Top 10 Hospitality Industry Trends for 2012
By Robert A. Rauch, CHA, President of RAR Hospitality
Hoteliers will invest in reinvigorating properties to take advantage of the market.
After years of delaying capital expenditures, hotel companies are betting that now is the best opportunity to renovate their properties. In 2012, we'll see even more hotels renovating lobbies, restaurants, bars and fitness centers, as well as replacing beds, TVs, and more. Hotel sales, an absolute outcome of an improved market, will spur even more renovations since sale contracts always contain a provision requiring the new owner to upgrade the property.
There will be little to no new development dollars on the debt or equity Side.
This is good news for most, but bad news for the developers who genuinely have enviable sites in great markets. Despite that, optimism reigns. A great deal can, and will, get done. We've seen it. In fact, we're working on one ourselves.
Online booking will continue to (modestly) grow.
The number of U.S. travelers booking and researching online is still growing. More than 114 million people will research travel online this year, while 94 million will actually book reservations. While more than 50 percent of travel bookings are made on the Internet, the online travel market has matured and I expect modest growth and stabilization.
There will be more mobile bookings and research.
More and more travelers will be turning to their mobile devices to not only research lodging and travel options, but to book and communicate room preferences directly with the hotel. Mobile channel booking has increased four-fold between 2008 and 2010 according to Forrester Research. Plus, Google is projecting that mobile will overtake PCs as the most common Web-access device by 2013. With travelers adopting smartphones and tablets at such a rapid pace, it's crucial for hoteliers to optimize their website for mobile usage to capture potential mobile transactions.
Demand and average rate are up in most markets, but not equally distributed.
The top 25 markets in the U.S., and those that were really battered at the height of the recession, have seen the most bounce by and large. Many secondary and tertiary markets have not seen a strong recovery to date.
Revenue management will make the art of managing a hotel more of a science.
Revenue management has morphed from the days it was first introduced by the airline industry in the 1970s to being a complex science today. Managers have always lowered prices to stimulate sales when demand is weak and have raised prices during peak demand periods. Hotels are now able to update prices for all future arrival dates to match market demands each day, via advanced market intelligence applications. TravelClick has pace reports for transient and group demand that look at bookings one year in advance. Plus, Smith Travel Research will soon introduce reports offering intelligence looking at future bookings, rather than solely historic figures.
Proliferation of distribution channel management will largely impact pricing.
More than ever, it will be vital for hotel owners and operators to stay on top of the distribution landscape that is expanding beyond OTAs, including popular sales vehicles such as meta-search, flash sales and mobile channels. Beyond simple awareness of the different mediums available to sell hotel rooms, hoteliers must know the costs of the variety of distribution channels and the returns expected from each. Hoteliers must preserve rate parity and their brand by utilizing the most cost-effective distribution channels, instead of using desperate measures to sell inventory.
Brands will put more money into deals to expand market share.
The brands are at war for the development deals that have a chance to get financed. Starwood, Hyatt, and Intercontinental are aggressively pursuing the Hilton and Marriott juggernaut. Whether it's key money, mezzanine debt or equity, seasoned developers will have their way with the brands as they fight for share of the new builds.
Prepare for growth.
However, know where we are in the game. We are in the second inning of the industry when compared to a baseball game with the peak or 9th inning coming in 2016...use caution from 2017 and beyond. These next five years will see hotel values with annualized double digit growth. Demand will stabilize in 2012 but rates will grow beyond the rate of inflation. That means profits and values improve markedly.
Social media will continue to transform connections with travelers.
By 2016, half of the travel industry will be using social media as a way of generating revenue and bookings. Currently more than one-fifth (22 percent) use social media as a revenue generating tool with a further 27 percent planning to do so over the next five years. Plus, social media will become more of a key component of Search Engine Results Page (SERP) algorithms. Facebook's posts are already integrated into Bing search and Google+ emerged with native integration into Google search. Hotels can no longer afford to linger over adding social media to their marketing mix. It's now a necessary element of traffic-driving success.
Robert A. Rauch
R. A. Rauch & Associates, Inc.