Predicting and planning for change in global travel

 

Mr Reid recently published a detailed article, “Looking Past This Crisis - The FutureState of Travel” on LinkedIn.  A summary of his article is below.

It is difficult to see past the crisis of now, in any situation. But right now, in travel, it is almost impossible. Fear has gripped the world and our industry is on the front line of the response as well as bearing the brunt of the economic downturn. Airlines are haemorrhaging cash, hotels are sitting virtually empty and travellers are staying home. 

The hopeful among us will recognise that this will be over, and while difficult to see, perspective and future planning is now what is necessary. Recovery will be predicated on infection rates and how government intervention takes shape, and there are many possible scenarios that could play out over the next weeks and months. 

MMGY Global's base case for recovery is entirely focused on consumer mentality in what we believe will be the four phases of societal mind-set. As we all move through these phases, it will allow us permission to spend and travel again. 

Today, we are still in the fear phase, which remains to play out as we near infection spikes globally, but understanding and action phases are now in nascent stages and rational behaviour will follow soon after that. 

Now is the time to look at longer-term conditions and how we should be thinking about the marketplace in its future state.

FutureState Item #1 - Travel sentiment, activity and spending will return more quickly than many have predicted.

We are seeing some consumer research suggesting that travellers will not return to travel in the way they have in past recessions, using current barometers that cite consumers' plans to save their money or re-allocate to other purchases versus travel. I simply don't agree, and while not questioning the veracity of this research, I instead question the real commitment of the consumer to these views. 

Time and time again, in the MMGY Travel Intelligence Traveller Sentiment Index (TSI), we see a much more positive mentality once a crisis passes. Instead of measuring current intent that suggests households will save money (43%) or spend on other needs (25%), we expect only 31% to cancel their plans, and instead they more broadly exhibit behaviour that answers that global calling to travel, albeit in different ways. And even with cancellations happening en masse currently, we expect to see re-booking rates quite high amongst all consumers as the days pass. 

We have been tracking a resilient traveller segment that represents 16% of travellers, a group that tends to be most impervious to challenging conditions. These travellers will be early influencers on a return to the marketplace and are important for suppliers to influence quickly. 

To monitor the progression of consumer views, we launched a bi-weekly sentiment study, with the US Travel Association - access to the results will be available in April.

In Asia, flights in China were up 20% the week of March 8 and travel search volume has nearly doubled since February, with incredibly short booking windows. This is a reliable harbinger for Europe and the Americas, although China's virus lockdown was much more pronounced than anywhere else in the world.

Don't wait to engage travellers, they're coming back to you quickly and will book with short lead times and lower rate expectations.

FutureState Item #2 - Consumer behaviour will shift in the short-term but not in a lasting way.

It has been interesting to watch flash trends emerge around telemedicine, home meal delivery, online workouts and new personal grooming priorities. And those shifts certainly make sense in the short-term. But just as with past promises of virtual reality vacations replacing the real thing, we do not believe many short-term trends will remain as structural. 

We fully expect visiting new places, cruising, and socialising in restaurants will be the norm before Q4. We have seen a long-term trend that proves that travellers are increasingly seeking out new and unique experiences, an appetite that will not be reversed.

One change in consumer behaviour we could see as longer lasting is a move back to travel aggregators. In a competitive market, where demand is off significantly, they have a considerable advantage in share of marketing wallet and in rate visibility. Not only should CTrip, Expedia and Booking benefit, but expect TripAdvisor, Fliggy, Skyscanner and Airbnb to gain share. 

Consumers traditionally evolve their core behaviours slowly, and even a crisis, while creating atypical flash reactions, does not dramatically shift trends. Stay the course with proven strategies once the crisis ends.

FutureState Item #3 - Marketing tactics will fall back into place. Don’t be fooled by the short-term shifts in content and media consumption. 

Yes, the world is behaving in new and unusual ways, and there have been some major advertisers who have pivoted quickly to media channels that have been prevalent during the crisis. Informational campaigns tied to news content and in-programme sponsorships have allowed relevant brands to be closer to consumers looking for crisis-related solutions. 

Looking forward to a recovery model, there will be some nuanced marketing changes necessary to capture traffic in the first 30-45 days, prior to widespread travel demand:

  • A conservative advertising presence to capture the resilient traveller subset as well as other early adopter consumers. 
  • A focus on performance-based digital that is value-driven and informational as well as steadying for the traveller.
  • Social engagement to both educate and keep close the most valuable customers.
  • Campaigns that encourage near-term travel such as weekend, last minute and holiday packages as well as short-lead summer travel packages that incorporate loosening cancellation and re-booking fees.
  • Geo-targeted campaigns that work community-out for stimulating demand.
  • In the group segment, focusing on sales programmes that are informational in nature and that provide visibility on revised rate packages and contract conditions while also responding to the current influx of force majeure conflicts

Travel marketers should expect time-proven tactics to be important as the recovery mind-set shifts (45-90 days after peak infections) to normal behaviour, and the reality is that this is where markets will be re-shaped by smart brands that remain present.

  • Expect paid social, addressable media and email programmes to again be the most effective channels for value-focused messaging.
  • Expect linear and digital TV, PR, out-of-home and integrated print to be relevant in building brand.
  • Expect brand partnerships, integrated sponsorships, live events and endemic content to rise in importance in building traveller trust.
  • Look for website platforms to evolve away from deep stack encyclopaedia-based models to content hubs that tie to personalisation and improved usability based on user data.
  • Expect an emphasis on relationships with intermediaries such as tour operators and wholesalers who are building back support.
  • More work with travel trade and travel media to collaborate on offers and content as well as aggressive sales tactics from inhouse sales teams.

Most reaction to today's marketplace should be minimal as it will be too late to capitalise once implemented - better to build 2020 Q3/4 and 2021 strategies that respond to the post-crisis mind-set. Don't overthink it.

FutureState Item #4 - The industry will come back in a way that's predictable

Our research is now suggesting pent-up demand will be unleashed in late Q2 across global economies. Given the US$2 trillion+ congressional package in America and stimulus programmes throughout Europe, suppliers will be in a more tenable situation to operate with less disruption. And we know that travel confidence leads-out consumer confidence, therefore will be a leading indicator for the economy. 

Expect shoots of good news to emerge first with airlines then hotels, restaurants and cruise lines.

So how does the market recover, in terms of traveller type and segment?  Where will the first signs of life emerge and how should budgets be allocated to different opportunities still this year?

It starts with the local community and works itself out over time to longer-haul travel. There are certainly micro segments that will behave in more specific ways (older retirees and millennial families on road trips or high-earning couples to international destinations), but broadly people tip back in, with shorter, closer trips and lower spends. Suppliers and destinations that rely heavily on an international traveller will still need to immediately ramp-up marketing and representation models to ensure protection of market share, but it may take longer to realise total revenue recovery.

Given global government assistance, we expect airlines to bring capacity back quickly and use low-fare strategies to induce people to fly (versus drive or staying home). The big global players will bring routes and promotion back as travellers show early demand, which is good for the rest of the industry. Look for an initial air service that could have a stripped-back experience relative to amenities and customer service.

Tourism destinations have the most flexibility in travel. As the recovery begins, local communities will prop-up restaurants, attractions and hotels before out-of-market demand picks-up. And, local meetings and events should help in the interim period before destination groups re-book. 

Nobody has been hurt more than the hotel industry. With global occupancies in the single digits and high fixed-expense, many independent owners will be on the brink. Brands such as Marriott and Hilton are affected by lower franchise-driven fee revenue, but they own only a small number of their flags, so big owners such as Blackstone and small business operators of single units will also need support. We expect a great deal of early local occupancy to start the recovery, followed by leisure in the economy and luxury/resort segments and then, eventually, group across all segments. 

FutureState Item #5 - Long-term strategies still apply 

It is very difficult to resist strategy shifts that rely on the data of the moment. A knee-jerk reaction can mean missing opportunities tied to core strategies that travel brands have been building for years. There are many marketing and operational examples of this, but here are just four we feel are crucial.

  • Strong revenue management - industry must resist a long-term, deeply discounted rate/fare strategy. We know it is necessary in the early stages of recovery, but when looking at the longer booking windows and select parts of the market, maintaining as much rate integrity as possible will beget a faster and more sustained recovery. Nobody benefits from a price war.
  • Sustainability and social responsibility - the consumer may place less emphasis on social purpose and the environment in the short-term, but we believe we have reached a global tipping point for what travellers expect from their preferred brands. And the fact that a worldwide pandemic has required a community response should portend a larger focus on social empathy. Brands that take an integrated approach to their values, and then connect this with strategies around sustainability and social good, will continue to grow market share versus companies that abandon these efforts.
  • An Interconnected Travel Economy - will continue unabated as we move back into travel as normal. Though there will be some short-term moves away from certain aspects of freelance workers and shared services, the principals of the GIG economy will persist for the longer-term. And in fact, as people see tougher financial conditions over the next 12-24 months, don't be surprised to see new shared space concepts come to pass in personal retail products, consignment clothing, education and through a general re-balancing of societal interactions where people rely more, not less, on each other.
  • Use of Data is Still the Game Changer - those that continue to invest in understanding and deploying first and third party data strategies will outperform. Micro segmentation, enhanced modelling and attribution as well as the ability to connect this data to Closed User Groups (CUGs) and promotion will protect customer share and boost rate integrity.

Things will get better, a notion more people need to embrace. And although I intend no disregard for the real suffering going on, thinking macro and thinking positive are a choice. There is no way for anyone to know for certain what the next 60, 90 or 120 days look like, but we know that recovery will happen, sooner than people can see clearly today. Based on progressions in other parts of the world as well as allowing past research to inform the crisis, we know that travel is bedrock for economic stimulus. It is time to begin the move away from the fear and reaction of now, and instead begin preparing for the future state as understanding, action and rational behaviour take hold.

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