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Strong airline business could hurt hotels
September 5 2013

A healthier airline industry might have negative effects on hotel performance in some markets.

Highlights
  • Airfares are on the rise, so travelers may have less in their budgets to spend on hotel stays.
  • Consumer satisfaction with both hotels and airlines is improving.
  • Eliminating the human touch in hotels could be a risky strategy.
     

NASHVILLE, Tennessee—A healthier and more stabile airline industry has effects on the hotel business, and not all of them are good, panelists said during a general session Thursday at the 5th annual Hotel Data Conference hosted by STR and Hotel News Now.

United States-based air carriers have reached a period of maturity, said Brad DiFiore, co-founder and managing partner of Ailevon Air Service Consulting, during a general session titled “Beyond the boundaries: How other industries influence hotel performance.” Due to consolidation and bankruptcies in the airline industry, the number of companies has dwindled in recent years. Those that remain are able to match supply with demand, he added.

The airline’s renewed pricing power has enabled carriers to raise their per-passenger per-mile revenues by 19%, while dropping capacity by 4%, DiFiore said. As a result, airfares are on the rise, up to an average of $379 per round trip.

“It affects (the hotel industry) because travelers, especially discretionary travelers, typically have a limited budget, and if they’re paying more for airfares there’s less in their wallets for hotel stays,” he said.

Airline consolidation, which will leave the industry with four major carriers if the American Airlines-US Airways merger is approved, has led to a significant reduction in the number of hub airports. Among those cities losing hub status in recent years are Nashville, Tennessee; Memphis, Tennessee; Milwaukee; Pittsburgh; and St. Louis.

“Some of these cities have struggled to maintain air service, and that makes them less attractive places to hold meetings and conventions,” DiFiore said.

Another threat, especially for smaller markets, comes from a trend among airlines moving away from 50-seat regional jets to higher-capacity aircraft, due to higher fuel costs. DiFiore said airlines then will focus their growth on bigger markets, and some smaller cities could lose most or all of their scheduled air service.

Calling this an “ominous sign for smaller hotel markets,” Michael G. Medzigian, chairman and managing partner of Watermark Capital Partners LLC, said he generally won’t invest in airport hotels. The company owns one hotel at an airport location, but it was purchased as part of a portfolio transaction.

“Of course, there are exceptions,” he said. “There are some great little markets, like Santa Fe (New Mexico) without significant airlift but which perform quite well.”

Improvements in satisfaction
Not only is the airline industry performing better, it’s improving in the eyes of its customers, said Rick Garlick, global travel and hospitality practice lead for J.D. Power and Associates. The firm’s most recent consumer surveys showed increased satisfaction for both traditional and low-cost carriers.

“Perhaps people are actually less dissatisfied with airlines, or maybe they’re used to the (added) fees,” he said. “Overall, there is less price sensitivity among consumers.”

That trend also applies to hotels, with Garlick reporting the highest hotel guest satisfaction in the eight years the company has conducted hotel satisfaction surveys.

Garlick said the biggest improvement is in satisfaction with hotel costs and fees.

Medzigian questioned the data that showed improved consumer satisfaction with both hotels and airlines.

"Are we as an industry really better than we were three years ago?" he asked. "We're all charging more. We're all spending more on our assets, but in many cases that's disruptive to our guests. Perhaps customers are just more accepting. They've been through hell with the airlines, and they've been through hell with us as we pulled employees out of the service mix."

Garlick warned hoteliers against adopting the self-service trend common in other industries, including the airlines.

“A lot of hotel brands are moving toward eliminating human contact in their hotels, but our data suggests that can be a risky strategy,” Garlick said. “The more interaction guests have with staff the happier they are.”

The company’s hotel satisfaction survey found guests who had to wait in line more than 20 minutes for check-in but were greeted with a smile were more satisfied than those who waited one to five minutes but didn’t receive a smile.

“It underscores the fact that we’re selling more than rooms and buildings in our industry. We’re still selling hospitality,” he said.

Like the airlines, many hotels are installing self-service kiosks for check-in and check-out, but “no matter how tempting that may be, it’s a risk when a hotel takes people out of the equation,” Garlick said.

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