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Lessons learned from previous crises that can be applied to Covid-19

  • 13 April, 2020
    INTRODUCTION

    Following the recent news from The World Tourism Organization (UNMWTO) dated 27, March 2020, it has highlighted that the impact of COVID-19 on international tourism, with travel restrictions across the world, is expected to be down by 20% to 30% in 2020 compared with 2019 figures. In other words, between US $ 300 -400 billion and five to seven year's worth of growth will be lost to COVID-19.
    Recognising the  contribution of the tourism and travel sector for many countries, this is remarkable. The volatility of the sector in respect to crises such as disease outbreaks, economic crisis, serious social conflict, terrorist attacks or natural disasters has a direct link with activities directly associated with the sector such as airlines, travel agencies, hotels, resorts, restaurants as well as associated sectors (such as supply industry), so that they are all affected to a greater or lesser degree.
    Analysing the measures and policy responses to crisis taken by public and private sector in the past when faced with significant downturns as a result of global diseases outbreaks such as SARS, terrorist attacks and natural disasters, Maestros Hoteleros® has looked at how the hotel industry in three countries (South Korea, USA and Iceland) reacted in such scenarios and, in this briefly analysis reflect on the measures taken, explore the applicability in this current and, very unique situation recognising that the tourism sector has the capacity to bounce back and,  also  a valuable source of job creation and identify some immediate actions to occupy your time and efforts during lockdown.

    I. CASE STUDY : ICELAND, ERUPTION OF EYJAFJALLAJÖKULL, APRIL 2010

    BACKGROUND
    In April 2010, Eyjafjallajökull, a volcano in southern Iceland, began spewing several kilometres of volcanic ash into the atmosphere forcing the greatest airspace closure since World War II. As a result,  nearly 100,000 flights were cancelled and there were disruptions to the travel plans of many more tourists and business travellers. In the three weeks following the disaster, tourist numbers fell by 30% and, the Icelandic government predicted a 22% decline in tourist volumes, equating in revenue of £180 million for the economy. Still reeling from the financial crisis and with a bad reputation internationally of the country’s financial situation, the Government put the notion of ‘there is no such thing as bad publicity’ into full effect for the benefit of the tourism industry (Simone Eliane Troxler and Sofia Van Holle).

    Immediate and medium-term measures taken
    The Government along with the private sector decided, in order to refocus efforts consolidated the Trade Council of Iceland, Invest in Iceland and the marketing efforts of the Iceland Tourist Board under one organization:
    PROMOTE ICELAND; a public-private partnership established to improve the competitiveness of Iceland companies in foreign markets, stimulate economic growth and promote the tourism sector. To create brand celebrity ambassadors for the country supported by a social media campaign
    1 named INSPIRED BY ICELAND, launched with the strategic intent of depicting the beauty of the country, the friendliness of its people and the fact that it was very much open for business. Included the public in the public campaign to encourage the entire population of the island to post positive messages, pictures, or videos about their homeland and, also focused on the good bits-  the country is in darkness for half the year and its summer temperatures average around 13 degrees centigrade, however, campaigns emphasised the beauty of the winter landscape and enticing Christmas packages such as local snow-mobile tours to see the Northern lights.

    Impact measures on GDP, International Arrivals and Hotel Room Occupancy
    In 2010, Iceland was still reeling from the economic downturn with negative growth (see Figure 1). The impact of the volcanic ash episode to the tourist sector direct contribution to GDP was minimal, with a 0.21% increase in 2011, compared to 2010 (see Figure 2). However, the focused and targeted media campaign embarked upon as a result of the episode astonishingly catapulted the country’s tourism contribution to GDP figures to those never seen before in the country and, to where it is now the number one industry in the country for job creation
    2. Both the data for international arrivals and hotel room occupancy further supports the findings with a steady and significant rise seen after 2010 and, exceeding pre-2010 figures (see Figure 3 and Figure 4).


    Figure 1: GDP growth (annual %) in ICELAND. Source: World Bank national accounts data and OECD National Accounts data files.


    Figure 2. Percentage Tourism sector direct contribution to GDP in ICELAND. Source: World Travel & Tourism Council

     


    Figure 3. Number of Arrivals (in Millions) ICELAND. Source: Iceland Tourist Board


    Figure 4. Number of Arrivals (in Millions) ICELAND. Source: Iceland Tourist Board

    1Simone Eliane Troxler and Sofia Van Holle are Executive MBA students at Ecole hôteliere de Lausanne. Their project was supervised by Dr. Yong Chen an assistant professor who teaches marketing, and economics of tourism and hospitality at EHL.

    2Gunnar, Thór & Jóhannesson, G. & Huijbens, Edward. (2010). Tourism in times of crisis: Exploring the discourse of tourism development in Iceland. Current Issues in Tourism. 

     II. CASE STUDY : SOUTH KOREA, SARS 2003

    BACKGROUND
    On March 12, 2003 the World Health Organization (WHO) issued a global alert with respect to SARS with a recommendation that emergency travel restrictions be imposed. Governments adopted emergency measures to combat the spread of the disease, appealing to both businesses and individuals to keep unnecessary travel, meetings etc. to a minimum. Besides the direct impact on global economic activity, the fear of infection and the quarantine measures being imposed by governments around the world led many people to cancel or change their travel plans. The SARS epidemic, therefore, had a severe negative impact on the global travel and tourism industry: the World Tourism Organization (WTO) indicated that the number of outbound trips made in 2003 fell to around 694 million, representing a decline of 8.6 million or 1.2% from the year before, the biggest drop recorded (at that time) in recent years- (WTO, 2004).

    Immediate and medium-term measures taken:

    • During the SARS outbreak, 5* segment hotels3 laid out several immediate and medium term strategies across different areas:
    • War room meetings: bringing together decisión makers to propose best strategies, review and update them as the situation unfolds; establishment of a crisis management team who are experienced to respond quickly and, make effective as well as innovative decisions in any situation.
    • Health and Safety rolled out as a matter of urgency: installed new hygiene equipment, chemical sterilisers, air filters and, employees encouraged to be active participants in roll out of Health and safety measures;
    • Emergency communication network implemented to maintain a smooth flow of communication internally and externally.
    • Consideration to overheads: Human Resource policies opted to look at avenues for staff to take holidays or voluntary unpaid leave instead of laying off staff;
    • Aggressive marketing campaigns: regular information sharing with airlines, travel agencies and wider hospitality industry and, promotions, discount packages disseminated;
    • Domestic market outreach: focus on MICE (Meetings, Incentives, Conferences and Events) through targeted outreach to small and medium sized domestic companies and the family market through favourable fees;

    Likewise,

    • the South Korean Government supported the industry by renaming and reorganising the Korea Investment Service Center (KISC)4 as Invest KOREA to bolster tourism:
    • Invest KOREA opened its first office in Beijing in 2004 followed shortly thereafter by offices in Indonesia and Vietnam as part of this strategy;
    • Creating favourable conditions5 for investment and, reducing red tape in the country;
    • Supporting the competitiveness of business industry abroad through the creation of Korean business associations and, supporting their efforts to attract foreign investment.

    Impact measures on GDP, International Arrivals and Hotel Room Occupancy

    The SARS outbreak had a dramatic impact on GDP growth in South Korea: in 2003, the GDP was 2,93% versus 7,43% in 2002 (dropped 40%  in almost one year). By 2004, GDP had subsequently increased by 4,9% (see Figure 5).

    The tourism sectors direct contribution to GDP in 2004 already showed a steady increase of 1.18% against previous year (1.17% in 2003), (see Figure 6).

    International arrivals increased by almost 1 million arrivals in 2004 compared to the same period in 2003 of 4.75 million (see Figure 7).

    From a record low level of hotel room occupancy rate in 2003 of 51.80% a more optimistic rate was already seen in 2004, reaching 55% (see Figure 8).

     

    Figure 5: GDP growth (annual %) in Sotuh Corea. Source: World Bank national accounts data and OECD National Accounts data files.


    Figure 6. Percentage Tourism sector direct contribution to GDP in South Korea. Source: World Travel & Tourism Council


    Figure 7. Number of Arrivals (in Millions) South Korea. Source: Korea Tourism Organization y CEICDATA


    Figure 8. Hotel Room %  Occupancy Rate in South Korea. Source: Korea Tourism Organization y CEICDATA

    3Samuel Seongseop Kim , Hejin Chun & Heesung Lee (2005): A case study of six Korean five-star hotels, Asia Pacific Journal of Tourism Research, 10:4, 369-377

    4Post-SARS tourist arrival recovery patterns: An analysis based on a catastrophe theory Chi-Kuo Mao, Cherng G. Ding*, Hsiu-Yu Lee Institute of Business and Management, National Chiao Tung University, 118 Chung-Hsiao West Road, Section 1, Taipei, Taiwan

    5Nicolas, F., S. Thomsen and M. Bang (2013), “Lessons from Investment Policy Reform in Korea”, OECD Working Papers on International Investment, 2013/02, OECD Publishing.

    III. CASE STUDY : USA, 11 SEPTEMEBER 2001, TERRORIST ATTACKS

    BACKGROUND
    The devastating events of  9//11 was a significant and defining moment in the world. The impact on the tourism industry were also far reaching with a reduction in demand for lodgings as well as other segments of the tourism industry such as airlines, travel agencies and restaurants; workers in the sector who became unemployed as result had to seek opportunities in other sectors of the economy. The tourism and hotel sector faced a exceptional situation with a significant drop in demand reduction with knock on effects on GDP and unemployment rates.

    Immediate and medium term measures taken
    In 2001, the Travel Industry Recovery Coalition (TIRC) was formed, a group of industry members comprising 25 tourism and travel organizations formed to lobby Government and proposed a six-point plan aimed at restoring the levels of activity in the travel and tourism industry to those seen prior to the attacks. TIRC measures focused on two categories:

    Measures designed to stimulate economic activity across the whole industry in order to offset the downturn caused by 9/11:

    • Provide tax credit for travel originating and occuring within North America on air, cruise, train, bus, car hotel and motel expenditures.
    • Provide substantial federal funding for marketing campaigns.

    Measures aimed at increasing liquidity as well as measures to support firms (and minimize the risk of them going out of business):
     

    • Expand loan programmes to small businesses.
    • Provide a workforce tax credit for employment in the travel and tourism industry.
    • Expand tax allowances to enable business to offset losses sustained because of 9/11 against future earnings.
    • Retore full tax deductibility for businesses entertainment expenses.
    • Provision of subsidies to hotels and other accommodation establishments to boost GDP and to save jobs in the accommodation industry.
    • Immediate response measures from the federal government focused on security and law enforcement in coordination with the Air Transportation Safety Stabilization Act (ATSSSA) to preserve the continued viability of air travel. This act provided federal government loans and compensation to airlines with the intention of increasing confidence in air travel and prevent collapse, as well as other financial and safety measures including:  increased spending on airline safety, credit to Airlines as well as compensation to some of them when faced with increased insurance premiums and, flexibility on payment of excise taxes.
    • Impact measures on GDP, International Arrivals and Hotel Room Occupancy
       

    The tourism sectors direct contribution to GDP in 2004 already showed a steady increase of 1.18% against previous year (1.17% in 2003), (see Figure 6).
    International arrivals increased by almost 1 million arrivals in 2004 compared to the same period in 2003 of 4.75 million (see Figure 7).
    From a record low level of hotel room occupancy rate in 2003 of 51.80% a more optimistic rate was already seen in 2004, reaching 55% (see Figure 8).

    The SARS outbreak had a dramatic impact on GDP growth in South Korea: in 2003, the GDP was 2,93% versus 7,43% in 2002 (dropped 40%  in almost one year). By 2004, GDP had subsequently increased by 4,9% (see Figure 5).


    Figure 9: GDP growth (annual %) in USA. Source: World Bank national accounts data and OECD National Accounts data files.


    Figure 10:  Percentage Tourism sector direct contribution to GDP in USA. Source: World Travel & Tourism Council


    Figure 11: Number of Arrivals (in Millions) USA. Source: World Travel & Tourism Council y CEICDATA


    Figure 12:. Hotel Room %  Occupancy Rate in USA. Source: STATISTA
    6Blake, A.&Sinclair, M. T. (2003). Tourism crisis management: US response to September 11. Annals of Tourism Research, 30(4), 813–832.

    CONCLUSIONS

    What we see across the different countries when faced with respective crisis is the application of similar strategies such as support to industry, attracting foreign investment, boosting collaboration within the tourism value chain, supporting competitiveness of companies abroad and, significantly the development of communication campaigns.

    One of the main questions as an independent hotel is how to act in similar circumstances when there is a dramatic downturn and uncertainty in when things will pick up- taking the above examples, it is possible to turn around from such downturns (and, in case of Iceland exceed previous economic activity).

    Central to this will be Government spearheaded campaigns overseas and, where tourism is a key component of the industry say, for example, Spain where it accounted for 15% of GDP (in 2018), you can be assured such a strategy will follow the crisis and it is more a matter of when, not if this will happen. Therefore, now is the time to be prepared "to catch“ the future bookings and recommend that now is the time to develop your plan of action. Below, we go through two critical components of the plan:

    Review and update your technology infrastructure: the below graphic (See Figure 13) captures what are the important tools to enable you to understand the markets being targeted, analyse your competitors and position yourself accordingly in the market. Important considerations when reviewing or looking to update these tools are:

    E-commerce strategies, increasing agility in terms of updating real-time inventory, customer segmentation, loyalty programmes, customer experience management, accessibility and generation of an organized and nurtured database,

    Analysis of your data and undertaking a deep dive of the main KPI‘s such as Average Room Rate (ARR) and Occupancy Rate (ORR) and, Revenue per available room (RevPAR) among others;

    Sensing out disparate data from these findings for further investigation and, hidden revenue opportunities to capitalise upon; what you want to get to is the verification of the gap between your offer and market demand.

     

                      

     

    Having a strong combination of all these tools will allow greater control of online distribution, high reconversion in both direct and indirect reservations and, most importantly, greater customer knowledge.

    And, don't wait until the crisis is over to develop your online communication campaign: the internet is now central to campaigns and, with many, if not all of us under lockdown, is also a regular escape for day dreamers (or procrastinators), for those needing a break from the daily tribulations of the clash of our home and work lives as well as a welcome remedy from Covid-19 news. Therefore, your audience-new and old- are likely to be planted in front of their laptops, desktops, phone or any other device so consider customer acquisition and loyalty programmes that can be applied now to capitalise upon once "normality" resumes.

    Wishing that you and your family stay healthy at this time, stay safe and stay home!
     

    Author
    David Vime

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