The outlook for North American hotels in the year ahead – a case of cautious optimism
The good times seem to keep rolling for North American hoteliers, in spite of many prophets of doom predicting an imminent downturn. According to Joakim Johansson, vice president, global business consulting at American Express Global Business Travel, “Despite signs that the global economy is facing challenges, the number of people traveling for business and leisure continues to grow.”
And even though in most cities, a full hotel development pipeline means this sustained level of demand will not feed into big rate rises, hotel markets are still dynamic and actively responding to the changing demographics of business travel.
“The next generation of business travelers are changing both markets and mindsets. This group sees business travel as a major work perk, but also recognizes there are inherent challenges associated with work trips,” states Kelly Phillips, senior vice president sales, customer engagement and industry relations at Hilton. With that in mind, hotels are offering a host of new services to cater to their needs.The Technology Driver
Technology is pervasive in the travel industry and its presence and influence will continue to grow. “That same trend significantly impacts hotels, from shopping and booking to traveler experience and payment,” says Laura Kusto, senior director of hotel solutions at BCD Travel. “Travelers today expect digital interactions that are easy, seamless and omnichannel. Virtual check-in, location-based services, smart rooms, digital concierges and virtual payment are just a few examples of the technology hotels are embracing today in response to the changing travel landscape demographics.”
The latest cohort of business travelers are a case in point. “The Millennial work force that is emerging has different travel needs, which in turn impacts compliance,” comments Alison Guilbeaux, director of business analytics at Yapta. “They’re more tech savvy and prefer to transact and interact online, from checking into a hotel to ordering food. Therefore, this behavior challenges buyers to re-evaluate their hotel brand types.”
This preference for a digitally connected experience has not gone unnoticed. “To better meet their needs, we have implemented a variety of digital offerings across the Hilton portfolio, including Digital Check-in with room selection, the use of Digital Key, and the first-of-its-kind Connected Room, which allow guests to personalize and control their stay from the palm of their hand,” explains Phillips.The ‘Branding’ of Niche Brands
Beyond upgraded technology and automation, many hotels are also offering niche lifestyle brands in order to align with the changing demographics of business travelers. For example, we see a trend to satisfy the Millennial thirst for all thing’s ‘wellness.’ Along these lines, Hilton has introduced amenities like Five Feet to Fitness, which offers in-room fitness equipment and workout accessories, and Herb N’ Kitchen, a customized, upscale grab-and-go concept to offer a range of convenient food options that are often locally inspired.
“Time on the road can take its toll, both mentally and physically,” says Lexi Benakis, director of sourcing at HRS in New York, and vice chair of GBTA’s Technology Committee. “Millennial business travelers have been more vocal about these kinds of wellness issues and hotels have responded.”
Sometimes, however, the size, diversity and culture of a company is what dictates hotel brand preference. “A high tech company in the Silicon Valley may value the level of personalization at a higher-level brand and be less concerned about cost, whereas an industrial company with more road warriors is more cost conscious and will prefer to stay at lower-level brands,” Benakis explains.
“Some organizations may have multiple traveler personas,” Benakis adds. “This is where data collection comes into play; knowing what the strategy and objectives of your program are and having partners who have the industry knowledge to help you manage the components such as benchmarking, negotiated programs, tools and tech to provide transparency, or third party multi integration into booked data.”
“Investors, in turn, are investing in niche brands because they like offering a unique experience to travelers,” reflects Steve Reynolds, CEO of Dallas-based Tripbam. “Alongside niche brands, 3-star and 3.5-star hotels are also receiving investment capital to upgrade their lifestyle brand capabilities.”
Overwhelmed & Overloaded
While it may seem wonderful that so many brands are available, sometimes it just gets confusing for both travelers and buyers to understand and manage all of them. “The legacy RFP process we have is complicated with multiple room types, amenities and rates for combos,” Reynolds says. “It’s become so complex that the travel manager loses perspective on what they are negotiating, often resulting in overspending.”
To make things more muddled, buyers must often distinguish between different hotels within the same niche. “Millennials, who are used to leisure travel brands, now want the same conscious brands on a business trip. They’re more adventurous and want to see the local culture while they’re on business travel,” adds Guilbeaux. “Basically, travel managers need to match their travelers with the brand category that best suits their needs and expectations. Instead of solely relying on the education from their hotel reps, travel managers must be aware of their travelers’ preferences,” she says.
Admittedly, there may be a bit of brand overload going on today. “Many smaller hoteliers feel they need to “catch up” with the big players,” Kusto explains. “As industries mature you see more mergers and consolidation, so right now the trend is to keep adding brands, whether that’s through new developments or acquisitions. All the brands are trying to compete and stay relevant as consumer preferences shift and change,” she explains.
“Overall, however, I think the hoteliers see their brand differences a lot more clearly than their consumers do,” Kusto cautions. “If that or other factors start to negatively impact the number of brands, we may eventually see some brand consolidation.”Repercussions for Corporate Travel
So while the hotel market continues to mature with independent lifestyle brands and niches, what are the big chains doing? Chains don’t seem to be interested in marketing lifestyle brands to corporate buyers. Or do they?
“The hotel industry is one with great growth potential, and the desires and needs of travelers are constantly changing. Therefore, demand for innovative and distinctive hotel brands is higher than ever,” says Hilton’s Phillips. “The best ROI for Hilton is to develop and grow our own brands Chain deals offer tremendous value to our customers, allowing us to extend a detailed and efficient offer to those who are either fatigued by the RFP process or are in a discretionary market, but are still interested in securing a deal.”
Nonetheless, the experts have varying opinions on this. “While large chains may offer pieces of a wellness lifestyle brand to target Millennial’s, they still don’t want to alienate previous generations,” clarifies Yapta’s Guilbeaux.
“So, chains will offer other incentives to keep the traveler within the chain; for example, special provisions for travelers with pets, or foodies, or those who want eco-friendly options. The challenge is personalization. How do you know what a traveler needs or what offering is compelling to them when they book through a TMC or OTA? A small independent brand or direct sale can be much more personal,” Tripbam’s Reynolds believes.It’s About the Dollars, Really
While chains may be limited in providing this sort of personalization, the larger problem may lie in that they don’t always offer the best rates. “Our data shows that a negotiated program with hotels yields a higher savings percentage than a chainwide program,” notes Benakis.
“In fact, most companies are not saving much from a chainwide discount, according to analytics,” Reynolds points out. “You want as many property level discounts as you can get, including commission, amenities, breakfast and WiFi. However, obtaining property level discounts can be so difficult and expensive that many travel managers give up and go for the chain deals. That’s why we’re working on new solutions to allow buyers and suppliers to easily establish a property level discount,” he says.
“What we’ve seen with chainwide agreements is that hotels have high expectations of corporates while not always holding themselves to their commitments for things like rate availability,” Kusto says. “As a result, companies are seeing diminishing returns on their negotiating efforts. So we focus on two priorities: Delivering savings beyond sourcing and driving program adoption. The direction we are heading with our clients is to be mindful of consumer confidence when it comes to online booking tool configuration and being more strategic in where and how they negotiate static and dynamic rates.”
There’s even more to chainwide deals than meets the eye. Could it also be a matter of habit, preference or bias? “With chainwide rates you run the risk of preferencing a chain just because you have a chainwide discount, and discrediting the work you are doing in a corporate program through loss of traveler trust,” cautions Kusto.
Here’s a real-world example Kusto uses to explain how chainwide preferencing can lead to unintended results: A traveler is looking for accommodations at O’Hare Airport in Chicago. At the top of the list is a $300 preferred property downtown. Second on the list is a $250 chainwide property, again downtown. The traveler must scroll down the list to find a $135 mid-tier property right next to the airport – which is really what is preferred from the traveler’s perspective and also by the travel manager.The Traveler’s Experience Rules
The North American hotel outlook is influenced by a hodgepodge of factors, including changes in technology, branding, pricing, group demand, the rise of niche markets and traveler preferences. But at the end of the day, travelers are more apt to book within a program (making life easier for the buyer) if it makes the travel experience stress-free. So, what prompts travelers to book one “preferred” hotel over another?
The conversation loops back to technology as a driver. “Take, for instance, virtual payment,” BCD’s Kusto says. “The traveler impact of automating the reconciliation of hotel charges is massively positive. And that drives better program adoption, because virtual payment is only available when booked through company-approved channels, which makes travel managers happy. You want better program adoption with today’s business travelers? Tell travelers they will never have to itemize a hotel bill again.”
And lest we forget the untold virtues of collecting hotel points – this too can affect a traveler’s decision. When a traveler insists on staying at a preferred chain due to the generous points program they offer, they could risk overspending. “I think overall travel managers are afraid to take action that would impact traveler loyalty preferences, but if you bring in other benefits for travelers it lessens that impact – for example, think about the benefit of virtual payment. Some travelers will trade points for an automated, itemized hotel bill,” Kusto explains.
When all is said and done, if your traveler is spending 47 weeks on the road, he or she wants to know what they’re getting when they show up at the hotel. Consistency in product is the key to the traveler experience – and the hotel program will be driven by this. “Corporations are looking at how to travel efficiently and easily, while balancing the wellness of the traveler and getting the most out of their dollars. Thus, travel buyers need to be ready to accommodate traveler personas and hotel preferences within their managed programs,” reflects HRS’s Benakis. “The role of the travel manager has changed from being more program focused to being strategic.”