The downturn's aftermath: Experiences gained, lessons learned | By Angelos Loizou, ISHC

What started in the summer of 2007 as a U.S. subprime mortgages crisis eventually became a liquidity crisis that spread throughout the world and turned into an economic crisis that affected all social classes.

This is precisely the feature that differentiates downturns from crises. During downturns, corrective government interventions are welcomed by the markets. Negative consequences on the broader social classes, if any, are smoothed out relatively quickly in most cases.

On the contrary, when downturns turn into crises, interventions have a more long-term perspective. The impact is immediate and visible at the level of markets and industries and in the daily life of citizens.

The sectors that are affected directly during financial crises or downturns are the construction and property renovation, car and tourism (hospitality and leisure) industries, as well as retail sales (with the exception of the food industry). Yet, while they bear the brunt of the pain during a downturn or crisis, these industries typically emerge with more significant growth rates than the decline rates experience during the downturn.

This economic crisis is still unfolding, and the first safe conclusions for Europe (and especially the countries of the Mediterranean Basin) will be drawn possibly after summer 2010. Regarding the tourism industry, however, we already have observed the manifestation of these negative economic conditions and are able to draw the following general conclusions:

• There are always warning signs. Economic crises aren’t deployed overnight. There are always warning signs, which, if are realized in a timely manner, can diminish negative consequences. For hoteliers, one such warning sign could be observing gradual changes in customers’ behaviors and/or priorities. For example, a well-known, loyal customer whose priority was premium quality shifts to lower prices. Another indicator is from the supplier side. Observing more inflexibility in financials and credits or even decrease in the variety of the products/services he provides. An inexplicable loss of market share—no alterations in corporate strategy and no competitive actions—is another indicator.
  
  
• It’s a slow-down, not a melt-down. Leisure is postponed, not cancelled. A recent PricewaterhouseCoopers survey revealed holidays remain sacred to the U.K. consumer, as those seeking summertime fun in the sun still refuse to forgo their annual trip.
  
  
• Change in psychology is a factor of stabilization. Psychology plays a very significant role in the markets. It can affect developments irrespective of the realities recorded by economic indicators.
  
  
• Economy hotels perform better in downturns. This is a conclusion drawn from the percentage variation of key performance indicators (e.g., occupancy, average room rate and revenue per available room) and the overall financial performance of these hotels. This is entirely reasonable because the cost of traveling and leisure comes under discretionary spending. Therefore, it’s natural tourists prefer budgeted holidays to no holidays at all.
  
  
• Downturn challenges can be managed. As we’ll see in subsequent articles in this series, crises can be managed efficiently and be an important source of opportunities for those who identify and exploit them in a timely manner.

In the three following articles, brief reference will be made to experiences and practices regarding more specific groups of interest in the tourism industry. Commentary and suggestions of the article are based on data and observations relating to countries and territories located mainly in Western and Central Europe, the Balkans and the Mediterranean Basin (South Europe, North Africa and the Middle East).

The next article will explore 10 basic behaviors identified as being fundamental for correct management during crises. The third article will focus on the tourist products of the tourist destinations and the way local societies and central administrations have responded. The fourth and last article will consist of a brief overview of the ways in which economic conditions have affected the profile, trends and behaviors of modern tourists.