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Hospitality Industry Trends |
Monday December 1st, 2008 |
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ISHC's Top Ten Issues & Challenges In The Hospitality Industry For 2004 |
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At the International Society of Hospitality Consultants (“ISHC”) recent annual meeting, ISHC members participated in small group brainstorming sessions to identify and discuss the challenges and issues that are likely to influence the global hospitality business in 2004. |
While there were dozens of issues discussed, in the final voting the membership identified the following ten (10) issues as the ones that can be expected to potentially have the greatest impact on the industry in 2004.
Brief Overview of ISHC
The International Society of Hospitality Consultants is a professional society with members in sixteen countries who are leading consultants in the hospitality industry. Membership is by invitation only. ISHC as an organization represents a one of a kind collection of experience and expertise in the hospitality industry.
ISHC members have expertise in over thirty different specialty areas in the hospitality industry including development, operations, marketing, technology, valuation, lending, human resources, asset management and legal services, among many others (for a complete listing of members and a listing of areas of expertise please the ISHC web site at www.ishc.com).
ISHC members’ clients include public and private hotel owners and investors, many leading financial institutions, Fortune 500 companies, food and beverage service firms, airlines, cruise lines, time share and vacation ownership companies, universities and convention and hospitality travel and/or tourism bureaus throughout the world.
ISHC Top Ten Issues & Challenges for 2004
1. Distribution Channel Management
Having a well-defined distribution management strategy must become a core competency for the hospitality industry. Although improvement in this area is evident, the industry still suffers from a severe disconnect between senior management directives and the reality of day-to-day property level decision making. Mixed messages between brand/price integrity and “heads in beds” continue to plague the industry, turning the hotel experience into a commodity. Consumers’ relentless pursuit of the best deal manifests itself in every segment, while lead times to booking continue to shrink. It is estimated that as many as 30 to 40% of all reservations book within the month (up from 20% prior to 9/11). At the same time the lack of technology integration makes real-time inventory management in multiple channels a labor-intensive nightmare. Couple these challenges with a general lack of forecasting acumen and the result is potentially both chaotic and destabilizing.
2. Worldwide Terrorism and Safety
The escalated level of terrorism beginning with 9/11 will continue to be a major thorn in the side of world tourism in 2004, particularly in hotspots such as the Middle East. However, any location where there happens to be a significant terrorism event will pay a heavy price. Travel venues therefore have a strong economic incentive as well as an ethical responsibility to optimize the safety measures in place.
3. Capital
The hospitality industry faces several challenges relative to capital. There are dollars for development but large-scale full service hotels don’t pencil absent a mixed-use or subsidized environment. Hence the development capital is going to smaller cannibalistic development creating a difficult competitive operating environment for existing hotels of all sizes.
A secondary capital issue is related to debt financing. In relative and historic terms, debt capital is inexpensive contributing to an increase in development, however, longer term and as the construction and mini-perms come due, these hotels will be stabilizing in a higher interest rate environment; will market lift be sufficient to carry the higher future interest costs?
In addition to eroding margins based on the competitive environment, operators have deferred capital expenses, slashed staffing and cut back on training, making existing older hotels less desirable from the customer’s perspective.
4. New Business Realities
Over just a few years, the business environment facing hoteliers has changed radically, and mostly for the worse. The new realities, which if not permanent are at least likely to persist for a while, include:
• Consumers value mindset and sense of empowerment, contributing to real declines in average rates.
• General economic uncertainty and a shorter booking cycle in all segments, makes forecasting much more of a “guessing game” than any time in memory.
• Increased competition from non-traditional sources (cruise ships, corporate housing, time share).
• Possibly permanent shift to new ways of conducting business that exclude travel.
Companies that evolve effective strategies for dealing with the impact of these issues, rather than hoping that they will quickly fade away, will be the winners.
5. Service Gaps
In an effort to stabilize the bottom line and in the face of large segments of the industry under public ownership, hotel managers and staff are slowly adapting to the reality of being in the business of hotels not in the hotel business. Obsession with cost containment has resulted in diminished and deteriorating services and many training budgets have been eliminated indefinitely. With few exceptions, a shortsighted approach prevails with every possible corner being cut, revealing little attention to detail to the frequent traveler or the leisure guest.
Customers are cynical and continue to want it both ways – all the extra’s for rock bottom prices. Eliminating services and training now means a very long road back when markets improve. The “follow the follower” syndrome will not bring the leadership that is so desperately needed in difficult times - leadership to answer the question – who is the customer? The stockholder or the guest?
6. Global Uncertainty
Globally, the hospitality business was jolted off its foundation by the terrorism events of September 11, 2001. The recovery has been spotty begging the question: has the business of this business fundamentally and permanently changed and if so, how do we deal with that reality? Have we entered the era of “No Peace-No Travel”? Since 9/11, there have been other very damaging events that have further impacted the hospitality recovery such as SARS, the war on terrorism in Afghanistan, the war in Iraq, violent political unrest globally and the first hotel actually targeted by terrorists in Indonesia. The industry needs to be prepared for the effects of further global unrest and instability and take a much more active role in protecting its guests.
7. Building Occupancy
Making the assumption that business will return eventually is a highly dangerous supposition. The industry faces changes that are converging simultaneously, thus amplifying the impact. If buying behavior and travel patterns have changed permanently, then what is the plan to replace business that may never return? If web-conferencing becomes the norm, what are the strategies to replace that commercial business? If transparent pricing is the norm, how will the industry teach day-to-day decision-makers the art and science of strategic pricing? If group business does not rebound, what needs to be done to stimulate the segment? The risk is in believing that we must simply weather a down cycle versus the creation of innovative strategies to reinvent our businesses.
8. Airlines in the 21st Century
Our industry recovery depends greatly on airline lift, service and convenience in travel. Traveling by air has become a major inconvenience and the composition and number of flying travelers has changed dramatically, negatively affecting airline profitability. Internationally, the U.S. government has cut back on granting visas, making it more difficult for the international traveler to get to into the country. The result: fewer flyers, fewer seats and fewer options overall. Many major traditional carriers are in financial difficulty with the top three having teetered on bankruptcy; how does the hospitality industry recover in light of the airlines challenges? A compounding factor may be security; the security of airlines remains a huge challenge and another terrorism event would be cataclysmic to that industry and consumers confidence.
9. Management Evolution and the Shift in Power
There continues to be a definite shift in power toward ownership in the owner/management company equation. Management companies are increasingly granting concessions in their existing management agreements, as well as trying to make their dealings more easily understandable to owners. This shift also represents an attempt to potentially reduce exposure to costly litigation.
10. Financial Viability
Despite the rhetoric, fewer hotels are retired than are recycled and the industry is showing its age. The challenging operating environment of the past several years has resulted in fewer capital dollars being spent at a period in the economic cycle when historically, capital projects would have been undertaken. The brands, recognizing an opportunity to differentiate themselves are demanding product and standards improvements that many hoteliers simply cannot afford. What happens when each of the top brands terminates the lower scoring quartile of its franchise community and where do they go? How does the industry demand higher rates when the price/value relationship is skewed by a physically- challenged product? Compounding the problems are the development of newer, smaller more economical hotels that are competing in traditional full service territory literally cutting-off demand at its source.
For additional information, please contact Tom Morone at 1-310-229-5798 or Lori Raleigh at 1-239-436-3915.
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International Society of Hospitality Consultants
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The International Society of Hospitality Consultants, ISHC, is a professional society of 170 members in 16 countries who are leading consultants in the hospitality industry.
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