There may not be reason to be fearful just yet but as the prospect of recession looms safeguarding loyalty is becoming an imperative, writes Sally White

The ‘R’ word is back! Given that the UK, for one, saw international business air travel demand cut by 25% in the last recession and globally the squeeze forced restructuring by airlines, hotels groups and travel agents, it is hardly surprising that the travel business is twitchy. Thus economic and financial numbers are being read as runes.

Actually, while growth is undoubtedly slowing, recession has not arrived yet, but that has not stopped publication of a host of ‘what to-do’s’ and safeguarding customer loyalty tops them.

Earlier this year at IATA, the International Air Transport Association, Director General Alexandre de Juniac announced that “airlines will still turn a profit this year, but there is no easy money to be made”. Global growth has been slowing, with the numbers of total revenue passenger kilometres (RPKs) up only 3.6% on a year ago in July compared against a rise of 5.2% in June. International growth was slowing even faster, with a rise of 2.7% against 5.3% in June. 

Airlines will still turn a profit this year, but there is no easy money to be made

IATA

July’s performance, he said a few days ago, “marked a soft start to the peak passenger demand season.” He listed the reasons for the escalating concerns – tariffs, trade wars, rising oil prices and concern over Brexit.

In other news, UK package holiday and travel group Jet2 has said it is “very cautious” on its outlook for the coming months, a view backed by the demise of Thomas Cook.

Further warnings come from STR and Tourism Economics, which last month downgraded their forecast for US revenue per available room growth to 1.6% in 2019 and 1.1% in 2020 (its second downgrade, having already cut in June). STR and Tourism Economics forecast that occupancy will fall 0.3% next year to 66.1%, ADR will rise 1.4% to $133.70 and RevPAR will increase 1.1% to $88.40. The group noted that occupancy has not declined year-over-year since 2009.

Meanwhile, North America-based travel marketing group MMGY says US demand has ‘softened considerably’ and is very gloomy about 2020’s prospects, seeing leisure demand falling below 2002 levels. Adding to the stress for western travel companies, it also points out, are the expansion of both Amazon and Asian companies.

Uncertain times

All the talk of the upcoming/potential/inevitable recession (it depends on the commentators’ degree of pessimism) is making the downturn a self-fulfilling prophesy. US-based real estate and investment group CBRE, which specialises in the international hotel industry, said in its latest market report: “Another factor that we recently have analysed is the elevated level of uncertainty that has infiltrated the minds of hotel guests. Since 2008, the level of uncertainty within the US, as measured by PolicyUncertainty.com, has risen by 30% over the previous 20 years. We suspect that incidents such as the banking crisis, European debt defaults, Brexit and US government shutdowns made travellers feel uneasy.”

…incidents such as the banking crisis, European debt defaults, Brexit and US government shutdowns made travellers feel uneasy

CBRE

“What do people do when they feel uncertain about the future?” it asked, giving its own answer: “…they hesitate to make discretionary purchase decisions. In the hotel business, this means shorter booking times, a decline in non-essential travel and enhanced price-sensitivity. Our analysis estimates that US average daily rates are roughly 0.5% lower than they would be without these elevated levels of uncertainty.”

Tech evolution

Ready-packed is the advice from international consultants Deloitte in its report Planning for an uncertain future: How airlines and hotels can prepare for an economic downturn. One factor is very different compared to 2008, it starts by pointing out, and that is the vastly increased investment companies have made in technology. As a result, both in decision-making and operationally, they are very much better equipped. They have access to far more data, and have the tools to process it.

“The evolution of technology can help guide some of the capital decisions, because there are tools available today that weren’t ‘ready for prime time’ a decade ago, such as cloud and automation. Today these areas can be the focus of investments aimed at productivity, not just solvency. At a time when productivity gains have slowed because of changes in customers, operations, and talent, and when debt may no longer be an avenue to extra cash, new tools may help build new value from the inside out.”

There are four pillars, says Deloitte, to downturn readiness: two enabling ones and two strategic ones.

“The enabling investment pillars are next-generation talent models that position a workforce to meet tomorrow’s demands and data-driven decision making that an organisation can use to pivot more quickly and accurately. They set the stage for the two strategic pillars: Customer loyalty that focuses on retaining customers with the most value and operational flexibility and responsiveness that equips a company with an elastic ability to respond to market and competitive challenges. Working in concert, these are investments that can strengthen any organisation and make it more resilient against a variety of shocks.

Data indicates that one in three consumers are willing to abandon a brand they love after a single poor experience

Deloitte

“Customer loyalty building pivots around ‘We know you have a choice when you fly . . .’ Well, fewer choices than there used to be. But both airlines and hotels still depend greatly on building relationships that drive repeat business. Loyalty drives more segments and more stays, it fuels word-of-mouth promotion, and it helps channel more business through customers a company has already paid to attract while relying less on the expensive-to-attract new customer.

“Accordingly, both airlines and hotels have made major investments in customer experience (CX). But among all industries, they rank 29th (airlines) and 37th (hotels) out of 43 in customer satisfaction. Among individual companies across all industries, airlines rank in the bottom. It takes cost and effort to build a loyal customer, and it can take only an instant to lose one. Data indicates that one in three consumers are willing to abandon a brand they love after a single poor experience.

Deloitte concludes: “All of these considerations amplify under the threat of a downturn, when hotels and airlines will need their loyal customers more than ever, and new customers will be harder to come by. When margins tighten, loyal and repeat customers deliver a critical boost in ROI because it costs less to attract and serve them—that is, if the right investments in customer experience have already been put in place before the downturn starts.”

So, preparedness is all, and to that end, says MMGY: “Have no fear, but have a little bit of anxiety”.