Surviving the economic downturn

A couple of weeks ago I was asked to give a talk at a Masterclass to a conference for the Association of British Travel Agents (ABTA). The timing of this conference was quite something. The news all round us at the conference was basically about the meltdown in the financial markets and the panel discussions of the CEOs of the big travel companies were a mixture of “the sky is falling” and “it will be all right on the night”. The graphs shown to conference by the economist were quite gloomy. Although they were shaped like hockey sticks and the only uncertainties being the speed of decline and the depth of the death valley curve! As always a useful economist left us not a lot wiser – but did give us something to talk about!
ABTA had asked for a talk on surviving the downturn and thinking back – this was a really wise move in the briefing I had been given, some months ago – long before the financial meltdown began. What it meant was that the Masterclass session was packed. Here are the key messages from the presentation and the discussions that followed:
In the first instance to survive a recession companies need to look at cost drivers – both external and internal. This must be done alongside a basic sales and marketing plan that ensures revenues. The rest of this note covers all three elements.
In the travel industry the external cost drivers are:
Fuel, exchange rate fluctuations, increased costs faced by suppliers (such as hoteliers, restaurants etc.,), cost of borrowing (overdraft charges etc.,) assuming credit is even available, cost of utilities and credit card charges going up for consumers.
There is little one can do about such external costs, but it is important to understand these and make an assessment about how this will impact on customers, suppliers and our own businesses.
The internal cost drivers also need to be fully understood. What are the main costs in the business? Is it staff, floor space, transaction costs? Often these costs are hidden away. So, now is a good time for a spring clean. Take a look at your bad habits in the business – the costs that are either the cause of sloppy management or lack of planning. For example not sending out the right information; pricing errors; not firming up bookings; missed telephone numbers; printing errors, and miscalculation of inventory. Beware of mistakes and of routines which are held in place by statements such as “we have always done it like that”! If the costs being incurred do not add value to the customers ask your self – should we continue to do this?
Once you have taken a good hard look at the cost drivers and try to bring them down faster than the sales curve in the forthcoming months you have a good chance to withstand the pressures that the recession might impose on you.
One of the hardest decisions that firms will have to make is about lay-offs. I am not a fan of this strategy because with lay-offs goes the knowledge in the company and I think owners of businesses must look at everything else first. I draw inspiration from the story of Southwest airlines that were faced with tough times and where all the staff came together in a kind of “Dunkirk spirit” took pay cuts and worked hard to come out a stronger business. In the end the ground realities will determine these decisions, but for me it is always a final choice, not a first one.
One of the keys to survival is not to make the M+S error – which is to miss the trends in the market place and to go into denial for so long that you rely on loyalty for survival rather than your own commercial and competitive competence!
Generating income
There are two fundamental actions. First and foremost take a look at your portfolio of existing customers. Surely they will continue to buy travel, even if at a reduced level. Are you in touch with them? Can you retain your share of their spend on travel? Don’t just mail shot a bland bit of brochure or information at them. Try to find ways to engage them in a form of dialogue. Find out about their future plans, think about how to adjust what you do and what you offer.
Get into a “research mode” to find out what is happening out there. After all if your staff is not very busy “taking bookings” – why not redirect their efforts towards finding out about the market place and perhaps generating bookings. Try and shift the mentality from order takers to order makers.
The second and slightly longer plan is to get more creative, with implications to re-organising the nature of the business you engage in. Try and get your staff and perhaps even the staff of some of the companies in your supply chain to brainstorm opportunities. Especially those who are customer facing. They often hear things from customers that get lost in the noise or are dropped because the company does not provide the particular solution. And for more senior colleagues – ask yourself – where are the customers right now and what are they doing? On a global level the numbers of people travelling has grown significantly – but not in Europe! So – how about looking further afield and bringing your expertise and experience to new markets (like Russia, China, India and elsewhere?)