Insight

Is a Recession Emerging? Four Ways Travel Executives Can Build Resilience Today

2. Unlock value across the travel journey.

While the industry continues to innovate, guests still face a disjointed experience full of friction and anxiety. Today’s customer is forced to orchestrate their own travel journeys, stitching together various interactions from OTAs, airlines, hotels and ground transportation.

Customer friction creates business opportunity. In 2018, Marriott International expanded their offering into cruises with the Ritz Carlton Yacht collection. Digitally-native brands like Uber and Airbnb have added food, tours, experiences and adventures. And one would also be hard-pressed to find an airline earnings call without a focus on ancillary revenue like branded credit cards. Unlike profits and losses from uncontrollable variables (e.g., fuel prices), such programs can provide a steady, passive revenue stream—and even help save an airline in a downturn, as Citibank did with American Airlines by pre-purchasing $1 billion worth of miles in 2009.

Still, the challenge remains that while traditional brands are great at their core business, they struggle to reimagine the future of their business from end to end. Many have tested the waters and failed. In 2017, Royal Caribbean shut down their new company, GoBe, which aimed to provide tours and activities alongside their vacations. Royal Caribbean’s failure highlights the difficulty that legacy companies have in shifting operating models end to end in order to embrace new business models and ways of working.

Today’s leading brands are finding themselves leveraging the platform of their brand to extend their reach and add greater value to customers and, in turn, shareholders. For many, the opportunity is endless. However, the evolution of a core business model can be challenging and many travel executives find themselves weighing the pros and cons of the age-old paradox of ‘build, buy or borrow.’ Adopting a value-driven approach can help can help executives win now with customers and keep them coming back when growth is slow.

3. Augment your workforce and infrastructure.

Labor is becoming increasingly more expensive, occupying an even larger portion of operating expenses.

Indeed, this year alone hotel labor costs accounted for 50 percent of operating expenses. In an industry that prides itself on hospitality and service, the thought of alternative or lean workforce solutions can be counter intuitive. For example, Marriott International faced a strike of more than 7,000 workers in 2018, reflecting at least a negative $7 million revenue impact during one quarter alone.

Modeling and building scenarios around workforce planning in different economic environments is one way executives can take action. Leveraging technology to build more automation into the workforce and replacing commoditized actions is another. Research from Colliers International shows artificial intelligence (AI) could increase hotel revenue by more than 10 percent and reduce costs by more than 15 percent.

Many brands still rely on large, antiquated call centers to handle routine customer service queries. Other industries, such as Financial Service, have evolved by applying technologies such as natural language processing (NLP) and AI to develop web-based chat applications. These so-called chatbots help reduce costs, shrink wait times and increase customer satisfaction. Likewise, hotel kiosks provide customers greater convenience when checking in or out, freeing up staff to focus on more personal customer service requests. Although atypical of the traditional hospitality model, many guests are receptive or prefer this kind of approach when speed-of-service is top of mind. For example, a recent Travel Leaders Group survey found 78 percent of consumers want to see more self-service kiosks at check-in.

Leading innovators in the hotel industry are also using technology and automation with much more variety and differentiation while cutting back on labor costs. For example, Alibaba’s Flyzoo Future Hotel is pushing the envelope by offering facial recognition rather than keycards. Smart assistants bring fresh water or new pillows to a room. Organizations willing to rethink labor in this way and evolve their on-property experiences with technology, including automation and AI, will find themselves in a more flexible position to scale back resources without sacrificing guest experience.

4. Align business evolution with customer evolution.

The face of the modern guest is changing, hence the ability to serve more customers is critical in a downturn. While many modern travel companies have been built on the principle of hospitality, the application of this ethos in their digital interaction leaves many customers wanting more.

Driven by omnipresent technology and shifting demographics, tomorrow’s customer will have much different desires and habits. This has already forced many companies across industries to transform how they approach their business and customers.

For travel executives, expanding across leisure and business categories and embracing new international markets can help unlock opportunities as travel behaviors shift across generations. But it can’t simply be a reaction. These organizations must embrace the shift to a new generation of travelers and become a customer-focused business in an age that’s completely digital.

As millennials and Gen Z make up the vast majority of spending power across the globe, it is critical for executives to grasp the differences in how these generations view brand loyalty, experience travel, are influenced by social media and allocate a greater share of wallet to travel as economic conditions fluctuate. Equally important will be how these consumers shop and engage with travel brands and what they find truly valuable while traveling.

These customer segments will be an important building block, as will targeting both business and leisure crowds as the line between these two segments becomes increasingly blurred. Aligning business evolution goals to tangible changes in guest demographics and preferences will keep travel and hospitality brands ahead of legacy competitors, and in-line with technology companies as they encroach on the industry.

The future is now

History has shown a direct correlation between economic declines and the ability to generate revenue. In an industry that’s becoming increasingly competitive, travel executives need every inch they can get to win with customers—especially when the economy turns. A data-led approach will be vital to better understanding customer reactions in different market conditions, as will innovating technologies that build around new behaviors and recognizing the shifting makeup of the next generation of traveler.

However, none of this is possible without augmenting ways of working that emphasize speed to market and purely focus on the outcome for the customer. Executives who can activate these changes now will form a foundation of resiliency and win with customers before, during and after the next economic downturn.