How Should Hotels Manage Room Rates After the Coronavirus Crisis?

By Hâfi Martinsdóttir

Estimated reading time: 7 minutes | 1317 words

Although most hoteliers and guesthouse owners are occupied with thoughts of survival right now, it’s important that we begin to prepare for the resurgence of bookings when travel restrictions are loosened. Knowing how to price your rooms intelligently will mean the difference between a swift recovery or a several year slog to regain your pre-pandemic position.

This is where we can learn from past experiences when hotels were affected by regional disasters, such as hurricanes, mass-shootings in Las Vegas and the SARS outbreak in Asia. The hotel leaders who navigated these storms successfully can now provide us with invaluable guidance and experience that we can apply globally. The sentiment that stands out above all others is, don’t cut prices too quickly or deeply.

Thanks to the data from over 500 hotels worldwide collected and analysed by Sherri Kimes, emeritus professor of service operations management at Cornell University, we can see how the actions taken by hoteliers during these last few months in the Asia-Pacific region have differed from actions taken elsewhere. Western hoteliers have been quicker, on average, to slash fees to drive demand, while the owners and operators in the Asia-Pacific have taken a different route.

Approximately half of the hotels in the Asia-Pacific region instead opted to offer value-adds to their guests, compared to only a third who did so in Europe. Value-adds might include offering guests a voucher or a particular offer if they book another stay within the same year. Or perhaps a well-sanitised car pick up and drop off from the airport for extra reassurance. This also includes rewarding loyalty from their guests and marketing those loyalty rewards to potential repeat-guests.

As these hoteliers had previous experience of operating their locations through virus outbreaks and bombings, they had wisdom to draw from and a process to follow which has inevitably aided them during these times as they prepare to recover from the coronavirus pandemic.

Resist cutting future rates

Dan Skodol, a hospitality and travel industry revenue management, pricing, and analytics expert said “Studies have shown that hotels that are the fastest to drop their rates and who drop their rates the deepest can be the last ones to recover when demand comes back.”

Precisely when guesthouse owners are fighting for their very survival, this advice can seem tone-deaf, however cutting the prices now can have implications for years down the line.

“The hotels who took the most desperate measures with their revenue management strategy in the short run had the toughest time recovering in the long-run,” according to Nevin Reed who experienced the aftermath of the Las Vegas shooting spree on a hotel he worked at there along with the recovery process of another hotel he worked at in the Bahamas after a category five storm.

During HSMAI’s webinar “Pricing Psychology in Challenging Times” on the 10th of March, Carter Wilson, the senior vice president of consulting and analytics at STR presented data collected and analysed from the 2009-2010 recession to showcase the long-term implications that arise from cutting prices compared to holding steady during these low-demand periods.

“Every property behaves differently and has different impact to the bottom line,” Wilson said. “It’s meaningful to learn from the past and create a stress test to prepare for the next downturn and what will happen to your bottom line.”

It’s also worth bearing in mind that if people aren’t travelling for safety reasons, then lowering your prices will not have the desired effect. If people are afraid, they won’t be travelling regardless of how much your prices have dropped.

“No two situations are exactly the same. All hotels lost significant RevPAR in 2009 — between 20 and 25 percent — and it took an average of nearly five years to grow back. With the coronavirus, the hospitality industry still doesn’t know what the full impact will be — if it will take a long time to recover, or if it will be similar to outbreaks like Ebola and SARS, where the recovery was brief and rates bounced back within six months.” (Source: HSMAI)

Revaluate your competition

Another aspect to consider is who your competitors are, as they may not be who you think they are because that is something that ultimately your guests decide.

We tend to consider out competitors to be the other guesthouses or resorts in our area, however if you have had to change your Unique Value Proposition, such as closing your spa, restaurant or gym, then you are no longer competing with local hotels that offer these services. Your competitors have now become other hotels that don’t offer spas, restaurants or gyms. As your services return to normal, your competition will rise back up to the other hotels in the area that have these facilities. So it’s important to be aware of who your competition is and whether or not that shifts, even just temporarily, until you get back on your feet.

Review your data

It’s important at times like these that we don’t stick to our past data and make decisions based off of that. Everything has changed, drastically, and it’s crucial that you instead focus on the data from the past few months (or however long your destination has been affected) and reforecast accordingly.

Analyse the data and formulate a new marketing and pricing plan based on these results. Set specific marketing actions to be taken as you make your way towards recovery. As it’s likely that your marketing budget has taken a hit, it is worth considering precisely who you will be targeting with your marketing campaign.

This might include beginning by targeting local tourists for ‘staycations’ as local travel restrictions are slowly lifted, before focusing on business tourists and finally marketing for leisure tourists once more. Seasoned business tourists are often the first to return and as the business tourists show the rest of the world that it’s safe to travel again, the leisure tourists will follow suit and start booking too. So focus on maintaining excellent relationships with your business travel relationships as they will pave the way for the other guests to follow.

Stay flexible if possible

The flexibility of your cancellation policies and the experience your guests had when cancelling or rescheduling will be remembered more than the rates that they paid. If your circumstances allow, ensure you offer a flexible policy to keep guests happy, such as hassle-free credits or by offering complimentary amenities for their future stay.

A few words on marketing

To avoid appearing tone-deaf with your marketing during these times, we advise keeping abreast of all travel restrictions and how that can affect the area and demographic that you are marketing to and the tone you want to set. As the next year or so may well feature on-again-off-again social-distancing instructions from our governments, it would be prudent to avoid using images of groups of people together or people shaking hands for example. Read more about how to set the right marketing tone in this article here.

The ongoing social-distancing issue may well affect group business travel such as conferences, therefore you may need to begin marketing to a different audience, such as individual business travellers.

As leisure travel tends to take longer than business travel to recuperate, you might consider marketing to business travellers temporarily until your ideal leisure travel market starts booking with you once more.

Let's learn from hoteliers who are leading the way

One thing is for certain, we should all be watching closely as the Chinese hotel industry begins to recover from the pandemic. Hotel booking numbers are already showing signs of increasing in some cities in China from the single digits to around 30% which is very promising indeed. (Source: Shiji Distribution)

In the Asia-Pacific region, hotels are also showing the first signs of recovery according to the data collected by the Hospitality Sales & Marketing Association International.

Let’s learn from the hoteliers who have already dealt with crises similar to this before and work as a community to get the industry prepared for when the time comes to bounce back.

Unsure of your next step? Get clear on your hotel’s recovery strategy

Gain access to our COVID-19 Hotel Reopening Checklist

As COVID-19 is unlikely to disappear completely without an effective vaccine, it’s expected that we will have a W shaped recovery with lock downs repeatedly being enforced, relaxed and enforced again over time. Being prepared for this tumultuous recovery will stand you and your hotel in good stead to ride the waves to come.

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