This quake spurred one of the most devastating Tsunamis known to man, leaving in its wake an unfathomable loss of life and complete devastation. Areas from Indonesia to Kenya across the Indian Ocean basin were affected, and reports are still coming in indicating the death toll is growing.
The hospitality industry has been affected by many devastating events in recent years. The attacks of September 11, 2001 struck fear in travelers, and the airlines and hotels responded in unprecedented ways that completely changed the way we traveled. SARS fears reached to multiple continents as people feared the spreading epidemic. The war in Iraq and the increasing terror threats reduced attendance at the Olympics in Athens to unheard of low levels. Hotel occupancy and Revenue per Available Room or RevPAR (a key indicator in the hospitality industry) were expected to be at record highs but dropped to record lows. Now, a Tsunami has removed some of the world's most beautiful destination resorts. The Indian Ocean area is a travel destination for travelers globally, and the effects of the growing loss will filter out, just like the wave that did so much destruction itself.
The devastating impact
Aid from around the world is flowing to the area to relocate people provide the basic needs of survival. The clean-up stage is expected to take months.
With the loss of property soaring into the billions of dollars, the loss of revenue creates an exponential effect. Many tour operators are already canceling trips for this year and ships are canceling ports-of-call stops in the area. The agencies feeding tourists to the area from all countries will be severely impacted. As these agencies are unable to sell this area, some shifts will occur to other destinations; but given the research on human nature, a large number of people will opt not to travel at all.
Thailand Tourism and Sports Minister, Sonthaya Khunpluem, has stated that in excess of 200,000 tourism jobs are at risk following the disaster. Tourism employs nearly 3,000,000 people in Thailand and accounts for nearly 10% of the country's economy. Tourism arrivals are expected to fall by nearly 2,000,000 in the next few months. With no tourist arrivals in the first quarter, which is peak season and historically accounts for nearly 40% of all travel arrivals, the Thai provinces are on track to lose nearly 4 million travelers in 2005.
Thai Airways, the country's leading airline, has already switched its fleet to larger Boeing aircraft in and out of the Phuket area. This will provide more space to move people and materials, but at a greater fuel cost. Long term, Thai Airways most likely will switch to smaller planes and a reduced fleet, even possibly returning leased aircraft to Boeing to offset costs. An example of the trickle-down effect, Boeing is already challenged by the number of airlines in bankruptcy and now the possible return of Thai planes will add to their burden.
Some areas are claiming less damage than others and it will take time to get complete a picture of the area. In the meantime, aid is the only revenue coming in. Many small provinces have been completely wiped out by this tragedy. Entire economies have been eliminated and will need to be rebuilt. Again, the far reaching effects will be felt as money is not going out for marketing and not coming in from travel.
During this time hotel occupancy and air seats are going vacant, and companies with assets in the area will not be able to regain their loss. The insurance coverage will only partially cover the tangible assets, but will not begin to touch the intangible. Bargains may abound for travelers to the affected areas as the properties that sustained less damage try to gain back guests with low rates to stimulate demand. As the industry saw after September 11th, however, rate can only go so far in driving demand, and desire still must be present. With reduced marketing monies available in the market, there will be less demand. Hotels and airlines alike need to be aware of the damage come from a downward spiral of reactionary pricing.
Rebuilding after a disaster leads to stronger asset value in the long run
As the area rebuilds, it will be better, stronger and an even more beautiful destination.
Many of the properties will be rebuilt to more modern standards and offer even more amenities. Owners need to realize that this will create a stronger destination and a potential for greater cash flow from tourism dollars. As the area gets a stronger, more modern infrastructure, the market will open to even more travelers and create a higher influx of revenue. History shows that after a major disaster, either natural or man-made, areas come back stronger over time. The new systems and assets create a rejuvenation not possible under "regular" circumstances. With a "new" product to sell in the future, the Indian Ocean basin will have a true destination second to none in the world. All of these factors mean that repairing and holding onto a damaged asset provides a much greater value than selling it off.
From surviving to thriving
The hospitality industry can survive these events and more. As long as a strategic process is involved, the travel industry can even thrive and grow. Many post 9/11 hotels and airlines a fill-at-any-cost mindset which contributed to a downward spiral for the companies involved and many markets as a whole. The properties that applied a strategic approach still experienced the short term downturn, but it was followed by growth. They are now leading the pack as the industry rebounds. Hotels and airlines alike must think in terms of the "big picture" instead of the here and now. Lay-offs and cuts are not always the answer. Continued service, continued sound distribution, rate parity and integrity are key in the aftermath of any blow to an industry.
We can't predict the next event that may occur, however with a proven process and a sound strategy, the blow can be much less painful and the rebound quicker and stronger.
Written by Juston Parker, Vice President, Partner and King Pin of Revenue Management for Aspire.
Aspire is a leading provider of revenue improvement tools and services to the hospitality industry. Through a variety of innovative resources, Aspire works with each business from its heart and soul to help companies strategically capitalize on their unique business opportunities. Committed to inspiring people, Aspire specializes in tools that maximize market share and revenues, re-energize sales, and drive powerful results. Founded in 1995, Aspire Marketing has headquarters in Phoenix, AZ, with a network of hi-impact professionals across the country.
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