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The first half of 2016 included a bit of a negative impact from China’s economy, some terrorism events and a softer than predicted first half in terms of financial performance. Here is a primer on where we are in this noble institution of hospitality as of the 2016 midpoint.

The Cycle and Baseball Analogy

The typical analogy of what inning we are in is fairly easy. We are in the 8th inning and the real question is, what happens when the game ends and the cycle is over? Nothing. We are headed toward a soft landing in 2017 and that is not bad news. Gross Domestic Product growth of 1-2 percent will likely lead to slowing RevPAR growth for a number of reasons.

First is new supply. We are seeing very large numbers of properties opening in 2017 and that is fine in some markets, not so fine in others. Further, global economic challenges stemming from the unexpected Brexit vote, slowdown in China and global terror challenges are likely to dampen the tourism outlook. Look for 2-3 percent RevPAR growth next year—not the end of the world.

Consolidation

The Marriott-Starwood merger will get done this summer but it does not look like we will see many blockbuster deals of this type soon. There are very few players who are capable of scaling like Marriott. Think in terms of how the airlines first consolidated; they developed strategic alliances first and hence were able to pretest a merger. Then they looked at how a deal could be financed, who would buy who and where the company would be based. This is the most likely scenario for the hotel industry.

Sure, IHG will want to scale as will Hyatt. Now that Carlson was acquired, does that new entity add value for one of the big companies? A strategic alliance would be very telling. You heard it here first.

Brands, Brands and More Brands

This will be the year of the soft brand. Millennials are not interested in being loyal to a brand—they are loyal to a type of property. Lifestyle brands will do well, traditional winning brands from Hilton, Marriott and IHG will continue to do well and those few other brands that “get it” will begin to grow market share.

Brands to watch for various reasons are Tru by Hilton which is Hilton’s first foray into budget hip lodging, Fairfield Inn & Suites by Marriott has a strong Gen IV model, Holiday Express by IHG has rolled out Formula Blue and Cambria by Choice has a great concept and finally some distribution. A soft brand to watch is Premier by Best Western.

What does all of this mean? Independents will perform better than they had previously as the playing field is leveled with sophisticated revenue and marketing strategies, the impact of soft brands on the market and taking advantage of OTAs as needed. Traditional brands that are leaders will continue to win because Baby Boomers and Gen Xers still appreciate them and Millennials opinions remain neutral.

Airbnb and the Sharing Economy

Airbnb’s share of accommodated demand has grown significantly and this share becomes more impactful to hotels depending upon the time of the year. December looks to be a strong month for Airbnb as guests often stay with family while hotels struggle to fill during the holidays. The average level of demand growth in the lodging industry is approximately 2 percent per year. The Airbnb demand in the U.S. is approaching the level of growth for the hotel industry.

In June 2016, San Francisco passed an ordinance that required Airbnb to take down any listings that had not been registered with the city. This comes after Airbnb spent $8 million on a campaign to defeat a measure last November that would have limited any short-term housing rentals to 75 nights per year. Airbnb is not accepting this new ordinance without a fight and out of the 34,000 cities the company operates in this marks the first time they have sued a city.

After having heard from Troy Flanigan of the American Hotel & Lodging Association (AH&LA), I am convinced that Airbnb is a big business that in essence avoids the responsibilities of being in business and puts consumers at risk be it in regards to safety, background checks, health or fire standards. Further, while I think we should embrace Airbnb as a legitimate competitor, we are not to be compared to the taxi industry, a group that attacked their new competitor, Uber, at every turn and is now rapidly losing market share.

We should work with Airbnb on solutions for leveling the playing field without antagonizing them. Think of Airbnb more as an online travel agency, a combination competitor and ally. The hotel industry is an organized, highly regulated industry with high quality standards and an easy way to determine bad products (poor reviews and franchise removals). Our main association, AH&LA, is also highly regarded. Airbnb should live by the same rules and standards.

Terrorism and Preparation

The incomprehensible and violent terror attack in Orlando has an impact on all of us. It can happen at any of our hotels, restaurants or bars and we must be prepared. Recently, we have seen a possible attack on an Egyptian airliner, attacks in Istanbul, Paris, Brussels, San Bernardino and Tel Aviv and now the attacks in Orlando, Bangladesh and Baghdad. These attacks can have a profound effect on travel to these destinations and the individual venues where the attacks occur can be closed forever.

Preparation is critical in minimizing negative impacts in most of these events. The better people are prepared, the less likely that they will be frozen in panic in the event of an emergency. This includes establishing planned procedures that can be executed in the event of an attack as well as paying attention to our surroundings in a manner that may prevent or minimize the effect of an attack. Hence, it is paramount that we train our team members to be vigilant and to avoid outright panic.

Accidents, Incidents and Security

The Graves family of Elkhorn, NE was doing what millions of families do each year when tragedy struck. A vacation gone awry; no one saw it coming. The evening was spent watching an outdoor movie at Disney’s Grand Floridian Resort & Spa when around 9:00 p.m. two-year-old Lane Graves waded into a nearby lagoon in about a foot of water and was attacked by an alligator. Matt Graves, the boy’s father, jumped in to try to save him. His mother and other witnesses also tried to assist in saving him but they were too late.

In March the hospitality industry dealt with the ramifications of the Erin Andrews case.  By now we have all heard the details of the case, but to quickly recap: in 2008, Michael David Barrett recorded Andrews while she was nude by reversing the peephole of her hotel guestroom at the Nashville Marriott at Vanderbilt University.  Barrett used the phone system in the hotel to gain knowledge of Andrews’ room number and request the room adjacent to it.

Each day, hoteliers accept responsibility for the health and safety of millions of men, women and children. These operators must also accept the possibility of an accident or incident that will likely bring public attention upon themselves, their property and their guests. When an event happens, operators must communicate effectively with their guests, team members, the media and public safety officials. Once a crisis occurs, the media and the public are going to want answers as to why it happened, who was involved, when it happened and who was to blame. A crisis management plan is paramount to avoiding the worst of outcomes and given advances in technology, if there is a need for a security alert, texting may be an answer.

Technology and Marketing

Google confirmed in early 2016 that mobile based searches had finally surpassed those coming from a desktop. This should not come as a surprise because we have been preaching the importance of mobile for years. The mobile app market for hotels is currently dominated by HotelTonight with over 11 million active users since its launch in 2010. While the brands have launched semi-successful apps of their own, it does not currently make sense for an independent hotel to invest the money needed to develop an app specific for its hotel. A recent study by TechCrunch confirmed that consumers spend 85 percent of their time on the same 5 mobile apps.

Our focus should be ensuring that our hotels are easy to do business with from a mobile device. Convoluted booking engines are a thing of the past. Clean websites with a defined booking path are the best ways to keep our hotels up to date. When the final numbers for 2016 come in, mobile bookings will have surpassed desktop bookings for those who book digital travel according to eMarketer. Whether one is booking with mobile or desktop, according to the 2016 MMGY Portrait of American Travelers, “value for the price” remains king in level of importance to travelers.

As we expand our marketing efforts we must not be afraid of experimenting. To become an agent of change we must challenge the status quo. While most digital advertising is dominated by standard banner ads, Google has been completely open about its emphasis on digital video ads. As an industry, we know that video is king when it comes to creating content for our websites or social media platforms. But ensuring we are carrying that philosophy into our digital marketing campaigns is the next big leap. Further, do not forget that the OTAs are claiming that book direct campaigns are not working and that they will “dim” hotel listings of certain parties. We as operators must decide who we are playing with—the brands should not dictate that but certainly the OTAs should not dictate it either. Regardless, we must increase our direct distribution to protect profits!

Data, Trends and Final Thoughts

Big data is able to provide marketing and operations teams an understanding of guest preferences and behaviors over periods of time. Aggregation of data via social media, web, email and other sources including robust customer relationship management software allows us to develop accurate buyer personas and key target markets. Those who are able to utilize new data will be able to grow market share exponentially. The most important facet of data is identifying the business problem you are solving.

Cybercrime is towards the top of this list. Staying up-to-speed with encryption, password protection, PCI compliance and EMV credit cards is just a start. Remaining vigilant in protecting our guest’s records is something that will pay off in avoiding large scale challenges down the road. If you have not added a cyber liability insurance policy, now may be a good time.

Hyatt, Hilton and Starwood were all hacked last year and guests who were impacted received a year of credit monitoring. My own computer was stolen by a gang of thieves who were only looking for data, not the hardware itself. The local police department was unable to track down the thieves because they do not have the resources. Fortunately, I was able to get an assist from the FBI who aggressively pursued the gang thanks to our security camera footage.

Electric charging stations are going mainstream. Our Holiday Inn and Staybridge Suites campus have them and they are being added to our new Fairfield Inn & Suites. Serious consideration is being put into placing stations at all of our properties. The only thing slowing the growth of electric and hybrid vehicles is likely the low cost of gas.

In addition to the trends described above, we always need to be on the lookout for the impact of technology that is slowly making its way into our industry, be it robotics as a replacement for labor, artificial intelligence, wearable technology and the use of drones. We need to keep our eye on the ball as technology evolves and begins to influence our industry. Lastly, the so called “golden age of travel” will continue as baby boomers have increased leisure time and discretionary spending dollars, millennials are traveling as anticipated and the economy stays alive despite the many warning signs out there.

Enjoy the balance of 2016, it will be a great ride so long as we tune out the ridiculous political spectacle!

About Robert Rauch

Bob Rauch serves as CEO of RAR Hospitality, one of the fastest growing hotel management and consulting companies in the industry. He is an internationally recognized hotelier with over 40 years of hospitality-related management experience. Recognized by his "Hotel Guru," moniker, Bob shares insights and industry trends on www.hotelguru.com. In addition to being the "Hotel Guru," he publishes Hospitality Innsights, an electronic newsletter that is distributed monthly. 

Contact: Robert Rauch

rauch@hotelguru.com / (858) 239-1800

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