Keep Calm and Carry On

This iconic poster created by the British government in 1939 on the eve of World War II seems needed now more than ever.

COVID-19 has had a dramatic and tragic impact on the lives of millions, with now over one hundred thousand confirmed cases and close to four thousand deaths. Many more will be afflicted, and governments have their hands full equipping the health services to deal with the increasing numbers of cases. There is clear advice from various governmental and non-governmental health services about how to prepare for and deal with COVID-19 - so we will leave that to the experts.

What is less clear is how businesses should prepare for what could in the worst case turn out to be a serious disruption.

Hoteliers have already suffered material drops in occupancy particularly in Asian markets where the virus originated. This drop in occupancy has unsurprisingly lead to a drop in ADRs as hoteliers attempt to make up for falling occupancy by reducing rates in an attempt to stimulate demand. Taken together, reduced occupancy and ADRs has resulted in significant falls in RevPAR versus the same time last year across Asian hotels according to recent analysis by STR. The European market has also started to see similar effects with the Italian market most seriously impacted by the recent deepening of the epidemic there. The US market will not be immune from these effects as the virus continues its global spread.

The fear associated with the virus will spread further and faster than the virus itself.

The nervous reaction of hoteliers to this crisis has many analogues in the financial markets. In the past, the fear of collapse of commercial banks has, in many cases, precipitated massive withdrawals which ultimately resulted in the banks collapsing. The very thing that drove the fear in the first place. These bank runs precipitated by a form of mass hysteria end up indiscriminately taking down good banks along with the bad ones that lit the fuse. The cause of this reaction has been studied extensively by cognitive psychologists and decision theorists and has been labelled loss aversion - the tendency to prefer avoiding losses to acquiring equal gains. Luckily many of the nerds at Pace hail from the financial services world and so have experience in up and down markets and have brought this to bear on the hospitality market.

As in the financial markets, the strategy for hoteliers is the same: keep calm and carry on. Carry on in this context means don’t panic and arbitrarily drop your ADR in the hope that demand is elastic and will respond to this change in ADR. Here, the Pace solution has you covered. Our algorithms will explore the price space to constantly optimise around available demand. In the short term the algorithms will react to weakened demand and cancellations but will also be constantly sampling for the eventual return of this demand. In previous pandemic scares demand was seen to rapidly return to markets once the global health agencies reported positive news. So sentiment matters in this environment even more so than it normally does.

Our experienced Revenue Advisory team hails from large global hospitality brands and have operated in many challenging market conditions. We would be happy to speak with you more about planning for the market reaction to the COVID-19 outbreak and share some good sense strategic steps to take while the Pace autopilot takes care of the pricing decisions and execution. Please reach out to us to book a consultation.


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