How to thrive during the impending recession
Travel is no longer a luxury.
It is a necessity. For starters, travel is deeply ingrained in this society and is an essential component of a of government and a range of industries, including business, healthcare, and commerce. People also travel for recreational purposes, o escape stress, routine, burnout, and to experience new places and cultures. During times of economic uncertainty, travel helps people relax, recharge, and refocus. Recession or not, people will still take trips.
In this blog, I'll be analyzing how a company built during the Great Recession (AirBNB, 2008), can help us navigate through this impending recession. I'll be exploring a few concepts that could inform business strategies and reduce the impact of the recession.
The Data
(Source: InsideAirBNB)
States: 19 Cities: 31 Datasets: 62 Observations: 11.3M
How should business pivot to optimize travel during strategies for the impending recession?
To answer this, we must first consider why consumers are willing to travel during a recession.
What is certain about uncertainty is new means to increase cash flow. During times of fiscal uncertainty, hosts will put up listings on homes they would normally keep empty. Whether it's the refurbished shed in their backyard, vacation home, or AirBNB arbitrage, new hosts will start to emerge in order to secure a personal form of cash flow. As interest rates rise, listing quantities will rise, driving prices down.
Condensing the host competition distribution to prices, we can see that the numbers tell a similar story. As the competition among hosts started to rise and fall in 2015/2016, the prices of the listings have remained stagnant. This factor, coupled with double-digit inflation, translates into lower costs for rental homes. Stagnating prices will attract a high number of consumers as they are able to enjoy discounts on premium properties.
During a recession, consumers will try to be fiscally savvy when they travel. To offset higher costs for lodging on trips, consumers will plan for one or more of the following three options:
1| shorter durations
2| cheaper prices
3| affordable destinations
Thus, pivoting business strategies to adapt to the situation is vital to keeping afloat and thriving during a recession.
Analysis
When visiting a different city for a couple weeks, we often try to be somewhat frugal about our spending. Rather than spending our vacation allowance in the first few days, we'd find opportunities to spread it out through the duration of our stay. That being said, the opposite also holds true: As consumer durations are cut short, their spending habits are likely to increase.
We can take advantage of this by ramping up production during certain quarters.
As we can see from the graph above, consumer travel growth varies throughout the year. While growth is increasing, not all quarters are equal. Aside from the expected travel dip due to COVID fears, we can see that growth is much more substantial in Q2 and dramatically slower in Q3.
However, when comparing the chart to the foot traffic throughout the year, we can gain more insights into how consumers travel. We can see peak foot traffic in Q3 (July - September) during the expected travel season, followed by Q2, Q4, and Q1, respectively. This is likely due to consumers opting to travel off-season to avoid the premium costs associated with peak travel times like holidays. Thus, coinciding this data with the travel growth shown above, we can infer that businesses should slow production during Q3 while increasing production in Q1-Q2.
Analyzing how to reduce costs is definitely important to stay afloat, but it is equally important to know what type of production to increase/decrease during this time. Unfortunately, consumers are less likely to purchase consumer goods when the dollar they have may be worth less the day after. In order to do a deep dive of this, I decided to take a look at another form of offsetting costs: accommodations.
From the graph above, we can visually see that consumers are gravitating towards higher and higher accommodations. Especially in times of uncertainty and the rise of digital nomads, staying at an AirBNB with higher accommodations provides an opportunity for consumers to offset travel costs at a different city.
As higher and higher accommodations are becoming more common, businesses can strategize to sell experiences rather than consumer goods. Whether it's theater, concerts, trade shows, wine tastings, or increased admission fees, consumers will be more likely to purchase memorable events than physical goods.
While pivoting strategies to capitalize on experiences, businesses also need to find a way to reduce costs.
As consumers are looking to travel to more affordable destinations, there will be an increase in foot traffic for lower average-priced listings. Due to this, there may be fewer opportunities for growth in regions with ambitious goals in mind a few years prior. As more popular places will see a decrease in foot traffic, businesses could reduce costs by shifting shipment priorities to lower-tiered destinations where we expect more growth.
Additionally, we can do further analysis on how saturated a region is to better understand the state of competition.
By understanding how saturated the market is for hosts per area, we can correlate the graph with average costs to understand which facilities are more likely to thrive and which facilities are unlikely to meet EOY target earnings. From there, we can gain insights and identify areas where growth will halt and expenses can be reduced so that operations can be optimized.
Conclusion
The upcoming recession is expected to bring drastic changes to the economy. Businesses of all sizes need to prepare for the impact of the recession and develop strategies to remain afloat. With data from AirBNB, we've identified areas where businesses can improve, expand, and optimize their operations to remain competitive and profitable during the recession. To do this, we took a look at the current market trends and consumer travel preferences in order to:
1| Reduce production during certain months / quarters.
2| Maximize gains by selling experiences rather than consumer goods.
3| Analyze regional data to predict target earnings and region optimization.
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