The Evolution of Hotels and Travel Business Part Two

The Evolution of Hotels and Travel Business

Part Two

Recent times and macro challenges

The world is changing rapidly with new customers, new markets, new behaviors, new technology, new brands/products, and emerging destinations all posing challenges for hoteliers. Is our industry travelling at the same speed, or are we struggling to keep up?

Travel and tourism, like society and the economy, is constantly evolving under the influence of, and often thanks to, many external factors.

Over the past few decades, and as result of change and innovation, the travel and tourism landscape has been continuously evolving and we have seen the introduction of loyalty programs, of airline alliances, the incorporation of low-cost airlines, dynamic pricing and yield management, paperless travel through electronic ticketing and check-in, online travel agencies, all-inclusive resorts, time share properties, boutique and theme hotels, wellness themed holidays/facilities, and the sharing economy. And let’s not forget the Chinese tourism boom, the mega-hubs in the Middle East, the cruising boom, new gambling centers, theme parks, the experience economy, storytelling, disruptors and so on.

Evolution in Responsible Business

A – Ethics

Embedding ethics into core strategies makes good business sense as there are tangible benefits in doing this, including real efficiency and an improved corporate reputation. The industry has to move beyond symbolic statements on ethics. Hotels alone cannot fix basic problems, but they can assume a proactive and collective approach to human rights and business ethics, ensuring transparency in all monetary transactions and complying to the highest safety standards, for example, as well as helping to battle the exploitation of children (labor and prostitution in particular), bribery, illegal gambling, use of drugs etc.

We all know that, in most cases, the negatives readily outweigh the positives, but hotels have the responsibility to train all their people to spot and report suspicious cases, including the activities of the perpetrators.

B – Sustainability and Social Responsibility

Sustainability is no longer a ‘lip service’ nor public relation statement. ln the hospitality business, it is becoming an increasingly important factor behind customers’ purchasing decisions. Acting responsibly by helping local communities, protecting natural resources, implementing best practices and programs, and operating hotels more efficiently is becoming the norm. We must remember that hotels are an integral part of their communities.

Basic targets and measurements for any operating units include energy saving, reduction of greenhouse gas emissions (carbon output), water consumption, wastage, recycling, responsible sourcing of goods, and creation of opportunities.

Climate change will have a huge impact on the industry. The world is moving rapidly towards real-time climate change with changes in global water cycles (our ecosystems are based on water cycles) and the industry must become a low carbon economy and implement responsible practices.

Operators cannot do this alone. Annual certification by well-respected international standard-setting bodies (ISOs, LEED, and similar) give credibility to initiatives, and also increase productivity while minimizing errors and waste.

“Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” – International Institute for Sustainable Development.

It is a ‘perishable’ business

If you don’t sell it today, you cannot sell it tomorrow – it has gone forever. This is the dilemma that perishable businesses like hotels, airlines, cruise ships, trains etc. face every single business day. You simply cannot store the hotel room or the restaurant seat for tomorrow as tomorrow is another business day. Whether you sell a room or not, your fixed costs are going to be the same. So what do you do? There is logic in pulling in any revenue you can late in the evening instead of keeping the room empty, but what will you do to prevent devaluation of your brand? This is where a strong pricing policy to protect your reputation comes into play…

Evolution in leadership

‘Just another day at the office’ (or simply following the status quo) will not work anymore as it is the fastest way to becoming stale, outdated and self-destructive. Leadership must evolve to embrace the many new business dynamics. Efficient leadership has evolved from the Command, Control, Compartmentalisation way of leading organizations to a more Interactive, Informative, and Innovation-oriented model. Effective leaders of today must have the emotional intelligence to create meaning and inspire and empower their people/team to get things done. Strong leadership requires continuous evolution and development. As the Industry is rapidly evolving, leadership must have the ability to collaborate, motivate and manage networks.

People make the difference

A strong and talented group of committed people have always been, and will always be, essential to the success of an organization. The more talented people you have in your team the better it will be. Do not be afraid to hire people smarter than you and pay them well, as those are the people that it will make you look good. Find people who want to evolve and who eventually will be after your chair (you will move up). Those are the people that will make a difference. It’s true that the most talented people are often the most difficult to work with as they need space and freedom to blossom, but they are also the ones who generate stretched results.


A – Online Travel Agents (OTAs)

Hotel organizations opened the door for OTAs to thrive. OTAs were pioneers as they were able to figure out a way to make money by charging high commission for real estate they had no vested interest in. The OTAs biggest strengths are money and marketing. They have successfully convinced travellers that they have the best deals, but in most cases this is not true. Can the hotels fight back? It is a contentious battle without a winner. What is the solution? How can we create a win-win situation?

OTAs changed the rules of distribution at a time when hotels were concerned about amenities…..

Are hotels stacked in their own bubbles? It is clear that with OTA’s in particular, the industry has got itself into a hole and now it is a must to accept that change needs to happen.

B – Sharing economy

The business model is similar to OTAs in that they don’t own any of the real estate they market and sell. In fact, they have successfully monetized a business that is not entirely new – the renting out of a property (individually owned villas or apartments) to travellers at a very competitive rate. While they face regulatory hurdles, home-sharing companies have successfully inserted themselves as another means of lodging. Have we come to the point of ‘if you don’t beat ’em, join ’em?’

Of course, it is necessary for the sharing economy platforms, and for unit owners, to comply with all the local rules and regulations of a destination, such as licenses for fire and life safety, security of the unit and hygiene, plus payment of related taxes on the short term accommodation.

Question: Are boutique and life style hotels be considered disruptive? And the shared accommodation is a new disrupter?

Geopolitical uncertainty?

No doubt about it, the hotel industry faces many challenges in today’s technology driven world. From political instability to economic slowdown to an increase in natural disasters to health pandemics to ever-changing consumer trends to lower ROI’s – there are many factors currently affecting the viability and profitability of our business.

Terrorism is becoming a very serious concern for the industry. The 9/11 disaster in New York, the Bali and Jakarta bombings, and the recent attacks in Europe are all very clear reminders of the challenges the industry has to face and be prepared for. To ensure travellers feel secure, tightening security processes must be a top priority for all travel and hospitality related businesses. Politically motivated terrorism has become a major global concern – as has ‘Trumpism.’

The hotel industry must also anticipate potential challenges ahead. Will there, for example, be another global recession in a couple of years?…

Freedom of travel

The travel industry has to accept and adapt to the fact that travellers (leisure in particular) now have the freedom to choose where and when to go, how to book, how to go, and where to stay.

The basics of hospitality remain the same but the industry is reorganizing, shedding jobs, automating many roles and updating its business models. It has to do this to survive.

Hotels have to find ways to optimize their pricing and distribution in a dynamic marketplace that is continuously under pressure from new entrants and new technology.

The hotel industry has gradually evolved to the sophisticated, modern and large industry it is today – a very long way from the roadside ‘stabula horse stops’ mentioned in part one – and it must continue to change and develop.

Economy of scale and brand recognition have become essential elements to achieve maximum profitability and required financial returns on investments.

Customer needs are evolving rapidly and the industry must respond. As Albert Einstein famously wrote, the definition of ‘insanity’ is: “doing the same thing over and over again and expecting different results.” Customers are now used to receiving a service that is customized to their own specific needs. And hoteliers would be insane to not respond to this.

Customers want it all. They want location, fairly priced rooms that meet their needs, and for us to be able to engage them emotionally through our service. Hoteliers need to recognize that customers are now much more educated about their accommodation options.

Does size and height matter?

Very large hotel complexes have been developed in response to specific market demands and in response to potential developments. The industry is also experiencing a design/architectural extravaganza in terms of tall buildings, expensive decoration and facilities. It seems like a “Guinness World Record” is very much in the mind and plans of most developers. Here are just a few of the largest and tallest hotels:

Largest hotels in the world with over 5,000 rooms (as of 2017)

7,351 rooms – First World Hotel in Genting Highlands, Malaysia (gambling).

7,117 rooms – Venetian and the Palazzo in Las Vegas, USA (gambling).

6,852 rooms – MGM Grand Hotel and Signature in Las Vegas, USA (gambling).

6,000 rooms – Sands Hotel in Macau, SAR (gambling).

5,524 rooms – Disney’s All-Star Hotel, Orlando, Florida. USA.

5,000 rooms – Izmailovo Hotel, Moscow, Russia.

Tallest Hotels in the world, mostly multi-purpose buildings (as of 2017)

601m. – Royal Clock Tower, Mecca, Saudi Arabia.

554m. – Lotte World Tower Hotel, Seoul, Korea.

492m. – Park Hyatt Hotel, Shanghai, China.

484m. – Ritz Carlton Hotel, Hong Kong, SAR.

442m. – St. Regis Hotel, Shenzhen, China.

430m. – Four Seasons Hotel, Guangzhou, China.

And the coming Jeddah Tower at 1,000 meters. This tower will also accommodate one or two hotels.

Period of mergers, acquisitions and consolidations

During the past couple of years, the hotel industry has experienced an unusually high number of mergers, acquisitions and consolidations. The objectives behind these mergers and acquisitions have included growth, brand enhancement, increased competiveness in an increasingly globalized sector, and to create value by combining the distribution of each participating company.

The deal that got everyone’s attention was Marriott’s acquisition of Starwood Hotels and Resorts – the largest ever deal of its kind. In addition, Marriott also acquired Canadian Delta Hotels and the African hotel group Protea. There are now 30 brands under Marriott, making it the largest hotel company in the world.

But it wasn’t the only big deal.

Accor acquired Fairmont, Raffles and Swissôtel Hotels & Resorts, and also invested in the Banyan Tree brand.

The InterContinental Hotel Group acquired Kimpton Hotels and Restaurants; the Wyndham Hotel group expanded its number of brands to 17; and SBE Hospitality acquired the boutique Morgans Hotel Group.

A few major hotel players in China are investing large amounts in other hotel groups. The Shanghai-based Jin Jiang Int. Hotels – by far the largest hotel group in China and one of the largest in the world – acquired both the Louvre Hotels Group and the Home Inn group (the largest budget hotel Chain in China), and also bought an 81% stake in Plateno Hotels and the China Vienna House group

The HNA group acquired the Carlson Redizor Hotel group, as well as 25% of Hilton Worldwide Holdings and 29.5% (control) of the Spanish based NH Hotel group. The Wanda and Dossen groups, also in China, are also very aggressive and growing rapidly.

Who is next to merge or be sold?

There has been a wave of consolidation in the online travel world with Priceline Group, Expedia, and Ctrip leading the way. In addition, we have seen the reshaping of the vacation rental sphere with the rapid growth of Airbnb and similar platforms.

In this fast-evolving business environment, modern leaders have to be free and able to act and respond to the market with greater speed than in the past. Good leaders will put people/employees first, and will do everything it takes to keep them motivated and productive.

To ensure success now and in the future, hotel companies must attract, train, and retain top talent at all levels – and develop the next generation of leaders.

Trusted partners

Hotel performance is not only affected by macroeconomic cycles and consumer trends, but also by parallel sectors such as travel companies (travel agents) and airlines. One makes the bookings, one provides the transportation, and one provides the accommodation.

1: Travel Agents a long-standing partnership with hotels.

A healthy exchange of business developed from the very beginning between travel agents and hotels – travel agents needed hotels and hotels needed travel agents.

From the launch of Viagens Abreu – the world’s oldest travel agency – in 1840, to the opening of Cox & King LTD. in India in 1758, to the arrival of Thomas Cook in 1841, to the start of France-based Wagonlit Travel and US-based Brownell Travel in the 1870s, to the ongoing operations of present day ‘offline’ travel agents like Thomson Holidays, TUI AG, Uniglobe Travel International and many others, hotels have maintained excellent business relationships with all bona fide travel agents – inbound agents in particular.

In the past, the amount of commission paid by hotels to the booking agents was based on 10% of the selected room rates (normally among the highest rates), with an additional 5% offered in some cases. Both parties were happy with this arrangement, creating a lot of mutual respect.

But similar to how technology has vastly changed the way in which hotel reservations are processed – evolving from mail, to telegram/telephone, to telex (’60s), to fax (’70s), and to email (’90s) – the rise of online travel agents (OTAs) has seen relationships in the hospitality industry vastly change too.


Initially a healthy win-win situation was created by wholesalers and hotels (especially resort hotels, which relied predominately on the business wholesalers generated). An annual or bi-annual agreement was made between the two parties. Hotels offered attractive rates to wholesalers who then created their own packages and promoted the hotels and the destination. It was all done in good faith, and it worked well.


MICE stands for ‘Meetings, Incentives, Conferences, and Exhibitions,” and over the years many agents have specialized in this lucrative segment. This is a very important and attractive business for most hotels worldwide and it commands a lot of attention. Agents handling this business are very clear on what they want, and they expertly negotiate packages and programmes to suit their important clients.

Booking/handling agents demand the highest professional standards and expect to deal only with senior hotel personnel. They also want direct assurance from the hotel GM that the event will go well. No space for errors here. On the positive side, this can be an excellent business for hotels.


In short, over the past 10 years everything has changed. Previously negotiated B2B rates have become public, and wholesalers no longer differentiate between offline and online travel agents (OTAs). In fact, most wholesalers have sold indiscriminately to the advantage of OTAs but at the expense (high commission) of hotels.

The impact has been huge, especially for small hotel groups and non-branded hotels. What is most annoying to hotels is that in addition to high commission, the online agents have not generated any new business for the industry; they simply took advantage of the situation.

What is the best solution? Can hotels take back control? Are wholesalers indispensable?

The hotel business is very fragmented with so many brands, owners, operators and types of hotels that it is practically impossible for the industry to unite against disruptors. In comparison, the airline industry has done a much better job in taking a strong position on commissions (both offline and online agents).

Large global hotel brands and groups manage business with OTAs via ‘Umbrella Agreements,’ but small groups and individual hotels are much more affected by the high commissions, and this is reflected in their operating costs.

From the late ’50s and early ’60s, a number of US airlines developed what we now call GDS (Global Distribution Systems), such as Sabre, Galileo, Amadeus, and Worldspan. Then, in the ’80s, a few European airlines clubbed together to create Amadeus. The idea behind the GDS was, and still is, to facilitate the sale of airline tickets, hotel rooms and other services. To this day, this remains a good source of business for hotels – especially city hotels.

This was followed by the rise of corporate travel management companies, such as American Express Travel, which provide a one-stop shop for travellers, and airlines also began offering their own holiday programs. All of these companies expect low rates and value added services from hotels.

The big problem for hotels, of course, is that the cost of acquiring customers keeps increasing.

Can this trend be sustained by the hotel industry? Will the hotel industry be able to reduce the costs of doing business with OTAs? And what will OTAs do next in order to prosper?

Is there transparency and accuracy over rates and pricing? Can the rate parity process work for hotels? And what is the best way to leverage this? What do hotels have to do to achieve the highest room rate possible? And how can they ensure the corporate rate is not higher than the online rate?

The sharing economy also has to be taken into consideration because it wants to prosper too.

In responding to new disruptors, hotels have to do a better job at promoting and attracting direct bookings.

All in all, this means there are challenging times ahead. I just hope some kind of humanity remains in this competitive business – I miss the times when we personally knew our travel agents and, more importantly, our guests.

2: Airlines Evolution and connection with hotels

Airlines and hotels are often referred to as “two sides of the same coin” because their economic models are fundamentally similar – including high operating costs to produce ‘perishable products.’

Hotels and airlines are both heavily dependent on business travellers and are very susceptible to economic cycles. In order to thrive, the industries need to work in parallel – one handles transport; the other handles accommodation.

Airlines are not as old as hotels, but they have also gradually evolved to become more sophisticated, connected and technologically advanced.

A chronological recap:

1785: First hot air balloon to cross the English Channel.

1914: First scheduled passenger flight between St. Petersburg FL. and Tampa FL. on the Airboat Line.

1917: First international flights by Chalk’s Ocean Airways, between Florida and the Bahamas.

1919: First non-stop transatlantic flights from St. John’s, Newfoundland, to Clifden, Ireland.

1927: First solo non-stop flight across the Atlantic (New York to Paris) by Charles A. Lindberg, in 33 hours 30 minutes.

1928: Pan American World Airlines (Pan Am) starts international flights between USA and Central/South America.

1928: First non-passenger flight between England and Australia (travel time: 15 days).

  1935: First Qantas international flight between Darwin and Singapore.

  1935: Air France opened mail service between South America and Africa.

1936: The “Maritime M-130” sea plane makes the first transpacific passenger flights from San Francisco to Honolulu, Midway Island, Wake Island, Guam, and Manila (travel time: 10 days).

1937: First transpolar transatlantic crossing from St. Petersburg to Vancouver by Valery Chkalov (Flight time: 63 hours).

              1938: The four-engine Fackle-Wulf FW 200 Condor, operated by Lufthansa, makes the first non-stop transatlantic flight from Berlin, Germany, to Floyd Bennet Field in Brooklyn, New York, USA (travel time: 25 hours).

1939: Pan Am offers the first scheduled transatlantic airline service, between America and Europe, by sea plane. First with the Dixie Clipper, then the Yankee Clipper.

1946: Philippine Airlines becomes the first Asian airline to fly to the USA (and then Europe – Rome – in 1947).

              1949: First commercial Jet service by BOAC with the Comet 1A.

1952: American Airlines introduces the first airline reservation system – the “Magnetronic Reservisor.”

1969: Supersonic passenger jet Concorde makes its debut. The airliner was operated until 2003.

1970: 747 Jumbo jet, first commercial flight by Pan American Airways.

2007: The double-deck A380 passenger plane takes to the skies with a maximum capacity of 853 passengers in one class configuration, or 540 passengers in a 3-class configuration.

Bonus facts:

–       The airline industry has been one of the main pioneers in developing automated Computer Reservation Systems (CRS) that evolved into Global Distribution Systems (GDS) facilitating the management of reservation and sales.

–       The largest passenger airship ever flown was the hydrogen-filled “Hindenburg,” built by Zeppelin, which operated from 1936 until 1937. The airship’s operations came to a tragic end when it caught fire and was destroyed during its attempt to dock with its mooring mast at Naval Air Station Lakehurst, New Jersey, United States, on 6 May 1937, with 36 fatalities.  

–       Pan Am, founded in 1927, was the first and largest international air carrier in the world, until it collapsed due to financial difficulties in 1991.

–       The most popular passenger aircrafts include the DC3, B707, B737, A320, A330 & A340, B747, and B777. The Dreamliner has long been a favourite of many travellers.

–       And we must not forget the first “flight to the moon” – which lifted off on 20 July 1969.

Coping with rising costs

In order to cope with rising costs and inefficient operations, the airline industry has experienced many mergers and acquisitions. And it’s become clear only the large operators and carriers will survive.

It must be noted that over the years the industry has moved from a Government Regulated system (protecting national carriers) to a Deregulated system (open skies policy), first in the USA, then Europe, parts of Asia, and gradually the rest of the world.

Alliances in the industry have seen the introduction of code-share agreements, joint sales and promotions, joint reservations, operations, and maintenance, and also consolidation of points and mileage rewards. At present, the major alliances are:

–    Star Alliance, founded in 1997, with 27 carriers plus affiliates.

–    OneWorld Alliance, founded in 1999, with 14 carriers plus affiliates.

–    Sky Team Alliance, founded in 2000, with 20 carriers plus affiliates.

–    Value Alliance, founded in 2016, with 9 low-cost carriers.

The airline industry faces an extremely challenging environment (fuel costs, high operating costs, low profitability, safety/risk of terrorism) and it must innovate at all times. We have seen the switch from a two class configuration to a three class configuration and then back again. We have also seen premium economy, flat beds, chef on board, city check-ins, aggressive loyalty programs, rewards, perks and simplified redemption of miles etc.

Will airlines be forced to further reduce perks in order to survive? Will they be able to retain their customers? Or will customers simply prefer to fly with whoever offers the cheapest ticket?

We all know the past. Now hoteliers need to find out what’s next for the airline industry and how to foster a mutually lucrative relationship.

Airlines as hoteliers

It’s interesting to note that during the ’60s and ’70s many hotel groups were owned or associated with airlines, most of them sold/terminated:

–    Pan Am owned InterContinental Hotels. Sold.

–    Trans World Airlines invested in Hilton International Hotels. Discontinued.

–    United Airlines owned Westin Hotels. Sold.

–    American Airlines owned Americana Hotels. Sold.

–    Air France owned Le Meridien Hotels. Sold.

–    Lufthansa held shares in Kempinski Hotels. Sold.

–    Swissair owned Swissôtel. Sold.

–    Canadian Pacific Airlines owned the Canadian Pacific Hotels. Sold.

–    British Airways and four others owned Penta Hotels. Sold.

–    SAS owned the Radisson SAS Hotels. Sold.

–    British Caledonian was affiliated with Copthorne/Millennium Hotels. Terminated.

–    Japan Airlines with Nikko and JAL Hotels. Mostly Sold.

–    All Nippon Airlines owned ANA Hotels. Mostly sold.

Present (2017) affiliates/ownership

–    HNA group owns Hainan Airlines, HNA Hotels, Carlson Hotels, and has a 25% stake in Hilton, 29% in NH Hotels, 15.9% in Red Lion Hotels Corp. and has invested in SA Tsogo Sun Hotels.

–    AirAsia owns Tune Hotels.

–    Eva Air owns the Evergreen Hotels.

–    Emirates Airline is under the same group as Emirates Hotels and Resorts.

–    Iran Air owns Homa Hotels.

–    Korean Air owns some hotels.

Back in 1987, the Allegis Corp. attempted to create a ‘travel group under one umbrella’ that comprised United Airlines, Hilton Hotels, Westin Hotels, Hertz car rental and a leasing and insurance group, but the idea never took off.

Over the years, the airline business has continued to evolve and non-stop flights have been getting longer and longer – 10 to 12 to 15 hours. At time of writing, both Boeing and Airbus are busy working on ultra-long-range models, the 777X and A350-900 ULR respectively, which will be capable of flying non-stop for over 20 hours. Once in operation, these two models will be able to fly non-stop on routes such as Sydney-London, Dallas-Sydney and Singapore-Los Angeles. What will this do to the hotel business and to tourism?

From Local to Regional to Global….

The Hotel industry has become a global business and hotels are now catering to travellers from all over the world. In order to prosper, hotel organizations need to act globally and expand beyond national and regional boundaries. Leverage and market share are vital to achieving economy of scale and profitability.

This is a perishable business. Hotels are faced with a fragmented and capital intensive industry and they have to be extremely competitive. It starts with getting the basics right. Hotels provide the basics in comfort with the objective of creating memorable guest experiences that enrich every stay. This is, and will remain, the priority of all hotel operators. It’s about the customers – segmenting and understanding their needs and how to deliver what they want.

Travellers now have access to an incredible amount of information and have more choice than ever before. Operators must understand and respond to what drives their customers, and these customers must be at the center of every business decision.

Loyalty programs can have a huge impact on the decision making process of business travellers and their travel managers. But Loyalty programs ­have grown convoluted and confusing, leaving travellers unsure of how many points they’re earning, and what those points actually mean and what they can be used for.

Service, anticipating needs, perceived value, repeat business – these all form the basis for success in the hotel business. Consumers have become very demanding. Continuous training on how to deliver on brand promise is a must for everyone within hotels.

Hospitality organisations tend to resist innovation. People are more comfortable with what they know than with what they don’t. Innovation requires hiring smart, creative and driven people, empowering them to take risks and standing behind them. The biggest management failures in business are not missed targets but missed opportunities.

While top of the line service to guests is essential, employees will never (and shouldn’t ever) consider themselves as servants. Adding some practical humor to this, there is a famous saying: “Service is not about being up­front and honest. Service is about minimizing negatives and creating the illusion of perfection. Here’s how it’s done: lie, smile, finesse, barter, convince, lie again, smile again…” – which basically means a lot of creativity can go into creating positive experiences for guests.

Hospitality must remain hospitality – not only ADR, RevPAR, NOI and MBAs. The human heart must be part of hospitality. Employees must have genuine passion, commitment and instinct for understanding and pleasing guests.

If Confucius had a saying for hospitality people, it would probably be: “Choose a sector within your industry that you really enjoy and love…and you will never have to work a day in your life.”

And going forward…

What is your attitude toward inevitable industry/trends change? Are you anticipating the change or are you paralyzed by the paradigm shift? Are you the driver and have you shifted to a higher gear to be one of the winners? And what you have to do for your brand to be embraced by consumers but criticized by competitors?

All indications are that we will live longer. EP predictions:

–              Men can expect to live for a further 19 years at age 65, 12 years at 75, 6 years at 85 and 3 years at 95.

–              Women can expect to live for a further 21 years at age 65, 13 years at 75, 7 years at 85 and 3 years at 95.

–              What would be the impact of longer life to the hotels?