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COVID-19: A crisis of confidence - Vatel

COVID-19: A crisis of confidence

David Navarro Tenllado, Professor of Management and Economics in the bachelor’s in international hospitality management of Vatel Malaga, reflects on the current economic situation of COVID19, as well as the new opportunities in the tourism sector.

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Faced with the crisis situation that the country is going through, Vatel Malaga teachers offer their experiences and knowledge. 


David Navarro Tenllado, Professor of Management and Economics of the Bachelor program in International Hotel Management, brings us a reflection on the economic crisis that awaits us after the health crisis ends. But why is it known as a crisis of confidence?


On September 15, 2008, with the bankruptcy of Lehman Brothers, the financial crisis began that spread the virus of distrust between banks and customers. The distrust of millions of customers in banks. The distrust of banks in the banking system itself. The distrust of the banking system in the system itself, and that is when your neighbor's beard sees you cut ... As this saying goes, the domino effect had begun, devastating in days the confidence that the system had taken years to build, taking many years in falling the last piece. In the same way that customers lost confidence in banks, guests are losing confidence in hotel establishments.

 

In Spain, the UNWTO has forecast a drop of between 1% and 3% in its prospects for international tourist arrivals. How does this scenario move on the level of the Economy? In a market equilibrium model, this fall will produce a shift in the demand curve to the left, generating excess supply, so that in order to return to an equilibrium situation - in worse conditions, in any case - hotel establishments must adjust by lowering prices - lowering ADR - as happened with the previous crisis of 2008. On paper it is simple: less demand, less supply, and lower prices. As mentioned above, this drop in ADR would be one of the useful tools, if the crisis were 100% economic, but in the face of a crisis of confidence, the scenario is more complex.

 

Drawing parallels with the notorious prisoner dilemma, if all hotel establishments agreed to maintain ADR, to a greater or lesser extent, they would all bear the impact. However, this scenario seems very complicated since mistrust has seized clients as well as establishments, and this is reflected in the fact that some establishments will maintain the ADR and others will lower it - paying attention to what economic logic dictates- generating competitive advantages for those who lower their prices, and plunging those who maintain them into a deep crisis.



In summary, hotel establishments should advocate two fundamental strategies to boost demand and ease the drop in supply. On the one hand, customer loyalty must become the central core of its short-term corporate strategy, generating a portfolio of loyal customers to the establishments, their offer, and their prices.

 


On the other hand, with the closing of international borders; UNWTO's notice of falling international tourist arrivals; and the distrust of tourists in traveling to areas that are or have been at risk of contagion, that this loyalty strategy revolves around the so-called "patriotic tourism", that is, making national tourists who previously traveled to international destinations change your plans to enjoy national destinations.


"The sector must rearm, adapt to the new situation, and above all, regain the trust of its customers".


Written by  David Navarro Tenllado.

Professor of Management and Economics in the bachelor’s degree in international hospitality management

Vatel Malaga



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