Navigating travel in the wake of COVID-19

The travel industry is still reeling from the impacts of the COVID-19 crisis. News regularly surfaces about financial restructuring plans, government support packages, bankruptcies, and layoffs in every sector. Many airlines, hotels, cruise operators, travel agencies, and rental car companies are in the throes of crisis management. But even as critical decisions continue to consume corporate boards in the travel industry, industry leaders need to get to recovery planning.

A 2020 IBM Institute for Business Value Market Research Insights Survey of 5,054 U.S. adults predict a slow return of travelers: 62 percent of respondents say they won’t travel in the next six months, and many aren’t willing to attend conferences (55 percent), visit theme parks (43 percent), or attend live sporting events (45 percent).  Even when new cases of the virus wane and curves flatten, 18 percent say they will never again travel by plane, and 36% won’t board a cruise ship.

This crisis is different

The industry survived a decline in air travel after the 9-11 attacks on the US, a Severe Acute Respiratory Syndrome (SARS) outbreak in 2003 that crippled Asian tourism, and consumer belt-tightening during the 2008 global financial crisis. Each of those events impaired the industry’s ability to supply travel services. Yet in all but the immediate aftermath of prior crises, underlying travel demand was relatively stable.

COVID-19 created a severe, global, and sustained demand shock for travel services. SARS wasn’t a global event and smaller in magnitude, and 9-11 a short-lived and localized supply shock. The global financial crisis, too, had little impact on travel demand or supply. But recovery from COVID-19 will come. We suggest four essential priorities to help travel companies get there: engage, differentiate, optimize, and reimagine.

Engage: Interact with travelers

Getting it right will require new procedures, robust communication, and more traveler use of personal mobile devices and other self-service technologies. The first order of business is to engage travelers in ways that help them feel safe.

Differentiate: Forge lasting relationships

Winning back the traveler isn’t going to be enough. Post-pandemic structural industry changes will result in substantially different competitive conditions. “Me-too” products and services—after all, airlines buy aircraft and seats from the same few providers and offer similar services onboard—may not motivate customers nor justify premium pricing.

Optimize: Adjust operations to maintain cost discipline

During the initial impact of COVID-19, many hotel companies moved quickly to cut costs in the back office. Immediate cuts included furloughs and staff layoffs; stopping projects that were non-essential to core operations; negotiating with service providers to defer payments on large technology investments; selling debt, and using loyalty points as collateral.

Reimagine: Recreate business models as elastic

Some industry leaders view the recovery period as an opportunity to restructure debt burdens and justify painfully, but often long overdue, cost reduction campaigns. Travel providers that do a good job at shifting from fixed to variable costs will be better positioned in the future, which is why most are intent on bringing more elasticity to their highest cost departments and operations.