EY's Global hospitality insights - Top 10 thoughts for 2016
In most regional markets, hospitality is in a state of vibrant growth and a catalyst for economic development and job creation.
1 - Commercial excellence: refining your growth strategy
The current lodging cycle has been characterized by prolonged and vibrant growth. However, the path to progress has not been uniform for all players.
No matter where you stand in your business plan, it is critical to adapt your commercial model to attain competitive advantage in a dynamic market. To achieve overall commercial excellence in hospitality, consider these questions:
- What drives value for the stakeholders of your business?
- How does your business react to changing market dynamics?
- Does your current business plan position you for commercial success?
2 - Capital flow from Asia
Cross-border capital flow from Asia into global lodging markets is anticipated to continue to increase. For the 11 months ending November 2015, overseas capital accounted for 35% of global hotel investments, with Asian investors representing approximately 33% of these transactions.
Investors are attracted by the higher property yields and safe investment environments abroad, such as those in North America, Europe and Australia, as opportunities in their domestic markets have declined due to demand and supply issues. This trend has resulted in Asian cross-border hotel transactions reaching US$11.0 billion by the end of November, a 24.0% increase from the same period last year.
3 - Capital markets: trends in equity, debt and emerging financing platforms
Supported by strong hotel operating fundamentals, an abundance of capital and rising investor confidence, global hotel investment continues to accelerate.
Our recent Global Capital Confidence Barometer, a biannual survey of global industry executives, indicated that confidence in the global economy is robust, with 50% of hospitality companies likely to pursue an acquisition in the next 12 months.
With increased hotel investment anticipated in 2016, investors must evaluate the current transaction landscape, as well as the equity, debt and emerging and alternative financing platforms available, to achieve their growth strategy in the year ahead.
4 - Creative development trends and the influences behind them
Around the world, the percentage of people living in urban areas expanded from 30% in 1950 to 54% in 2014. By 2050, the United Nations foresees 66% of the world's population living in urban centers.
Hotel developers continue to react to the urbanization movement, employing creative and sophisticated techniques to maximize return in both established and emerging development markets.
In non-urban resort markets with a greater supply of development land, the influence of re-urbanization is also evident. In the Caribbean, for instance, new development has focused on hotel and branded residential projects that have a centralized, community feel.
5 - Merger integration considerations
Industry participants in the hospitality sector are used to the challenges of buying and selling real estate, such as securing franchise agreements, engaging third-party management, financing and leases. However, when it comes to mergers and acquisitions, the unique nature of a given business entity can also pose additional challenges.
The combination of two companies with different corporate strategies and infrastructures requires the integration of not just data and systems, but also a merger of cultures and purpose. Our research indicates that 85% of failed acquisitions are attributable to the mismanagement of cultural issues.
6 - Critical success factors for tourism markets
In 2015, destination marketing organizations (DMOs), entities that promote places for tourism, employed a number of strategies to deliver consistent experiences across tourism products, using social media analysis and leveraging the resources of the sharing economy.
Given the success many DMOs have had with these strategies, public and private tourism stakeholders — including economic development agencies, governing bodies and hotel owners and operators — are taking notice and increasingly empowering DMOs to enhance a destination's value proposition.
7 - Technology and the innovation agenda
Technology continues to play an ever-increasing role in the hospitality sector. It is making a difference from the front of the house, to the back of the house.
In the year ahead, hospitality players should expect further technological advancements to loyalty programs and revenue management strategies (RMS) — and greater adoption of the Internet of Things (IoT).
8 - Global gaming update
The global gaming industry is at a turning point. Its traditional customers are growing older, and millennials — individuals born between 1982 and 2004 — have different gaming and entertainment preferences than its traditional customers.
Across the world, casino operators are seeking to identify effective ways to evolve and cater to this new tech-savvy and sociable generation. These young players are seeking an interactive, social gaming experience where they can use their skills to exert control over outcomes — traits that have contributed to the rapid rise of leisure activities such as video games, online poker and fantasy sports.
9 - The economics of the sharing economy
Peer-to-peer inventory continues to grow and is a noticeable share of the total lodging supply in gateway markets. Current owners and developers in the lodging industry need to ask themselves these questions:
- How is peer-to-peer inventory affecting my hotel's performance and value?
- Is my hotel adequately protected against the growing supply of peer-to-peer inventory?
- How do I consider peer-to-peer inventory to better understand its potential impact on the feasibility for new lodging developments?
10 - Revenue recognition: considerations for an evolving standard
Hospitality companies are continuing to evaluate how their financial statements will be affected by the new revenue recognition standard issued by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). The new standard will supersede nearly all existing revenue recognition guidance in US GAAP and IFRS.
As a result, hospitality companies will need to reassess their policies and practices for recognizing revenue arising from arrangements with owned, managed and franchised properties.
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