Fast-forward to 2017: What will the global hotel industry look like?
By David B. Chestler, Senior Executive in Hospitality and Travel
With ITB Berlin 2016 less than two weeks away, it seems apt to not only reflect on how the hotel industry has evolved, especially as of late, but to look ahead to the change likely to come. For the purposes of this article, I want to draw specifically on the Independent Lodging Market Report, produced by Phocuswright and h2c, and co-sponsored by SiteMinder, which outlines the key shifts we can expect over the next two years.
Some of the more startling shifts are in:
- Regional market growth – The US market will grow more than six times faster than the European market, showing 6.8% compound annual growth rate compared to just 1.1%
- Chains v independent disparity – European chain hotels will grow three times faster than independents between 2013 and 2017
- Overall growth in online bookings – In Europe, 39% of bookings will be made online by 2017, a rise of 5% from current figures. In the USA, the figure is 44%, a rise of 2%
- OTA market share – OTAs will enjoy a majority share of the US market by 2017 (52%).
Let's look at these in more detail.
Regional market growth
One of the headline figures from the report demonstrates the increasing strength of the American hotel market when compared to its European counterpart. The US market is expected to grow at more than six times the rate of the European market between 2013 and 2017, with the US showing a 6.8% compound annual growth rate and Europe just 1.1%.
We will see a resurgence of supply being built and enabled in the market, with limited and select service dominating the landscape. The larger, 'big box' or full service properties will be slower and more strategic as required investment is cautious to build big luxury and meeting facilities versus limited service.
Chains v independent disparity
Despite the slower growth overall, the report notes a number of positive trends in Europe. Chain hotels are the big winners, growing three times quicker than independents in the four-year time period. This will see the independents' share of the total lodging market fall from 58% in 2013 to 56% in 2017.
Again, the picture stateside is somewhat different, with the percentage split between independents and chain hotels remaining steady at 28:72.
It is proving true that brands and big groups can perform better in the market by negotiating distribution deals and reducing costs for their operators and investors. And, because these benefits make it more likely to succeed as a viable business, it means banks like brands more, giving them even greater leverage. While the independent hotelier has more tools than ever before, the money right now is on brands, brands and more brands. The Marriott and Starwood merger is the perfect example of The Big Brand getting bigger by the minute to compete in the market and gain more negotiating power.
Overall growth in online bookings
Of course, the primary catalyst for the evolution of the market has been, and remains, the changing nature of travelers.
The rise of online bookings has increased consumer power enormously and changed booking habits almost entirely. In fact, research conducted by Nielsen for Google showed that customers spend an average of 53 days booking their trip, during which they view 28 different sites over 76 sessions, while more than half of travelers use social media for travel tips.
In Europe, 39% of bookings will be made online by 2017, a rise of 5% from current figures and 8% from 2013. Online penetration is even bigger across the pond and will be close to becoming the booking choice of the majority in two years, with 44% booking online in the US by 2017, a rise of 2%.
In almost every sphere of business, from news to music, mobile is rapidly becoming king – and the hotel industry is no different. The statistics show that while only 8% of bookings are currently made on mobile devices, by 2018, that figure will stand at 35%, meaning mobile-friendly websites are critical for hotels wanting to drive up their revenues.
Although hotels are generally becoming more savvy with their own websites in an attempt to drive more of that online business their own way, the rise of OTAs will continue over the coming years. OTAs will enjoy a majority share of the US market by 2017 (52%).
A global distribution strategy
Despite this, the range of choice, and increasingly travel-savvy nature of guests, means hotels must find the most effective mix of direct and indirect channels to meet expectation. The changing nature of travelers has led to a boom in international tourism, which brings both challenges and potential rewards for hotels.
Figures from the UNWTO Tourism 2020 Vision report suggest that international arrivals will reach almost 1.6 billion by 2020. While this opens up ever larger markets for hotels, it also means they are competing in an ever-increasing marketplace and must adapt accordingly. Over the next few years, knowing your market will become ever more critical.
OTA market share
As global bookings from OTAs continue to rise, those businesses who identify themselves as dealing with largely international travelers will increasingly rely on intermediaries such as OTAs and wholesalers, while their domestic-trade-based colleagues should still look to bricks and mortar sites and personal relationships.
The report also picks up some trends specific to certain European countries that, to some extent, defy the wider trends our industry is seeing.
Perhaps the most striking is the difference in the future use of OTAs among some of Europe's travel powerhouses by 2017.
4% fall in use of OTAs
3% rise in direct website bookings
2% fall in OTAs
2% rise in direct website bookings
2% drop in OTAs
3% rise in direct website bookings
Meanwhile, the UK bucks this trend significantly, showing a 4% rise in the OTA segment and a 3% drop in direct bookings. The ratios for Spain and the US are relatively static.
The hotel industry may have been through more changes than most in the past decade or two, but the projections show it must continue to adapt in order to succeed.
As the industry grows, so too do online bookings, with mobile bookings set to be the next major growth area. But hotels must also maintain traditional strengths such as brand value and customer service. It will also become increasingly important to know your business and your customers and tailor offerings to travelers, whether they be from the domestic market or further afield.
I look forward to seeing you in Berlin. I am honored to be taking part in ETOA's panel discussion on 'Going Direct – The Consumer Revolution In Self-Service Travel' from 11.30am – 12.00pm on March 9, and hope to continue this conversation there.
Phone: +61 410 233 735
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