An industry-wide slowdown is expected, but the economy segment –
and milliennials – may have the answers hoteliers need
by ZOHREEN ISMAIL
Hospitality continues to excel as an industry that offers unique fully integrated experiences. U.S. hoteliers have conquered 2019 by tackling labor challenges, expectations for personalized experiences, and the integration of new technology, thus creating elevated guest experiences. Although the hospitality industry has experienced significant growth in revenue, it is becoming increasingly difficult for hoteliers to achieve both revenue and profit gains. The depths of the last economic recession in 2009 has now hit that 10-year mark, and hoteliers are anticipating an upcoming recession for the industry.
From 2018 through 2020, annual RevPAR gains for U.S. hotels were projected to range from 0.6 percent to 2.8 percent, according to the June 2018 edition of CBRE’s “Hotel Horizons” forecast report. Given this rate of revenue expansion, can hotels continue to achieve profit growth through 2020 and upcoming years? For hotels to achieve profit growth that keeps pace with inflation, expense growth must be limited.
CBRE Hotels Research has adjusted its revenue-per-available room growth outlook downward for the upcoming year according to its September 2019 edition of “Hotel Horizons.” The outlook for 2021 has improved, and the firm doesn’t anticipate a full-on recession. It is CBRE’s view that the U.S. economy will slow but not fall into a recession.
Reasons for the slowdown include increasing competition from new markets, muted growth in average daily rates, and upward pressure on labor costs. Over the years, hoteliers have been able to effectively respond to difficult operating conditions. One of the largest expenses for hotel owners has been the labor costs. The labor market is tight in the hospitality industry and is a challenge many hoteliers faced and even overcame in 2019. According to the Bureau of Labor Statistics, the leisure and hospitality industry was projected to gain 1.3 million jobs since the recession ended in 2010 and through 2020.
A BIG MOMENT FOR THE ECONOMY SEGMENT
Economy-sized hotels provide fewer amenities and services and thus require fewer employees. This aspect tackles the labor problem. Economy-level hotels is the sector predicted to generate the most revenue flow through the bottom line and have been labeled as the recession-proof segment of the industry.
Trends show millennials and younger generations prefer limited-service lodging over luxury. The 23-33 age group focuses on local experiences when traveling. They prefer to spend money on local excursions and local foods as opposed to amenities a luxury hotel would offer, such as valet and room service.
Industry professionals set out to figure out how to attract the millennial traveler and, in order to do that, a careful look at how they were selecting hotels was required. A 2019 research study monitored the online hotel booking pattern of millennials. The goal was to understand their booking journey online. Millennials in the study were asked to find a hotel accommodation for a trip and the entire searching and selecting process was captured for analysis and the participants were later interviewed for further analysis. The booking journey began with a common search engine and then they switched to other channels to find more information or evaluate alternatives before making a final decision. The maximum number of channels the participants used was six different channels. A good portion of the participants also logged on to their social media accounts to help them make decisions.
The study shows the millennial traveler consulted various forms of digital marketing, such as social media and travel blogs, trying to find a hotel that would provide a local, authentic experience. “If a hotel wants to have brand awareness and be considered by potential bookers, it’s a no-brainer that a hotel must be present within an array of online channels,” said Christopher Jones, vice president and co-founder of Blue Magnet Interactive. “Well over 50 percent of bookers in 2018 begin their booking journey first by going to a search engine, so having a strong online presence is critical.”
The average millennial traveler seeks local experiences when traveling and consults with peers when booking through blogs and social media. Economy-sized hotels offer the basic essentials, thus giving millennial travelers an opportunity to spend their money on local experiences rather than luxury amenities.
HOW CAN LUXURY KEEP UP?
Due to the millennial experiential traveler and social media influencer culture, it is understandable why economy-sized hotels are expected to be recession-proof. However, all hoteliers want to prepare their properties for the expected downturn regardless of whether it is an economy property or a luxury brand.
“Luxury hotels will need to take a slightly different approach to marketing than they may have done in the past if they wish to target travelers who care more about experiences than amenities,” Jones said. “Some features a luxury hotel offers no longer carry the same weight with the younger generation of travelers.”
If luxury hotels want to compete for the millennial market, they will need to invite experiences into the hotel to bind the local experience to the property. However, these approaches would work for all segments. For example, Blue Market Interactive worked with a hotel that invited a local graffiti artist to paint murals in several guestrooms. The artist’s bio and photos of their progress were posted to the hotel’s website and promoted on social media. They enhanced the experience by inviting local artists to a gallery showcase onsite to generate more publicity for the property.
“Not every hotel has the ability to invite artists to paint artwork on guestroom walls, but this was one way in which a hotel created a unique experience that tied into the local urban art scene and drove interest in the property as an integrated part of the community,” Jones said.
Although economy-sized hotels have been labeled recession-proof, property owners still need to work to connect themselves to the community in which they operate. “With younger generations of travelers favoring experiences over onsite amenities, the hotels that take the appropriate steps to tie their accommodations into the local culture will be the ones that stand out from those that do not,” Jones said.
WHAT’s TO COME IN 2020
It is expected there will be continued focus on getting consumers to book direct in 2020. “We would expect to continue to see the importance of website personalization,” Jones said. “There will be continued investment in data and analytics to deliver a personalized message to the end user.”
As industry professionals may be anticipating an industry slowdown, hotel owners remain focused on attracting the millennial market and creating authentic experiences that connect them to the community in which they operate.
Hoteliers can tap into this segment by focusing on:
- digital marketing
- basic essentials for guests
- working with the local economy, artists, and suppliers