The Impact of COVID-19 on the Hotel Industry

by Wouter Geerts + Skift Team - Apr 2020

Skift Research Take

There is no doubt that these are some of the toughest times for the hotel industry. Hit hard by the COVID-19 pandemic, the industry is on its knees. Recovery will come, but when and in what shape is wholly uncertain. Understanding the current situation, and what a recovery might look like, will help the industry to prepare for when that day comes.

Report Overview

There are a lot of sources providing insights about the impact of the coronavirus on the hotel industry, providing advice on pricing, marketing strategies and so forth. This report attempts to provide some clarity by offering a single narrative through the million voices and disparate snippets of data that are available.

We follow the timeline of the COVID-19 virus spread as a guide through these discussions, focussing on a few countries that so far have been most severely impacted, starting with China where the virus originated, and moving on to Europe where we focus on Italy and Spain, which at the time of writing are at the epicentre of this global pandemic.

This is followed by a discussion of the current situation in the U.S., which is tracking behind Asia and Europe, but is starting to show a concerning increase in reported cases and deaths, and we investigate what the hotel performance in Asia and Europe can tell us about what’s to come for the country.

A special focus on hotel tech vendors at the end of the report provides insights into how these players are likely impacted by this unprecedented downturn.

We are as uncertain about the future as anyone, but see indications that this might be a long road to recovery. That the industry will recover, however, we feel is not in doubt.

What You'll Learn From This Report

  • How the coronavirus has spread around the world, and how this has impacted hotel performance.
  • Key performance indicators of hotels in hard hit countries including China, Italy, Spain, and the U.S.
  • A discussion on what the road ahead looks like for the hotel industry.
  • The impact this crisis is having on the hotel tech vendor landscape.



There are a lot of sources providing insights about the impact of the coronavirus on the hotel industry, providing advice on pricing, marketing strategies and so forth. At Skift Research we attempt to provide some clarity in this difficult situation. This report looks at a host of public sources, as well as some data and insights shared exclusively with Skift Research, to try and shape a picture of the current and future impact of this novel coronavirus, COVID-19, on the hotel industry.

What follows is a patchwork of some of the most important data metrics from different sources, to try and paint a picture of where the industry finds itself today, and what might be coming down the line.

Where available, we have looked at a number of different demand metrics:

  • Search data: Google search data for hotels can provide a first insight into the demand for hotel stays, and sentiments around traveling.
  • Reservation/booking data: This data allows us to understand the volume and value of past, current, and future bookings.
  • Pricing data: Beyond booking data, pricing data allows us to understand whether hotels are changing rates, and whether rooms are offered at a discount.
  • Occupancy rates: Data on occupancy rates shows how full hotels are on-the-ground, although no-shows (often from people that pre-paid their stays and could/did not cancel the booking) are often included here, potentially providing a slightly less accurate picture.
  • Cancellation rates: Data of booked rooms that have been cancelled provides further indication of the impact, especially in a fast-evolving situation where travel restrictions change without prior warning.
  • RevPAR data: Revenue per available room is a key indicator of the health of a hotel. RevPAR is calculated using occupancy rates and the average daily rate paid by guests staying in the hotel.

An Epidemiological Issue Above All

In today’s connected world, it is easier than ever before to track the spread of the virus. The media speaks a lot about confirmed cases, but testing capabilities in many countries are grossly inadequate, so actual death rate might be a better indicator of the spread of the virus, and the impact of containment efforts. The Financial Times produces what must be one of the most telling graphs, tracking the number of deaths in key countries once they have hit their tenth death.

It is a macabre visualization of actual lives lost, but it is also illuminating with regards to trajectories. It becomes clear that the outbreak was relatively well contained in China, while Italy and Spain have had more trouble containing it. Countries like the UK, Germany, France, the Netherlands, and many more are showing similar trajectories to Italy. The U.S. shows a concerning increasingly steep trajectory.

Exhibit 1: COVID-19 deaths per day after the 10th death

In some countries the curve has flattened, like in China, South Korea, and Japan, while other countries are only at the beginning of their journey through this crisis. With trajectories all within a pretty similar range, it is expected that few countries will come away unscathed.

Even in countries that are seeing improving conditions, the risk of a second wave of outbreaks remains. This is why countries like China remain cautious, and continue to curb international flights for now. In some countries hotels are ordered to shut down by the government, like in Spain or Italy, but in many markets the complete lack of demand has done the damage and forced the industry into hibernation.

This is above all an epidemiological issue. The virus and its spread will inform government policy, which in turn will inform how and when travel will rebound. We should therefore be cautious when listening to travel industry experts about when the industry will bounce back. Sure, people will still want to travel, maybe even more so than before they were cooped in their homes, but it is not decided by travelers or the industry when the rebound will start, and how rapidly things will get back to normal.

And things might never be ‘normal’ again. Zoom meetings have seen a massive surge, which is unlikely to completely revert once working from home is no longer mandatory. Visiting friends and relatives, or travelling with them, will take precedent after having been forced apart for an extended period of time. Domestic travel will be more popular as travelling across country borders will remain at risk for renewed closures.

Travelers might also show more interest in secluded short-term rentals over busy hotels, and will expect more flexibility when making bookings. The ability to offer pre-arrival check-ins or self-check-ins at a hotel kiosk, without human intervention, will need to become adopted at a faster pace than is currently happening. To win back groups, hotels will need to offer greater flexibility, and expect higher rates of cancellations. Real-time online guest communications will become the norm.

Don’t get us wrong. Travel is its own megatrend. It has come through previous crises with only minimal slowdown. While this crisis exhibits a much deeper slump and a broader scope than any previous crisis has done, people’s drive to travel is unquestionable. Fatigue towards virtual meetings will undoubtedly increase. While there are likely to be long-term behavioral changes, travel as a practice will rebound, and hotels will be in great demand when this happens. We just need to be cautious about predicting that everything will be back to a pre-crisis status quo in a few months.

This report examines and sets out our viewpoint of how the global hotel industry is impacted by COVID-19 by following the timeline of the virus spread, focusing on a few countries that so far have been most severely impacted, starting with China where the virus originated, and moving on to Europe where we will focus on Italy and Spain, which at the time of writing are at the epicentre of this global pandemic. Following, we will highlight the current situation in the U.S., which is tracking behind Asia and Europe, but is starting to show a concerning increase in reported cases and deaths, and we will investigate what the hotel performance in Asia and Europe can tell us about what’s to come in the U.S.

Impact of the Coronavirus on Core Travel Sectors at a Glance

Airlines

Airlines are at the forefront of media coverage, and it is easy to see why. The industry has been hit by border closures and travel restrictions. Entire airlines and airports are shutting down operations until the situation changes, while analysts predict that almost all airlines will need some financial government backing to get through this crisis. According to CAPA, most airlines will be bankrupt by the end of May, unless governments step in.

The first decline happened as flights to China started to be cut by airlines on January 28. According to ForwardKeys, capacity of flights between China and the rest of the world was cut by 80%. A second, more profound wave happened, however, from March 11, when the U.S. announced the closing of its borders to nationals from EU countries.

IATA forecasts a loss of passenger revenues of $252 billion compared to 2019, a year-over-year drop of 44%. The estimate assumes that border restrictions will stay in place for up to three more months, followed by a slow economic recovery.

Exhibit 2: Number of flights globally slumps

 

Online Travel Agencies

Like with airlines, travel agents and online travel agents are also feeling the pinch, as people stop traveling, and are looking to cancel trips that have already been booked.

Chinese behemoth Trip.com, owner of travel brands Ctrip, Skyscanner, and Qunar, is expecting revenue declines of up to 50% in the first quarter of 2020. This comes on the back of a growth softening at the end of 2019, as outbound demand from China — which has been extreme for a few years now — was already starting to slow down.

The two largest online travel agencies outside China, Expedia Group and Booking Holdings, have both withdrawn 2020 guidance as they have seen their stocks fall amid the coronavirus uncertainty.

In a March 23 letter to Booking Holdings employees, CEO Glenn Fogel announced that he, as well as other members of the executive team, will be forgoing their salaries, and he outlined other cost cutting measures, including in their marketing spend. He wrote: “This is not the first major disruption to travel we have endured as a business, but the impact of COVID-19 is more than all the previous disruptions … combined.”

Booking’s cuts to marketing spend may also begin to filter through to Google. We believe that Booking Holdings is one of Google’s largest advertising clients and estimate it spends nearly $3 billion with the search engine. Skift Research estimates that the travel industry may spend as much as $16 billion with Google worldwide, and we are already seeing the impact of drying up advertising revenues on Google.

The cost per click (CPC) for hotels on metasearch engines has dropped drastically. During the three-day period of March 12 to March 15 CPCs declined by 40% on metasearch engines, and auctions for the top spots saw prices drop by 75%, according to data from Koddi.
 

Hotel Industry

The situation for hotels is slightly different, as the impact on establishments is felt differently depending on location, price segment, and accommodation type. Furthermore, while some hotels are forced to close altogether, others are booked by stranded travelers and workers, converted to homeless shelters, double up as quarantine centers, or are offered for use by healthcare staff.

This is not to say that the hotel industry is impacted less by the coronavirus crisis than airlines; far from it. Data that is starting to come out shows major declines in occupancy and room rates almost everywhere, and particularly in the worst affected countries and cities. Cancellations, meanwhile, are through the roof.

The crisis is impacting every company, from the small hotelier to major global chain operators. Stock markets have plummeted, and major hotel chains have been in the firing line. In a recent video address to staff and shareholders, Marriott President and CEO Arne Sorenson said: “COVID-19 is having a more severe and sudden economical impact on our business than 9/11 and the 2009 financial crisis combined. The worst quarter we had in those earlier crises saw a roughly 25% decline in hotel revenues on average across the globe. … In most markets our businesses are already running 75% below normal levels.” The company has had to furlough tens of thousands of employees as have other chains like Hyatt.

Exhibit 3: Share prices slump for largest hotel chains

Global occupancy rates have slumped, as have revenues per available room (RevPAR). Occupancy data provided to Skift Research by revenue management system Atomize shows a major decline in occupancy from early March. Atomize has a global coverage, but its portfolio is predominantly in Europe, which partially explains the slightly late drop-off, but as Atomize CEO Alexander Edström said in a further clarification during a recent webinar, many hotel rooms are pre-paid with no-cancellation clauses, so these rooms would have remained on the books and registered as no-shows.

Exhibit 4: Occupancy rates are down

Revenue per available room saw similar declines according to STR. Regional data shows that the impact is felt predominantly in Asia Pacific in February. Europe and North America are currently in the midst of the impact, with the impact on RevPAR performance in major European cities shown below. According to STR, for the week ending March 21, RevPAR performance in the U.S. and Canada were down by about 70%, showing that these regions are now also feeling the full force of the pandemic.

Exhibit 5: RevPAR in major European cities takes a hit

According to data collated by HotelRunner from 38,000 properties that use its software, forward-looking booking values are also taking a hit, with future bookings made during the week commencing March 16 down compared to 2019. This is not surprising, as nobody knows when it will be safe to travel again. What is normally prime time for Christmas holiday bookings, March has become a write-off for both current pick-up, and future bookings. It is doubtful if lost revenue at present, can be recuperated once restrictions are lifted.

Exhibit 6: Booking Values Down

The uncertainty has put a major damper on the industry, and especially in Europe and North America, the bottom has not been reached yet.

A Chronological Investigation of Hotel Impact

How It All Started

This is a well-rehearsed story by now.

On New Year’s Day, Huanan Seafood Wholesale Market closed after 41 patients were taken ill with a mysterious pneumonia. Seven days later COVID-19 — although net yet known as such — was identified by Chinese authorities, and on January 11, the first death was recorded. Wuhan is placed under quarantine just under two weeks later, followed a few days later by the entire province of Hubei. By then the first cases of COVID-19 have already been identified in many other countries, including the U.S.

This does not come as a surprise. China has become a major source market, and many countries, especially in Asia, now rely heavily on Chinese travelers’ spending power. Skift Research estimated that in 2019 Chinese travelers made 166 million international trips. We forecast that by 2029 this figure would be 286 million, a compound annual growth rate of 6%. While it is likely that this is still achievable due to the long lead time, the first quarter of 2020 has seen outbound departures from China come to a complete halt.

Exhibit 7: Departures from China have shown strong growth over past decades

China is also increasingly a popular travel destination, and both outbound Chinese travelers and visitors returning from China were spreading the virus rapidly.

Before the Chinese government decided to place Wuhan and the wider province into lockdown, we already started to see an impact on hotel performance. Data from STR shows how occupancies decline by 89% in China over a period of three weeks starting January 15, with a similar decline of RevPAR across all different hotel price segments.

Room nights booked also saw a major slump, as per data from Shiji Distribution Solutions, a Chinese hotel tech giant. In mid-January, bookings were still tracking above 2019 performance, but as measures in the country became increasingly stringent, room bookings hit close to zero. In less than one month bookings hit rock bottom, from January 23 when Wuhan started its lock down, until February 15 when bookings were at its lowest level recorded.

In a survey amongst nearly 700 Chinese hoteliers, Horwath HTL has registered the respondents’ outlook of the hotel market since 2013. The survey produces a sentiment score, which can fall between -150 (very pessimistic about the future), and 150 (highly optimistic). In the time that the company has collected these scores, the outcome has never been lower than -38, or higher than 32. That is, until now. The sentiment dipped from -8 in January to an all-time low score of -116 in February.

A survey undertaken by professor Sherri Kimes of Cornell University with 210 respondents from Asia Pacific found that hoteliers in the region saw a strong decline in especially occupancy rates and RevPAR, with the impact on room rates less severe. This is a common occurrence in times of crisis, with generally a lag between declines in occupancy and ADR. Room rates might have also remained higher due to declining supply, as hotels were closed down while demand dropped.

Exhibit 8: Virus impact on hotel performance in Asia Pacific up to March 15

STR’s Managing Director Robin Rossman said in a recent webinar that during the deep trough, 40% of China hotels were temporarily closed, although by the end of March almost 90% of hotels were open again. This shows the ferocious, but also relatively short-lived, impact of this crisis on local markets in China.

By the time Chinese hotels started opening their doors again, the epicentre of the virus had moved on to Europe, and by then most of the world had some restrictions in place, curbing travel.
 

The Impact Spreads

After it became clear that the impact of the virus would reach far beyond China, the impact on hotel performance was swift. Data from HSMAI and RateGain shows how reservations in all regions in the world declined rapidly. There are, however, some interesting differences in the severity of impact, and timings.

Exhibit 9: Reservations outside China declined rapidly as virus spreads

As the Financial Times graphic showed earlier, Italy has been tracking ahead of the rest of the continent. Spain, meanwhile, followed closely and had to take drastic action to stem the rapid growth of cases early on. Spain has had the steepest curve, with the number of deaths growing more rapidly than in any other country.

Italy and Spain have some of the highest dependencies on tourism in Europe, with tourism dollars accounting for 13.2% of GDP in Italy, and 14.6% in Spain, according to the World Travel and Tourism Council (WTTC). Some local markets were also highly reliant on package holidays from providers like TUI and Thomas Cook, and the bankruptcy of Thomas Cook last year put many businesses in a weaker place then they would have liked, going into this crisis.

While in China the impact was largely felt from the middle to end of January, in Italy major occupancy declines started around the 20th of February, according to STR data. Milan saw rooms emptying out after it hosted the Fashion Week – which saw occupancies of 93% — without being filled again. On the first day of March, occupancy had fallen to 8.5%.

Exhibit 10: Occupancy falls sharply in main Italian cities

In Spain, a similar picture is emerging. Spanish revenue management system Beonprice shared insights on its blog, with data further investigated by Skift Research. The data shows the impact of the March 14 country-wide lockdown on the hotel industry in Madrid and Barcelona.

Cancellations shot up on March 14 when the country went into lockdown. In Barcelona, cancellations registered a slight bump at the end of February, as the Mobile World Congress was cancelled, resulting in an estimated loss of €500 million of income for the city. In comparison to the current situation, however, that was peanuts.

Madrid, which has seen the most cases in the country, saw room nights drying up almost completely on March 16, with cancellations skyrocketing. For both cities, cancellations are much higher than normal for all of March and April, but with room nights showing a slight uptick towards the end of April. Being in the midst of a fast-moving situation, and with this data now already dated because the Spanish government has extended the total lockdown until at least mid-April, it is likely that the increase in room nights in these graphs is slightly misleading and will not transpire. Spanish hotels are set for an extended period of low conversions.

Exhibit 11: Impact of Spain lockdown on room nights and cancellations

 

The Current Situation in the U.S.

While the first case of COVID-19 in the U.S. was recorded as early as January 20, data from different sources shows how the country is tracking considerably behind China and Europe. So what’s to come for the U.S.? Signs of the severity of the impact are starting to transpire.

According to data from Sojern, a travel marketing company, search volumes for hotels fell sharply in the U.S. at the beginning of March. Interestingly, search volumes for flights showed a strong uptick during the same period after an earlier slump. Lower prices and flexible booking policies are likely to account for this. Flights and hotel stays are inherently different beasts, and it is unlikely that hotel searches will see a similar bump over the coming weeks, as people fly home to quarantine with their families.

Exhibit 12: Online searches for flights and hotels

Data shows that no considerable impact, at a country level, was registered until President Trump announced a travel ban for nationals from Schengen countries on March 11. According to STR data, average daily room rates were less impacted, but this is likely a lag from previously booked rooms. Future pricing data from OTA Insight shows a different picture.

Exhibit 13: U.S. hotel performance starting to feel full effect of coronavirus

OTA Insight has been tracking market data since the outbreak of the coronavirus to help its customers and the wider hospitality industry make sense of the uncertainty in the market. According to their data, which can be accessed here, hoteliers in the main U.S. cities have uniformly lowered their prices, maybe to entice travelers to book future stays, or more likely, as Angelika Sharma, senior solutions consultant at OTA Insight pointed out, to “‘right size’ to their average rates where demand has dropped out.”

Data for the week of March 14, which was the start of border closures, saw hotels lowering prices considerably for a three month period, indicating that they do not expect the downturn to be over any time soon, or to entice travelers to book ahead to collect some much needed cash. That said, hotels might need to start offering more flexible rates, rather than advance purchase rates, to provide travelers with greater flexibility.

Exhibit 14: Pricing levels decline across major U.S. cities

All the insights set out above highlight the declining curve that the U.S. hotel market finds itself on. And from data from Asia and Europe we know that the bottom has far from being reached.

Recent booking data from Spanish and U.S. travelers highlights the different phases these two countries are in. Data from TravelgateX, a connectivity provider which processes over 20,000 bookings per day, shows that while U.S. travelers are currently looking at last minute trips, Spanish travelers are predominantly looking to book travel for late summer 2020.

As of March 26, the U.S. still saw considerable last-minute domestic bookings. 76.5% of bookings made in the week leading up to March 26 were made for trips taking place on the same or next day. In comparison, 71% of trips booked by Spanish travelers had a booking window of over 90 days. Americans are currently at the precipice of the deep ravine that Spain (and other countries in Europe and Asia) have already descended into.

Many Americans will be looking for last-minute flights to head home and quarantine with their families. Spanish consumers, instead, have been in quarantine for a few weeks now, and are starting to dream of taking leisure trips towards the end of this year. A cautious reader would take this as a warning, as things are likely to dry up further in the U.S. over the coming weeks.

The Road to Recovery

How Long Will the Bounce-Back Take?

Below we provide an estimation of the approximate declines in occupancy levels in China, Italy, and the U.S., which according to available sources are all tracking similarly but with time lags. Italy is around five weeks behind China, and the U.S. is tracking around eight weeks behind China. The U.S. is on the same downward trajectory as Italy and China, although it has so far made a slower descent.

Exhibit 15: Occupancy declines since outbreak for three key countries

We clearly don’t know how this is going to play out, but it seems misguided to assume that occupancy levels will bounce back within two or three months, as some commentators have said. RevPAR will take even longer to recover, as hoteliers need to lower prices to capture diminished demand. CBRE forecasts a contraction of RevPAR by 37% in the U.S. in 2020. In a note to investors, Bernstein analyst Richard J. Clarke said that his team is expecting that a U.S. recession will draw into 2021, which will have a negative impact on RevPAR into that year, which they forecast as 7.2% below 2019 results.

Hotel open rates have been down considerably in major travel hubs, which will further hamper a swift recovery. OTA Insight is tracking a sample of hotels in different cities to see how many hotels are currently open to room reservations, and when hotels that are presently closed are starting to take reservations again. It is currently extremely bad in Spain, where almost all hotels in Barcelona have stopped taking reservations until mid-April. In New York, over 50% of hotels are currently closed. Many cities are seeing a pronounced jump in openings on May 1, and a smaller further jump on June 1, as rudimentary marks in the sand when hoteliers feel the tight restrictions might start to ease. Even when hotels open again, though, returning to pre-crisis occupancies will likely be a slow process.

Exhibit 16: Many hotels taking reservations from May 1st

As we mentioned before, it seems optimistic to think that this crisis will be over by Q3 or Q4 2020. Hoteliers need to prepare for a ‘new normal’. Every health expert will tell you that it is likely that the curve will flatten in a few months, but that restrictions are needed in an intermittent fashion to ensure the virus doesn’t come back with a vengeance after the summer months.

The longer this lasts, people that have been laid off or furloughed are increasingly unlikely to have a job to go back to once restrictions are lifted. In the U.S. alone, more than 3.3 million people filed unemployment claims in the week ending March 21. This means a decline in disposable incomes for leisure trips, and while companies cut outposts, stop expansion plans, and close offices, business travel will also decline.

Already, data from a recent survey by the Global Business Travel Association (GBTA) shows that the impact of the coronavirus on managed business travel has been grave. Business travel accounts for just under a third of travel receipts in the U.S., but 85% of companies told GBTA that they have now cancelled or postponed inbound trips to the U.S., and 84% of U.S. members indicated that domestic flights were cancelled or postponed.

Exhibit 17: Business travel hit hard

Beyond travel restrictions and declining spending power, the psychological barrier to travelling might be the hardest to overcome. At the moment, the infrastructure to travel is not there, planes are grounded and hotels are closed, but this is likely to improve quickly after restrictions are lifted. Next is people’s means to be able to travel. With reductions in household incomes and a potential recession, people are less likely to spend on travel. This might take some time, but will also improve, and the urge to travel has been greater in the past years than it has ever been. The biggest barrier, and hardest to grasp, is the psychological impact this outbreak will have on people’s willingness to travel. When will people feel it’s safe and okay to travel again?

Now, especially in the U.S., it can be argued that there has been a laissez-faire approach to the crisis by some key players up to now, most prominently the President himself. Against all advice from health experts, Trump said on March 25 that he was hoping to lift restrictions by Easter, which falls on April 12 this year. Granted, a week later he was forced to extend restrictions until April 30 as cases and deaths continued to rise.

Most cities in the U.S. are in lockdown, but individuals are still seen to be traveling. As mentioned before, domestic travel is still making up for some of the decline in demand from the absence of foreign travelers, but this is likely mostly last minute travel before stricter enforcement of restrictions on personal freedom of movement.

Now, it is true that the U.S. travel industry has generally been able to rely heavily on domestic travel. According to The U.S. Travel Association, domestic travel spending accounted for $845 billion in 2019, compared to $255 billion from spending by international visitors. The U.S. Travel Tracker by Skift Research found that in the first two months of 2020, 93% of trips taken by U.S. residents were domestic trips. This shows the potential upside for the U.S. market, if a form of local travel can be maintained, or at least rapidly restored after a period of lockdown.

Data shows, however, that domestic travel is currently far from picking up the slack left by revenue losses from border closures. Skift Research worked with Adara, a travel data cooperative with over 200 members, to get a better insight into the impact of the crisis on domestic and international trips by travelers who specified the U.S. as their ‘home country.’ Adara’s data shows that domestic bookings have been hard hit as well. Sure, national border closures have almost completely stopped international travel for now, but while domestic travel did not decline as rapidly, they have now also come to a near-complete halt.

Exhibit 18: Domestic hotel volume bookings by U.S. residents as low as international bookings

So while domestic travel can help the early recovery of the U.S. travel market, for now it is hit just as much as international arrivals. It is a cliche statement by now, but things will get worse before they get better. We believe that the hotel industry will recover, but we would look beyond the end of this year for that to happen.

 

Does China Offer a Glimmer of Hope?

With Europe at the epicentre of the outbreak, and North America still on the way down, everyone looks to China for a little glimmer of hope. New COVID-19 cases have been largely eliminated, and there are some signs of recovery for the Chinese hotel market, but this might be overhyped and should be looked at with caution.

We could be cautiously optimistic about increases in travel app downloads, or a returning interest in travelling amongst Chinese citizens according to surveys, but this is largely inconsequential and not actual booking data.

Flight searches and bookings to and from China have seen a slight uptick according to Adara, and Shiji Distribution Solutions has produced a popular graph which shows an increase of room nights booked in China, but we are far from talking about a recovery. Shiji uses a logarithmic vertical axis to make things look better than they really are. Bookings are still only at 20% of pre-crisis levels, and have a long way to go.

Exhibit 19: Shiji’s China room nights graph

We also need to keep in mind that there is more and more evidence that China was able to contain the crisis much more swiftly and stringent than what Western countries are currently able and willing to do, which means that the impact might be felt much longer in the U.S. and Europe.

And even China continues to struggle to find the right balance between continued closures and returning back to normal life. While initial reports were of a swift recovery with hotels and entertainment spaces re-opening, many are now being closed again for a second time, while the idea of a rapid V-shaped recovery goes out of the window.

We should therefore be careful to draw quick conclusions from China, where the situation remains fluid — another example is the government renewed decision to close borders for the majority of international flights — and recovery will be slower than initial hopeful reports made it sound.

Impact on Hotel Tech Vendors

An extended downturn does not only impact hotels, but also their suppliers and partners. At Skift Research we have been working on shining a light on the tech landscape that surrounds hotels, with recent reports on hotel revenue management systems (RMS) and property management systems (PMS). Here we want to touch upon the impact this crisis is having on these tech vendors.

It is likely that hotels will start to look at cutting tech costs, particularly when they have to close their hotels. This is why we are seeing many tech players starting to provide payment holidays to try and bridge this gap. Amongst newer software-as-a-service (SaaS) players, monthly subscriptions have gained popularity over long term contracts, but this might now mean a steep decline in income.

This could be detrimental to some players, and we expect to see some vendors having to shut up shop. Most software vendors will have relatively lean operations, but the market has seen a large number of startups entering over the past years, and these might not be sufficiently capitalized or profitable yet to sustain a continued downturn.

That said, in the mid- to long-term, as we get out of this crisis, the newer players which are cloud native and offer more flexibility might benefit. Offering one-click integrations — or close to it — as well as remote training will become more important, which will remain a difficult task for older and bulkier systems.

Changing a PMS is particularly hard, and hotels will only tend to take this decision in extreme circumstances. Well, we have that now. This crisis could be a catalyst for hotels to re-evaluate their tech spending, and to switch providers while business is down. As Gary Torres, VP of Global Delivery at Duetto, an RMS, said: “It’s an ideal time for many properties to better their technology and practices while business is quiet, and we look forward to seeing them attain the rewards when business levels return.” Next to offering online training, and remote setup, PMSs that can offer more mobile products and solutions are likely to benefit as the check-in process will be transformed by health worries.

RMSs in particular find themselves in a pickle. While uncertainty means that more hoteliers will turn to revenue management systems to find answers, most revenue management systems are unable to provide these answers in such uncertain times.

Third-party RMSs tend to use algorithms to recommend future pricing. These algorithms often use historical data, so similar situations in the past can be used as a guide for future price planning. Algorithms, however, can’t handle the current situation, because nothing on this scale has ever happened before. It is no surprise that most RMS providers are blogging about fringe topics like cancellation policies or how to diversify a hotel’s offering, while behind the scenes trying to stay on top of customer demands for more insight and support.

Some RMS vendors are better placed than others. Many rely on input from a human revenue manager, and are therefore able to respond better to local market conditions, but are also susceptible to ‘gut-feeling’ and heuristics, which are likely all over the place in this time of crisis.

Other systems attempt to take human intervention out of the equation. Mike Chuma, VP of Marketing at IDeaS, the leader in the RMS field, said: “Globally, we are seeing the level of acceptance in our systems remain generally consistent given the level shifts of change that have taken place.” Similarly, startups with advanced auto-pilot products — where the system takes over all responsibility for setting and managing pricing — like Atomize and Pace, have told Skift Research that they have seen a continuing reliance on the system to do the pricing.

Pace, whose algorithm relies on both historical and live data, and which continuously finds the best balance between the two, seems well placed in this current crisis. While historical data goes out of the window, Pace’s system has a built-in alternative by using current real-time data, which other systems rely less heavily on. An over-reliance on internal data might in normal times be seen as a weakness by some, since hotels do not operate in a vacuum, but right now this feature could be a key strength. It will be interesting to see if other players move towards more internal data over the coming months.

As and when this crisis starts to retreat, and restrictions are lifted, RMSs will find themselves in a similar difficult position because it will be another unprecedented situation. Will demand skyrocket as border closures are reversed? Or will people be wary and hold off on booking their next trip? Hoteliers will be smart to start asking their RMS providers how they are preparing for these future scenarios, so they are best prepared once the market starts picking up.

Conclusion

We have attempted to provide some clarity by providing a single narrative through the million voices and disparate snippets of data that are available. We are as uncertain about the future as anyone, but see indications that this might be a long road to recovery. That the industry will recover, however, we feel is not in doubt.