Uncertainty over regulations, taxes, geopolitical strife and changing guest demands make the hotel industry a difficult world to navigate.
NEW YORK—A panel of hospitality CEOs speaking during the opening of the NYU International Hospitality Industry Investment Conference spoke about the numerous challenges currently facing the industry, but they also discussed ways in which the industry can push forward and make the most of the current conditions.
The panelists for “The CEOs check in: A view from the top” session spoke about how they see the hospitality environment changing and ways in which hoteliers can adapt.
Doing business today
Geopolitical issues are a concern, said Tom Baltimore, chairman, president and CEO of Park Hotels & Resorts, and the political gridlock in the U.S. is polarizing. Given U.S. President Donald Trump’s business background, he said he was hopeful following the election.
“I was optimistic we might see health-care reform, tax reform, deregulation,” he said. “While I’m the eternal optimist, I’m a little disappointed where we are in that process.”
Some of those changes are not likely to occur this year, Baltimore said, and he hopes they are not off the table entirely.
Hospitality is a tough business to be in, said Sébastien Bazin, chairman and CEO of AccorHotels. It’s difficult to make predictions, he said, and it’s hard to serve guests who are increasingly demanding and can get loud when they are disenchanted.
“It’s a good business,” he said. “It’s very resilient, it’s still growing, but it’s not a business for amateurs,” he said.
Leisure travel is strong, said Mark Hoplamazian, president and CEO of Hyatt Hotels Corporation. Corporate demand is there, he said, but it’s masked in many ways and companies are holding spending closer to the vest and then making decisions later in the process.
The key legislative issue in the U.S. is infrastructure, he said. The infrastructure bill seems as though it’s being held off to the side while Congress works on tax reform, he added.
“I think many of us felt that is not the right order,” Hoplamazian said. “We believe, based on what we heard from the administration, they can make progress on infrastructure without tax reform.”
The growth of leisure travel is a great trend, Expedia CEO Dara Khosrowshahi said, and should continue as long as gross domestic product grows. There’s a societal shift going on now where the “society of stuff” is turning into a “society of experiences,” he said. Citing postings to Instagram, he said, there are fewer pictures of stuff and more pictures of people out doing things.
“It’s good for the world,” Khosrowshahi said.
Circling back to the cycle
The U.S. hotel industry is cyclical and is now seeing decelerating revenue-per-available-room growth, Baltimore said. The last cycle was shortened by the recession, he said, but a cycle before that was 80 months long that ended with the Russian debt crisis in 1998. The industry then had another 30 months after that, he said.
If the industry can get engaged and push for infrastructure spending, some form of deregulation and modest tax reform, it could extend the cycle.
“It will at some point end, but it could be years from now if we can get these things through,” Baltimore said.
Guest demand is there, Bazin said, but it’s a matter of transforming that into profit. Looking back at the industry 20 years ago, the online travel agencies and metasearches did not exist, or at least not to the scale they exist today. Travel is easier, more accessible and less expensive than 20 years ago, he said.
“A greater number of people are traveling now when they wouldn’t have been 20 years ago,” Bazin said. “I think the cycle will go much longer than people believe.”
Oil prices are down, making driving less expensive, Khosrowshahi said. Alternative accommodations add new supply to the system, which puts pressure on prices.
“That brings in a whole new generation of travelers,” he said.
Back in 2009 and 2010, industry analysts forecasted double-digit RevPAR growth for 2011, 2012 and 2013, Hoplamazian said, but that never materialized. The industry had a long period of good growth, but it was relatively more modest growth, he said. Unemployment is down but wages are not as high as one would predict, and Hoplamazian added there is some slack in the economy.
“I don’t know that I would characterize this as the peak,” he said.
Understanding the guests
Customers today are simple to understand, Bazin said, but they are difficult to respond to. The customers know what they want, and they want it now, he said, and on top of that, they want it cheap. Responding to that means multiple interactions with them, and while the cost to acquire a guest is a fortune, the name of the game is retention.
“Once you have it, you understand what he wants so he can become loyal to you,” Bazin said.
Hyatt undertook an effort over the past five years to unwind many of its operating procedures and focused on human engagement and the art of empathy, Hoplamazian said. It was an opportunity for the company to adapt itself and have it become a core competency.
Trying to achieve a deeper understanding of these customers isn’t easy, he said, and it requires real focus and effort. It’s what hotel liaisons need to reconnect in a significant way, he added.
“Empathy plus action equals care,” Hoplamazian said.