Thomas Jefferson, to many, was several things: a Founding Father, the primary author of the Declaration of Independence, a U.S. president. He helped birth a nation. He was an unmistakable and eternal optimist, possessing an innate capacity for optimism. It’s no wonder he is credited with saying: “I like the dreams of the future better than the history of the past.”
The hospitality industry could use some Jeffersonian positivity as it pushes ahead into a new year, one likely to be filled with both challenge and opportunity, excitement and fear. One thing is certain, there is no shortage of trends and storylines to propel it through the next 12 months.
“How it started, how it’s going” has become a popular meme for showing the passage of time. If the hotel industry 2023 was pasted up on Instagram with the tagline, how it started might look a lot like how it’s going. To borrow from French: comme ci, comme ça. Translation: not very good, not very bad. Though capital markets have not made it easy on the transactions market at all, hotel operational performance has been undeterred, as demand for travel — particularly leisure — has blossomed, with corporate and group travel making a strong comeback, as well. Paired with lower supply, hotels are in a strong cash-flow position as the calendar turns. However, should a recession.
It’s not all bad. It’s not all good. Where is it going from here? HOTELS turned to a cross section of the hospitality industry to garner their take on how things potentially could shake out in 2024—the good, the bad and maybe even the ugly (le bon, le mauvais, le laid).
Jefferson wasn’t the only one with the ability to drop a good aphorism. It, too, has been said to celebrate endings, for they precede new beginnings. For the hospitality industry, this couldn’t ring truer as it rings in the start to a new year. Here’s what they said.
HOTELS: What will people be talking about as we move into 2024 and why?
Ryan Rivett, co-founder and CEO, My Place Hotels: Capital market fluctuations and complexities and the potential implications of AI will likely maintain a significant portion of the stage in 2024. With pre-pandemic debt maturities looming for every level of capital participant, capital and operating costs continue to also rise. AI will continue to be discussed heavily because we don’t really understand the growth and opportunities of it. As a rule, the relationship between hospitality and technology is like the relationship between a good bellman and a large hotel while the elevator is broken: he’ll get the luggage there eventually, but it’s going to take some time.
Chris Hemmeter, managing director, Thayer Ventures: The AI story will continue to dominate headlines and water-cooler conversations. Much of the optimism will be focused on cost reduction promises but the narrative will continue to shift toward revenue drivers, including mass personalization and microtargeting.
Warren Marr, managing director, hospitality & leisure, PwC: Interest rates continue to be a top-of-mind concern for the industry. Until rates come down in a meaningful way, two things will be difficult to achieve. First, hotel owners with Chris Hemmeter focused on ultra-experiential and adventure travel or ‘deep immersion travel.’ They are looking for something beyond the norm and also something off the beaten path in locations that allow them to avoid the crowds and experience a location in a meaningful way—think photography, wellness (beyond the spa), philanthropy focused. Imagine far-flung destinations, looming debt maturities will f ind it difficult to refinance at levels they can cover. Second, buyers will continue to stay on the sidelines until bid/ask spreads narrow. Against this is a lot of uncertainty around the return of the individual business traveler. The question of whether their return will increase is centered around the pace of return to office, which has currently stalled out as employee work and commuting preferences stand firm.
Greg Juceam, president and CEO, Extended Stay America: The impact of hotel markets from interest rates will continue to drive headlines and conversations. Higher interest rates restrict deal flow by making acquisition projects harder to pencil. More importantly, they impair cash f low, which is necessary for capital repairs and operational reinvestment into the business. On a brighter note, even as household finances are under duress from recent inflationary headwinds, the hotel industry continues to benefit from consumers’ desires to travel and meet, the evolution of hybrid work and burgeoning government infrastructure spending.
Lindsey Ueberroth, CEO, Preferred Hotels & Resorts: People have moved on from the post-pandemic ‘revenge travel’ phase, having made a point of traveling to their favorite places and reconnecting with friends and family, regardless of price or crowds. Travelers are now focused on ultra-experiential and adventure travel or ‘deep immersion travel.’ They are looking for something beyond the norm and also something off the beaten path in locations that allow them to avoid the crowds and experience a location in a meaningful way—think photography, wellness (beyond the spa), philanthropy focused. Imagine far-flung destinations, such as Uganda/Rwanda, India, Bhutan, Malaysia, as well as secondary and tertiary markets, such as Puglia and Dolomites in Italy.
Eric Danziger, CEO, Resolute Road Hospitality: The continued expansion of new brands, along with the attempted mergers between other large companies. It is very difficult to understand who benefits from the proliferation of so many new brands—the owner is strained with capital investments to keep up and the customer can be confused. The other main topic will be overall consumer health. Will this ‘soft landing’ we’ve been hearing about for the last year come to fruition or will there be harsher consequences for our industry from the overall macroeconomic environment?
Robert Cole, president and CEO, HVMG: We will continue to see a relatively slow pace in terms of hotel transactions. It’s been almost 20 years since interest rates have been this high and that, coupled with tightening credit requirements, has led to a relatively wide bid-ask gap between buyers and sellers. Most brokers have expressed their transactions and pipeline are down as much as 40% in 2023 and there’s not much on the near-term horizon that signals a big shift is coming.
Sean Hehir, president and CEO, Trinity Investments: Hotels that are over-leveraged will be a big topic as interest rates are expected to remain at higher levels, which will likely lead to increased transaction volume next year. In 2024, expect to see a lot of forced selling and/or mezzanine debt or preferred equity deals to fill holes in the capital stack as owners who need to refinance get quotes at lower leverage. We thought that this would occur between 2020 and 2022, but lenders kept extending and pretending. We’re starting to see these opportunities now.
Jack Paul, EVP of operations, 24/7 Hotels: Continued pressure on labor costs from increasing wages, taxes and benefits, coupled with the rising costs of goods and services, will outpace projected ADR growth, further diminishing operating margins. The recognition that interest rates will be higher for longer, thereby making it difficult to restructure financing, will further pressure operators to cut services and amenities to maintain positive cash flow.
Tara Lundgren, VP of operations, Aligned Hospitality Management: With an election year on the horizon, there will be widespread speculation about the economy’s impact on the hotel industry. With the continued cost increases and struggles with employment stabilization, the industry is trying to find an upper hand and determine which areas to attack to stay ahead of the competition and have the best performance.
Eric Grosse, CEO, Inspirato: Sustainability will continue to be a hot topic for hotels and can lead to more creative solutions, where guests and hoteliers work together to reduce the environmental footprint.
HOTELS: What will be the biggest challenge this year for the hotel industry and how can it be overcome?
Gabriel Perez, Sr., director of lodging operations, Indigo Road Hospitality Group: Our primary challenges will be rooted in the realm of human factors rather than technological hurdles. While some companies may outperform others, those destined for success are the ones that recognize the irreplaceable value of genuine hospitality. Given the current robust economy, which continues to impress despite prevailing inflation, the historic low in the average unemployment rate presents two distinct challenges for our industry. First, the scarcity of qualified talent emerges as a critical issue. Second, a mere 2% or 3% unemployment rate means a surplus of individuals in the labor force who may not be well-suited for employment, especially in hospitality. This imbalance results in inconsistencies, service lapses, unfavorable reviews and high turnover.
Andrew Ladd, corporate director of marketing and e-commerce, Noble House Hotels & Resorts: The ongoing challenges to hotel profitability are multifaceted and intricate. The surge in costs associated with goods and labor represents a formidable hurdle for the hospitality industry. Ranging from linens to toiletries, these significantly strain operational budgets. The inflationary pressures on raw materials, coupled with supply chain disruptions, have led to increased procurement costs, impacting profit margins for hotels. Ultimately, the path to sustaining profitability demands a delicate balance of cost management, operational innovation and a customer centric approach.
Greg Juceam, ESA: When cash flow is challenged, hotel investors become hyper focused on operational execution. Hotels with superior management teams tend to shine, on a relative basis, in terms of tactical execution on driving revenues and managing expenses. Additionally, hotels with the best guest value proposition in the competitive set (i.e., strong location, asset quality and/or service excellence relative to price) will generate higher social-review scores and will have a better chance to gain market share; conversely, hotels with weaker guest value propositions that benefitted from the rising tide during the upcycle often get exposed in this part of the cycle. Gary
Gary Gray, CIO, 24/7 Hotels: On the investment side, investors will be trying to solve for the dislocation in the capital stack. Many owners with fixed-rate loans coming due will face a debt market offering loans at more than twice their current rate, Gary Gray and dedication of people, I believe that the objective to make a career in hospitality is increasingly lost on our workforce. Hoteliers must shift their focus from filling shifts to creating careers, leaning into the most dedicated employees and allocating time to career-focused leadership development. while loan proceeds will be significantly diminished by lower LTVs and lender required reserves. Brand required capital improvement projects will add further complications. Investors will likely be sifting through a lot of deals to find the few opportunities that are encumbered with strong brands in growing markets that have strong sponsorship. Meanwhile, much of capital providers’ focus has shifted to pursue preferred equity investments or mezzanine debt to secure equity-like returns and hedge some of the risk.
Lindsey Ueberroth, Preferred Hotels & Resorts: Talent and labor will continue to be one of the biggest challenges for the hotel industry, especially in boom markets where competition is strong with new product coming into the market. With ADR holding strong, the traveler expects nothing short of perfection and, in the luxury segment, hyper-personalized service. It is extremely hard to find that talent and we are seeing retention being an issue, as well. I believe we need to come together as an industry to raise more awareness around how the hospitality industry is an incredibly reputable profession and engage universities and hospitality schools to elevate their education opportunities and assist us in the recruiting process.
Warren Marr, PwC: Average daily rate growth is expected to be close to declining inflation levels and labor costs are increasing at above inflationary growth levels, which can result in margin erosion. The hotel industry can prepare for this by being proactive in developing enhanced efficiencies in operations, such as food and beverage, housekeeping and self check-in. Implementing this without compromising the guest experience will be a challenge, but if it can be achieved, will benefit the bottom line.
Ryan Rivett, My Place Hotels: Workforce stability. The SWOT matrix on this subject is a little heavy on the W and T from the perspective of both sides of the paycheck. Regulatory, economic and social factors continue to add new weaknesses and threats for businesses, while chaotically invading the relationship dynamic and the integrity of communication between businesses and their most valuable stakeholders, employees. Value and validity of increased pay, abstract benefits and flexible schedules, aside, the definition of a “good job” is more ambiguous than ever, and for an industry that relies so heavily on the consistency and dedication of people, I believe that the objective to make a career in hospitality is increasingly lost on our workforce. Hoteliers must shift their focus from filling shifts to creating careers, leaning into the most dedicated employees and allocating time to career-focused leadership development.
Chris Hemmeter, Thayer Ventures: Managing changing channel dynamics and associated costs will become more and more complicated as the major OTAs continue to roll out their AI tools and techniques. Operators will be challenged to find their footing and will likely come to realize that competing in the emerging AI world depends on getting their data house in order first. Those who tackle their data problems most effectively will have a competitive advantage.
HOTELS: What does the hotel industry do poorly that if it did better would result in a better experience for guests and higher returns for owners? Conversely, what is the hotel industry great at?
Danny Hughes, EVP and president, Americas, Hilton: While the last few years have resulted in strong performance under extraordinary conditions, customer feedback consistently shows that our guests want the hotel industry to get back to the basics of hospitality. Ultimately, this means that guests expect the fundamentals of hospitality to be delivered exceptionally well. They want to be sure that we will make it right at every touchpoint of their stay, with an emphasis on cleanliness and friendly service to a hot breakfast. Simultaneously, the hotel industry’s shared commitment to innovation has ushered in more connected and personalized experiences to enhance guest satisfaction. Human- and digital-led solutions both have allowed us to stay ahead of evolving guest expectations while still delivering top-notch customer service despite the challenges of the last few years as travel demand roared back.
Rick Pastorino, CEO and principal, REVPAR International: Too many management companies are focused on scale and growing their unit numbers and room counts thinking that is the answer to owner success. As an asset manager, we aren’t seeing it at all. That strategy is proving out to be more of a race to mediocrity rather than preserving above average management staff, let alone enhancing asset value to their owners and improving their internal culture to be more guest-service focused.
Robert Cole, HVMG: Guest experience metrics for the industry are still a little behind where we were pre-pandemic. This is largely driven by the massive amount of turnover that we experienced following the pandemic and all of us trying to do more with less. With all the layoffs and job eliminations that had to be completed, many associates never returned to the industry, and those that are new to our industry need better training, along with the implementation and execution of improved retention measures. From a positive standpoint, we have come a long way and continue to improve in terms of revenue management technology and capabilities, particularly dynamic pricing, mining guest data and preferences and brand loyalty programs. Depending on the brand, upwards of 60% of our occupancy comes from existing brand loyalty members. That’s a big improvement in the last 10 years.
Tara Lundgren, Aligned Hospitality Management: Overcoming adversity. Our industry appears to fall a step behind as the economy changes. Adjusting to demand can be cumbersome and challenging. It’s all about training and development with everyone on your team. Adjusting costs and scheduling based on demand is difficult as it impacts people’s livelihood. However, a business cannot be supported if adjustments are not made when the economy and demand changes. Leaders need to know the dynamics of all the departments in the hotel and adjust as demand adjusts up or down, while providing support as needed.
Eric Danziger, Resolute Road Hospitality: There is certainly room for improvement in the alignment between brand and owner. The owner is frequently asked to make large capital investments on behalf of the brand in order to perpetuate the brand’s values. Writing PIPs with the intention to improve positioning or create differentiation between other brands often makes no impact on the customer’s willingness to pay more; therefore, it has no impact on the owner. Eric Danziger Investment to highlight differentiation wouldn’t be needed if a new brand wasn’t announced every month… it has become a downward spiral of misalignment. It is difficult to unwind, but at a certain point, owners can no longer bear the cost of these directives. What we do well is innovate. We are constantly finding the balance between a hospitable environment and a fast, efficient one. A good example of that is incorporating technology for streamlined check-ins, but still making sure that a team member is available and able to apply the human touch to the experience if needed. We have learned to respond to changing needs, such as in-room power connectivity, practical workspaces and overall tech accessibility and reliability.
Andrew Ladd, Noble House: One area the hotel industry often falls short is in personalized guest experiences. While some establishments excel at this, many struggle to truly tailor their services to individual guest preferences. Embracing technology to gather and utilize guest data effectively could vastly improve this aspect. By understanding guests’ preferences, habits and past experiences, hotels could offer more personalized services, increasing guest satisfaction and, ultimately, loyalty.
Greg Juceam, ESA: The emergence of home sharing and the difference. Sean Hehir, Trinity Investments: There is something to say about the physical asset condition and when and how assets are renovated. There is currently a significant amount alternative accommodations over the past decade has created some confusion and commoditization amongst portions of the guest base. An important distinction is that hotels are not in the business of simply providing beds; rather, they offer hospitality services as part of the guest experience. Hotels can continue to differentiate themselves from the other industries by emphasizing the genuine care or personalized services for guests from its property staff. While staffing levels and services are dictated by price point, having caring people on site to serve guests makes all the difference.
Sean Hehir, Trinity Investments: There is something to say about the physical asset condition and when and how assets are renovated. There is currently a significant amount of outdated product that needs to be renovated or re developed. While many times the brands are producing the property improvement plans for ownership to complete, our in-house development management team is more hands on throughout the entire process. Our industry is shaped by experiences that stem from both the physical assets and the network of people within them. Something I believe the hotel industry is great at is being resilient. The people in this industry had to quickly adapt to withstand the test of COVID-19. We all came out stronger because of it.