Industry Update
Opinion Article 5 March 2020

Forecasting and adapting to the impact of Coronavirus (Covid-19)

By Aymeric Erulin, Multi-Property Revenue Manager

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All revenue managers around Europe have been in the past days working on their new forecast for the coming month. How, with so little data and the speed at which groups and transient cancelled, can they make an accurate guess of what the month of March and April are going to look like? For sure having a forecast accuracy of 2% will be hardly doable for those months, but they can come up with a maximum-achievable revenue and more importantly focus on long-term actions.

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Forecast

A three macro segment approach would probably be the best way to handle this situation:

  • Leisure groups: This should be the easiest, you probably already received on this segment most of the cancelations for the month to come especially from your recurring business (series). However, you probably still have on the books some groups that still did not communicate their final decisions. Bear in mind that even though the release date is already passed, those groups will still be subject to wash and will invoke the "force majeure" clause. My recommendation would be to consider that 80% of your remaining portfolio would be subject to wash for March and already 50% of your portfolio for April (on top of the usual wash of course).
  • Contracted business: Many companies already asked their employee to reduce or cancel all travels (not only in Asia or Italy) but in the whole of Europe as preventive measures. Even if you are not right now, you will be impacted by those decisions that will trigger a cascade effect in all industries for all companies. We can already expect and feel the economic slowdown. The hotels will be the first ones to suffer from this impact. You could consider that very local/national account will continue to produce up to 50% of their usual production but you can already consider that international key accounts will probably see their production drop by 90% for the next two months (the same estimate can be made for corporate business groups).
  • Non-qualified public: This will probably be the hardest to estimate. For this segment, I would encourage you to look at your very recent pick-up curve (since last Monday) and consider that the trend you see can only continue as it is or go below. In this case, you will not establish a correct estimate but the maximum production you could expect during the month.

Yes, unfortunately, you will probably end with expectations showing a decrease of 50% of RevPAR vs last year, maybe more! Don't panic, we are talking about a major crisis here. Also, keep in mind that this situation can easily get worse (depending on Health Organisations' announcement) but will hardly recover (it will take time before all segments/guests will feel safe to travel again). Once again, a forecast for the next two months will hardly be precise but a maximum estimated revenue can be communicated.

Strategy

You all know it, in such a crisis, do not decrease prices. Countless studies are showing that this would be the correct decision to take. But, the human mind is not infallible and you will always have one or more competitors that will decide to drop their price to an exceptionally low level. Your responsibility is to make sure that your hotel remains in the correct price positioning compared to your main competitors. Of course, you don't want to drive other hotels to drop their price but you want to avoid being overpriced as well.

So, adapt today your pricing to your market and a mid/low season as you normally would be, maybe a bit lower and now communicate that despite the crisis, your hotel/chain will maintain its usual price during this period. Do not fall in the trap of price-fixing though!

Cancelations

Your reservation team is probably being swamped by request for the cancelation of non-refundable rates. So of course, on one hand, you could argue that your terms and conditions are clear and that you will not proceed to any refund or on the other hand you could also aim for long term value and avoid losing a trust relationship with your guests. In those situations, the hospitality industry is expected to understand and show flexibility. Few options and thoughts on this topic:

  1. Try changing the date of the reservation. Keep your non-refundable rule but stay flexible on the non-modifiable condition.
  2. Keep in mind that some groups are insured and could be covered by their insurance for Force Majeure. You need to find that out!
  3. If you believe long term relationships could be affected by your decision not to refund you are doing yourself and your successor a favour by refunding.
  4. Have a look also at how major groups changed their policy for the CoVid-19 (Marriott & Hilton)

Quick-win or long term strategy?

In a scenario where you expect to lose 50% of your revenue, it is understandable you would need to reduce your cost to limit the bottom-line impact for your hotel. At this very last point I will only remind you that long term value is more important than the loss of profitability for a few months. If you need to reduce your service offering, don't overdo it and more importantly tell your guest beforehand so they understand the situation and won't blame you for bad quality.

Very last advice: don't panic. This is not the first or the last crisis the hospitality industry is going to see!

Disclaimer: The above article is my own opinion and does not represent the views of my employer.

Aymeric Erulin

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