Hospitality Paradigm

Micros’ 2012 eCommerce in Independent Hotels Report examines how independent hotel operators are using web and mobile technologies to engage with guests.

• 37% of hotels respond to every TripAdvisor review of their property, whether positive or negative.
• 6% allow the guest to book a table in the hotel restaurant during online room booking.
• 10% have a website that is optimized for mobile phones.
• 85% have a Facebook page, although the quality of updates vary, with only 43% of hotels putting details of promotions and offers on the site.
• 75% have a Twitter account, but only 35% responded when asked a question via the site.
• 39% did not appear on the first page of Google results for their keywords

Decreased demand coupled with increased supply is set to depress the profit margins of 5-star hotels in India over the next two years, according to new data from Crisil Research. According to Crisil, decline in both occupancy rates and ADR will shrink operating margins and rising costs will accentuate that pressure. Operating margins will drop to just over 16% in 2013-14, the lowest in 10 years.

Slowing demand growth and large-scale room additions will cause occupancy rates of premium hotels in these cities to slip. As the global economic slowdown affects both business and leisure travel, annual demand growth for premium hotel rooms is likely to stay subdued at 7% in 2012-13 and 2013-14. The slowing demand growth will coincide with large additions of rooms, with 14,500 new rooms to be added by 2013-14 to the existing 46,200 rooms. Occupancy rates of premium hotels will, therefore, fall from 64% in 2011-12 to 56% in 2013-14.

As the increased room inventory intensifies competition and aggravates the demand-supply imbalance prevailing in the segment, ADR for premium hotels will dip by about 10% over this period. The fall in both occupancy rates and room rates will precipitate a sharp decline in RevPAR, the revenue from rooms occupied divided by the number of rooms available. The average RevPAR for premium hotels will plummet from Rs5,000 per day in 2011-12 to Rs3,900 per day in 2013-14. RevPAR will decline in 10 of the 12 Indian cities. Premium hotels in Ahmedabad and Chennai will be the worst affected, with an annual decline of over 20%. Hotels in Bengaluru, Hyderabad, NCR, Jaipur and Kochi will also record a significant fall, of 15% annually. By contrast, limited room additions will keep RevPAR stable in Agra and even increase it marginally in Goa.

The decline in RevPAR will erode the profitability of premium hotels, as room revenues make up almost two-thirds of their total revenues. Rising costs will add to the pressure on profitability, too. A shortage of personnel will increase employee costs, whereas energy costs are also expected to rise significantly. Operating margins will dip from around 24% in 2011-12 to slightly over 16% in 2013-14.

“Operating margins will drop to their decadal lows in 2013-14,” said Binaifer Jehani, director at Crisil Research. “The margins had previously dropped to 16% to 17% in 2002-03 and 2003-04, when the 9/11 terror attack and the SARS outbreak had countries issuing travel advisories, sparking a drastic fall in demand. But that fall was temporary, and the margins recovered to their earlier levels of 30% to 35%. But this time around, the recovery will be slower. A continued oversupply, at least till 2015-16, will maintain the pressure on profitability of premium hotels.”

Hotels in the areas hit by Superstorm Sandy this week may see revenue losses as the northeastern U.S. begins to recover from the devastating damage inflicted.

Keeping in mind the fourth quarter is typically New York City’s highest-occupancy and highest-rate period, it is expected that the calendar fourth quarter performance results will be off substantially.

Analysts project that the revenue impact will be comparable to that of the 9/11 terrorist attacks for hotels in the New York City region.

“The effect of the storm on the lodging industry will be unprecedented with the exception of September 2001,” said Dr. Bjorn Hanson, divisional dean and clinical professor at New York University’s Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management. “The extraordinary advance notice of the storm resulted in record lodging cancellations, and a reduced level of ‘stranded guests,’ which can be a source of lodging demand with other weather events.

Hanson noted that late October to early November is a peak time for meetings and conventions, which were cancelled in anticipation of the storm, and meeting planners have become more sophisticated than ever before in negotiating cancellation provisions that shift the burden of these types of cancellations to hotels.

A lodging analyst at FBR & Co., told Bloomberg that he has lowered his expectations for U.S. RevPAR growth in the fourth quarter from above 6% to 5.5%-5% due to the storm’s impact.

Chinas rise to a superpower cannot be ignored even by hotels. According to Expedia –  strategies U.S. hotels plan to use to capture their share of China’s burgeoning travel market include

• 52% of US hoteliers plan to add Chinese teas to their in-house menus
• 71% plan to partner with China UnionPay
• 63% plan to establish on-site translation services
• 46% already offer a Mandarin-version of its website
• 59% plan to offer Chinese newspapers or magazines

So when is India going to make this much of an impact?

A survey of almost 400 meeting planners by Destination Hotels & Resorts identified 2013 trends including the importance of location, sustainability and a hotel’s culinary offerings.

Here are some of the survey’s findings:

Location, location, location

While planners consistently referenced budget parameters as their biggest challenge, “location” led as the most important consideration in selecting a venue (with “rate,” “flexible space” and “amenities” following closely behind).

Being green affects the bottom line

Eco-friendly practices are not new to the meetings industry, but meeting planners are well ahead of the general leisure travel market in evaluating green practices as part of their booking decision, the survey found. While 45% of planners said eco-friendly practices are “somewhat important” when choosing a venue, an additional 18% said they are “extremely important.”

What’s on the table matters more than who’s in the kitchen

More than 78% of planners identified culinary offerings as an important part of their selection process, with 30% of them noting it was “extremely important.” Surprisingly, after years of seeing big-name chefs attach their moniker to hotel and resort restaurants, meeting planners were very clear on one thing: they don’t care. Less than 10% cited a “signature chef” as an important factor in how they evaluate culinary options. What do they care about? Smart, well-planned CMP packages that focus on health and nutrition (43%) as well as specialized dietary offerings (35%).

Building a team adventure

Healthy eating options aren’t the only lifestyle factor that meeting planners are focusing on in the coming year. When asked about team-building trends, more than half (54%) indicated that adventure/active options were of the greatest interest.

Meetings go social

Half of meeting planners cited social media as an integral part of the planning process and check TripAdvisor and online reviews before deciding on a hotel or resort.

Technology

More than 36% noted an increase in technology integration with meetings compared to a year ago, with strong indications that the trend will continue. Streaming media, web conferencing and on-site video production were the most common uses, with more than 25% of meetings relying on at least one of those.

A recent write up in Hotels Magazine talks about how corruption enjoys start up hospitality ventures at an international level. Whether obtaining prime locations, building, securing inspection and food permits, or creating partnerships to advance the development, operation and security of restaurants and hotels, the very nature of the hospitality industry lends itself to risk arising from bribery and corruption.

As demand grows for economic expansion in new and emerging markets in Africa, Brazil and Southeast Asia and as the international political landscape changes in broader terms in places such as China, India and the Middle East, hospitality companies face monumental challenges in protecting their organizations from bribery and corruption. Common issues the industry faces include:

• Securing prime locations — as all hospitality executives know, it’s all about location, location, location, but with so much red tape involved with identification and acquisitions for real estate and property development, this becomes a hotbed for trouble
• Safety and security — ensuring guest safety and security is paramount for hotels and hospitality businesses, but this means they must rely on local authorities, which in many foreign countries are a breeding ground for bribery and corruption
• Supply chain and vendors/suppliers — when it comes to dealing with the supply of goods and services in foreign countries, hospitality businesses are at risk of being involved (often unintentionally or through a third party’s actions) in kickbacks, and this especially true in regions where infrastructure is underdeveloped or customs is less stringent due to poor government oversight
• Franchisees — many in the hospitality industry take the position that the nature of their franchise relationship protects them from violations of anti-bribery and anti-corruption laws and regulations by their franchisees, but since they obtain a financial benefit in exchange for the franchisee’s use of their brand this position could be subject to challenge by regulators
• Partnerships with government or government-controlled organizations — in many countries, doing business with a government-run entity is unavoidable and in politically unstable nations, government-owned entities can become corrupt

Employees often feel their hands are tied by corporate policies that focus on bottom-line needs rather than those of the customers they are called to serve, according to a survey of nearly 2,900 employees across several industries, including hospitality, by Maritz Research in Sept 2012.

As one would expect, since they focus almost entirely on serving customers, hospitality employees rank their companies’ customer service attributes better than employees in the general population. However, what is surprising is that only one-third (31%) feel that providing excellent service to their customers is their company’s top priority. Similarly, while directionally higher in several categories, several surprisingly negative results came out of the survey data from the hospitality sector:

• Only 15% of hospitality employees say their company’s policies and procedures make it easy to satisfy customers.
• 17% say policies, systems, and procedures at their company support the delivery of outstanding customer service.
• 21% say they have the authority they need to respond promptly to customer problems and requests.
• Only 10% say their employers provide recognition for behaviours that positively impact guests.

“Companies are struggling to recapture a flailing customer base, but seem at a loss to come up with a solution,” said Rick Garlick, senior director of consulting for the Hospitality Research Group at Maritz Research. “Yet, our survey respondents make the solution quite clear: empower employees to help customers, and both will view the company in a more positive light.”