How will you weather the next economic downturn?
— 10 C-Suite executives shared their view
Although an economic recession and hotel industry downturn are far from certain, economic indicators, investor and corporate sentiment, as well as the recent operating performance of hotels in various sectors, point to an impending slowdown.
The current cycle, according to data intelligence firm STR, has continued virtually unabated since March 2010 with year-on-year RevPAR increases occurring in 112 of these 115 months. However, September 2019 was the second month this year when RevPAR results turned negative in the US, as increased supply outpaced demand. Similarly, PWC reports deceleration in the USA, with, for example, Q3 RevPAR growth at less 1%, the lowest figure since the industry began to recover from the 2008 economic crisis.
Some investment analysts suggest that hotel companies may not be adequately prepared for the eventual downturn. Investors and the hotel owners who increasingly rely on firms to operate their hotels may be right to be concerned about what such companies learned from the banking crisis of 2008.
The question, therefore, is how have the strategies of hotel companies changed or evolved over the past decade to help firms survive or even prosper during the next downcycle that may soon be upon us?
Co-Founder at KUBE Ventures
Most hotel companies have focussed on distribution changes and the need for more pricing flexibility and the efficiency in changing business processes through the assistance of technology. There is definitely an increased sophistication in both the distribution and technology, possibly better described as evolution then the needed quantum leap to weather the next downcycle.
Asset light hotel companies have the challenge in aligning the owning companies and their own efficiencies and benefits. Investment and returns / operating efficiencies and benefits and timing are difficult to balance. Additionally, expensive capital expenditure on buildings and FF&E needs to take place in the same positive and solid years. The need to differentiate the product would be an outcome, which hasn't emerged.
Asset heavy companies have a different outlook to start with; they build for a life cycle investment and balance off initial investment with operating / lifelong cost. They automatically balance investment and returns / operating efficiencies and benefits and timing is an outcome of that. A bit of headwind in the revenues also open other possibilities in cheaper construction or remodeling prices due to the slow down of contractors. Also hand in hand with a down cycle real estate opportunities in tough markets come about.
As an industry I don't think there is a radical change from how we operate, behave in prosperity and have to adjust in a down cycle...so if the headwinds prevail, the belt will need to get tightened.