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Spotlight on Hoteliers: Challenges and Opportunities

Posted October 17th, 2017

These are heady times for hoteliers, many of whom have plenty of reason to celebrate. The latest industry reports paint a rosy picture of overall hotel performance as properties in many parts of the world achieve record-breaking occupancy and revenues. In the United States, for instance, hotel revenues reached almost $200 billion in 2016. That is an increase of nearly $10 billion over 2015, according to estimates, with net profits in the range of $76 billion, an average 2 percent increase in RevPAR.

Not to put a damper on the celebration, but hoteliers should recognize that the current growth wave may not continue for long. In fact, the party may already be fizzling. Net profits for U.S. hotels rose only 4 percent last year, the lowest rate since 2009. Negative RevPAR growth is not beyond the realm of possibility. Hoteliers should be prepared for this eventuality.

Why is the pace slowing? The biggest reason may simply be that the current pace is unsustainable; year-over-year growth in occupancy levels is bound to plateau at a certain point. Today hoteliers face several additional challenges, some quite formidable, that are already impinging on revenues and profitability. One challenge is the rapid ascent of Airbnb — and other, smaller online marketplaces — operating in the so-called sharing economy. With annual earnings (before interest, taxes and depreciation) projected to be $3.5 billion a year by 2020, it’s fair to say that the age-old travel lodging model has been officially disrupted.

Another challenge comes from the OTAs, which have come to rule the world of online hotel bookings. While the dilutive branding inflicted by the OTAs presents one challenge, the bigger challenge stems from what many hoteliers see as an onerous pricing structure in which commission fees run 25 percent or more. The estimated $500 million in direct revenues Airbnb achieved last year is nothing in comparison to the OTAs. Expedia, the largest OTA, reported core revenues of $2 billion in the second quarter of 2017, up 15% from the same quarter in the prior year. Expensive marketing campaigns this year have failed to increase direct bookings by more than a single percentage point for most major hotels.

Another big challenge — and opportunity — is the shifting behaviors and always-on technology expectations of millennials. According to estimates, this demographic segment will account for 75 percent of all hotel guests by 2020. And spending an average of $4,000 per year on travel, they wield enormous buying power. Millennials eat, drink and breath technology, which isn’t to say that large swaths of other segments aren’t also technology-savvy.

Guests as a whole are becoming more and more demanding of technology-enabled services, particularly mobile self-service. They want to update their guest profile and account info. They want to order hotel services, message the front desk, and set and monitor housekeeping status. In short, they want to be in control. They also want more from hotels than just a comfortable place to stay; they want memorable experiences tailored to their specific wants and needs.

Given these challenges, and the simple fact that hotel competition in popular destinations is more intense than ever, it’s no wonder that hoteliers are seeking to leverage the benefits of next-generation technologies to their advantage. According to research conducted for this Smart Decision Guide, the vast majority of hoteliers believe that these technologies are key to not only addressing many of their current challenges, but also to catapulting their businesses to ever-higher levels of operational performance and guest satisfaction on an ongoing basis.

At the forefront of these technologies is the Property Management System (PMS), which is the focus of The 2017 Smart Decision Guide to Hotel Property Management Systems as well as several recent co-branded eBooks and webinar events.

While hardly a new technology — virtually every hotel under the sun has had a PMS of some kind in place for decades — these solutions have evolved by leaps and bounds in recent years, almost beyond the point of recognition. Technology innovation, driven largely by the advent of cloud hosting and advances in software interoperability and data integration, now enables hotels to centrally manage, track, analyze and optimize the constant flow of information across all parts of the property, with the PMS serving as the command-and-control center.