Hoteliers never seem to agree what point in the industry cycle we’re in, and right now is no different. Is it the “Golden Age of Travel,” like we heard at the recent NYU International Hospitality Investment Conference? Or have we reached “Peak Travel,” like a few analysts at PiperJaffray say?
Well, both can be true at the same time. Let me explain how.
I’ll start first with a research note from investment firm PiperJaffray published in mid-June. The authors said American consumers probably can’t devote more of their spending toward travel than they had been, signaling the peak of the industry’s growth it has enjoyed since the last recession. I agree with several of their reasons, particularly the fact that travel spending as a “share of wallet” among consumers had increased far faster than wages had for the past five years.
People won’t stop spending money on vacations and hotels—far from it—but there’s limited potential for upside in the coming years.
If that’s the picture for the majority of consumers in the United States, why did other CEOs agree with Hilton’s Chris Nassetta when he called this the “Golden Age of Travel” at the NYU Conference? First, I agree that the travel market generally will grow over the next few years, even if there’s more pressure on consumers. We might have a year or two of tepid growth, and demand for travel might moderate, but it won’t plummet.
The analysts’ “share of wallet” argument is a nuanced one that doesn’t entirely account for what has the big hotel CEOs so optimistic: a rising middle class around the globe and emerging, travel-focused demographic groups in the United States. Consumers very well might spend less per person in the next couple of years, but overall the total number of travelers is likely to increase significantly.
What does this mean for hotels and their management of revenue, operations and distribution? Quite a lot.
If these changes in demand cause a slowdown for the travel industry, market share will naturally shift from hotels’ direct-booking channels to online travel agencies, as it did in prior recessions in 2001 and 2008. If OTAs steal the narrative from hotels and convince consumers they provide the best value, the OTAs would benefit at hotels’ expense. Now is the time for hotels to hone their messaging and to ensure they can deliver on the promise of a differentiated experience.
If international or domestic guests are coming to your hotel for the first time, after booking through an OTA, train your staff to proactively get their contact info upon arrival, so your property can market to them in a personal way and make them repeat guests who book direct. Make sure your people are showing OTA-booked guests the same hospitality they show their loyalty club members.
From a revenue management perspective, the “Peak Travel” era makes using lost-business data, what we call web shopping regrets and denials, more important. Focus on your booking conversions by price point. If overall demand and the number of people searching for a room with you are trending downward, but you’re still converting a healthy percentage of those shoppers, you shouldn’t lower your room rates or discount too heavily.
Be thoughtful about how you’ll fence your targeted discounts to protect your high-rate dates. Perhaps you’ll use an opaque OTA channel or participate in some OTA sales events.
In the end, we’re likely headed for some challenging times when consumer demand will be very fluid. But if the right sets of data are helping you make your decisions, you’re likely to come out of the next slowdown ahead.
About the Author
Patrick Bosworth is CEO and a co-founder of Duetto, a hotel revenue strategy technology company based in San Francisco.