10 things to consider to ride out the Corona Virus downturn.

Like most industry observers I think Corona Virus has been massively overhyped and much of the current down turn in sales is media induced, since for most people the heath impact of the Virus will be minimal. However, the impact on travel business is real and unlikely to go away.

Having worked in the industry during 9:11, the gulf war and 2008 financial crisis, the current Corona Virus worries me more as its impossible to predict the length of the impact, so in my opinion its definatly time to baton down the hatch’s. All businesses are different, but here are 10 actions I’d recommend people consider.

  1. Cut overheads by 20%-30% immediately.

Unfortunately, the easiest cut is often staff. Every business I have ever worked with has a layer of “Fat”, that is only dealt with in a down turn. Cutting staff forces a business to become more efficient, by either using new technology or by stopping work that has no real benefit. Once you have cut staff this drastically, every working practice gets revisited and staff simple don’t have time to “do it the way it’s always been done”. I know readers may not want to hear this, but business survival is crucial for the 70% of staff left and bluntly some jobs are better than none.

  • Implement 4 day week and homeworking.

It’s important to keep key staff so you can expand again once the crisis recedes and to manage the business through tough times. However, these people are often your most expensive resource.

Moving to a 4 days week and giving key staff an extra day off a work a week, greatly softens the 20% wage cut you need them to take. Maybe get them in a room as ask “which one of you do you want me to get rid of, as if you don’t all agree to take the pain equally, that’s my only choice.” Setting up full homeworking capabilities using Zoom or Google hang outs video conferencing is also a must. We have to assume that major cities will be shut down making homeworking capabilities a necessity for virtually all businesses.

  • Stop ALL IT spend immediately.

Businesses need to worry about today and not tomorrow in a crisis. If it works now, don’t try to fix it! Expenditure on IT is often one of the major cost of a business and of course some expenditure will be locked in contractually with third parties, but most can be post postponed.

  • Marketing.

Cut back to the essentials that drive 60% of your current traffic. Cancel any above the line TV, radio etc and focus on immediate calls to action, which have the lowest cost. Google advertising costs should fall as companies cut back, but I’m not convinced google will allow this easily, so it needs to be driven by players cutting back bid terms aggressively.

  • Chasing every lead and maximizes margins per booking

With less leads, its vital to increase conversion. In a shop or online, its vital that every lead gets chased down. Within shops this may involve implementing further data gathering and a 100% follow up procedure, either by phone or email. Similarly, in call centres a target of 1-2 call backs per inbound call might be a sensible metric, whilst online players may increase their remarketing targets using social media like Facebook. Maximising margins by yielding higher and upselling Ancillaries is probably also a good idea is a slow market.

  • Removing reasons not to book.

Customers will clearly be worried about booking at the moment, in case they need to cancel their holiday because of an outbreak of Corona Virus in their holiday destination. Tour operators and retailers dynamically packaging are acting as principals and will be responsible for refunding customers, if FCO advice is changed to tell customers can not travel to a destination, so why not make this 100% clear? Offering Travel Insurance that also covers medical costs will provide reassurance whilst also providing increased revenue per sale.

  • Reduce the “Principal Risk”

Tour operators and retailers dynamically packaging are acting as principals and will be responsible for refunding customers if FCO advice is changed to say customers can not travel to a destination. A dynamically packaging retailers should be booking all low cost carrier flights via virtual cards, so that if a flight is cancelled they can recharge all bookings via their virtual card provider for non-delivery of product. All hotel accommodation needs to be booked on a payment on arrival basis, with all use of non-cancellable or pre-paid rooms stopped. This will reduce cancelation loses to lost margin, which is painful enough, but not as deadly as a full agent funded refund.

  • Cut the number of Suppliers.

In times of reduced demand, it’s important to cut the number of suppliers you have and work more closely with a smaller number who you can negotiate better payment terms or over rides with. The more fixed assets a level of the travel chain has, the more they will be feeling the pain. For example, Hoteliers will be desperate to fill rooms and will offer lower rates and/or higher commissions. Make sure your business benefits.

  • Manage cash brutally.

Revised forecasts for trading 15,30 or 50% down are required, with a realism level about cancellation. What you thought was in the bag, may not be for long. Every business needs to ensure that they stock pile cash as much as possible

For retailers this may involve scraping low deposits and bringing final balance payment dates earlier, however Trust funds often mean this consumer cash cannot be used, mitigating any benefit. Similarly, low cost carriers are not going to allow booking without full payment, but hotel partners may be forced to take later payment if demand is switchable.

  1. Renegotiate everything.

In times of crises, the 20 biggest expenses need to be reviewed and if at all possible “renegotiated”. For example, will a high street landlord give a “rent holiday” rather than losing a tenant, they are unlikely to be able to replace in the short term. The same applies to office rents, equipment rental and all third party contracts. It may even be time to negotiate a delay in payment of rates to the local councils. Just remember having something is better than nothing to most suppliers, when they are unlikely to be able to resale the assets your using.

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