What worries me in 2016
13 JANUARY 2016 7:14 AM
2016 will probably be another great year for the hotel industry. Yet, a few nagging issues could derail at least some of the good times.
Most analysts are forecasting 2016 will be another strong year for the hotel industry. According to STR, the parent company of Hotel News Now, all three performance metrics for hotels in the United States should increase this year, with revenue per available room rising a healthy 5.7%.
While I can’t argue with these and other projections I’ve read, there are still at least five things that worry me about the road ahead.
The threat of global terrorism remains a prime challenge facing most of the world. And, of course, the impact on the travel industry would be severe should this reign of terror increase momentum. And it’s the threat as much as actual terror events that could derail global tourism. Fortunately, the urge to travel seems to win out against the angst recent attacks have produced. Let’s hope this theory isn’t tested again in 2016.
And while the economy in the U.S. continues to improve—albeit somewhat slowly—it’s not the case everywhere. Slowdowns in the economies in Europe, China, Brazil and Canada specifically could curtail travel to the U.S. and elsewhere.
One prong in the war on terror has been the tightening of unencumbered travel across the globe. Of course, security of the world’s borders should be the highest priority for all governments, but it can come with a cost to the travel industry.
There’s a chance—especially if further attacks happen—that the European Union will rescind the free flow of travel between member countries that has been a hallmark of this experiment in regional government. This could affect travel among citizens within the EU, but also discourage non-EU citizens wishing to travel to Europe.
The U.S. Congress recently enacted legislation that places some restrictions on who can enter the country through the visa waiver program. Some politicians have even called for closing the U.S. borders to large classes of people. Whether this is a practical and moral answer to a global problem is not for me to say; however, these kinds of policy stances could put downward pressures on international travel to the U.S.
A growing but not often-discussed issue is the rash of data breaches suffered by major hotel companies. Large brand companies such as Hilton Worldwide Holdings, Starwood Hotels & Resorts Worldwide, Hyatt Hotels Corporation and Wyndham Worldwide have in recent years suffered attacks from hackers seeking identify information from consumers. Even smaller hotel companies such as White Lodging Services Corporation, Hard Rock Hotels, Trump Hotel Collection and Kalahari Resorts have been victimized.
And much like their reaction to terrorism, consumers seem to take these dangerous data breaches in stride. While I haven’t seen any evidence that chains like Hilton or Hyatt have lost business because of these incidents, a recent global survey showed two-thirds of consumers say they are unlikely to shop or do business with companies that have experienced data breaches in which financial information was stolen. That statistic doesn’t seem to match the evidence, but perhaps we’re only one breach away from that dynamic changing.
The U.S. is slowly but surely inching closer to full diplomatic and economic relations with Cuba. Once the island is completely open for business, there will be a mad dash of tourists making the journey, as well as hotel developers and brand companies seeking to plant their flags. A recent study by Choice Hotels International revealed 52% of Americans would consider visiting Cuba if the travel embargo is completely lifted.
That should scare the bejesus out of hoteliers in the rest of the Caribbean. While 52% seems like a high number, there are a large percentage of adventure-seeking Americans (I’m one of them) who would seize the opportunity to vacation in Cuba instead of going to another island nation.
And unfortunately for U.S. hotel brands, European and Canadian companies have been operating in Cuba for decades and continue to do so. Last month, for example, AccorHotels announced plans to open a Sofitel in Havana.
There was plenty of discussion and stories written in 2015 about the effect of the sharing economy on the hotel industry. Much of the talk concerned how Airbnb and other home-sharing services were cutting into the hotel business, particularly in gateway city markets such as New York. Another thread of conversation centered on the double legal and taxation standards between home sharing and hotels.
However, there might be more reason to worry if and when the U.S. and global economies begin to weaken and hotel performance falters. When demand for accommodations slows down, hotel operators and revenue strategists don’t necessarily panic (although some do). The smart operators try to hold their basic rate structures and find other ways to compete in a shrinking market.
That won’t necessarily be the same reaction Airbnb hosts take if demand falls. They’re more likely to slash their rates just to generate business. And because their cost structures are much lower than for hotels, they can cut rates and still make profits, albeit smaller ones. If that happens and hoteliers follow suit with a spiral of lower rates, the industry could be in big trouble.
While my comments might sound dire, I only bring them up to urge owners and operators to consider contingency plans should any of these scenarios come true. I, like STR and many others, believe the U.S. and global hotel industries will perform well through 2016 and into 2017.
However, it’s always smart to prepare for alternatives.
Ed Watkins, former editor-at-large for HNN, is a freelance writer with 40 years’ experience covering the business of the hotel industry.
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