, travel is the biggest leisure activity of the year. It is our escape from working life, and a chance to reconnect with family and loved ones. We have no doubt travel companies will endure. We have gone through many crises in the past, and we will survive this one.

Wei Ke, Ph.D. is a managing partner, Dimitris Hiotis is the global head of leisure, travel and tourism, and Daniel Biffl is a senior director at global consulting firm Simon-Kucher & Partners.

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