Inflationary pressures, including headwinds in labor and operating supply costs, have had a direct impact on overall profitability within the hotel industry. Though it is true that average daily rate (ADR) for hotels has generally recovered following the COVID shutdowns, the return to pre-pandemic profit (both in dollars and margin) remains out of reach for many hoteliers.
All stakeholders continue to be focused on maintaining and growing profit margins—distribution channel mix and associated cost of capture are critical pieces of the puzzle in preservation of it.
Hotels are not only contending with traditional direct booking disrupters, such as online travel agencies (Expedia.com, Booking.com, for example), but also newer entrants, including credit card companies that offer incremental incentives to book through their platforms and enables them to control the entire shopping and buying experience. Though hotel brands partnering with credit cards isn’t a new phenomenon, the expansion of credit card company partnerships and targeted one-stop shopping experiences (flights, hotels, rental cars, experiences, etc.) continues to change the competitive landscape.
According to JLL research, sourced by STR, the number of global brands has grown 23% since 2019, from 1,100 to 1,350. If you consider how many choices there are for consumers when booking travel accommodations, the questions then become:
- How does customer perception, brand awareness and potential consolidation impact their choices?
- How does the brand stand out and rise to the top within the crowded arena of booking choices?
There are three key partners that need to work in concert to drive more bookings to the brand or hotel-specific channels and increase the profitability of those bookings: brands, operators, owners/asset managers.
Hotel brands are focused on maximizing brand loyalty with the target of driving buying decisions through differentiation and customer awareness. This goes beyond just signing up new loyalty card members to fostering an environment in which customers develop a strong bond with the brand, resulting in increased direct bookings.
Westin, for example, launched the Westin Store 24 years ago. It offers its signature Heavenly Bed mattress set, bedding and pillows; tea selections; bath accessories; fitness products; and more. Hotel brands are also integrating themselves into other aspects of tourism and the guest experience, particularly in core urban or leisure markets, including yachts and cruises, branded residences and private clubs both within and outside the hotels themselves.
Brands are also increasingly partnering with credit card companies and other point-sharing entities to increase customer loyalty and the perceived value of “points.” Marriott partnered with Uber and IHG has a partnership with Hertz.
Conversely, independent hotels are more heavily reliant on third-party channels. Therefore, it’s critical for owners to choose the right operating partner that understands cost of capture and can deploy a meaningful marketing plan. Even shifting 5% to 10% of the hotel’s base of business from higher-cost booking channels can lead to meaningful profitability improvement and associated increases in asset value.
As the lodging industry continues to recover, sources of demand continue to evolve. Benchmarking to 2019, the competitive landscape and booking patterns differ between leisure, group and corporate travel. According to JLL research, sourced by STR, U.S. leisure production continues to outperform 2019 levels, while group and corporate travel remain short of stabilized levels.
Though corporate travelers tend to be brand loyal, driven by either personal preferences or corporate mandates, leisure travelers have the most flexibility in booking choices. As such, operators need to be thoughtful on how they are leveraging marketing dollars, who they are targeting and the best way in which to reach that target audience. Seasonality is also a critical consideration, as the profile and booking habits of a leisure customer vary during peak and off-peak periods. For instance, the loyalty to a brand, booking window and budget of a leisure traveler can differ significantly when visiting Chicago from January to July. Operators must carefully consider how they allocate marketing funds and set prices during these periods of varying demand.
Asset managers serve as a resource for operators and owners, alike. It’s the role of asset managers to partner with operators on behalf of owners, to analyze real time data, make recommendations for strategy changes in the unique submarket and understand the evolution and continued recovery of the business. Looking at property performance holistically and reacting quickly to the changing competitive landscape is imperative for all stakeholders.
As the lodging industry continues to recover, so does the competitive landscape. Having the right team in place and strong communication is imperative for both preserving and maximizing market position and asset value. In today’s environment, it’s all about being thoughtful, forward-looking and hyper-focused on your own backyard to maximize property performance and asset value.
Column contributed by JLL Hotels and Hospitality Group EVPs Katie Krieger and Susie Park.