Preparing for Potential Economic Shocks

Anyone looking to feel better when Bernard Baumohl took the stage at HSMAI’s 2018 Revenue Optimization Conference last week was pretty much out of luck. Chief global economist for The Economic Outlook Group, Baumohl presented a keynote on “The Economic & Geopolitical Outlook: What Are the Risks and Opportunities Ahead?” that was longer on risks than opportunities.

In a nutshell, Baumohl thinks that — despite the currently robust U.S. economy — the next one to two years could bring a series of sometimes interrelated crises for the hospitality industry: soaring labor costs exacerbated by the Trump administration’s crackdown on immigration, including legal immigration; a trade war that reduces business travel; and a naturally occurring economic slowdown that will slow both leisure and corporate travel. But Baumohl didn’t just deliver (possible) bad news. He also offered concrete steps for the revenue-management professionals in the audience to take to get ready:

1. Understand the triple blow: (1) labor costs climb as pool of labor shrinks; (2) a prolonged trade dispute will reduce business travel; (3) economic slowdown late-2019 and 2020 to impact leisure and corporate travel.

• Prepare strategies to maintain operating cash flow as the economy begins to weaken next year.
• Maximize data collection and utilization of individual consumer/business travel history and preferences.
• Accelerate social-media marketing to highlight brand uniqueness and pricing flexibility.
• Renew efforts to improve internal efficiencies and promote productivity.

2. Undertake rigorous stress tests to determine their greatest vulnerabilities.

• Conduct “what if” scenarios: Introduce adverse hypothetical scenarios — events that can potentially disrupt business activity, impede internet and intranet access, and block credit lines.
• How to cope under such dire scenarios and remain profitable?

3. Conduct Geopolitical threat anticipation.

• Dedicate a risk-management team to engage in geopolitical forecasting, especially in regions where one has business exposure (e.g., supply-chain sources, offices, real-estate assets, foreign banking relationships).
• This team should prepare scenarios on how events may unfold — and their implications on the company.

4. Be proactive. Clients expect reliability of service — or they’ll walk! Focus on being agile and flexible.

• Prepare in advance a governance plan that can quickly be implemented to mitigate any harmful fallout from an external shock. Your company’s reputation is always at risk.