Rainmaker’s Disaster Recovery & Readiness Considerations for Hotel Revenue Management
When a disaster strikes, hotel operators face a complex situation that begins by safeguarding people and property and rapidly expands to responding to the unique circumstances created by the shock to the system. For revenue management and sales leaders, preparing for and recovering from any event that significantly changes the supply and demand in a hotel market is a real concern, especially in times characterized by volatile climate, cultural, and geopolitical conditions.
Often the first place to look is examining historically similar events and existing data to understand what to expect with regards to social and economic impact, short-term support of recovery efforts, longer-term impact to tourism and overall expected impact to hotel performance.
Historical data can be extremely insightful and help form a time frame and base line but of course it can only go so far, as every situation is different. There are many important topics for revenue managers to consider for disaster readiness and recovery, including: humanitarian and ethical concerns; sales and marketing plans; segmentation, pricing, and distribution strategies; competitive sets; demand forecasting; and technology systems.
Humanitarian and Ethical Considerations
The first priority in the aftermath of a disaster is to ensure the safety and security of your hotel guests, staff, property, and systems. Once lives are preserved and the chaos of the disaster situation begins to dissipate, the path of a property towards recovery broadens, as a shock to the supply or demand of a hotel has a far-reaching impact on both daily operations and long-term goals.
Of course, the role of a hotel property in facilitating recovery after a disruptive event depends on the severity of damage to the property. In many cases, a hotel plays a dual role, as both a resource for humanitarian and rebuilding efforts and also a community member and victim of the disaster. It takes thoughtful planning to employ strategies to rebuild your business while also encouraging the broad recovery of the hotel industry, the community, and the overall economy.
Typically, revenue management strategies and systems are understandably not the focus immediately following a disaster. However, one revenue management-related activity that should be a primary consideration is ensuring that your price levels are in the best interest of your market and its recovery effort. If you use an automated revenue management system, you should watch prices closely as the shifts in supply and demand might result in prices that are unethical, and sometimes even illegal.
Another humanitarian concern that revenue managers may face in the wake of a catastrophic event is how to best support their existing staff. Finding the balance between keeping your employees on the payroll to facilitate their quick and full personal recoveries and working within the revenue-generating capabilities of the hotel will be challenging. Aspects of staffing that may arise along the road to recovery range from the possibility of having to temporarily dismiss team members with plans to rehire, to using potential idle time to invest in employee development and training.
Coordination with Sales and Marketing
Revenue management and sales and marketing plans cannot realistically account for unexpected events that alter market dynamics. Once a disaster occurs, most operators have contingency plans in place to direct logistics. Revenue management and sales managers can benefit from using complementary contingency plans during a crisis that focus on assessing the situation and providing flexible and cooperative responses and solutions across these departments. Expectations of when and to what extent supply and demand of both your property and the broader market will recover should be factored into your contingency revenue management and sales plans as quickly as possible. Significant uncertainty around reopening of properties and rehabilitation of the market is likely, both on the supply-side and the demand-side. Damage to the structure of your hotel and its amenities, along with the status of necessary infrastructure and surrounding attractions, will largely dictate the timeline of the recovery process. When appropriate, revenue and sales managers should work closely with Tourism Associations and Visitors Bureaus to align the marketing of the overall recovery efforts with those of their individual property so the property can benefit from local efforts.
After a disaster, effective communication with customers and upcoming business will be of primary importance to sales managers. If your property is not operational, revenue management employees could support the sales staff by contacting meeting planners, tourism operators, and group planners with information about the property’s status and expected recovery. In the longer-run, revenue managers could assist the sales and marketing departments through the recovery process by capitalizing on the use of social media. Consider posting updates and pictures of the rebuilding progress, sharing details of your recovery process, and using social media to understand and possibly influence demand.
If your property is operational, communication plans for revenue managers become more tactical and benefit from support provided by the sales and marketing departments. Working with marketing allows you to identify, reach, and communication with your highest value guests. Revenue managers will want to use information from the sales team to determine how to best leverage traditional and social media outlets and platforms to communicate that your property is open for business.
Segmentation, Pricing, and Distribution
A major shift in market dynamics could create a need to reevaluate segmentation, will certainly change prevailing pricing strategies, and may impact strategies for allocating room nights through your distribution network. In the case of a broad-scale disaster, both supply of and demand for hotel rooms may immediately collapse, only to be followed by a spike in demand due to humanitarian efforts, and then a long path to recovery of supply and the market’s traditional demand. A more localized disaster may result in a different outcome, with limited change in long-term supply but a significant and immediate drop in demand.
In evaluating the post-shock market conditions of a property, revenue managers will want to pay close attention to how prices and customer segments have been impacted and how to ethically and effectively sell rooms. Discounting can create shifts in segments and too many price concessions can lead to lower-spend guests. Prepare short-term and long-term plans to revive occupancy over time without permanently impacting high-end segments. Monitor customer segmentation shifts to determine if changes are temporary or permanent. If the owner is rebuilding or significantly renovating the property, perform market research to understand the market position and price point of the hotel when it reopens.
Distribution channels will also be affected, as room functionality may be unknown, and room availability may need to be reserved for humanitarian efforts. In the time shortly following a disaster, it is important to make sure unavailable supply is removed from all distribution channels and that available supply is routed through the most appropriate channels. A significant interruption in your distribution channel strategy can possibly provide an opportunity to reevaluate and refresh your approach to distribution of room nights for sale.
After a market shock, revenue managers will need to determine the post-shock operating conditions of competitors. Be prepared to closely watch your competitive set and understand that your legacy comp set might differ from either the most appropriate comp set today or the comp set you will have in the future. Your comp set may go through several iterations as previous competitors leave and new entrants bring properties online, so be sure to consider expanding the comp set you are watching and frequently revisit your analysis of competitors as the market re-stabilizes.
The importance of what competitors are doing will vary, based on the operating status of your own property. If your property is available, an initial consideration will be looking at which competitors are also available and if the current state of the market requires that you change your comp set or even expand it to include previously distant competitors. When reassessing your hotel’s competitive environment, it would be beneficial to differentiate between your newly-identified competitive set and your established one so you can track changes and trends of both. Looking toward the future, you will want to shift your focus to the recovery of the broader market and how your property will be positioned once recovery is complete.
If your property is being rehabilitated and is not available, decisions related to your competitive set will be less urgent, but still strategic. You will want to consider if your property will be upgraded once reopened and if improvements will change the composition of your comp set. You will also want to pay attention to timelines, specifically when your property and your prior and future competitors are expected to come online relative to the rest of the market.
Forecasting will become more challenging, especially if both supply and demand experience material shifts and then re-stabilize at different times. Properties that are still operating while others in the market are being rehabilitated may experience an increase in demand from the humanitarian and rebuilding efforts. In this case, a revenue manager will have many considerations, including how to interpret this temporary pickup, what to expect in terms of ongoing impact to forecast lift, and what block wash assumptions and pickup patterns are likely to change. In the immediate term, a property will need the ability to adapt its forecasts and forecasting methods. Properties in affected and adjacent markets should consider shifting focus toward using short-term data, such as booking pace, rather than relying on historical data for forecasting. Monitoring demand changes on an ongoing basis will give insight into their permanence and the most appropriate way for a property to account for the demand shock when forecasting in the future.
Properties that require significant rehabilitation will have zero demand for a period, which eventually creates a gap in demand data. The outcome of the recovery depends on the damage to the property and the condition of the broader market. While some properties may experience a recovery to their previous baseline, other hotels may reopen in a different asset class or at a different price point. Revenue managers will need to consider how to adjust longer-term forecasts and forecasting methods to handle these potential data changes.
Most aspects of revenue management have strong ties to systems and technology, so the condition of a property’s systems will impact the extent a revenue manager can effectively make decisions after a disaster. While many immediate-term effects of systems failures relate to guest interaction and communication, revenue management systems considerations will eventually need to be addressed. Once you understand if you have lost any key infrastructure or data, you will be able to formulate a plan to replace systems and account for missing data as needed. If your property has a pause in regular operations, you may have an opportunity to reevaluate your IT and systems landscape. Likewise, if your property remains open, it will be operating in a different market dynamic that may require new or additional systems or staff.
Any event that quickly and substantially changes the supply and demand conditions of a hotel property or market will have an extensive impact on not just immediate operations but also longer-term decisions and strategies. The primary concerns of a revenue manager in a crisis situation are ensuring price integrity when and where appropriate and monitoring the supply and demand conditions of the hotel market. As recovery efforts pick up, revenue managers will then need to assess and potentially revise plans, segmentation and pricing strategies, competitive sets, forecasting methods, and technology systems. A well-thought-out plan for disaster readiness and recovery is critical to making sure a property and its community can not only heal, but also thrive in the future.