Hoteliers should take full advantage of 2016
29 JANUARY 2016 7:24 AM
With positive industry performance closing out 2015, the record numbers are expected to continue in the new year. Now is the appropriate time to prepare for the coming years.
As forecasted, 2016 is already showing signs of being a banner year for the hospitality industry.
Revenue-per-available-room growth will be up about 6% in 2016, according to industry forecasts, with the biggest gains coming from average daily rate. While we should be celebrating this expectation, we need to be realistic that the good times cannot last forever.
We must recognize that after a stellar record of 70 consecutive months of RevPAR growth by the end of 2015 will be tempered from the recent highs, likely in the range of 1% to 2%. As such, we need to take full advantage of the benefits of this coming year to prepare for slower growth in the years ahead.
The good, the bad and the trending
While a number of factors contribute to the expectation that economic growth will pull back, we are headed for an inflection point affecting the supply-demand balance. Development has been robust over the past few years and new supply will continue to come online throughout 2016 and 2017.
This increased supply will provide guests with a number of new options that will affect the ability of existing hotels to drive occupancy. As those of us who have been through several economic cycles know, when hoteliers recognize that occupancy is flat or even decreasing, there is an impulsive reaction to lower rates to attract guests. This should be avoided in almost all cases.
Demand might be tempered because of increasing gas prices, expected interest rate hikes, the slowdown in the Chinese economy and geopolitical instability—think of the situation in the Middle East or the current North Korea tensions among other events—that could cause panic in the travel market.
Another unknown is the continued debate about shared accommodations, best represented by Airbnb, and its long-term impact on the hospitality industry. While there is a great debate in our industry about the impact of Airbnb, I am of the belief that we need to embrace and adapt to alternative accommodations instead of fighting it every step of the way. It’s here to stay.
If consumers are lured to the likes of Airbnb, then we as hoteliers must learn from it and modify our habits to address ever-evolving guest needs. Hospitality is a noble profession, and the more customers who embrace our industry the better. As such, the sharing economy expands our market and can complement rather than threaten our business. The last thing we should do is to take our cues from the music or taxi industry and be too slow to react to new technology and evolving consumer habits.
Priorities in 2016
Given these headwinds, it is crucial that we use 2016 to plan and prepare for the future.
Maintaining capital reserves and renovating our properties is paramount to long-term success. Remember that in any downturn, cash is king, so we need to ensure that we have money stored away and available so as not to need to make unnecessary cuts from a lack of foresight. Even with the recent interest rate hike, loans continue to be near historic lows, so 2016 is a great year to pull that trigger.
From an operations standpoint, use 2016 as a time to refine your skills and operational efficiencies. Marriott International’s pending acquisition of Starwood Hotels & Resorts Worldwide and the merger of Expedia and Orbitz have made it clear that consolidation is only just beginning, so smaller companies must get creative to compete against these behemoths.
Today’s marketing world is driven by mobile and video, and as such, we should target our digital marketing efforts around these platforms. Use analytics to help refine your target audience on any given campaign to greatly increase your returns. Also, learning more about our guests through the analytics from our websites and social media channels can help us create more engaging content that rewards our guests for booking directly with us rather than the online travel agencies. Direct bookings are a surefire way to help prepare for any downturn the future might hold.
Throughout this year we need to prepare ourselves for the inevitable end of our current economic cycle. While that might frighten some of us, taking full advantage of the stellar year ahead can position our hotels for whatever will come in the future.
I, for one, am not worried. Hoteliers are a resilient group of creative thinkers that are known for being able to solve any problem in a moment’s notice. As long as we prepare, we can weather any storm. So hold on to those rates and have a great year!
Robert A. Rauch is CEO of the hotel management and consulting firm RAR Hospitality. Rauch is an internationally acclaimed hotelier with more than 40 years of industry experience. RAR Hospitality has four independent hotels in its portfolio with an additional property under development.
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