The spread of Coronavirus (COVID-19) has caused widespread chaos and disruption in almost all parts of the world, affecting nearly every aspect of our lives. This is especially true of the economy, particularly regarding the tourism sector which has been hit hard. You might have read about or seen through webinars many important experts of the vacation rentals industry (including the likes of Simon Lehmann from AJL, Richard Vaughton from Rentvivo, and Antonio Bertolotti from VR World Summit), emphasising the importance of retaining cashflow during this difficult period of time.
Many of the actions taken by some of the OTAs such as Airbnb to instantly reimburse all guests with 100% of their bookings have had an enormous instant impact. These decisions of course work out very favourably for guests, but many property managers and their cash flows have been left exposed and under very big financial pressure because of their huge booking dependence from these online companies. Airbnb has already taken some action trying to amend their cancellation policies and announcing a 250 million dollar donation to the property managers who have suffered from this unilateral decision (details still need to be provided on how to access that cash). But still many managers will find it hard to survive these hits unless they can adapt to this current temporary situation.
Turn fixed costs into variable costs
One of the keys to retaining cash flow is to reduce expenditure while there is no income, or at least while it grows, by adopting an adaptable costs infrastructure. That means that every service that you outsource needs to be performance based. Attempt as far as possible to avoid all types of fixed subscriptions that could harm cash flow and possibly put you in a more difficult situation. There is no point paying for a product or service whilst it’s not doing the job it was intended to do.
Every cost needs to be carefully analysed to avoid expending cash unless it strictly brings back some revenue in return. It’s perhaps important to remember that you are not attempting to win under these circumstances but merely to survive this period. In this scenario, your best chance is to opt for products or services that work on performance based pricing, meaning that you only pay when they deliver results. Examples might include adjusting your marketing plan so the cost is calculated based on conversion, or opting for performance based listing distribution instead of a subscription service.
Retain income by accessing support
Almost every one of the affected countries has taken economical measures to address the costs of employees being laid off or paused until the situation is back to normal and markets bounce back into recovery. Additionally, most have put in some financing lines to give some breathing space in the meantime and to avoid the full stop of the economical wheel while the emergency states last.
Find out what support is available for your business and adjust your plans in line with that. Please refer to our regularly updated COVID-19 guide for vacation rental owners and managers for links to important information on each individual market and government help.
Negotiate existing costs and focuses
Models such as rent-to-rent will be requiring more flexible negotiations in order to overcome the crisis as these could drain your cash flow in the next few months. The relationship with property owners or landlords and appealing to their understanding will be one key element for this type of VR business. Such negotiations may involve altering rental rates or even pausing rent temporarily while the market bounces back and the crisis slowly fades away in each of country. Another solution of course is in the nearest future to offer owners the possibility to change contracts in the next 6 to 12 months for a performance based contract.
It’s also worth considering that changing focus to mid/longer-term rentals could ensure some cash during this period (particularly in urban areas and locations with housing shortages).
3 paths to recovery
Adapting businesses in order to survive requires careful planning. There are 3 possible scenarios that you should plan for. Making a financial plan for these will help you to apply for the different credit lines put in place to help small, medium and big businesses, as a first step to get cash in, or even to plan different credit stages to overcome by adapting to the market situation.
- An optimistic one: bookings will return before the peak season starts, and will allow us to recover sooner and stronger at the same time.
- A conservative plan: bookings will slowly return while the peak season has already started bringing many last minute bookings from closer distanced markets.
- A longer inactivity plan: bookings will start coming after the usual peak seasons are gone and will require 8-12 months of financing until demand starts picking up.
Of course these possibilities will depend on each individual market, and how the COVID situation evolves there and on how political and economical measures support those markets. Some important cities in China are showing early recovery performance indicators, such as Beijing and Shanghai where hotels start getting as much as 28.6% occupancy rates by the end of March already, indicating a stable growth forward day by day.
It might be difficult to accurately predict how your market is likely to recover in much detail. But having at least a rough plan in place for each of the three described scenarios will enable you to better adapt to whatever situation unfolds for you.
Position yourself for recovery
It’s best to be well positioned when the bookings slowly return and therefore to have all your listings in their best possible shape. This means being on as many distribution channels as possible so that you can capitalise on whichever markets pick up first. It’s also especially important to have a direct booking platform access to offer the properties at a better price and maximise every booking earning. This will enable you to more effectively engage with local markets as those will likely be the first to recover, and you’ll be able to avoid paying sales channel commission on these bookings. We recommend using Direct Booking tools, like the ones from Your.Rentals, that can be easily implemented on any website with costs that are 100% performance based.
Having a channel manager which is performance based such as Your.Rentals will help to keep the costs on a leash and get ready for the bounce back of the bookings that we predict will come back in a stronger way after the emergency is gone.