Between the rise of millennial travelers and the growing volatility in some markets, business travel is seeing cloudy—yet thriving—skies.
REPORT FROM THE U.S.—Although hotel experts said the business travel market is still healthy, it has entered murky waters, with changing demographics, supply and demand trends, and distribution patterns all presently reshaping this crucial segment. While companies are still seeing the importance in budgeting for travel, experts said the who, how, where, when and why of that equation is not so clear-cut.
It’s a time of peaking demand and slowing growth in many markets, while other locations struggle through localized economic woes. Business travelers, meanwhile, are an evolving group, with different needs, priorities and methods than just a decade ago. Navigating through these changes, while keeping facilities and services current, is the central challenge for business-oriented hotels.
Doing the homework
One resulting key change afoot lies within the hotel distribution model, where according to insiders, the booking process is significantly changing. Instead of focusing solely on price, potential business guests who book their own travel are increasingly reading online reviews at sites like TripAdvisor first, then finding the cheapest means of booking their room after having already made a hotel selection. It’s a reality of the social network era that is sure to have far-reaching implications.
For hoteliers, that means those TripAdvisor reviews had better be glowing. No longer can a property just compete on price; now, managing a hotel’s online reputation has become a full-time job. It’s an added expense and headache for operators, but a game that must inevitably be played.
“It makes our life literally hell,” said Nitin Shah, principal of Imperial Investments Group. “I hired a company just to manage my online reputation, just to see the minute somebody makes a negative review on any site, whether it’s Holiday.com, TripAdvisor.com, Facebook, Twitter, whatever.
“We want to make sure we immediately contain the damage and make them happy, give discounts, free coupons, etc., so we are constantly managing. Franchises are requiring us to answer within 48 hours, because they think their brands are getting diluted by having all these things out in space.”
That’s if the customer goes looking for a hotel at all. Not only is Airbnb an increasingly popular option among travelers, but more and more companies are now allowing employees to book business stays at Airbnb properties. While not suited for all business travelers, Airbnb thrives in compressed markets. And experts believe that millennials who use the service for leisure trips also might flock to this option in greater quantity for business travel.
“When you’re staying for business, especially on longer business trips, we’ve found that people, especially younger business travelers, don’t like to stay in a hotel environment for long periods of time,” said Anna Blount, director of market research and insights for MMGY Global. “They feel they’re in the wrong part of town. They’re not around other people who are working; they’re around people who are on vacation.
“That’s why they’re more open to staying at an Airbnb. They want to be in actual neighborhoods, in a home-like setting, and not at a hotel with a bunch of vacationers.”
Factors at play
In other instances, localized supply and economic factors are the issues affecting business travel in their respective markets. Some areas are seeing sizeable amounts of new rooms coming online, potentially softening future demand, while hotels in places like the Texas oil country are suffering through declines in their primary sources of roomnights.
Cory Chambers, VP and chief revenue officer of Hospitality Ventures Management Group, said his company’s hotels in oil and gas areas, such as Texas, Pittsburgh and Oklahoma are seeing more volatility.
“Some weeks and months we’ll see good spikes, and others we’ll see a very strong drawback,” Chambers said. “When we look at consolidated numbers, it really smooths out some of that volatility, but the thing about our business is we are a street-corner-by-street-corner business, and every street corner’s different.”
On the other hand, the aforementioned volatility in affected business travel markets like oil-centric Houston has led to multiple opportunities for acquisition in those locales. Sources said there’s been a noticeable surge in hotels for sale located in areas where business demand has fallen off, which could be a boom or bust proposition, depending on whether that business ever returns.
Meanwhile, business hotels on the East Coast are facing an entirely different set of challenges. Experts said gateway markets such as New York City, Boston and Miami are feeling the ill effects of new supply, while the strengthening of the dollar has softened international demand. There also appears to be a slowdown in some bookings that until recently were an important piece of the demand pie.
Because of these factors, Larry Trabulsi, SVP of CHMWarnick, said business travel is feeling the effects.
“We’re also starting to see certain businesses get a little hesitant,” he said. “We’re seeing some of the financial services companies pulling back on travel and their travel expenses somewhat.”
Some sources said there are other signs of corporate belt-tightening happening nationwide, including strategies where companies are holding more group meetings where possible, rather than conducting numerous trips with smaller groups or individuals throughout the year. So while group demand has been growing and benefiting from this trend, corporate transient bookings—often priced higher than group nights—in some cases have suffered.
For the 12 months of April 2016 through March 2017, transient business (negotiated and retail) bookings are down -1.9%, but average daily rate is up 2.1%, according to TravelClick’s “April 2016 North American hospitality review.” Group bookings are up 3.7% in committed roomnights over the same time last year, and ADR is up 3.6%.
Booking patterns in flux
Hoteliers said they’re also seeing slight decreases in average lengths of stay for business bookings, but high occupancies in many markets might be the primary driver for the change. It turns out that the limited room availability many travelers face is shaping multiple aspects of bookings, from the reservation time frames to the choice of booking engine.
“We’ve seen our length of stay shrink slightly over the last three years. If the average length of stay was 2.8 days, now it’s like 2.5,” Chambers said.
Chambers said there’s been an increase in booking windows, with guests starting to book further out.
“That is a function of availability. Because of where we are in our occupancy cycle, travelers know that the more they’re able to plan, the better their availability is going to be,” he said. “That also lends itself to why the length of stay is slightly reduced: It’s just that availability on either side of their departure or arrival date is less than it’s been in years past.”
For hoteliers, another peripheral but welcome effect of the scarce availability that business travelers might face is that the situation actually helps drive bookings through brand websites, instead of online travel agencies, according to sources. That’s because it’s a kind of an insider secret that in the instances where a hotel is overbooked, it’s usually the OTA reservation that gets bumped.
“It’s not a travel myth that when hotels overbook, the first people to go packing are the people who book through the OTAs. You have more guarantees if you book through the website,” Blount said.
When there is availability, though, sources said business travelers are blending business and leisure trips more frequently than ever, provided the market encourages it. Hoteliers said that while hard data on the bleisure trend is often elusive, guest behaviors provide the predominant clues.
“There is a lot more combination of mixing work and pleasure. That’s something that has been very prominent in the last year and will continue to come along,” Chambers said. “It’s difficult to see at the hotel level, but what you do see are things that you might historically have thought of as more of a leisure requirement or request that come out in the (business) people in our hotels: things like having a cocktail in the lobby in the evening while they’re doing work on their laptops.”
Bleisure bookings are also dependent on the market; it needs to be a place where business travelers want to stay after they’re done with work, potentially bringing their families with them. Sources indicated such trips are also more prominent among affluent travelers, who have the luxury of combining business with pleasure in greater frequency and for a higher price.
Blount said that approximately half of American travelers who are affluent—people with a salary of at least $125,000 per year—are “doing things on their business trips that you associate with a leisure trip.”
“They’re going to the spa, playing golf, doing things they want to do,” Blount said. “About a third are taking their spouse or significant other with them on a couple of trips a year, or extending the trip before or after, to make it into a separate leisure trip.
“People are trying to make travel more bearable, and the way they’re doing that is bringing in the leisure activities and perks. They’re trying to get something personal out of it for themselves, and for the benefit of their business.”