Industry Update
Opinion Article 9 June 2020

Technology Is Vital To The Hospitality Industry Revival

By Xavier Mongin, Global Director, Hospitality at Alcatel-Lucent Enterprise

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The travel and tourism industry has been widely and significantly impacted by today's unprecedented health crisis. For the first time ever, more than 70% of the worldwide hospitality sector has been shut down. Though it is very difficult to predict when the hospitality industry will return to 2019 levels, I believe there will be two phases in the recovery process.

Phase 1

We are slowly beginning to see a ramp in demand for holiday stays within home countries that address leisure and relaxation for families. To meet this demand I predict that we will see an increase in 'staycation' offers that propose affordable packages and encourage people to stay local. Additionally, some hotels have launched the concept of a 'daycation' which consists of a day-pass including room, lunch, and access to facilities such as the pool, beach and other activities.

During phase 1 business travel will be very limited as most companies will not want to put their employees at risk. Reduced travel will result in drastically cut expenses. In addition many businesses will adopt communication platforms to facilitate business continuity.

Depending on the country and the health crisis measures, it is possible that this phase may last into Q1 2021.

Phase 2

As the world heals and people start to move more freely, phase 2 will begin as corporate business travel and events ramp up. In addition, international travel, exhibitions, fairs, corporate events, and personal events including celebrations and weddings, will enable the hospitality sector to gradually resume business. The challenge for hoteliers will be to get through phase 1 while preparing for phase 2 and beyond. And, when I say 'beyond' I mean prepare for future crisis that will undoubtedly arise.

First, however, we will need to face the financial fallout from today's global health crisis which may take some time to overcome. Whatever the crisis going forward, whether it is a natural disaster, geopolitical incident, war, economic, pandemic, local or global, the key learning for the travel industry will be to be better prepared for the future based on our experience in 2020.

2020 hospitality industry insights

The 2020 global health crisis has brought with it some drastic changes to the hospitality industry. As reopening unfolds I see four major challenges that hotel operators will need to navigate.

  1. Performance indicators: The hospitality industry uses a number of performance indicators as benchmarks for success including: Average daily rate (ADR), occupancy rate, and Revenue per available room (RevPAR).Today, all of these indicators have plunged below profitability, so the first challenge is to bring them back to the breakeven. For the purpose of simplification let's consider two ways this can be accomplished:
    • The first is to increase the ADR (the price the guest pays per night). This tactic suggests that a hotel can surpass the competition with something unique, such as a superior guest experience, or technology that can draw and retain customers willing to pay more.
    • The second is to artificially increase the occupancy rate by reducing the offer, which would mean closing rooms and possibly even hotels. However taking this action could result in two negative impacts; a direct cost for the hotel due to either partially or completely shutting down; potentially drive guests to the competition.
  2. New regulations: Most country and tourism authorities will implement new rules that will require compliance (such as max occupancy, closure of facilities, social distancing, and room sanitization). Though new regulations will cause new constraints and extra costs they will be important for guests to feel safe and secure.
  3. Staycation and daycation: As mentioned previously these initiative will be critical for hotels to redefine their portfolio and offer innovative proposals, especially for those whose business was previously focused on international travelers.
  4. New face of the competition:
    I believe this will be the main challenge! During the last two decades most venues have seen their competition landscape evolve with new openings—even right next door to them; with online travel agencies (OTAs) such as Booking.com, Expedia, and Trip Advisor; and peer-to-peer platforms such as Airbnb and HomeAway, but for the first time the change in competition will be global and it will be harsh. In the blink of an eye hotels will declare bankruptcy, change owners or operators, change category (X stars) or prices, adopt new technologies, invent new offers, and even seal new partnership deals.

The new digital opportunity

While these changes may initially unleash chaos, I prefer to focus on the opportunities. For example: Travelers will benefit from new competitive offers and unique experiences worth paying more for; and hotels will benefit from new benchmarking, improving attractiveness, revisiting reservation performance, addressing guest satisfaction and improved guest loyalty and referral.

However, I believe it is digital transformation that can most significantly contribute to the revival of the hospitality industry in three ways.

  1. Low occupancy plan: In a scenario where a hotel is partially or completely closed, now is a perfect time for a technical upgrade, pulling cables, installing new Wi-Fi, or making other changes to the network. While hotels usually try to schedule work during the low season, for some hotels the disruption still results a loss of revenue and guest disturbance. Hotels that can afford to invest in a renovation or technical refresh should take the opportunity to do it now so that they are 100 % operational when business picks up and they will be in great shape for the next several years. If not, they risk lagging behind the competition when reopen happens and then may have to close again for renovation just as the competition's RevPAR ramps up.
  2. Hygiene and social distancing: Another opportunity is in the area of personal safety and sanitization routines. Technology exists today to support the move to paperless rooms and digital interactions. This trend should be a technology priority for the hospitality industry as it addresses multiple steps in the guest journey. For example:
    • A kiosk for check-in/out reduces line-ups and interactions at the front desk
    • A door lock application on a smartphone reduces touch points
    • The use of tablets and touch screen phones makes cleaning easier
    • BYOD turn guests' smartphones into a room phone or hotel application that includes room service, a Room Management System and more
  3. Business Model Agility: The third area of improvement is related to the post-health crisis era. At the beginning of this article I mentioned that the financial crisis will probably take longer to recover from than the pandemic, and that other crisis will happen again in the future. With this in mind, it is important to think about the need for business model agility.

    Today when hoteliers need to either partially or totally shut down a property and stop using their technology, such as networks, Wi-Fi, and telephones, those expenses remain in the EBITDA and they are still accountable for payment if there is a loan. Technology that offers an agile business model can provide a superior flexible financial solution. For example, an OPEX, consumption-based model can provide the flexibility hotels need to reduce the numbers of licenses as required, or transfer them from one hotel to another. Further, a cloud-based offering can provide multiple solutions including voice communications, collaboration, network management, Wi-Fi, digital applications and support for BYOD.

    Technology also creates an opportunity for hotel owners to convert hotels into mixed-use developments including offices, service units, or apartments. While the building structure may look the same on the outside, technology on the inside is required to partition the different constituents. Mixed-use complexes can host independent landlords, or tenants each with their own service provider subscription, telephone line, and Wi-Fi. These complexes typically use FTTH (Fiber-to-the -Home) based on PON/GPON technology. Hotels are typically based on a shared network (LAN and Wi-Fi), a PBX, and a Multicast TV system. While hotels often use Active Ethernet, as they look forward and anticipate a potential conversion to a mixed-use facility, they should consider deploying Hybrid Passive Optical LAN (HPOL), a hybrid infrastructure that can operate with both technologies and avoid costly new infrastructure.

As in any crisis, this is a time for learning, adapting and anticipating. We will see new visionary concepts emerge. There will be instability from acquisitions and consolidations. There will be changes in on-going and announced projects, as well as renegotiation between owners and operators. However, I believe that a critical lesson from our current situation is that technology and digital transformation will be vital for success in the hospitality industry in the new post-health crisis era.

Xavier Mongin

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    About Alcatel-Lucent Enterprise

    Alcatel-Lucent Enterprise is a leading provider of enterprise communications solutions and services, from the office to the cloud, marketed under the Alcatel-Lucent Enterprise brand. Building on our established heritage of innovation and entrepreneurial spirit, we operate globally with 2700+ employees in 100+ countries worldwide, with headquarters near Paris, France. With communications, networking and cloud solutions for businesses of all sizes, our team of technology experts, service professionals, and 2900+ partners serve more than 830,000 customers worldwide, tailoring and adapting our solutions and services to local requirements. This provides tangible business outcomes through personalized connected experiences for customers and end users.

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    Xavier Mongin
    Global Director, Hospitality at Alcatel-Lucent Enterprise
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