IREFAC: What disruption is doing to the hotel industry
 
IREFAC: What disruption is doing to the hotel industry
01 AUGUST 2019 8:37 AM

Panelists during the IREFAC session at the 2019 ALIS Summer Update conference in Boston discussed hotel industry disruptors and what they have done to (or for) the industry.

BOSTON—The hotel industry constantly changes over time. Those changes are sometimes driven internally by movers and shakers within the industry. Other times, the changes come in response to disruptors playing in the hotel space.

Members of the Industry Real Estate Financing Advisory Council speaking at the 2019 ALIS Summer Update conference in Boston dove into the topic of hotel disruptors and what they’ve actually done to the industry.

Chuck Henry, president of Hotel Capital Advisers, asked if Airbnb is disrupting the hotel industry, why is the industry seeing its highest occupancy levels since World War II? The industry is operating at 80%-plus year-round but rates are going down, which is contrary to the economics lessons he’s taught, he said.

He compared the situation to an ice cream shop that wants to reduce the size of its ice cream scoops to handle all of the demand instead of raising the price by a nickel.

“There seems to be a line at every hotel in Boston,” he said. “Why not raise the price a little?”

Hilton EVP and CFO Kevin Jacobs agreed that home-sharing and short-term rentals have been disruptive, but the concepts have been around for a long time. The difference is Airbnb came along and did it differently through scale and branding. From Hilton’s point of view, it’s a different business, he said. While his company’s closest competitor is taking a different approach, Hilton will stay out of the home-sharing business until its customers say that’s something they want from the company.

“What people worry about is a disruptor in the classic sense of the word,” he said. “They’ve done some things really well and changed the way we think about going to market with our customers.”

Henry recalled a conversation with someone from Sony Music who said the recording business made a mistake in the 1990s when it tried to litigate disruption, referring to the online downloading platform Napster.

“They eliminated Napster, but not downloads and, eventually, streaming,” he said. “I look at the AHLA, who is litigating an effort against Airbnb for good reasons, but is that the way the industry should deal with disruption?”

Jacobs said Hilton has joined with the AHLA in its efforts against short-term rentals. The point is to make sure they play by the same rules, not to eliminate them, he said.

Everyone needs to remember they are in the hospitality business, not the tech business, Jacobs said. The biggest risk to the industry over the next five to 10 years is commoditization.

“That’s not new,” he said. “It’s just happening more quickly.”

Even as the industry introduces more back-end and guest-facing technology, the product and the delivery of service still matter, he said.

Hotels make a pretty good profit, even luxury and other full-service properties that are expensive to run, he said. As a result, there are a lot of people who want a piece of that pie.

Home-sharing, glamping or something else no one has thought of yet aren’t going to be the issue if the industry becomes commoditized, Jacobs said. When guests go to their smart speakers to book a room at a hotel, and the device’s algorithm knows to find a hotel room based on the guest’s price and location preferences, but with no regard to the product or service delivery, that’s going to mean trouble, he said.

“It’s people serving people,” he said. “If it’s a robot serving people, in my line of business, that’s a problem.”

One of the most fascinating stories to come out this year is the one about Oyo Hotels & Homes, said Arthur Goldfrank, managing director in the mergers and acquisitions group at Deutsche Bank Securities. People are talking about Oyo being a disruptor in India, but it seems the company is less a disruptor and more about giving guest what they want: a certain standard of cleanliness, he said.

Oyo is proud of its technology, but almost every lodging company believes its tech, and only its tech, is the best in the industry, Goldfrank said. The company is competitive when it doesn’t face a lot of world-class competition, he said. However, that doesn’t mean the Indian hotel market is easy by any means.

“The rubber hits the road when they expand into Europe and the U.S.,” he said.

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