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.”

The hospitality sector has begun to recognize the need for constant training and up gradation of human skills: they also understand that training is a motivator and one of the many reasons for staff wanting to stay with an organization, if done professionally. So here’s the upside of training: while the principle reason is for improving skills, whether technical or behavioural, the subsidiary reasons of employee motivation and employee retention are enough to justify the training efforts… in fact a lack of adequate and quality training is considered as a “dissatisfier” for Gen Y, if one were to refer to Herzberg on motivation.

Alvin Toefler had an interesting perspective on the definition of an educated person of this millennium: “The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn.”

In an earlier blog, I had talked about a recent training session conducted where it was interesting to note how the participants unanimously felt that the guests they engaged with were targets for achieving their revenue budgets. Traditionally this would not be viewed as a doodah since the bottom line of all business is profitability. However, what if we were to try another approach…service the customer empathically and watch how he helps you with your revenue targets and conversions in the long run?

Hence training is not just about cramming ideologies and skills into the employees – it is also about helping them relearn and let go of their mindsets of the past… for as the world is fast changing, so is our industry… into a newer paradigm.

Remember – The truth will set you free… Happy Independence Day, India!

When organizations grow from a young to mature stage, they pass through five phases of evolution where each phase ends with a period of crisis and revolution. Evolutionary periods are characterized by the dominant management styles to achieve growth, while Revolutionary periods are characterized by the dominant problems that must be solved before growth continues.

• Phase one of a newly-born organisation is characterized by creating a viable product in a promising market. However, by the end of the first phase, a crisis of leadership emerges. The solution usually lies in locating and installing a strong business manager who is acceptable to the founders and who can pull the organisation together.
• Phase two happens when the manager is given a free hand and zealously accepts most of the responsibility for initiating direction. In the course of growth for the organisation, the lower level managers demand more autonomy in decision-making and the stage is set for the crisis of autonomy to come to the fore.
• In phase three the crisis of autonomy is resolved through the delegation of authority which helps in gaining expansion through heightened motivation at lower rungs. But one serious problem that eventually evolves is the loss of top management control over highly diversified field of operations. The crisis of control emerges here when field managers run their own shows without aligning plans, money, technology, or manpower with that of the organization. In order to achieve more efficient allocation of the organization’s limited resources, an elaborate network of cording mechanisms is usually introduced at of the organization’s growth.
• In phase four the organization becomes typically much more formalized; rules, regulations and rigidities increase almost exponentially. For some time, the new systems prove useful for achieving growth through coordinated efforts. But soon procedure takes precedence over problem-solving, the chronic conflict between line and staff become acute. The organization becomes too large and complex to be managed through formal programs and rigid systems. Thus begins the crisis of red-tape.
• Phase five of an organization’s growth is characterized by strong inter-personal collaboration in order to overcome the crisis of red-tape. Developing the team becomes the theme, social conflict and self-discipline take over formal control, more flexible and behavioural approaches are adopted to attack the problems of managing a large organization.

Here’s an interesting insight by Bob Lonsberry into how one of our hard working communities converted the US citizens’ failures into their strength.

Gujarat is a state in the west of India, home to the Gujarati people, some 60 million of them, who speak their own language and have their own history. Mahatma Gandhi was born there… and so was the guy who runs most motels in the U.S. of A. In the United States, some 40 percent of all the hotels and motels are owned by Indians – almost all of them from Gujarat. Among American economy motels, more than half the owners are Gujarati. The Asian-American Hotel Owners Association is a powerful professional group with more than 10,000 members. Some 90 percent of those members have the same last name – Patel – a name dominant in Gujarat.

How did Indians, particularly from one relatively small region of India, come to dominate the American lodging industry? The answer is in short ‘hard work’.

Over 30 years ago, Gujaratis began immigrating to the United States. They typically brought with them the clothes on their back and an ancestral work ethic. They also carried the desire to be the boss, to be business owners, to not be another man’s employee. Like generations of previous immigrants, they carried an American dream of their own creation and distinctive bent. Coincidentally, about 30 years ago, there was a downturn in the American motel industry. Low-end motels were hard work and offered limited return, and owners were eager to get out of them. A handful of Gujarati stumbled across this opportunity. The motels could be had for almost nothing up front, and they came with housing for the immigrant family. And that immigrant family provided a round-the-clock workforce. It was incredibly hard and endless work, but the efforts of the immigrants were up to the task, and these first few families found first a living, and then success. And they told their friends. And they expanded, by buying more motels, and by moving up the economic ladder to larger and nicer motels and hotels. Back home, as others sought to emigrate to the United States, word of success in the lodging industry spread, and newcomers replicated that success, finding for themselves motel opportunities. Interestingly, these people came with almost no money. And they came with no background whatsoever in the lodging or hospitality industries. All they brought was a willingness to embrace any opportunity and to work hard to make it a success.

And they have done that. In something between 20 and 30 years, Indians – who are about 1 percent of the American population – have come to dominate this industry. They have built solid lives for themselves and their employees, and their children have gone on to be educated and move into the professions. It is a stunning success story and is a reminder of the potential prosperity of immigrants who go to work instead of to the welfare office. It is proof of the continued vigor and opportunity of the American economy and the free-enterprise system. It is the American way proven again by newcomers’ hands. But it is more than that. It is also something of an indictment of native-born Americans who have lingered in poverty and government dependence. Part of the horrific welfare plague is the curse of idleness it imposes on recipients. The slavery of dependence takes initiative from people, and strips them of the instinct of self-reliance. They become good at nothing, and particularly good at doing nothing. And with the cloak of entitlement drawn over their eyes, they fail to see liberating opportunity, they become unwilling to do the backbreaking work necessary to lift themselves out of their circumstances.

When the first few dozen essentially penniless Gujarati discovered the opportunity of the then-dying motel business, there were tens of millions of native-born Americans, food stamps in hand, who were blind to the opportunity around them. While the newly arrived Indians worked day and night, the entitled Americans kept drawing a check, and now that the Gujarati children are successful business people and college graduates, the dependent Americans wallow in the mire of another generation of welfare shame.

Play to win but win with fairness

Life is competitive and of course, you play to win. But think about the balance. Will you do anything, to win? Perhaps not. Think deeply about how and where you draw the line. Each person draws it differently, and in doing so, it helps to think about values. Winning without values provides dubious fulfillment. The leaders who have contributed the most are the ones with a set of universal values, Mahatma Gandhi and Martin Luther King for example. Napoleon inspired a ragged, mutinous and half-starved army to fight and seize power. This brought him name and fame for twenty years. But all the while, he was driven forward by a selfish and evil ambition, and not in pursuit of a great ideal. He finally fell because of his selfish ambition. The Pierre de Coubertin Fair Play Trophy was instituted in 1964 by the founder of the modern Olympic Games and here are two examples of its winners… A Hungarian tennis player who pleaded with the umpire to give his opponent some more time to recover from a cramp… A British kayak team trailing the Danish kayak team who stopped to help the Danish team whose boat was stuck. The Danes went on to beat the British by one second in a three hour event!

I always say that at the end of the day, if I can look myself in the mirror and be proud of who and what I see in the mirror, then I have won the game for the day. Play to Win, but with Fairness.

The jury is still out on Hotel Flash Sales Sites…

In my post dtd 01 Feb 2012 – A Revenue Manager’s ‘yes’ and ‘no’ for 2012, I had mentioned that OTAs may be used for need periods: weekends, group cancellations, low season, etc., and not as a replacement for or alternative to the direct online channel. Also mentioned was the danger of flash sales sites which cause your hotel to rebuke the principles of rate parity leading to “The Law of Unintended Channel Share Loss”

Despite the immense popularity and relative newness of flash sale websites such as Groupon, BloomSpot, JetSetter and Living Social, hoteliers are still wary of the effectiveness and real value of these sites for a hotel’s marketing plan, according to a recent survey from TravelClick.

Forty percent of the approximately 900 global hoteliers surveyed have used a flash sale website. Of the 40% who have tried these sites, 38% have found it less successful than they had hoped and do not plan to use again. Hoteliers believed that the sales gave up too much revenue to the site operator (25%), did not attract the right caliber of customer reflective of the brand (21.7%) and did not see enough return business from the promotion (21.7%).

Nearly 40% of those surveyed have not tried a flash sale promotion and have no interest in executing one in 2012, while 23% say that they will try a flash sale site for the first time this year. When asked which flash sale website hotels chose to use, 53.3% of hoteliers polled had partnered with Groupon.

Leadership Mythology

Leadership is about getting things done and helping people reach their potential. My experiences have shown me many organizations do a pitiful job helping people reach their potential. One reason for this is due to old-fashioned leadership concepts or what I call, “leadership mythology.”

Myth 1 – Leadership is a rare ability only given to a few
Most people have the potential to become good leaders. Leadership is not like a diet pill. Like most learned skills, it takes time, training, and lots of trial by error. The key ingredient making people good leaders is the ability to care about others. The second ingredient is a sense of purpose, vision or mission. A good leader charts a course and provides direction to those they lead.

Myth 2 – Leaders are charismatic
Closer scrutiny shows that most leaders are not. Some of the world’s most famous leaders had some sort of shortcoming or personality issue. In a leadership role, people skills are very important–more important than technical skills. However, the best leaders are those who work toward a goal. Your cause, your purpose and your mission in life will make you charismatic, not the other way around.

Myth 3 – The person with the title, most rank or the highest position is the leader
True leadership is based on action, performance, ability, and effectiveness. We all relate to working for those people who were placed in leadership roles who did more to demoralize and destroy the business than anything else.

Myth 4 – Effective leadership is based on control, coercion, and manipulation
Leadership is about the future, not the past. “A leader is someone you would follow to a place you would not go to by yourself.” Good leaders gain followers out of respect and their ability to cause people to work toward a particular goal or achieve a destination. People follow because they can relate to the vision or goal personalized by the leader. A good leader helps people become better than they are. A good leader creates a work environment that attracts, keeps and motivates its workforce.

Myth 5 – Good leaders have more education than other people
Educational degrees may mean you have a good education, but it doesn’t necessarily mean you are a good leader. When it comes to leadership, experience is the best teacher.