The Evolution of Hotels and Travel Business
Recap by Giovanni Angelini, October 2017
From gradual evolution to revolution?
Travel, as a concept, is as old as mankind. Since the Neolithic Age, some 2.5 million years ago, our species has travelled in search of shelter and food – for betterment, safety and comfort. It’s a basic human need.
But what about hotels; when did they make their first appearance?
Well, our earliest ancestors were obviously far more concerned with basic survival (i.e. finding sustenance and not being eaten by wild animals) than fashioning their caves as lodgings for travellers, but fast forward to the Egyptian empire during the reign of Sumerian King Shulgi of Ur (circa 2094 – 2047 B.C.), and there is evidence that, alongside dwellings, there were places of rest for travellers – making them amongst the earliest lodgings on record.
The Chinese rulers during the Shang Dynasty from 1800 B.C. were very active and innovative in creating resting places for their armies and people on the move. And Ancient Greece can be credited with conceiving the concept of hospitality beyond just rooms and food with the introduction of thermal baths for rest and recuperation. (At that time, homeowners in Greece were also encouraged to accommodate travellers.)
Travel became a legitimate way to make money during the Roman Empire, 753 B.C. – 455 A.C., during its apex of glory. The Romans actually introduced the first lodging classification – the exclusive “hospitium” – which featured facilities and services from elegant lodgings right down to the very basic ‘stabula,’ which is the equivalent of a horse/truck stop.
Besides Rome, some of the best and most opulent hospitium were found in Carthage (now Tunis), Jerash and in Pompeii, including guesthouses that also doubled as brothels, like the famous grand Lupanar. The classifications of lodgings introduced by the Romans was also practiced by the Byzantine Empire, from 476 A.C.
From 207 B.C., many shelters and resting places were created along the renowned Silk Road, a network of trade routes which ran some 12,000 kilometers from the Mediterranean Sea to the Pacific Ocean, connecting prosperous cities and countries like Italy, Greece, Egypt, Mesopotamia (which, in modern days, roughly corresponds to most of Iraq plus Kuwait), Persia (modern-day Iran), China and the very Far-East.
During the Middle Ages, travellers were warriors, traders, merchants, explorers, and missionaries, amongst others. All needed lodging and food during their journeys. To capitalize on this, people opened their homes and kitchens to these tired travellers, charging a reasonable fee, of course, and thus an industry was born.
Since then, hotels have always been at the heart of major social activities. From weddings to birthday parties to conventions to gala dinners, hotels have hosted them all. Royalty, presidents, and politicians have all used hotels for functions and rest. And let’s not forget the multi-billion dollar deals made in hotels, the novels written in hotels, the wild parties, the gamblers, the drug addicts, the murders, the suicides, the trysts…Every hotel room has its own secrets, and there are happy and sad stories behind every door – the good, the bad, and the ugly.
Just imagine what’s occurred in two of the world’s oldest hotels – the Nishiyama Onsen Keiunkan, opened in 705, and the Hoshi Ryokan, opened in 718 – both in Japan, and both still operating today. Amazing.
Europe also has numerous hotels steeped in history, all of which are still welcoming guests. Among them:
From the late 18th century and during the 19th century, basic hotels and inns proliferated throughout Western Europe, Asia and North America (The oldest operating hotels in North America, however, actually date back to the 1600s). Luxury hotels then began springing up all over the world. This development was closely influenced by the introduction of railways, steamships and later by airports.
Over the years, hotels of all sizes and classes/standards have developed worldwide (from 2 to 5 stars and from economy to luxurious). Just some of the different types of hotels to open include:
– And many other products, from small non-branded economy hotels to the 5 star/deluxe all-suite resorts.
Travel guides and hotel ratings
The first known travel guide was published by Marian Starke in Britain in 1820 with the objective of informing travellers about the basic facilities to be expected at hotels and other related sectors. This was followed by the Karl Baedeker Guidebooks from 1832 in Germany, which rated hotels from one to five stars based on facilities, product, quality, services and pricing. This rating was then implemented by most tourist organizations and countries globally.
The star rating is a very simple way to classify hotels and it remains in place in most countries worldwide. (It must be noted that a rating of six or seven stars does not officially exist, but many hotels label themselves as such.)
Other popular guidebooks with their own ratings systems include the Michelin Guide, the Hotel Index Directory, the Mobile Travel Guide, the Forbes Travel Guide, and the AAA-Diamond.
Recently we have seen US-based hospitality benchmarking company STR introduce its classification system ranging from Economy to Luxury hotels. However, the star rating remains the most recognized within the industry, and in many countries stars are awarded by official tourist bureaus.
Innovations and innovators
The industry is constantly looking to elevate standards through innovation, and hotels are always proud when they introduce new facilities and services to market. Here’s a recap of some of the innovations over the years:
1829: First indoor plumbing and door locks by the Tremont Hotel, Boston.
Mid 1800: The introduction of electricity is a turning point for the hotel industry.
1859: First passenger elevator opens in the Fifth Avenue Hotel, New York.
1866: Hong Kong and Shanghai Hotels becomes the first hotel group to list in the Hong Kong stock exchange.
1870: The grand Palmer House Hotel in Chicago becomes the first fire-resistant hotel structure.
1890: First school for hoteliers founded in Lausanne Switzerland (EHLITE’s).
1901: First central heating by steam at the Hotel de Paris, France.
1904: The Hotel del Coronado, San Diego, lights up the first electrical outdoor Christmas tree.
1905: Introduction of the modern bed/mattress – the “Savoir Bed” (horsetail, cashmere, lamb wool and cotton) – at the Savoy Hotel London.
1910: Goring Hotel, London, becomes the first to offer en-suite bathrooms.
1922: The world’s first four-year intercollegiate hospitality school by Cornell University opens in Ithaca, New York.
1925: Kempinski and Hilton become the first brands to introduce operating standards and policies to manage multiple properties.
1925: First hotel with wall-to-wall carpet in rooms – the Savoy Hotel London.
1927: First in-room radios – Boston Plaza Hotel, Boston.
1930: Room service is introduced for the first time – Waldorf Hotel, New York.
1945: First hotel chain to list in the USA stock exchange – Sheraton.
1946: First in-house guest credit cards – Western International (Westin) Hotels.
1947: First hotel reservation system “Hoteltype” – Western International (Westin).
1947: First hotel to install television in rooms – Hilton Roosevelt.
1948: First multi-hotel booking system – Hilton.
1950: First hotel to install central air-conditioning – the Adolphus Hotel, Dallas.
1950: First hotel credit card – Diners Club Card.
1957: First direct dial telephone service – Hilton.
1960: First franchise concept – Holiday Inn.
1960: First ice and vending machines on room floors – InterContinental.
1960: First retractable lines in bathrooms – InterContinental.
1963: First known computerized reservation system – Hilton New York.
1965: First centralized reservation system “Holidex” – Holiday Inn.
1967: First toll free +800 – Holiday Inn.
1970: First wheeled suitcase invented by Bernard Sadow (provoking ire among bellhops who start to get less tips).
1973: The invention of the first mobile phone – and we all know the rest…
Amusement Park Hotels: The popularity of amusement parks goes back to the Middle Ages and, in most cases, hotels/inns were developed as part of the facilities and experiences. During the 20th century, large amusement/theme parks and supporting hotels developed all-over the world, with Disneyland (1955), SeaWorld, Universal Studios, and Dinosaur World among the most prominent names. This is a strong global business with high demand. It is anticipated that, in the not-too-distant future, China will surpass the USA in terms of theme/amusement parks facilities and related attractions. In most cases, hotels are integrated with theme/amusement parks and are one of the reasons for visiting.
Casino Hotels: Gambling has long been part of society. The first well-known casino, Casino’ di Venezia, opened in Venice, Italy, in 1638, and is still in operation today. Large-scale gambling facilities were developed during the 1900s and Las Vegas became the gambling centre of the world. The first hotel casino to open there was the EI Rancho in 1941, followed by the Flamingo, on what would soon become the now famous “Las Vegas Strip.” The first mega-resort in Las Vegas was developed in 1969. Following this success, modern gambling rapidly expanded worldwide and of course was supported by large hotel facilities. At time of writing, Macao has become the world’s largest gambling destination (mainly attracting Chinese visitors) with overall revenue surpassing that of Las Vegas. However, it only has a fraction of the entertainment. Hotels of immense size and complexity, with the latest designs and facilities, are very much part of this business. The largest casinos are normally located within a hotel.
Conference/Convention Hotels: Conferences and conventions are an important source of business for practically every city and major destination worldwide. Such is their economic contribution, they receive considerable attention from both local and national authorities. The first conference/convention centre can be traced back to the mid-19th century in Britain (exhibition halls). Since then, conferences/conventions have constantly evolved, from small gatherings to huge movements involving every single sector related to travel.
Hotels are an integral – and perhaps the most essential element – for attracting a convention/conference/exhibition/meeting to a destination. This is a specialized business, and hotels which want to attract this type of business must offer full-sized and updated facilities complete with full-service accommodation and, most importantly, qualified people to handle events from the negotiation process right through to departure. The latest technology and meeting facilities are also a must.
The rise of international travel
International travel as we now know it began soon after World War II (prior to that, international travellers were mostly wealthy people). From the late 1940s, the largest percentage of international travellers were Americans, and at that time most hotels around the world quoted their room rates in US Dollars.
American travellers expected to communicate in English wherever they went and wanted familiar experiences. This influenced hotels to have the so-called “Coffee Shops” (all-day-dining) and en-suite bathrooms. Hotels also offered familiar foods like American breakfast, hamburgers, club sandwiches, alongside famously weak mugs of coffee (trying local food wasn’t high on the agenda back in those days).
International travel en masse started during the late 1950s, and at that time some of the receiving hotels struggled to respond to the demands of international customers who expected their own ethnic foods and other basic amenities, such as in-room coffee & tea making facilities, personal slippers, own-language TV channels etc.
The Uniform System of Accounting (USALI)
Introduced in the USA in 1926, USALI became the worldwide bible for accounting and finance for the hotel industry. The latest revised edition (11th) was issued on 1 January 2015. Most hotel groups still use this system.
Products and services introduced during the ’60s
The ’60s saw a popularity boom of roadside motels across the USA, as well as Bed and Breakfast (B&B) operations in Europe. The decade also saw the introduction of wheelchair access to rooms; 24-hour room service and laundry service; in-room mini bars; business centers; swimming pools and exercise areas; four and five fixture bathrooms; repeat guest programmes; formalized annual budgets and marketing plans; and room segmentation. Water sprinklers were installed in most hotels (becoming the basic standard), the MICE industry grew, and high-rise hotels and atrium hotels began to open.
Products and services introduced during the ’70s
Colour TVs in all rooms; in-room movies (including HBO and movie channels); non-smoking rooms; in-room smoke detectors (becoming a basic standard); branded bathroom amenities; concierge club floors and lounges.
The decade also saw the rise and decline of nouvelle cuisine, as well as the introduction of reservation and check-out by credit cards; aggressive promotion of points and reward programmes; family plans (such as children stay free when sharing the same room as their parents); fitness centers with the latest equipment; and down duvets (feathers or duck) – also referred as the continental quilt, which dates back to the 1700s in China, Germany and Scandinavia.
Hotel organizations also shifted their focus (almost obsessively) toward developing brand standards, quality manuals, operating policies and centralized systems. And everyone started copying each other.
Key date: 1976. On July 4 of this year, the US celebrated the 200th anniversary of the adoption of the Declaration of Independence.
Products and services introduced during the ’80s
Brand loyalty programmes (first by Holiday Inn and Marriott); Property Management Systems (PMS); Use of Personal Computers; advanced/interactive reservation systems; electronic door systems; centralized travel agent commission; voicemail systems; Service Express Call (one number for all services); organic food; hotel spas; Central Reservation Systems (CRS); and non-smoking rooms and non-smoking floors are all indicative of the ’80s.
China also opened to international hotel operators – with Peninsula Group and Sheraton the first to move in – and, with the decade drawing to a close, an amazing thing called the Internet was prepped to go public.
Key date: 1988. Australia marked 200 years since the arrival of the First Fleet of British convict ships.
Products and services introduced during the ’90s
Fidelio launched the first property management and hotel reservation system (PMS); cellphones ushered in the beginning of the mobile world; the internet became more sophisticated with creative websites and advanced intranets; laptops and PDAs became available; online booking sites and OTAs were formed; external revenue solutions like IDeas, Serenata etc. came into being; video conferencing became an affordable reality; solar power, steam power and wind turbines were available for hotels; there was a rise of gluten free and healthy food; and hotels had a strong focus on the quality of bedding (Heavenly Bed etc.).
Key date: 1997: Hong Kong was returned to China followed by Macau in 1999.
Key date: 2000. The Millennium Bug made for an uncertain New Year’s Eve.
Then comes the new century
From the year 2000 onwards the world has changed rapidly along with each technological advancement. Just some of the products and services that have changed the nature of the hotel industry include iPhones and iPads (‘a full mobile world’); mobile technology including search and bookings; apps for almost every occasion; social media; online reviews (TripAdvisor from 2004); Search Engine Optimization (SEO); meta search and paid search marketing; the P2P sharing economy; Airbnb and other vacation rentals; Cloud computing-based programmes/technology; Big Data connectivity and marketing; and Revenue Generating Index (RGI) and Revenue Management systems.
The first carbon neutral hotel, the Wolgang Valley Resort and Spa, opened in Australia in 2009, while the first robot-staffed hotel, the Henn-na Hotel, Maihama, opened in Tokyo Bay in 2015. Self-service kiosks for check-in/out has become a reality, as have Virtual Concierge; Keyless Entry (using a smartphone to open doors); Smart Rooms; computerized building automation systems; energy efficient lighting and LEDs; and super thin digital TVs (0.15 inches thin) with related entertainment.
Hotels are now implementing paperless operations (check-in and check-out by tablet) and are continuously studying how to create ‘smart hotels of the future’ – including using robots for back of house functions.
The co-working and co-living space has flourished, there has been an increased focus on wellness in hotels (especially healthy food designed to provide a nutritious and balanced diet), and guests are now increasingly driven by affordable luxury.
At the same time, labor costs are rising worldwide, and there is a severe shortage of qualified personnel ready to enter the hospitality industry.
What must hotels do to remain profitable in the future? There is so much technology available, but is everything that’s ‘nice to have’ really always necessary? Hospitality is all about the customer, and a positive customer experience must always come first.
The roaring evolution and transformation of hotel rooms that took place during the 20th century simply surpassed any expectations.
From kerosene and oil lamps of the pre-electricity days to LED lights. From the common/public bathrooms at the end of corridors to the en-suite five-six fixture bathrooms. From the lever-type door latches to magnetic-coded key-cards. From the room-house phone to WiFi. From one station radio to ultra-thin flat screen TVs. From the quick brake light switches to rocker switches. From the Great Gatsby inspired art-deco to the modern, larger and comfortable rooms of present days (with natural materials designed to promote a good rest). From old manual typewriters and carbon paper to the PC. From telegrams to laptops and in-room working space. From cold, hard floors to fancy and durable carpets. From ceiling fans to controlled air-conditioning.
Then of course there’s the electronic in-room safes, the full-stocked mini bar, the coffee-tea making machine, room service, electronic blackout blinds and curtains, tablets, soundproof rooms with double glazing, smoke detectors and automatic water sprinklers, the branded amenities etc.
Many in-room facilities have risen and fallen too, such as fax machines, on-demand pay movies, videocassette recorders, iPods and so on…
(And we must not forget the horse stables within hotel premises: A traditional ‘horse-and-buggy’ was once the way many hotels transported their guests and goods).
Evolution and importance of beds in hotels
In the hotel business, the greatest luxury of all is a good night’s sleep. Every hotel that rents out a room for the night is fundamentally selling sleep. It is estimated that the average person spends about 30 per cent of their life in bed…
Early beds of the ancient world were simply piles of straw or leaves sometimes covered with animal skins. Wooden beds were introduced by the Romans, who would use them to lounge and eat on during the day. For sleeping, they would simply top their beds with a crude mattress stuffed with reeds, hay or wool. This went on for several centuries.
The four-poster iron beds with simple steel springs were introduced during the 18th century, when mattresses were stuffed with cotton or wool. In the 19th century, the Chinese introduced decorated canopy beds which, like the Romans, were also used for lounging during the day.
Here are some key dates in the evolution of beds:
And, of course, bed linen has also evolved, from handmade cotton to the finest high thread count material. And today no bed is complete without down-filled pillows of many versions and shapes – they’re everywhere and omnipresent. If only pillows could talk!
In all cases hygienic protectors for pillows and mattresses are a must, especially since DT was banned, as bed bugs turn up in even the finest of hotels.
Successful global hotel brands/companies
Past challenges faced by the industry
Operating in a global interconnected and consumer-led environment, the hotel industry has been (and is) exposed to various disruptions to its business. In most cases, consumer spending is directly correlated with the GDP performance and stability of each respective country/destination, and over the years the industry has faced many serious challenges – especially in the face of global, regional and national wars.
There are horror stories about the “great depression” of 1929-39, first in the USA and then worldwide, which forced many hotels to close down. And the industry has had to weather many other storms – energy crises and oil price drops, real estate bubbles and busts, stock market crashes, the subprime mortgage crises, the collapse of large financial institutions etc.
The hotel and travel industry has also been negatively impacted by political instability, cultural revolutions, military crackdowns, political and social demonstrations, and natural disasters. On top of this, epidemics like SARS, swine flu, Ebola and others have all disrupted business.
And let’s not forget the hotel labor unions which in some cases have created disruption for hotels – especially those which have grown in strength and are politically ambitious.
The first trade union was formed in 1848 in Germany, followed by Britain in 1871, and the USA in 1892. All these counties, alongside many others in the west, have witnessed many strikes and labor movements over the years, all of which have impacted business to some degree.
The longest hotel strike in the world lasted 10 years – from 2003 to 2013 – and it took place at the Congress Plaza Hotel, Chicago.
Perhaps the strongest hotel labor unions are located in New York City, with general strikes in 1912, 1918, 1929, 1934 and again in 1984.
Travel and Tourism Organizations
Various organizations emerged for the development of travel and tourism. Among the longest-running are:
Most of these organisations are non-profit membership-organizations which aim to facilitate consultation and cooperation between tourism institutions and relevant offices worldwide. Objectives include promoting travel and tourism, providing professional advice, reducing poverty, training people, analyzing and publishing tourism data, and communicating with local authorities. The organizations also provide guidance on industry related ethics, sustainability, quality/standards, security/safety, facilities etc.
Local/Domestic Travel and Tourism Associations
Every country, and most large cities, have dedicated local travel and tourism associations. These include the Hotel Association, the Travel Agent Association for inbound and outbound travel, the Airline Association, the Tourism Bureau, the Convention Bureau, Tour-Guides Association, Training Institutions, and others.
**Major****international Tourism **and Travel Tradeshows
ITB, Berlin; World Travel Mart, London; Fitur, Spain; Jata, Japan; China Travel marts in Shanghai and Beijing; IT&CM, and Arabian Travel Mart, Dubai; IMEX, CMT, Incentive Travel Exchange, Las Vegas; Virtuoso Conference, Luxury Travel Mart, New York Times Travel Show, Travel & Tourism Marketing Summit and so on…
Some of the largest international****Hotel Investment Conferences
ALIS (the Americas Lodging Investment Conference), Los Angeles. IHIF (Hotel Investment International Forum), Berlin. NYU Hotel Conference, New York; CHAT, (China Hotels & Tourism Conference), Beijing; HITEC, (Hospitality Industry Exposition Conference), USA. HICAP, (Hotel Investment Conference Asia Pacific), Hong Kong; CHICK (China Hotel Investment Conference), Shanghai; and AHIC, (Arabian Hotel Investment Conference), Dubai.
Consortia & Reservation/Marketing Hotel Groups
Notua Hotels, Preferred Hotels, Worldhotels, Leading Hotels of the World, Small Luxury Hotels of the World, Realis & Châteaux, Associated Luxury Hotels International, Romantic Hotels, Healing Hotels of the World, and many others.
Major International Travel & Tourism Publications
Sunset -1898; Travel Agent – 1930; Where – 1938; Merian – 1948; Travel Trade Gazette (TTG) – 1953; Travel Weekly – 1958; Hotels – 1966; Travel & Leisure – 1971; Business Traveler – 1976; National Geographic Traveler – 1984; Departure Magazine – 1984; Condé Nast Traveler – 1987; Elite Traveller – 2001; The Sunday Times Traveler Magazine – 2003; Destinations – 2008; Cruise International – 2008; Lonely Planet Traveller – 2009; Virtuoso Life Magazine & Travel, and many others. (All are good publications on which to spend your advertising budget)
20th Century, the end of colonialism?
With Hong Kong returning to the Motherland in 1997, and then Macau in 1999, has the world seen the end of colonialism that lasted six hundred years starting from the “age of discovery” during the 15th century? And will there be a “new age of discovery?” Perhaps to the Moon, Mars and the Universe?
What have we learned from the past?
That hospitality is a global business and hotels are catering to travellers from all over the world. That people (consumers) want and need to travel either for leisure or for business. That it is a people (employees) business and labor intensive. Employees are the ones who make great hotels.
It is a competitive, fragmented and perishable industry exposed to external factors. Corporate ethics and sustainability have become an essential part of doing business.
We are in an age of discovery and the information/technology revolution is driving many changes. Security, demographics, resource scarcity, new trends/expectations, and third party disrupters are all issues which will influence the way the industry will operate in the future.
Source of information:* Senior hotel executives with over 65 years’ of experience; from industry related publications; from the Internet; and from my own knowledge and experience.*
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?
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.
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.
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.
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.
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:
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:
Present (2017) affiliates/ownership
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 that 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?
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?).
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.
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.
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.
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.
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.
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.
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.
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.
**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.
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?
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, 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.
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.
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.
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.
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?
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…