With a steady stream of reminders in current press articles about change and uncertainty in the market we remember how change has actually been constant over time in accommodation and travel and has lessons for the future.
Our article looks over how things have continously evolved over time and how hoteliers have risen to the various challenges that have created disruption and increased competition.
THE CHANGING FACE OF TRAVEL AND ACCOMMODATION
Take me to the Hilton
International travel used to be primarily the privilege of a relatively well-heeled minority visiting destinations for business or leisure. They travelled on national airlines that linked major cities and usually booked through established leisure or business travel agencies. It was the age of BOAC and Pan Am and the early trailblazing days of Thomas Cook.
Travellers needed a place to stay and well established,largely US- based hotel chains filled an identified accommodation need by providing a safe haven, a set of international standards, a recognisable name and ease of booking. Many international hotel companies had emerged from the expansion of the airlines. They were conveniently located on the airline’s route network. Pan Am’s Intercontinental Hotel Group, Air France’s Le Meridien and JAL’s Nikko Hotels are all examples of this model.
This scenario offered a safe end game for travellers and a cookie cutter solution for hotel developers and it worked well. This arrangement offered security to the traveller and an additional income stream to the airline, as well as making it easy and cheap to standardise hotel development. The hotel world was an ordered place with a clear set of limited, but well-defined options with a distribution system that neatly linked travel and hotels…but it then all began to change…
Hotel rules turned upside down
That world changed as travel evolved with rapidly expanding airlines offering a wider range of routes, flexible pricing and as volumes of travel increased, a wider age group began to travel and more destinations opened up.
Consumers changed too. As time went by, tastes became more sophisticated and demanding.
Hoteliers were also affected.As competition increased, began to differentiate their product offerings and strengthen guest retention through brand loyalty schemes such as Six Continents Club and Marriott Rewards.
In the early 1980s, bookings for airline seats were mainly through global distribution systems that serviced the worldwide travel industry such as Amadeus, Sabre and Galileo. These airline travel and reservations systems entered the hotel market and sought to bolt hotel systems onto their own. This battle for a share of hotel reservations and distribution functions led to investment in technology. Terminals that sat on a travel agent’s desk could now book both an airline seat and a hotel room and integrate the two.
This next phase of the revolution began as the Internet provided consumers the ability to easily and directly search booking systems and make reservations. The advent of online travel agents (OTAs) made the search for accommodation options easy- through one portal/brand offering which gave access to a wide range of offers at each destination.
Suppliers responded to this opportunity as private owners could now market their properties (at a cost) alongside major chains.
Demand evolved and younger audiences took on the ‘Millennial’ mantle and began to explore some of the same destinations their grandparents’ generation had travelled to as well as many more, but with differing agendas, more flexible schedules and a desire to put experience above standardisation.
Call me an Uber, Take me to my Airbnb
But even then, the old rule book began to be further torn up with the development of platforms offering ‘easy access’ purchases, still with a level of brand assurance.
Gone was the call to the local cab company for a quote as the Uber phenomenon enabled an immediate response through a smartphone. In the accommodation world new options opened through Airbnb, another easy to buy platform allowing the user to personally interact with their seller and select their choice.
Owners of properties in leisure and city destinations (who traditionally relied on direct advertising and being sold through agencies such as Owners Abroad) took this as an opportunity as a slicker way of reaching potential clients as did entrepreneurial individuals with nothing but spare rooms to offer.
This combination of an informed customer, using social media as a review forum (e.g. through TripAdvisor), ease of booking, and the high cost of doing business with the OTAs has forced hotel companies to reassess both the traditional hotel/travel agent vertical distribution model and their brand offerings.
Where have all the stars gone?
Competition was one factor that contributed to hoteliers segmenting their accommodation products by creating new brands and targeting different segments of customers.
New terminology began to creep in: out went the concept of measuring hotels by a simple numbering system (one star, two star) to be replaced by a method of defining what was on offer through clear market positioning (luxury, boutique, mid-market, limited service, budget).
Not only was the consumer landscape changing, the competitive environment was also becoming more challenging alongside distribution channels being disrupted. Other more mundane operational issues also affected hotels and their financial returns: these included increases in operating costs (payroll, utilities, food) leading to a search for greater efficiency both in design and operations.
Hoteliers responded by creating alternative hotel operating models that made greater efficiencies of both space and staffing by creating alternative brands. This further segmented the market by providing differing ranges of facilities and varying service levels but also began to match more directly the build and operational costs with the target audiences ability to pay.
The desire to expand, satisfy shareholders and spread overhead costs also stimulated a brand explosion. Self imposed brand area development restrictions (which only allowed so many hotels of one brand in any given area) led, alongside marketing strategies aimed at different client segments, to the creation of different brands to circumvent these limitations in any one geographical area.
A recently published article in Hotels magazine quoting Piers Schmidt stated ‘Once upon a time, naming a brand was easy. You simply adopted your own family name, which also served to distinguish private enterprise from public: Heinz (1869), Ford (1903), Kellogg (1906), Hilton (1919), shown above, and again with his first name Conrad (1985) and Marriott (1957).”
This was no longer the case as hoteliers needed to think as marketeers with new brand offerings and to develop their own rationale and core values.
The Constant-Change is all around
This run through of how things have changed over time proves that disruption is nothing new: alternative market forces including changing consumer tastes and trends, intense competition, innovations in distribution and technology and increased operating cost issues have, and always will, impact on the sector. With a seemingly undimmed tourism sector showing global growth market opportunities are still very much out there and being nimble and adapting to trends is the challenge but also the opportunity.
Disruption? Bring it on!
Douglas Grant of Arc Consulting Partners specialises in hospitality market appraisals and feasibility. His previous hotel operational roles were with Grand Metropolitan, Inter-Continental, Gleneagles and Forte, followed by consultancy and transactional experience with Horwath & Horwath and Nomura International Plc.