4 Threats to Hotel Industry Growth

If the U.S. economy enters a recession and a hotel industry downtown follows, Marriott International CEO Arne Sorenson doesn’t think hotel developers should take the blame. In his eyes, slowing demand is always more at fault than any prospect of over-building.

A “downturn in RevPAR has always been driven by the demand side of the equation,” Sorenson said during a panel at the 38th annual NYU International Hospitality Investment Conference. Whether it’s a broader recession that’s negatively affecting demand for travel, or fears of the Zika virus or a politicized reduction in visas for tourists, it’s outside the control of a hotel brand, he said.

Nonetheless, Sorenson and other hotel industry leaders were optimistic about their prospects, even in the face of economic factors or disruptors like Airbnb. Conference speakers raised several threats to RevPAR growth, but also several strategies to meet those challenges as well.

Threats to Hotel RevPAR Growth

Recession

For Sorenson, the key question to figure out the demand side of the equation is whether GDP will grow in the United States and key markets around the world. Right now, GDP has not turned negative, but it’s been tepid at best, he said.

“I believe that GDP will continue to grow; there’s no logical reason for us to be in a recession today,” he said. “It might be frustratingly modest, and we’ll continue to bump along … but I think we could still have a number of years’ worth of moderate demand and reasonably good RevPAR.”

Time and again, Sorenson and other panelists were asked which “inning” of the boom-bust cycle the hotel industry is in. He suggested replacing the baseball analogy with one for cricket, since fans can never know how long one of those games can last, just as hotel brands can’t predict for sure if or when a slowdown in the United States will arrive.

Political Turmoil

The effect of politics on the economy and on issues related specifically to the hotel industry is especially pronounced in an election year, several panelists said.

“I’ve never seen the level of vitriol in Washington we have right now,” Katherine Lugar, CEO of the American Hotel & Lodging Association, said during a government update moderated by conference chair Jonathan Tisch. “It’s troubling.”

Lack of cooperation in Congress could threaten the viability of the Visa Waiver Program, which bolstered demand for incoming foreign travel among the 38 countries covered by the program, panelists said. The same program could just as easily be undone by a troubling rise in nationalism, Sorenson said.

“It threatens the ability of people to move freely around the world,” he said. “You can see it in the United States, Europe and lots of parts of the world, where people are … turning back inward, strengthening borders, demonizing foreigners and to some extent overstating risks.”

Traveler Safety Concerns

Legitimate risks do exist for travelers, and they have historically had a precipitous effect on demand for airlines and hotels, Tisch noted in his introductory remarks. He focused on a pandemic virus like Zika, or terrorist attacks like those seen prior to the conference in Paris or San Bernardino, California.

Tisch pointed to the attacks of Sept. 11, 2001, as the main historical precedent. Those events led to a “lost decade,” which cost the travel industry hundreds of thousands of jobs, millions of lost room nights or flights, and billions of dollars in lost spending.

Disruptive Innovations

As in prior years, hotel brands are keeping close watch on the sharing economy and peer-to-peer lodging companies like Airbnb, which is creating a new source of supply for lodging that would have been filled in the past by traditional hotel rooms.

Interestingly, many CEOs among the largest hotel brands downplayed the threat from Airbnb and similar services, insisting that as that market gets bigger and more dominated by super users running many housing units over multiple properties, it gets easier to compete with on the basis of hospitality and customer service.

The AH&LA has taken the lead in supporting legislation cracking down on illegal hotels, Hyatt Hotels CEO Mark Hoplamazian said. He also added that hotels aren’t in direct competition for sharing economy users, who tend to be more price-sensitive, leisure-focused and looking to stay for longer than typical business travelers.

“As I look at sharing economy incidence, there’s a reason why I haven’t seen a significant impact on our business,” he said. “They serve a different customer base for a different purpose of visit.”

Hotels fight back with technology, loyalty

Even if big hotel brands are not necessarily afraid of the bigger, badder sharing economy, they still recognize the need to co-opt those companies’ uses of technology to give guests more of what they want.

One hotelier, France-based Accor Hotels, bought its way into the sharing economy with the $168-million purchase of luxury-focused Onefinestay as a way to diversify its offerings beyond just hotels, said Christophe Alaux, the brand’s CEO of North America, Central America and the Caribbean.

“We don’t want to become a commodity,” Alaux said. “The hospitality market is not only hotels. It’s [also] non-branded hotels, it’s home rentals.” He added that Onefinestay would not only give Accor a new source of revenue, but a level of operations and understanding for entering a new luxury segment and new markets.

New hotel technology also helps brands optimize their customer acquisition channels and profitability, a separate panel noted.

Revenue management systems and other technologies are helping fuel the hotel industry’s move toward loyalty programs and direct bookings as the way to drive profitability.

“Loyalty has never mattered more; it’s the best tool that we all have in the toolbox,” said Geoff Ballotti, CEO of Wyndham Hotel Group. “For us, it’s how do we make our programs less complicated and more rewarding.”

Best Western Hotels & Resorts CEO David Kong agreed, saying, “If we didn’t have loyalty programs, it would be hard for us to compete against the OTAs.” Hotels can offer free nights for the points loyalty club members earn, and the programs also provide a database for improving engagement with guests, he added.

Even hotel groups that don’t have a points-based loyalty system still want to offer benefits to their most loyal guests, said J. Allen Smith, CEO of Four Seasons Hotels and Resorts.

“Guests want recognition and timely, personalized service,” he said. “They want what they want, when they want it, and they expect us to know what those things are.”

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Mark Brandau, Director of Content

Mark joined Duetto in January 2016 from market research firm Technomic, where he began his content marketing career after nearly a decade as a business-to-business journalist covering the restaurant industry. As assistant director of content, he helps steer the creation and promotion of all Duetto's content across its blog, video and social-media platforms, as well as sales collateral and internal communications.

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