As travel demand in the post pandemic era surges, the outlook for the hotel industry is cautiously optimistic. This is based on numerous factors, including expectations for a relatively stable operating environment, the fading likelihood of a recession, the strengthening demand for in-person meetings and events and group travel (such as sporting and music events), technological advancements, plus the softening of leisure travel offset by the continued uptick in business travel.
The link between leisure and business travel is particularly important to note. “Forecasts certainly indicate a softening of leisure travel as we move into 2024, a trend which will naturally create greater ease of access to rates for business travelers,” comments Cameron Spence, consulting manager, American Express Global Business Travel. “However, it is critical to note that despite this softening, the focus for many hoteliers remains firmly fixed on the leisure segment, following such promising performances in 2022 and 2023. This slowdown will not lead hotels to entirely re-align their strategy for 2024. However, they are likely to be more receptive to corporate negotiations than in the last two years.”
Technology and data collection will also play a key role. “We see two key factors guiding the building of 2024 success plans in our roster of global corporate clients,” says Pauline Robin, VP of procurement consulting and supplier solutions for the Americas at HRS. “First, access to what we call level-four data from hotel partners in real-time. Beyond rate adherence, corporates should now be able to track deeper elements like rate availability and bookability, along with carbon emissions. Having access to such metrics in real-time allows for a nimbler approach to managing programs in this fluid environment, as the data ultimately impacts alterations in tactics and even strategy that can truly impact overall program performance,” Robin notes.
“The second item, in the face of per-night rate increases, is convergence. The solutions and technologies are in place to make the long-heralded benefits from combining all of the segments (transient, meetings and groups, extended stay) into cumulative figures that can truly illustrate the value a program offers to current and potential hotel partners. And with the booking of simple meetings (less than 50 participants) on a sharp upturn, convergence offers more downstream benefits for both corporate lodging programs and the hotels that crave more of recurring weekday business volume.”
Pluses & Minuses
Although technology and data will be critical in individual strategies surrounding pricing, generally speaking, rates are set to continue to rise across almost all markets. However, there’s not a one-size-fits-all approach when it comes to corporate travel; some clients prefer dynamic rates, while others want static.
“The bulk of our business comes from our dynamic rate plans, which allows for flexibility in rate plan and traveler choices,” notes Wendy Ferrill, vice president, worldwide sales for BWH Hotels. “We are still seeing dynamic rate plans utilized in smaller markets and static rates in high volume markets, which mitigate pricing wars that may arise from any risks of a softening economy,” she says.
“Ultimately, we partner with our clients in how they want to do business,” says Brian Macaluso, VP of global sales at Sonesta Hotels. “The power of the dynamic rate has helped travel planners in several situations (location, consistent availability, and less labor intensive to manage). When a travel partner requests a static rate for a specific market because of volume and travel pattern preference, Sonesta is always open to VOC and flexible as a business partner to make each situation a win/win.”
According to Alexis Sisko, managing consultant at BCD Travel Hotel Solutions, sourcing negotiations have been unprecedented the last few years, but the 2024 RFP cycle has been particularly interesting. “It is not so much that corporate hotel programs need to prepare for a rapidly shifting landscape, but more so the hoteliers. We have seen a significant shift in travel buyers’ willingness to accept non-competitive offers from hotels, with some simply walking away from negotiations to focus efforts in areas of their programs that are driving value,” Sisko adds. “Regardless of the rate type strategy, we remain hyper-focused on the value of the static or dynamic discount off the hotel’s best available rate relative to volume, and continue to leverage average booked rates to mitigate market conditions and above-inflation offers.”
In the dance between dynamic and static rates, choosing either one ultimately depends on the corporation’s needs and the hotel’s situation. “Dynamic rates can be beneficial and are worth considering in some circumstances (lower bar for entry, more access to inventory, lower rates if travel is on non-peak nights, etc.) but in most cases, hotels are not prepared to offer dynamic discounts that deliver savings on par to the fixed rates they may also offer,” explains Rachel Newns, global hotel practice lead, FCM Consulting. “Average dynamic discount offered is 12.65 percent versus average predictive savings of 24.85 percent on a fixed rate.”
While dynamic rates can certainly deliver value, especially when used strategically, it takes time to see results. “The thing to be mindful of when it comes to dynamic rates is that you cannot determine its potential success or failure without allowing a full year to actualize. If you look at savings in the winter months you’ll be elated, whereas in the peak summer months you’ll be highly disappointed. A true determination of success can only be ascertained when averaged out across the full period,” Spence says.
Tectonic Shifts
To understand the 2024 hotel outlook even better, it’s important to understand the business travel industry’s landscape for 2024. With the surge of “revenge travel,” demand for corporate trips is still high, due to a number of reasons: First, business travelers are undertaking fewer but longer business trips and combining activities and meetings into single trips (“trip batching”). This is partly driven by concerns for the environment; but it is also propelled by remote working schedules.
Second, they are blending business with leisure trips (“bleisure”). In fact, younger business travelers are leading the way in booking blended travel, according to Hilton’s Worldwide’s 2024 Trends Report. “Gen Z and Millennials are the most likely to extend their trips or take a friend or family member on a business trip in 2024. More than one-third of business travelers in those age groups plan to add pre- or post-trip leisure days to their journey, while 29 percent of Gen Z and 27 percent of Millennials will add a plus-one to their business trip to share those leisure elements.”
Third, hybrid remote working patterns are encouraging employees to travel at times that otherwise they could not have, with more options at their fingertips than ever. “With the continued rise of bleisure travel, as well as younger travelers – like Gen Z – who crave experiences, hotels need to think outside of the box to capture business travelers and entice them back for personal travel,” explains David Krauthamer, group VP of global sales for Wyndham Hotels & Resorts. “That could be anything from offering technology to make life easier for digital nomads and remote workers or providing creative recommendations to help guests experience local culture.”
Some merger and acquisition activity is already afoot in the industry, but its influence in 2024 is likely to be minimal – at least for now. “M&A activity will be somewhat subdued, at least for H1 of 2024, as capital markets wait to see where the economic outlook lands,” Spence predicts. “Should we see M&A in the hotel space it is likely to come from an angle of opportunism, where larger players with deeper pockets will acquire troubled portfolios.”
Competing for Loyalty
Today, hoteliers are keenly aware of new trends in business travel, including the needs of remote workers who are self-selecting preferred hotels based on loyalty programs and other amenities, such as flexible later departures, longer extended stays, and high-speed WiFi. “The changes in individual business travel patterns incorporating a ‘work from anywhere’ mentality have required either longer stays or short-term small gatherings, along with slower returns to the office conditions, resulting in slightly different perspectives when preparing for ‘Business Travel in 2024’,” says Macaluso.
Other trends that will breed loyalty – especially among Gen Z’ers – include transparency in sustainability initiatives. “Hotels will drive their programs to improve green credentials; key areas include water and energy consumption, single use plastics and food waste. Travelers will demand more personalization and access to facilities and services to maintain their wellbeing such as gyms, spas and healthy meals,” Newns explains.
“Loyalty is everything for corporate travelers and travel managers alike,” according to Wyndham’s Krauthamer. “A construction worker or travel manager booking weeks at a time at a Days Inn or Super 8 can turn those loyalty points into experiences outside of his or her day-to-day work life – they can check out the beaches of Wyndham Grand Clearwater or test their luck at Caesars in Las Vegas. That’s a fantastic return for the guest. On the flip side, this also challenges our hotels to really showcase all their hotel has to offer – the nearby attractions, in-room amenities like streaming services, food and beverage and more. By putting elements like that in the forefront, it increases the potential to turn business travelers into leisure travelers at their location.”
The Right Mix
As a whole, travel demand is favorable, despite certain areas around the world which are still catching up to the post-pandemic rebound. This in turn influences the outlook for hotels, which is predicted to be a steady and more predictable market in 2024.
However, hoteliers need to remain flexible, as geopolitical conditions change and global inflationary pressures rise. “Hotels that have eschewed corporate travel programs in favor of the newly acquired leisure travel may find that they’re too late to fill their rooms when facing a declining market,” cautions FCM’s Newns. “New rate agreements including capped dynamic and dual rates offer corporate travel buyers the best of both worlds and flexibility in the program to continue to offer value in a changing market. Nevertheless, a flexible approach to sourcing is needed to maintain a program in an unpredictable market. Consider the mix of rate types on a program to deliver value in different scenarios such as LRA and Dynamic,” she advises.
“We are still seeing and anticipating ADR growth in the hotel sector, although the growth may not be as strong in 2024,” Ferrill says, adding that the strongest growth is anticipated to be in Europe, together with significant occupancy growth in the Asia-Pacific market, particularly in China.
Ferrill also points to factors aside from rates that are likely to drive traveler preferences in the year ahead. “In terms of group travel, the costs of meetings and events are anticipated to increase, so ensuring great experiences at events is key,” she says. “For sustainability, there is and will continue to be a desire for more sustainable options, particularly when deciding between otherwise similar choices.”
Customization will be integral, as travelers’ preferences have evolved. Some may want the best rate, while others prefer a variety of amenities or look at carbon offsets. “Key factors that will likely influence the hotel industry in 2024 include a focus on sustainability, DEI, loyalty programs, growth, and continuing to create unique and compelling offers and services that drive more business. The reason the largest chains continue to add new brands and product offerings is there are so many different traveler and consumer needs and preferences,” says Tammy Routh, SVP of global sales at Marriott International.
“The biggest factor that will determine the success of hotels in 2024 will be collaboration,” adds BCD’s Sisko. “Simply put, clients are looking for mutually beneficial partnerships. Hotel rate performance will be crucial. We expect to see travel managers shift business or their chain partnerships to suppliers consistently proving their willingness and ability to solve poor performance trends.”
Sisko explains that just as hoteliers utilize competitive intelligence platforms to analyze corporate spend, travel managers utilize rate availability, market rate and hotel performance dashboards to assess property and chain level performance. “They expect ongoing resolution in exchange for preferred status,” she says. “In short, consistent rate performance is key and travel managers will continue to factor it into their solicitation and optimization strategies beyond 2024.”
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