5 predictions for the next decade
 
5 predictions for the next decade
06 JANUARY 2020 8:45 AM

The hotel industry could look a lot different in the next 10 years, and some likely catalysts include climate change, the next recession and a loyalty surge.

HENDERSONVILLE, Tennessee—As we embark on the next decade, the U.S. hotel industry faces myriad changes and disruptions. Will we look back at these as “creative destruction” or simply destructive?

The last 10 years have certainly brought their share of creativity, from the rise of the commercialized shared-accommodation providers to global capital flowing into the U.S. and the continuing proliferation of brands. Some of the changes may have been foreseen as industry participants exited the Great Recession in 2010; other changes truly were unexpected by most.

Here are five trends and predictions that will influence the U.S. hotel industry in the next 10 years. Let us know if you agree or disagree or what you think is missing.

Climate change will be the dominant influence on hotel operations.
Climate change and the more extreme weather patterns will shape the way hotels operate. More extreme wind, rain and high tides will impact coastal areas and islands. Designing resilient buildings and solutions for interruptions of the energy supply are key ways to prepare for this.

Summers will get hotter for longer, winters will get much colder, and both will impact energy usage. Some markets will be consistently too hot (in the South) or too cold (Northeast and Northwest), and meeting planners will stay away to avoid exposing their clientele.

Milder winters and longer summers will make some destinations in the North more accessible, and even may get some “snowbirds” to rethink their travel patterns to Florida. In the mountains, snow conditions will be feast or famine, and in the better years the winter season will stretch out well past Easter. In the summer months, the mountains are already being recreated as an outdoor theme park, and destination marketing organizations will get ever more creative to attract visitors year-round.

So, what do shifting weather patterns mean for U.S. hoteliers? First and foremost, be a Boy Scout and “be prepared.” By now, business interruptions from weather should not be a surprise but should be an expected event. When I present to meetings planner groups, I always suggest: “Every hotel salesperson shows you their pool and rooftop bar. Shouldn’t they also show you their emergency generator?” Secondly, make sure your hotel renovations and CapEx spend is created with resiliency in mind. In 10 years, your guests (and investors) will thank you.

The brand is dead. Long live loyalty.
The single hardest part of working as a hotel industry analyst is keeping up with which entity controls what brand. New brands are launched monthly, all designed with their own marketing “swim lane” in mind and often un-differentiable by the average traveler.

Full-service brands once named after founders such as Hilton and Marriott, with easily discernable standards, evolved as owners and parent companies—nudged by the alternative-accommodation providers—came to understand that travelers crave differentiation. Travelers also crave loyalty points and an easy booking experience, hence the move to soft brands, started by Choice’s Ascend collection and Marriott’s Autograph collection.

The logical next step is clear. In the next 10 years, industry players will have abandoned the idea of the brand and simply focus on loyalty. No need to keep track of umpteen brands and what brand belongs to which company—just communicate clearly which hotel belongs to which loyalty suite. Allow the hotel designers to break the mold, give owners free reign to explore what their hotel stands for, but provide standardization on the back end. Over the next decade, that will make for happier guests, owners and parent hotel companies.

Cleaning fees: Love ’em. Hate ’em. Embrace them.
The U.S. hotel industry should light a candle at the Altar of Ancillary Fees in the Cathedral of Airbnb to thank the wise women and men of Silicon Valley who made cleaning fees part of the accepted cost of staying away from home.

As more former Airbnb users embrace alternatives to the alternative-accommodation providers (read: hotels), hotel operators should use the lessons that have been taught to those travelers to their advantage. Just like alternative accommodations taught travelers to embrace the authentic, local flavor of the market they are staying in, so should hotels embrace that these travelers have been taught, and taught well, to expect (yes, expect) a cleaning fee. In a time of flat room revenue growth, the search is on for additional revenue streams, and many hotels have made themselves no friends by applying the dreaded “resort fee” for services that are levied neither in a resort nor are fee-worthy. But thanks for covering all those 1-800 calls, anyway.

Now imagine a fee that provides a useful, tangible benefit: cleaning of the room. Everyone can relate and everyone needs it (well, wants a clean room anyway). Airlines have taught the consumer that unbundling works, so why not embrace the concept when selling the hotel room? In the next 10 years, attracting the right line-level talent in the housekeeping department will be more important than ever. But just increasing wages simply hurts profitability. A cleaning fee could be directly related to the prevailing market-level housekeeping costs and therefore be adjusted as wages increase. Of course, the staff actually doing the work needs to benefit from this increased revenue stream. When looking around the accommodation landscape, cleaning fees are already in place in some areas. By 2030, they will universal.

It’s Amazon’s world, we just live in it.
After a few false starts, Amazon will finally be a force in the lodging distribution game. The fees paid by hotels to third parties to attract guests are just too juicy to be left alone for too much longer. Amazon has access to customers via their “walled garden” app, continues to entrench itself ever more deeply with convenient delivery mechanisms (drones anyone?) and has a true competitive advantage when it comes to understanding customer behavior. Amazon’s algorithms can suggest what other customers with similar purchase patterns bought that you might like. It is not a leap to imagine that the Amazon Intelligence (AI by another name) can suggest with some specificity a vacation destination that matches your income level, family status, activity interest and travel preferences. What hotel operator would not want to be included in that set of recommendations once Amazon Travel launches?

There will be a recession.
There, I said it. Mind you, it will not happen in 2020, but as the global economy continues to be disrupted and market participants reinvent themselves, it’s not unrealistic to presume that another—however mild—recession will hit the U.S. Two consecutive quarters of GDP declines do not spell the end of travel or the end of hotels, but it is likely to be disruptive in the short term.

Unfortunately it is highly likely that even a mild recession will likely see sharp declines in average daily rates for a few reasons. A number of revenue managers have never lived through a downturn, coming of age on the 2010s, and therefore may overreact by adjusting pricing strategies to fill hotel rooms. In addition, alternative-accommodation providers, who also never operated in a slowing environment since they started in 2012, may feel that offering steep discounts is in their best interest since their low long-run property mortgages equate to a low cost base. As unemployment picks up, more Americans also may offer their second bedrooms or other available accommodations on third-party sites to supplement their income. As such, the side effect of GDP decline and lower room demand may ironically be more room supply.

Forecasting a mild recession has been a favorite sport for economist since 2016, considering “normal” cycles are supposed to last seven years. So far, announcements of the death of the current upcycle have been greatly exaggerated. But that does not mean that it won’t happen eventually.

Jan Freitag is the SVP of lodging insights at STR.

This article represents an interpretation of data collected by STR, parent company of HNN. Please feel free to comment or contact an editor with any questions or concerns.

1 Comment

  • Drew Dimond January 6, 2020 3:21 PM Reply

    Nailed it - especially brand loyalty

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