The Evolution of Hotels and Travel Business
Part Three
Foreseeing the future of the hotel industry
What does the immediate future (4-5 years) hold for the hotel industry?
The evolution continues. Shifting from old to new paradigms is difficult at best. We must change and adapt if we intend to prosper.
Nothing stays the same in travel or in life and you can’t take anything for granted. We are living in the era of travel. International tourism continues to grow strongly despite global challenges. And most people dream of travelling the world.
Alongside travel’s continued growth in recent years, we are witnessing a shift in business models and consumer behavior, mainly as a consequence of the global economic crisis, advances in technology and the emergence of digital platforms.
Despite all the geopolitical, economic and national upheavals – not to mention the emergence of disruptors and even more brands which threaten to further commoditize the business by confusing consumers – the future of the hospitality industry appears to be positive. But, of course, it is never easy to predict what the future holds and how the industry will evolve.
The future will be different from today. Everybody knows that. But how different?
With the cost of securing business increasing rapidly, and customer loyalty to hotels and brands waning dramatically, hoteliers are faced with some serious challenges. The good news is that the hotel industry will remain competitive. Why good news? Well, this means leaders are forced to continuously look at new opportunities and at new successful business models to better respond to potential challenges and maintain/increase market position.
Very few industry executives anticipated the speed and scope of the change which has taken place over the past 10 years, and in all probability the industry will see much faster changes over the next decade. Anticipating change and identifying new opportunities has become an essential part of the hotel business.
What will be the next big thing in hospitality? And where will future profits reside? What products will the industry have to create in the future?
When planning for the future, is there a balance between financial projections based on past and present historical performance, and the anticipated business landscape of the future?
Travel and Tourism is expected to remain one of the biggest and fastest growing economic sectors worldwide. To successfully compete, hotel companies must take a revolutionary approach to business, and the industry mindset has to adapt to deal with continuous changes and trends.
Facing global competition, the hotel industry will continue to develop a strong focus on strategy and innovation. Hotel companies need to develop a creative mindset that can revolutionize business models and rework service delivery. “Evolve or become irrelevant” is the mantra here.
Evolve or become irrelevant
In an age when people are moving for work and leisure more than ever before, innovation and technological developments continue to dramatically improve the experience of travel. The future of travel and tourism is being driven by a complex set of converging forces which are making the whole industry think about how to reshape the customer experience.
Technology aIways evolves and the industry has to embrace the changes in full. Software will continue to disrupt most traditional industries in the next 5-10 years, including travel and hospitality.
New technology has completely changed consumer behavior. Digitization has seen traditional call centers superseded by online purchasing. And what can be expected in the future? How good are hotel operators at foreseeing this? (For example, can the hotel industry find a way to have guests pay for their rooms at the same time they reserve them? And can hotels put in place an efficient cancellation policy?).
Has productivity improved or it has slowed? Is automation seen as a problem or a solution? Those are all important questions to be looked into it, addressed, measured, and answered.
Unfortunately, hotels are notorious for being behind the curve when it comes to the latest technology and this has to change. Hotels have to look beyond the status quo.
No one really knows which technology will provide maximize returns on investment (trying to come-up with a formula in this area may be a waste of time). But hoteliers can determine which technology is genuinely useful and which is just a fad – and priority should always be given to revenue management technology and systems.
As for consumers, as the years go by people will increasingly view travel more as a right than a luxury, and it will be considered a vital part of life. The world is extremely tense nowadays, and people are in need of more breaks for rest and relaxation. Unique and personalized experiences are coveted, and the demand for well-structured leisure destinations may increase.
A good leisure experience is all about relaxing, having fun, getting pampered, enjoying recreational activities, and creating happy memories. The business travel experience, meanwhile, is about recognition, location, reliability, efficiency, connectivity and a good night’s sleep. All employees have to be fully prepared and trained to provide these very basics.
Bleisure is still a big trend and popular with many travellers, especially the younger end of the scale, who always find time for leisure and who like to visit what local destinations have to offer.
The World Travel and Tourism Council (WTTC) estimates that the travel and tourism industry worldwide will grow by 6% per year for the foreseeable future (with probably a higher percentage seen in the emerging markets).
According to the World Tourism Organization (UNWTO), in 2016 international tourism reached a new record with a total of over 1.2 billion travelling the world. This figure is expected to reach 1.8 billion by 2030, accounting for more than 10% of global GOP. But the fact that 58% of all present travellers in the world are in need of visa to enter foreign countries is proof that lot of works remain to be done.
Changing markets
The future will bring with it new customers, new sources of business/demographics, higher customer expectations, and increased use of social media. New digital disruptors, meanwhile, will raise even more challenges for the industry.
With half of the world’s population living in Asia, and with the healthy growth of the middle class with disposable income in the region, Asia will make up the largest share of international leisure travel. In turn, more hotel rooms will be booked for leisure than for business.
When targeting potential customers in different geographic markets, hotels will increasingly consider factors such as cost of servicing, level of spend, and average length of stay. In the face of intense competition, hotels will increasingly turn their attention to generating ancillary revenue through activities such as increasing their share of the spend of each guest staying with them.
Question: Are modern travelers spending less time or more time in their rooms?
Mobile Bookings
As people get more comfortable using smartphones, mobile bookings are growing rapidly and will soon overtake desktop bookings. China currently tops the list of most connected travellers with over 50% of room bookings made via mobile.
Distribution wars?
Hotel groups are very much focused on driving more direct traffic to their own reservation systems, sometimes by lowering rates for members of their loyalty programs or by adding value to packages. But it’s still very difficult to compete with the ‘deeper marketing pockets’ of the online travel agencies. At what juncture will hotels and OTAs need each other and cooperate? Will Airbnb and Google impact both the hotels and the OTAs in the future?
OTAs have captured the largest share of online bookings and they are more active and engaged during the booking process. Consequently, hotels are faced with tougher times ahead.
But all is not lost. The hotel industry has to become much more vocal in letting guests know that by booking with OTAs they are inadvertently setting themselves up for a disjointed guest experience.
The opportunity here for hotels is to create a competitive advantage over the OTAs by raising awareness of the advantages of booking directly through the hotel, even at the same price offered by the OTAs. While this is easy to say…it’s hard to put into practice.
“Dear customers, are you expecting a customized/personalized service and attention from us? Then book directly with us. You will get a better value.”
A very large percentage of hotel guests prefer positive experiences over low prices. Hotels can provide these memorable experiences; OTAs cannot. This is a strong message for consumers.
We must also remember that, even in a highly automated world, there will be a range of customers at every price point who are willing to pay for personal service and deal directly without third parties. Can hotels reach those customers directly?
Recently there has been a clear move towards online bookings for groups and tours and related activities. This will further increase expenses for hotels.
What is more profitable for the hotel, direct reservations or bookings made via OTAs? Is one way better than the other? We all know that ‘repeat direct is best.’ It is crucial for hoteliers to understand the cost per acquisition and hidden costs of any reservation to achieve and maintain a healthy and profitable mix.
Also incoming…
In the near future we will see improvements in travel technology in terms of usability, interoperability, performance and artificial intelligence. Consistent advancements on the ‘Big Data’ front will also prove valuable for hoteliers.
The oversupply situation will continue in many markets/destinations, with more brands emerging and hotel companies experiencing lower ROI’s. Political instability and the threat of terrorism in many parts of the world may also affect hotel performance and profitability.
Higher labor costs and shortage of talent will continue to be challenging and problematic. Continuous innovation and implementation of new technology is a must. Hotels will have to get used to automation (in particular for production and back of house functions) but without eliminating the personal touch.
For better or for worse, robots are on the way. Programming and servicing all the robots will be a big task, but at least they won’t complain, won’t claim sick leave, nor maternity leave, and will work 24/7 – including public holidays.
With this in mind, the design and furnishing of new hotels has to be based on efficiency, practicality, productivity, and robot friendly layouts.
The industry must strive to offer unique and personalized experiences for guests. Consumers yearning for a better life will drive hotels to provide more functions and services in addition to accommodation. Hotels should get the basics right but they should also be more than just a place to stay – guests and visitors will expect more experiences and surprises.
The wellness and gym experience is expected to become a basic expectation and hotels can leverage this by allocating adequate space and facilities for meditation, yoga, silence, quality sleep, balanced diet etc. All of these experiences can be coupled with augmented reality to provide outdoor-like quality experiences. People will always want to look and feel good. Let’s make it easy for them to do so.
On top of this, hotels will need to explore new approaches to marketing and technology in a bid to entice new customers, boost engagement, and build loyalty.
What will foster loyalty – reward programs or recognition? Points or experiences? What are the competitive advantages of the brand and are these recognized by the consumers?
Hoteliers have to accept that change and innovation never ends. Simply put, “You can lead the changes or the changes will lead you out of the job.”
The sharing economy, online hotel aggregators, climate change, new geopolitical movements, rise of populism and many other global factors will have a direct impact on hotels.
Hoteliers have to become more like trendsetters, adept at predicting how many brands/products will be entering the market within the next five years and what they can do to remain competitive. The ‘customer centric’ culture is here to stay. And a hotel’s competitive advantage must be crystal clear.
Commoditization is a big challenge for hotels as in many cases they have to compete on price – to the detriment of the bottom line.
The solution is to give each individual the travel experience they are looking for, while engaging them through genuine dialogue.
Pairing digital efficiency with well-trained staff focused on creating a human-centric, emphatic experience is the way to go. Travellers will forget what a brand offers through technology, and through advertising, but they will not forget how those brands make them feel.
Brands that better understand their customers are more capable of providing value to them, creating loyalty and repeat business. Brand transparency is a must, there needs to be absolute clarity in guests’ minds what they can expect from the brand.
The industry must accept the fact that, in most cases, pricing is and will remain market-driven and not property-driven. This presents a clear opportunity for efficiency on revenue management.
Is bigger better?
Mergers, acquisitions and consolidations are expected to continue. Economy of scale and a solid brand portfolio are vital to remain competitive.
It’s a case of ‘eat or be eaten.’ Who will be forced to merge or affiliate? Will the small hotel groups and individual hotels survive and be able to compete? Is bigger better?…
We have to accept that consolidation provides benefits of scale, especially for marketing and distribution, network solutions and the ability to analyze data to provide a more customized guest experience. It should also contribute to improvement of profit margins at a group level, and enhance shareholders’ returns.
The mega-hotel companies’ loyalty programs, guest history data and revenue management expertise are so extensive that small hotel companies simply cannot compete. The same applies to relationships with vendors, convention bodies, online and offline tourism agencies, airlines and so on. The stronger the hotel company, the bigger its clout in negotiations.
This, of course, raises the questions; do mergers create a better company for consumers, shareholders, owners and for employees? And can this be measured?
Do hotel companies face a similar situation to the airlines? Merge or go down?
We must understand that public companies are required to grow, because public markets and investors expect returns on their investments.
Leadership
Hospitality leaders of the future must combine emotional intelligence, lateral thinking, cultural acumen, and always be prepared for uncertainty. Leaders have to ‘lead’ and not simply administer.
Is the industry capable of creating those leaders? Is there a succession plan and are training funds in place?
It is very clear that hoteliers have to devote more time and energy into identifying threats and how to best prepare for them. At present, most hoteliers only respond to threats when it is too late. Can hoteliers do a better job of keeping disrupters at bay?
Hoteliers must be innovative and take ownership of the changes happening around them. They have to have a good mix of both traditional and cutting-edge skills, always seeking ways to extend their company’s reach and boost bottom-line profits. Physical products must be renovated/upgraded ever 7-8 years and new services, facilities and concepts introduced. It is also clear that hotels need to look beyond the boundaries of their own industry.
Quote: The job of a modern leader is to share information, make sure their people have what they need to do their jobs, remove obstacles, and to provide clarity on what is needed, no how to do it. “When we tell people to do their job, we get workers, when we trust people to get the job done, we get leaders.”
Also, leaders need to be able to take the blame once in a while…..
Evolution in Human Resources
In response to shifting expectations and different generational needs, the whole world of Human Resources management is constantly evolving. From recruitment and training to retaining and rewarding employees, to the development of the next generation of managers and leaders, everything is changing.
Today’s workforce seeks and expects a better work-life balance, flexible hours, fun work environments, fast promotions, and broadened lines of communication. This generation lives in the now, motivated by a sense of purpose and instant recognition, feedback and results. Its expectations are a far cry from those of the older generations, who readily accepted the demanding nature of the hotel business and its 24/7 operations.
Generational mindsets
With an increase in both life expectancy and the average retirement age, organizations may need to find ways to combine the wisdom, seniority and experiences of the older generations with the energy and enthusiasm of the new generations, creating mutual trust and respect.
The industry is experiencing a constant increase in labor costs and in employee turnover. This is a dangerous trend that has a direct negative impact on the quality of service rendered and on profitability. Unfortunately, given the current political and economic landscape, the pressures of high payrolls and high turnover only look set to continue.
To combat this, and ultimately achieve a higher competitive market position, hotel companies have to create a strong company culture that attracts good employees, as well as secure and nurture people with specialized skills. This is a genuine challenge, and the results don’t come overnight.
There is a need to make people important again. Too many businesses have relied on their brands to do the work when actually old fashioned skills are the keys to success –building strong relationships, developing trust, sharing a vision through strong leadership, and creating a fun work environment.
In addition to good corporate governance, the industry needs quality management teams who are high performers. Skills alone are not sufficient. The industry needs passionate and aligned people who embrace the challenges of the hospitality business and produce results without being told what to do.
Now more than ever, it is imperative that management and leaders eliminate unproductive hierarchy and internal silos that slow progress, and instead implement flatter/efficient structures and foster an environment of learning. They should be absolutely committed to recruiting the best talent and introduce a wide-array of efficient training and development procedures, as well as competitive performance metrics, rewards and incentives. They must accept that, in today’s highly competitive environment, hospitality organizations have to rely on committed and motivated people to ‘go above and beyond.’
Ours is clearly a people business – people as customers and people as employees. Successful organizations treat their own people/employees fairly and with respect. Happy employees will accept the customer as the boss. The results are low employee turnover and high customer satisfaction.
Hotels are run by people, service is delivered by people and a critical question for all of us is: How much are we investing in our people in order for them to deliver the brand promise?
The human factor in hotels will never disappear. People/employees are the ones who make great hotels and generate the expected ROI’s. They have to be properly taken care of and hoteliers must create opportunities for them. Putting people first is the way to go in this industry as people are the true differentiation, and always will be. Automation is coming, but it cannot kill the human element.
There is an old saying: ‘Take care of your employees and they’ll take care of your customers.’ Technology or robots can never replace this culture.
Food Glorious Food
Food evolves, trends evolve and cultures evolve. The hotel industry has come a long way in food and beverage but this area is screaming for more attention from both the owners and the operators. Food and beverage in general has become a very competitive business and profitability remains a challenge.
The fact is that customers in general are becoming increasingly more sophisticated in their tastes, and there is an increased choice of where to eat.
For centuries people beat back hunger and filled their stomachs with carbohydrates such as bread, rice, pasta, corn, cereal, potatoes, and beans, but nowadays carbs have fallen out of favour as the world is gripped by wellness trends and weight-loss fads, not to mention the fear of diabetes, obesity and heart attacks.
Other nutritional concerns revolve around the high consumption of red meat, refined sugar, fried food, processed food, junk food, butter, pastries, fats and everything else that is perceived unhealthy for the body.
So what can one eat?
Legumes, fruits, seeds, fresh products, olive oil, fish, lean meats are all considered good to eat. It’s also interesting to note that organic products are perceived to contain a higher quantity of nutrients and vitamins.
To remain competitive, hotels must follow industry trends and constantly adapt and evolve their F&B operations. In most cases, food and beverage is the second largest source of revenue for full-service hotels (with rooms coming in first).
Food and beverage outlets are a great way to differentiate a hotel. But far too often hotel outlets are outdated and uninspiring, lacking passion, personality and enthusiasm, and unable to provide memorable experiences.
Fast-changing customer preferences and constant new trends mean it is difficult for restaurants to keep up. Intricate and long menus are being replaced by a focus on quality products and honest food based on premium, fresh ingredients, spices and elaborate cooking techniques. Shorter and less complicated menus with local and seasonal items are preferred, like a farm-to-table approach served in more casual settings. More and more customers demand authentic flavours and healthy options – “complexity in simplicity”.
Staying ahead of trends in food and beverage requires a committed and motivated team of qualified/experienced specialists combined with attractive and interesting physical facilities capable of delivering that “talking point” and keeping guests engaged.
Vegetarian and gluten free have become two of the world’s fastest-growing diet trends and must be included on menus. The “family sharing” concept is also growing fast.
And are some hotels are moving away from room service toward F&B trends like Grab-and-Go?
An increasing number of hotels are partnering with well-known restaurateurs to develop interest in their outlets. Restaurateurs seem to better understand customer preferences and see gaps in local markets faster than hotel specialists. Attracting local patrons is a must for hotels.
(Note; the above refers to Western-Continental food. The Asian and other ethnic foods are experiencing a similar evolution).
Evolution in hotel investments
The industry has seen wave after wave of small and large investors; some did well while others failed miserably. It’s important to remember that the principle of investing in hotels remains the same – “Right Time-Right Place.”
Large corporations, pension funds, REITs, private equity, wealthy families and others have all invested in hotels and brands – some with success, some without. While some have a short-term exit strategy, others have a long term objective.
In the past, the industry has also seen investors from countries and regions with ‘global aspirations’ such as Japan during the ’80s, the Middle East and lately from China.
– Japan’s hotel asset buying spree was carried out with too much debt and questionable company valuations, and all the investments in hotels incurred huge losses. A big lesson learned.
– Investors from the Middle East went after trophy assets (mostly done when the price of oil was very high) and in most cases overpaid for the assets. Will those properties and/or the investors face liquidity issues?
– Chinese investors also went after brands and prime properties and also overpaid in some cases. Will they continue like this? Indications are that there are new capital controls and the Chinese Government is cracking down on large deals/investments outside China. It must be noted that Chinese investors typically focus on the long-term.
And who are the future investors?
Looking toward a fascinating (or disturbing?) future…
With our imagination at play, evolution just keeps getting faster and it will not stop. We now live in a world of smartphones, smart controls, beacons, virtual reality, 3D printing, cloud-based technology, facial recognition, infrared body scanners, mobile biometric cards, and Bitcoin. It is also a world of more demanding guests and hotels, anxious lenders and fewer employees. (And we can’t forget the effects of climate change, natural disasters, and rising sea levels…)
The hospitality industry is and will remain an integral and indispensable part of the worldwide market. Travel demand is expected to remain strong. A very large percentage of the population likes to travel, and they will always find time and money to do so.
Travel itself, however, is changing, and trends in technology, science, energy and entertainment may change the hotel experience for travellers.
How will future travellers choose a destination? How they will choose a hotel, book a trip, and travel to the destination? And what are will be their expectations? What will the hotel of the future look like? What facilities will it have? Are leaders anticipating all of this?
Under increasing cost pressure and the need to differentiate their product, hotel operators will have to explore everything that’s available in order to stand out. Technology has to be aligned with the hotel’s overall strategic positioning and with the competitive advantages of the brand. Again – are leaders anticipating all of this? Are they prepared for bold decisions, bold actions and serious budgets?
Hotels of the future; Will the traditional form of hospitality change? And what can we expect/anticipate? In all probability, we will have to plan to introduce virtual reality in many parts of the hotel, as well as 3D printers, artificial intelligence, morphing technology for special effects, gesture-controlled interactive walls, ubiquitous touchscreens, hyper connectivity, robofying cars, my travel avatar and much more.
Hotels will have to implement new systems to search, explore, and book destinations and hotels (my travel avatar), as well as introduce DNA mobile and//or virtual payments. Multimodal systems complete with one step booking capabilities will become mainstream.
Longevity wellness programmes and neuro-dream (choose your own dream) are expected to become industry standards. Self-sustainable eco-hotels will also become an expectation. The continual desire for something different in food and beverage will continue, particularly in line with a balanced diet, creativity, attractive new concepts, less uniformity and more value.
Delivering a highly personalized and memorable hotel experience in the future will become increasingly challenging. Training programs need to be intensified to prepare employees to perform multi-functional roles.
Markets are driven by consumers, and choice and better value is what they expect now and in the future. The hotel industry has traditionally valued long-term relationships and this value and practice should be strengthened.
The best competitive advantage, for any organization, is to have things that cannot be copied by competitors, such as brand recognition, market position, quality standards/consistency and, most importantly, people and culture. Changes can be integrated as part of company culture in order to increase the value and competitiveness of a hospitality organization.
Red flag?
What is the brand differentiation and the competitive advantage? Owners are increasingly questioning the value of chain affiliation, and if there is no clarity, some may opt out of the brand. Operators must keep hotel brands relevant and accept the fact that ‘generic brands’ will gradually lose steam and disappear.
Why do many hoteliers choose what they want to believe and not follow and analyze data? Why do many hoteliers believe everything their friends and peers tell them? And why do many hoteliers overestimate their ability…
Hospitality is a business where everyone is copying everyone. But if hotels continue to replicate each other’s amenities, processes and business models, the hotel brands of today will without doubt become a commodity. The danger here is that hotel owners and guests will one day wonder why they pay so much for a brand, and may think they’re better off without one. Big groups are moving into soft-brand space. But owners do not like being tied into those group’s fixed contracts.
Truth in advertising; Are your customers and your owners responding well to your advertising? And is there clarity in all your charges/fee including taxes, services etc…? And assume that you don’t gouge your guests with objective or more profit.
Environment as an agent of change
There is an increasing evolution towards responsible and sustainable tourism and transparency, with guests taking account of environmental considerations when booking a business or leisure hotel.
With this in mind, it is clear that the industry must seriously address sustainability and take care of local communities, avoid exploitation of people and destinations, assist the less fortunate, adhere to environmentally practices, create job opportunities, and remember that generating profits is important but not everything…
As for cases of over tourism, there are some clear lessons out there. Take Venice, Rome, Iceland, Barcelona, and Hong Kong (in this case from one source) for example. All of these destinations have to carefully balance the influx of visitors, especially during peak periods, as well as prevent overpricing, poor services and resentment from the local population.
The abilities of the most popular destinations are limited and travellers are always searching for new horizons. It is crucial for local authorities to define what makes one particular destination better than another. Global hubs and trendy cities will always be among the preferred destinations.
Cyber Security
We are living in a connected world and with continuous evolution on technology and on data, the industry is susceptible to “Cyber Attacks” and hotel companies need to protect themselves. In to-day’s world, there is no excuses for not being ready and not protected.
To be noted that between 2015 and 2017 at least 20 major data breach reported within the hospitality industry including global brands.
The greatest challenge now in any industry is awareness and training in security topics and companies need to be pro-active in guiding their staff what to be aware of and have quarterly auditing in this critical arm.
Money never sleeps and neither do hotels. Hotels are like sovereign territories with their own rules, regulations, terminology, and behaviors. They are, in fact, bizarre places where you can also find diversion, mystery, suspense and also anticipation. Ultimately hotels are in business to generate the expected ROI, and the leaders at the helm have to deliver it.
Back to basics
Despite all the changes, new technology, shifting preferences and expectations, all of a hotel’s basic products and services like a good night’s sleep and a good meal for good value are here to stay. We sell sleep and we sell food. It sounds so simple but sometimes we make it so difficult and complicated. And in this industry, nothing is going to replaces a face-to-face contact.
Better or worse times ahead?
The rapid advancement in technology in almost every facet or our lives portends both good and bad news. Will computers become more intelligent than humans (but not smarter/cleverer in their decisions)? And what this will do to the hospitality business and to our jobs? Are we going to land people on Mars? By when…..? Will there be hotels?
I do appreciate all that I have seen and achieved. And I have thoroughly enjoyed it.
Quote: the so-called baby boomers (like me) worked very hard, had some fun at work and prospered. Millenial’s struggle to find fun at work and are under pressure. Something has gone wrong…
