Industry & Brands

woman with luggage checking in to hotel

Employment and the Next Lodging Industry Downturn

Speculation continues to swirl around the lodging industry regarding the likelihood of a slowdown beginning as early as 2020. Fueled by panels at industry conferences and commentary in the trade press, questions remain as to how widespread and long lasting such a downturn might be.

Given the industry is essentially cyclical, an eventual downturn appears to be more or less inevitable, although the next contraction will follow an unusually extended period of growth and profitability.

Complicating the industry situation is the strength of the national — and even global — economy, along with consumer confidence, employment data and the impact of ongoing trade wars, all in light of the 2020 U.S. presidential election.

A recurring theme at the Hotel Data Conference sponsored by STR this summer had to do with employee recruitment and retention in light of a downturn. While it’s true during periods of expansion as well as contraction, the famous dictum attributed to J.W. Marriott Jr. is especially true during downturns: “If you take care of your associates, they’ll take care of your guests.”

Well-looked-after guests result in higher guest satisfaction scores and more positive reviews on social media, which typically translate into more repeat bookings, increased trial usage due to positive word of mouth, higher occupancy and greater profits.

Consider the challenge of finding and hiring people with strong interpersonal skills. The most promising approach is to seek applicants who consider entry-level hotel jobs to be a stepping stone to a career in hospitality.

Considering that international travelers are likely to remain a reliable guest segment in many markets, downturn or not, it makes sense for hotels to pursue multicultural candidates who can help communicate with guests in their languages of choice.

Providing training is essential to retaining motivated employees because it helps satisfy their desire to pursue a career path. Cross-training is a good option because it not only satisfies the employee expectations but expands their ability to handle new and different tasks on property.

Hilton Garden Inn New York Times Square South exterior at night

Why Branded Hotels?

An argument can be made for both independent and branded hotels. Issues including location, price point, target demographics and competitive set all figure into the decision that owners and operators must make when building or acquiring a property.

I witnessed a very persuasive argument for branded hotels during the annual NYU International Hospitality Industry Investment Conference in New York earlier this summer.

The lodging industry collectively took the opportunity to celebrate Hilton Worldwide during the conference in honor of its 100th anniversary.

One hundred years is a significant milestone for a company in any industry. Over a century, the name Hilton has become synonymous with hotels in the public’s mind. Hilton not only is one of the world’s most well-known brands, more important, consumers have a largely positive impression of the company.

Eight years a celebration of similar import will be held when Marriott International celebrates its 100th birthday.

Longevity for Hilton and Marriott has translated into success, both with consumers as well as with hotel owners and developers, the latter of whom literally pay to ride the coattails of these companies’ sterling reputations. The reputation also opens the doors and wallets of banks and other funding sources that provide franchisees with the capital they need.

Strong name recognition has facilitated the international expansion of well-known U.S. hotel brands. U.S.-based travelers, for example, tend to feel more comfortable when booking a recognized hotel brand name when booking accommodations in far-off destinations.

More recently, the lodging industry has gone through a period of tremendous brand expansion, the strategy being to create dozens of new brands to target various travelers’ needs and demographic preferences.

To help ensure the strategy’s success, the companies did not risk the likelihood that some potential consumers would equate the hotel name with its franchisor. So the brands added secondary identification to each hotel that shares the company name. Instead of Tru or AC Hotels, their franchisors dub them Tru by Hilton and AC Hotels by Marriott.

To be fair, this kind of sub-branding has gone on for a while (think Homewood Suites by Hilton or Courtyard by Marriott), but its use with new brands takes the strategy to a new level. Consumers, after all, may not have any idea of Tru or AC’s specific brand promise, but at the end of the day it may not matter; that’s how much they trust the parent company.

3D bar graph showing downturn

When the Lodging Market Slows Down

The old adage that the lodging industry is a cyclical business seems to be proving accurate once again. Data from reliable industry sources, including Smith Travel Research, seems to indicate that after nearly 10 years of growth, the industry’s sustained period of growth is encountering a rough patch.

STR is forecasting year-over-year occupancy in the U.S. this year to be flat, the first time this has been the case in 10 years. Continued supply growth, meanwhile, is expected to have a negative impact on occupancy. Similarly, STR is expecting average daily rates to remain about the same in 2019 and then again in 2020.

For veteran managers of established hotels, industry downturns present a challenge, regardless of how many times they have been through them. Yet, like so many setbacks in business, the flip side of adversity in the short term is opportunity in the long term, if you can perceive it.

Certainly, no one solution fits all. Markets vary by size and region of the country, center-city versus suburban and by asset class. The luxury and resort segments may be more vulnerable than the upscale tier and the upscale tier more at risk than midscale. Indeed, limited-service hotels may end up benefitting, thanks to the value segment of the traveling public, especially if the national economy starts to soften as well.

Downturns give managers the opportunity to refocus their present operations in a way that may not have had the same sense of urgency in better times. They have the chance to restructure operations to ensure that the best use is being made of associates’ time and talents. It’s an opportunity, furthermore, to ensure that the quality of guest services has not suffered, despite fewer resources possibly being available.

In other words, it’s a chance to come up with creative solutions that not only add value in the downturn but become standard operating procedure going forward.

Two Lodging CEOs Make Three Observations to Remember

panel discussion at the 40th Annual NYU International Hospitality Industry Investment Conference

Photo: NYU School of Professional Studies via Facebook // @NYUSPS

Speaking at the NYU International Hospitality Industry Investment Conference in New York last month, two of the industry’s most recognized and respected CEOs – Hilton Worldwide’s Christopher Nassetta and Marriott International’s Arne Sorenson – offered three memorable observations regarding the lodging industry.

First, growth will remain strong in the midmarket hotel segment. Second, travel from China to the U.S. will continue to grow. And 3), the U.S. would have to relax its stringent visa requirements if it is to reap the benefit of surging international tourism, driven notably by Chinese travelers.

According to Nassetta, strong growth in midmarket hotels is being fueled by the global rise in the middle class. Once people have the means to travel outside their home country, their first trips are often with tour groups that book midmarket hotels. We have seen this at our midmarket hotels in New York.

The number of Chinese outbound travelers is expected to hit 400 million a year by 2030, a significant multiple of the number just a few years ago. U.S.-based hotel brands have already rolled out customized amenities to make Chinese guests feel comfortable. Similar efforts likely will be made to cater to visitors from India and other Asian markets.

Unfortunately, U.S. delays in issuing Visas could throttle international travel to this country. It’s a politically sensitive topic because it involves national security and immigration. But, as Sorenson pointed out, foreigners who become frustrated trying to obtain U.S. visas likely will opt to visit other countries. If they do, U.S. will lose out on this lucrative market.

Despite Optimistic 2016 Forecast, Hoteliers Cannot Afford to be Complacent

Coming out of last month’s annual Lodging Conference in Phoenix, hoteliers have every reason to feel optimistic as analyst after analyst expressed confidence that the industry’s strong performance was likely to continue through 2016 into 2017 and beyond.

palm trees around pool at the Arizona Biltmore Resort & Spa

Arizona Biltmore Resort & Spa

Highly regarded Smith Travel Research, for example, reported that year-to-date through August, all U.S. key performance indicators (occupancy, ADR and RevPAR chief among them) were at all-time highs.

That certainly is excellent news and owners, and operators can rightfully congratulate themselves. Overall, they are managing revenue and expenses more effectively than ever, thanks to new methodologies and technologies.

However, the hotel business − like most others − is cyclical, and history tells us that the good times won’t last forever. Analysts are less optimistic about the overall economy.

Holiday Inn NYC – Lower East Side guest room with city view

Holiday Inn NYC – Lower East Side

Hotels in the “oil markets” of North Dakota, West Texas, Oklahoma, among others, already are struggling with oil prices depressed. New York City, traditionally the most robust hotel market in the country, is slightly off its peak.

M&R Hotel Management takes pride in the industry’s impressive results in 2015 and looks forward to an equally healthy 2016. At the same time, we encourage our managers and associates not to become complacent.

Delivering first-class guest service is at the core of our operating model, day in and day out, regardless of where we stand in the business cycle. Positive RevPAR forecasts are encouraging but won’t distract us from our mission.