The fundamentals for the hospitality industry all point to growth. According to the UN’s World Tourism Organization (UNWTO), international tourist arrivals are projected to increase by more than 3 percent a year to reach 1.8 billion by 2030, whilst the World Travel & Tourism Council (WTTC) predicts that the hospitality industry will grow in value on average by 3.9 percent a year over the next 10 years to $11.5 trillion – just slightly less than China’s entire economy today.
At the same time, the industry is feeling nervous as the hospitality landscape undergoes a period of significant change. The entrance of tech-platforms like Airbnb, the dominance of online travel agencies such as Priceline.com and Expedia in the distribution chain, and major consolidation – as seen with Starwood and Fairmont Raffles Hotels International (FRHI) – are all having a profound impact on traditional hotel brands and their business models.
So what will be the next stage in the evolution of hotel brands?
While most hotel brands are facing similar challenges and opportunities, there does not seem to be a single approach to dealing with these new dynamics and the big players are all responding differently.
The evolution of hotel companies – from owner-operator to brands
This is not the first time that the industry has been forced to adapt to a rapidly-changing industry landscape – there have been fundamental changes before and the most successful brands have succeeded in adapting to them.
The future business model is a direct result of these changes over the last decades as hotel companies have moved from an asset-heavy model to consumer brands.
It started when hotel companies went public in the late 1970s and early 1980s, and subsequently evolved from the original business model of being exclusive owner-operators towards becoming more asset-light.
What followed is a continuing separation of the hotel model into real estate, operations, distribution, and brands with distinct organizations specializing in each element. In simple terms, this left global hotel brands that are focused, in mature markets, almost solely on brand equity and loyalty programs, with access to millions of customers and their respective data.
As a result of this shift, hotel brands’ income profiles have changed significantly. In an effort to develop alternative revenue streams and capitalize on the value of brand equity, some hotel brands have expanded into branded residences like Four Seasons and Mandarin Oriental. However, this is a market with limited reach as most branded residences are firmly positioned in the luxury space. Beyond branded residences, however, there lies a potential to target a much broader market by expanding into everyday services and experiences.
The experience economy – growth vehicle for hotel brands
The concept of the experience economy describes the transition from a product- and service-driven economy to an experiential one. Figures from Barclays and other economic research centers point to 2001 as the tipping point when consumers started to buy fewer products and consume more services. Eventually, the combination of advances in technology with the changing values of consumers led to the success of social media and sharing networks as commercial platforms.
The initial success of Airbnb was underpinned by the desire of a growing share of travelers to have experiences and share a sense of community with like-minded people. Since then, the company has announced its ambitions to become a global travel company and has started to offer travel experiences in selected cities. However, Airbnb and similar platforms offering experiences are limited as they do not control the actual delivery of the experience. Customers are also faced with a large number of uncurated offerings and the choice can be overwhelming.
This provides an opportunity for traditional hotel brands to leverage their existing brand equity to offer a range of more focused services and experiences that go beyond hotel stays.
Brands can capitalize on their knowledge of their customers and experience in service delivery to open up new revenue streams from a variety of sources and collect royalties through new collaborations.
Wherever a service and design element are key to the experience delivery, hospitality brands have a great opportunity to add and improve on the existing product. In turn, this allows hospitality brands to create significantly more customer touchpoints with their target markets and collect more insights to help them create an ecosystem of services that could leverage off each other. For the hotel brands, this can create a stickiness for their customers, drive value rather than benefit-driven loyalty, and a far more universal brand presence beyond hotel stays.
Perhaps customers can soon commission Four Seasons interior design services, hire a Relais & Château chef, receive recommendations from a Hoxton community manager, and check into a Marriott-branded medical facility.
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Hospitality Industry - All Your Questions Answered
