Hospitality Trends & Opportunities, 2015 & Behind – Giovanni Angelini

(GA, Sep 2014 )

“Lot has been written on the industry in the past and much more will be said in future on the continuous evolving trends and technology and it is a must for all of us in hotel business to keep up with it and respond”

(By Giovanni Angelini, Hong Kong, September 2014)

The hospitality industry around the world has, in most cases, recovered from the global financial recession far more quickly than other economic sectors.

During the economic downturn, hospitality organizations, including top-end hotels, were hit hard as companies reduced business travel and tourists sought bargains. As consequence, most hotels felt compelled to lower their room rates in order to get a fair share of business but from a smaller pie. Over the past couple of years the situation has gradually improved on both the corporate and leisure segments and in general, hotels are performing better.

In addition, the industry has seen a constant increase of business from some of the fast developing economies within the BRICS countries, China in particular.

Of course we all know that the hospitality business is impacted by the ‘cycles’ and looking at the history, one can see the 4-5 years of growth then couple of years of declining business year on year. Similar situation applies to the development and construction of new products (hotels, cruise ships, attractions, parks etc.).

Few very important questions are now arising: Is the present “Supply & Demand” in a balanced situation? And from where the growth will come from in the future? Which country or segment has the potential to make a significant positive impact to the hospitality industry in 2015 and behind?

A clear indication is that the industry has to be well prepared to respond to the needs of the younger clientele that are far better traveled and much harder to please as compared with the more senior (grey hair) travelers. It is also a fact that the younger travelers (the so called generation X and in particular generation Y) are also much less loyal to a brand-product-destination, they simply “sleep around”. How the industry will handle this important segment? Those young travelers have the means and are the present and future potential customers. Hotels will have to give amenities aimed at increasing communication efficiency for those tech-savvy next-gen travelers.

And of course be prepared for the significant increase and potentials from the Asian growing economies, China and India in particular as those markets will generate large volume of business all-over the world at both the upper-scale and at the mid-scale. Naturally with the quickly growing of the middle class in those countries, stronger potential is within the mid-market but at same time do not underestimate the potential of the riches from those sources as most of them have a greater desire to be associated with the deluxe brands and are prepared to pay for, provided they get recognition and attention.

In response to the market forces, developers are now in process of building something like 490 upper market hotel projects around the world of which more than half in Asia with China leading the way (STR data) and more than quadruple this number is the volume of the mid-market hotels being developed as this sector has much stronger potential to generate good returns on investment (key reason to develop) as they cater directly to the growing middle class. It is anticipate that China and Asia in general, where labor costs have not yet reached the levels seen in the West, will set trends in creativity, services and innovations.

On developing new hospitality related facilities and hotels, at present and in the near future, must take into consideration the new, and in some cases confusing, design concepts and facilities and in particular how extensive the technology should be? And what type? A big question that the industry is finding very difficult to answer as many programs-systems-software are expensive and getting outdated very fast. No one is sure what will work and what will not, but everyone knows that the stakes are huge.

Looking at the past 10 years, we have seen major changes on how hotel bookings are done and how the industry is communicating with the market-customers. This trend will continue and will intensify further. Smaller hotel groups will encounter additional difficulties on competing with the larger-global groups on promoting their brands-products and have to relay more and more on external factors and pay the price in order to respond to the changing consumer buying behavior. Proper technology is a must but it comes at a cost. Bookings received from other sources like the OTA’s (with their dynamic packaging) and others will also come at an increasing cost. Proper management of the room inventory and management of the segments becomes mandatory for any hotel operator in order to compete. Online social media including feedbacks and communication, online travel research, meta search, online bookings will become ways of doing business for the industry in future. Definitely a commodity business……totally different situation as compared with the past.

With technology and social media, people are connected real-time, among their friends-associates, with their interests and with their favorite brands. The way a particular brand communicates with their customers becomes so important in order to attract and respond to the needs of those customers and deliver the expectation.

Ideally, in hotel business, a brand should have the resources to build and connect its own digital capabilities, pulling together the revenue activities-management, the customers data base, its own reservation systems making easy for customers to book, management of the loyalty programs, customers direct access to group-wide or individual property special promotions and packages and make this available to all properties and to respective staff in order for them to consistently respond to needs and provide guests with personalized experiences.

Extensive use and efficiency of own web-site to communicate and take direct bookings from the consumer, at no commission, is a way to minimize some of the costs of doing business however the industry is not attracting qualified talents to effectively manage this process and third party agents are taking advantage of the situation. Can this be solved?

It would take a change of mind-set by the hotels in attracting smart and qualified people at considerable higher pay but it will be a good investment.

Customers do expect choices and this expectation will increase in future. As an example, let’s look at the arrival process in a hotel; the nature of each visit, even for the same guest, is going to be different from the previous visit. Sometime a customer is happy to interact, sometime not. Some customers wants a touch of welcoming experience, others don’t even want to be seen in the lobby and don’t want any hassle. This will not go away and hotels have to plan for the future and give its customers choices. Can technology helps? Can hotels extend similar service as the airlines by providing check-in the day before and on arrival, customers literally walk right to the room without ever interacting with any one if they don’t want to? Can selection of rooms be done via IT-mobile? Those are the situations (and not only for the arrival process) that the industry has to consider for the future and hotel groups have to respond to the changes/improvements.

It is anticipated that top hotels will have lesser restaurants and consumers will expect and demand for more interesting dining experiences, the ‘average’ service and food will not do, it has to be more than that. Trends will be more for dynamic mix-used facilities incorporating bar-lounge-specialty restaurant-entertainment. Mid-price hotels may only operate one small facility, mostly for breakfast and limited menu items, or if space is available lease it to outside operators. Indications are that an activity place (lobby-bar-lounge) for people to interact and work is becoming in demand and it should be considered and further explored.

MICE business is expected to prosper in future and proper space is to be provided with the latest facilities-equipment-technology. Potential is for both the city-commercial hotels and for the resort hotels. This is a specialized business that can generate good revenue-profit and is to be treated as such. No space here for sub-standard products and services. Organizers of those events are top professionals and are very careful on choosing a place. Hotels must respond well in all areas in order to secure this competitive business.

One important factor that goes in favor of the Hotel industry is that the basic fundamentals will not change very much and this is based on what the hotels are selling, in this case a good night sleep (importance of the bedding), a strong shower, a sound-proof and clean room, fast-latest communication-entertainment, privacy, safety and a good meal, breakfast in particular, all at a sustainable price. Therefore the architects, designers, operators and naturally the developers have to ensure that those specific services/ facilities have to be top of the line, practical-easy to use by all and with no compromises.

What will be more in demand?: “rich ornaments-expensive” or more of “simple is beautiful”……., is space a luxury or the preference goes for a well-appointed and functional smaller place?. There will be demand for both, importance is to do those well without cutting corners as the market will pay for it but will not tolerate poor products nor poor services.

With the stress of the daily life, combined with the worsening air pollution, travelers will be searching to escape from the routine therefore resorts with good basics and facilities, wellness in particular, are expected to be more and more in demand. Some hoteliers and developers argue that travelers prefers a room experience that reminds them of their home while others argue that the desire to feel like you’re in another home is growing. Confusing words like ‘lifestyle’ is fading out fast as no one understands what it is. The market is getting more sophisticated, is prepared to pay for quality product-services but will not accept sub-standards.

At the end, all boils down to the service, attention and care that the travelers are receiving. Price is seldom a factor on choosing a place to stay and this will continue. Reflection of a more local experience of the place-legacy, more authentic product-character-design, is and will always be appreciated by travelers versus the ‘cookie-cutter’ products of some of the global brands. There will always be changes in this industry, must get used to it and respond. Be very clear on what is your competitive edge and what is the customer’s expectation and what they truly value. Note that criteria of selecting hotels is changing.

Results of a recent survey done online by “American Express & Shift” in the USA targeting business travelers on their expectations and on criteria on selecting an hotel to stay when traveling for business;

Free and fast Wi-Fi the most important with a score of between 28% to 35%.
Location close to the office/meeting place a score of between 25% to 30%.
Free breakfast also very important with a score of between 20% to 25%.
Enrollment in the hotel’s loyalty program, less than 10% (surprisingly low).

Conclusion; work faster-effectively and convenient place prevailed the expectation” (Leisure travelers may have different expectations and criteria on selecting hotels but the above are always important).

As for customer’s satisfaction and surveys, the check-in and check-out process remains one of the most source of unhappiness. Note; it has been proven that those who purchase hotel rooms based on price are the least satisfied guests. How can hotels educate those customers? (You get what you pay for…)

On the potential of China, it is anticipated that by 2020 there will be around 200 millions trips out of China into most of the countries around the world, most of them are leisure travelers. Travel in China is becoming a ‘human need’ both the travels within the country and travels to foreign countries. Quoting the Hurun report “Tourism remains supreme as the number one leisure pursuit for China’s wealthy”. Travelers are slowly getting more sophisticated and have the spending power. Trips to the West including Australia, North America and Europe are highly on demand. Of course those travelers have their own expectations in terms of value for money, availability of own food, competitive/quality shopping, points of interest, communication and safety. China will also continue to attract inbound visitors at competitive prices as at present there is an oversupply of hotel rooms in most of the cities and centers trough-out the Country.

Shortage of trained labor, attitude and less commitment will directly affect the service standards that the hospitality industry is known for and this is a problem that will not go away as the industry will remain labor intensive. Technology can replace some of the tasks but there is a limit. Labor costs will continue to increase. In general, the industry is not attracting top talents as compared with other industries. The industry needs sharper and stronger leaders to compete and survive the external forces and consumer behavior shifts impacting the profitability. Where those new leaders come from? And are they prepared to the long hours and lower compensation as compared with other economic sectors? Lot of work and investments to be done by the industry in this area.

WHAT THE INDUSTRY SHOULD ANTICIPATE AND PLAN FOR?

(Executive summary for info. and planning purpose)

Strong growth in travel over the next 10 years especially out of Asia.
Travel and Tourism is and will remain one of the biggest and fastest growing economies sector world-wide creating millions of jobs and accounting to close to 10% of the global GDP.
With the increased wealth, stronger economies and the growing middle class, Asia will generate the most travelers for the whole industry.
Winners will be the ones who anticipate the trends & expectations and respond to it faster and more effectively.
Efficient use of Social Media for communication with customers-employees-industry and measure the position-quality of product and services has become a must for all hotels to respond-handle. Social media activities and services will continue to increase.
Technology will also continue to evolve in all sectors of the industry and must respond to it with wise investments and proper use.
Must understand that waiting for tomorrow’s technology to arrive, does not guarantee success. Must plan ahead and anticipate.
Tomorrow’s technology may already be checking into hotels, although hoteliers might not be aware of it yet. “Stay on top of it, or fall behind”.
Most of the large hotel companies in the world are presently looking at their core systems. Those companies are looking at changing/improving everything from their reservation systems to their social media platform in response to the changing trends. Winners will be the ones who respond faster and effectively.
Smaller companies will have to follow as well and it may become costly for them in order to compete.
Attracting, hiring, training and retaining a new generation of staff is becoming very challenging.
Responding to online reviews: A recent survey by TripAdvisor shows that hotels which respond to online reviews enjoy a fifth more bookings than those which ignore them. Also the more reviews the hotel’s management responds to, the higher the average review rating. And don’t forget how important is to put photography online, not a “thousand words but a thousand clicks”.
Role of Revenue Manager is changing toward a profit management role.
The industry has to do a better job on quantify the customer acquisition costs. There are clear indications that percentage of costs are increasing at much higher level than revenue increases. Brands cost, commissions, property marketing, etc. Must identify your acquisition costs and also customer’s retention has to be top priority.

Best use of Technology;

(Note; some of the following comments taken from the “discover tomorrow’s technology today” conference in the US);

It is all about customers…….put them first and give them choice and control. The biggest opportunity is empowering the guest to do business the way they want to do business with the hotel. Remember that they have choices.
Make it easy for them to book the way they prefer and provide the necessary tools to respond immediately.
Personal information about customers/data-base becomes very important in order to respond to their needs. (Keep clean data at all times)
Every single person/staff at the hotel needs to understand how their interaction with the guests affects (the guests) and their impression of the hotel-brand.
At present, hotels are on the losing side as compared with the online travel agencies as the OTA’s are winning the battle and their business increases much more than the hotel’s web business.
OTA’s are trying harder to stay one step ahead of hotel companies as they are more flexible, have more funds-cash available and are light on assets.
Be aware and try to respond to the many consolidations taking place among the OTA’s, “whom is buying whom”. Look at the fast expansion, at the network and muscles of Expedia and others. Also look at Priceline with the recent acquisition of a property management system “Hotel Ninjas” plus the digital marketing platform “Buuteeq” and restaurant reservation platform “Open Table”.
OTA’s will continue to challenge the traditional agency model and will try to dominate the booking of business at high commission.
It is also anticipated that the Traditional Travel Agent will remain especially when it comes to provide value adding and specialized packages to the travelers.
Can hotels provide and deliver the multichannel experience the new generation of travelers wants-expects from the hotels?
Accept that mobile in not a “fad” but is being used more and more by travelers and not only by the new generation. There is a constant increase in mobile bookings. Hotels to look at ways to make the process more productive.
Hotels must provide consistent experience across all three main devices (Desktop, Mobile and Tablet).
Respond to the rapid shift to online and mobile bookings. Asia is leading the way and is at the avant-garde on this as Asian travelers are the biggest mobile addicts and most of them use multi-devices on their travels.
Accessing the Web via mobile in Asia has now (2014) surpassed those accessing it via PC (WebInTravel data). Do not handle mobile booking process as an afterthought.
One quarter of the total APAC travel market was booked online in 2013, up from one fifth in 2012. (In China, it is anticipated that by 2015, 35% of hotel bookings will be mobile-based.
A lot that the hotels can-do and should-do on technology but have to be selective and assess what makes the biggest impact and generates business. An example, ability to place video reviews on sites such as TripAdvisors and similar, can this be done?
Hotel Wi-Fi test, which measures the speed and quality of hotel internet has launched a browser extension that allows its information to be displayed on OTA’s systems alongside standard information-facilities of the hotel. This will directly influence customers on their decision to book the hotel or not.
Look at the group booking engine and assess if it has value for your hotel/groups. (Groupsize solutions’ GBE)
Always comply with the very basics like frequent up-date-improvement of the web-site making the whole process of bookings fast-efficient and informative. Practice and refine the rate parity management, attractive promotions within the loyalty program-members, be creative with the non-commissionable packages created and sold directly by the hotel, seasonal promotions, online advertising, use of social media etc…
A word of caution on data security: be aware of the so-called “Data brokers” as they can get access to your valuable information on names, contacts, business generation, system used, etc. Protect your data.

New Projects/developments;

Cost of land to build-develop continues to increase in most places.
New hotel projects may generates less ROI as compared with the past mostly due to higher development and operating costs.
There will be less individual (stand-alone) hotels and more multi-purpose complexes with real estate component.
Interest rates on loans expected to remain low for couple more years however financial institutions are much more selective to whom they will grant loans.
There is potential for new well planned integrated resorts offering variety of facilities-products specially within the developing countries/economies.
Less management agreements formula and more franchises and leases.
Competition within the operators will increase on securing new deals at the expenses of the fees.
New brands entering the market from both the large and small operators and also from new starters/developers.
Trading-consolidation will continue; whom will buy whom?
To watch: will there be an increase in demand for reasonable priced holiday homes-condos in future? And for AIRBAB and alternative accommodation?
Emerging financial hubs/cities of tomorrow. Important to define who/where in order to plan.

Facts and trends;

Attracting, hiring, training and retaining a new generation of staff is and will remain very challenging. Operators have to look at this as priority and offer competitive packages, flexible time, personal growth opportunities, top of the line staff facilities and benefits etc.
Creation of attractive and rewarding work environment is critical on attracting young talent in the industry. Involve those young people on creating – design customers’ experiences for the future. Manage the expectation of the young generation and guide them toward the industry needs including dealing with people (customers & staff) face-to-face.
Travelers are becoming more sophisticated and demanding. Anticipate needs and respond well.
Hotel operators have to become smarter marketers on attracting new customers and more efficient on the delivery of their services.
Small hotel groups and boutique hotels will find more difficult to compete as they don’t have the necessary economy of scale.
Travelers, both leisure and business, will be much more focused on wellness; food, look & feel, activities etc.
Hotels will have to make same of their supporting facilities like swimming pools, health clubs, Spa’s and others more interesting to the users.
Flying will remain the safest way to travel as the aviation industry is determined to improve on safety performance.
Large countries within Asia will see much more regional source of business for the hotels within few hours travel-distance by car or train.
Airports expected to drastically improve their facilities, services and technology enhancing passengers’ traveling experiences; automated passport control, biometric kiosks, holographic staff, self-service check-in, scanning sensors and digital bag tags, self bag drop, virtual shopping replacing the stores, etc.
Constant development of new and expansion of existing airports, Asia in particular.
Europe will see a consolidation of airlines as at present there are too many and most losing money. The USA has 4 airlines servicing 87% of the capacity.
Passengers will soon be able to use smart phones, E-readers and tablets through the flight and have more time to book hotels at last minute when travelling.
Shopping remains an important part of the travel experience but online shopping is growing fast. (Note that 52% of Chinese internet users now shop on-line, about 330 million of them and growing.
Interesting to note that unionised hotels are a bit less profitable as compared with the non-unionised hotels (Labor intensive industry).
Political disturbances may continue to occur in some countries with direct impact to the travel industry. Those are times to improve the physical product-renovations, do extensive training programs, team building sessions and time to prepare attractive packages and specific promotional activities for when the situation improves.
Rule of thumb: never stop looking for new sources of business and respond to their needs in order to attract them.

In conclusion, the two biggest challenges that the industry is facing in order to attract and retain customers are; stable-motivated labor force (employees) and best use of efficient technology.