Limited-Service Hotels to Take Center Stage This Summer Travel Season

Family roadtrip

After more than a year of struggling to fill rooms, hoteliers are finally seeing some positive signals. U.S. hotels are recouping some of their losses thanks, in part, to the release of travelers’ pent-up demand, continued vaccine rollout, and the relaxation of travel restrictions.

At the same time, the industry as a whole has a long way to go and is likely not returning to the old norm as it related to guest needs and wants prior to COVID, which focused on experiences. As a result, economy hotels and those within the limited-service segment are poised to outperform the rest of the industry. Here are three reasons why:

1Limited Labor

The majority of hotels today are not able to offer the amenities and services that they had pre-COVID. This is due in large part to the rising cost of labor and a shortage of available workers. Many of these cutbacks were accepted by guests during the pandemic. With guest expectations now rising, operators need to find ways to offer a high-quality guest experience without the labor pool they had access to in the past.

Large, full-service hotels are ideal destinations for guests looking to indulge in amenities such as entertainment, on-site programming, and spa services. The challenge for operators is the simple fact that more bodies are required to deliver these products and services than most have on hand. They are scrambling to find ways to do the basic things required to keep their property open, leaving little room for ancillary services.

This means they’re not looking to do more with less. They’re struggling to do the same with less. And this is more achievable for properties that haven’t historically relied on services and amenities to please their guests and fill their rooms. This problem will be even more pronounced in full-service hotels as economic recovery continues and they struggle to offer the level of service guests expect.

2Rate Race

The push to drive bookings has taken center stage over the past several months, driving rates to the floor. This is a challenge for all hotels, and currently, limited-service hotels are struggling the most due to midscale and even some upscale full-service properties offering comparable rates. This will be a challenge in the short term, but as the economy continues to recover there will be more opportunities for limited-service and economy hotels to rebuild over the next several months thanks to their more favorable operating costs.

The biggest factor working in limited-service hotels’ favor today is the power location has over bookings. According to data from STR, urban hotels continue to struggle while the rest of the industry is benefitting from an increase in room nights. Since the beginning of June, revenue per available room at Red Roof’s interstate hotels has increased 22 percent compared to 2019 activity, with small metropolitan locations seeing a 15-percent RevPAR increase. With average RevPAR across the U.S. coming in at $69 for May 2021 (compared to $91 over the same period in 2019), margins remain low across the board.

Limited-service properties outside of urban cores can find success in these conditions, but full-service properties will face an uphill battle when rate is the ultimate deciding factor.

This leads us to the last major component of limited-service success:

3Amenity Struggle

Travelers throughout the pandemic have been accommodating to hotels as they struggle to provide the service and amenities traditionally offered, but this attitude is changing quickly. With summer travel in full swing, guest expectations are on the rise. Full-service hotels are going to have to find a way to tailor their amenity offerings to be in line with modern guest needs, but with fewer staff than ever before.

Guest expectations are the differentiating factor between full and limited-service properties. Many midscale and upscale properties earn their bookings based on the amenities available in guestrooms and the services they offer around the property, every one of which has been disrupted by the pandemic. These properties are in the process of reworking spas, gyms, and F&B in order to make them more appealing to their core group of guests.

Without the value added by full-service amenities, guests will fall back on location and rate to decide their bookings. This creates an opportunity for limited-service hotels to differentiate their properties within their competitive set and fully benefit from the return to travel this summer. The landscape of every destination has been impacted by the pandemic, with businesses shifting and attractions gradually returning.

Business travel is in the midst of a recovery, but it is likely to take some time. Reduced convention activity in the short term continues to give limited-service properties an edge when travelers are comparing rates at checkout. These hotels were the ideal destination for essential workers during the pandemic and will remain successful going forward. Hoteliers can capitalize on the rise in oncoming demand by staying on top of the factors influencing their local area and keeping guests informed of these developments.

Hospitality is gradually normalizing as the economy gains strength, but the next few months will be crucial for building success throughout the rest of the year into 2022. It’s time for franchisees to rely on the experience and sway of their hotel partners to build on these developments and remind guests of the value your property presents.

 

Sponsored by Red Roof

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Alex J. Cisneros joined Red Roof as Senior Vice President, Revenue Generation in 2019. Alex leads the Revenue Management and Analytics teams, charged with helping to grow revenue and evolving the infrastructure to better support brand strategies. Most recently, Alex served as the Vice President of Revenue Generation for Wyndham Destinations leading all aspects of the revenue generation process including Revenue Management, Marketing, Analytics, Call Center and Distribution for over 20 brands. Previously, Alex spent nearly a decade working in Transportation, Telecommunications and Consulting for publicly traded companies and startups. A native of Ecuador, Alex holds a BA in Economics from Rutgers University and a MS in Management and Hospitality from Fairleigh Dickinson University.