Sunday, March 15, 2009

No more hotels?

The aim of this paper is to provide a brief insight into world of tourism, especially of accommodation with regards to financial crisis. Today’s financial problems are influencing the whole world. A lot of companies are on the border of bankruptcy, others already have bankrupted; unemployment rate is increasing, money is being withdrawn from the banks accounts and these aspects also influence the sector of tourism.

The world of travel is changing. Next one and or two years travel business will be influenced by financial crisis. There is no doubt about reducing family budgets. It makes sense that first what is going to be reduced are holidays, vacations or trips. tIhere is no wonder that according to report of PWC hotels are managing in a downturn. Niels Pedersen Managing Director (Supranational Hotels, November 2008) stated: “In 2009 hotel revenues typically will drop 20 per cent, with the five-star market hardest hit, four star properties down by a quarter, three stars dropping 10-15 per cent, and budget hotels remaining static”. A top executive with an international luxury hotel chain, who did not want his name used for fear of losing his job, stated recently that the dominoes are falling among full-service hotels frequented by business travellers in London, Tokyo, Hong Kong, Shanghai, Paris, Prague and even New York. Until recently, hotel rates in New York were buoyed by robust demand by financial services executives and by foreigners lured by a favorable exchange rate (stated in The New York Times, November 2008).

Hotel business is going to challenge against poor periods. Therefore essential question is rising:

What will be the impact of financial crisis on accommodation services?

According to opinions mentioned above, there is serious fear of final output of financial crisis. I am not able to know all results in economy of accommodation providers. However I can bet that most of them will tell you that they can feel consequences of such crisis. But let me divide the question into two subquestions:

What will be the reaction of travellers to financial crisis with regards to accommodation?

What will be the reaction of accommodation providers?

The solution will be placed on the shoulders of accommodation providers. Travellers are searching for better offers. Travellers will be forced to stay longer with searching for offers because spending money will be more careful than before and travellers will require the same quality for lower price. It can be seen as two different approaches; however it is crucial to take into the account that in these times, people will think in the way of; if I am going to spend certain amount of money I would like to have appropriate accommodation for it. Moreover the travellers will be looking for other types of accommodation as an alternative of hotels. From this point of view the financial crises can be more profitable for alternative accommodation in comparison of hotel.

As I stated; travellers will try to find same value or quality instead of hotel. Therefore types of accommodation as apartments, bed&breakfast, hostels, pensions, hospitality exchange and so on may benefit from from increasing interest in other types of accommodation. However it is necessary to be aware of impact of financial crisis also for these alternative types of accommodation.

Without regards to accommodation types, what can an accommodation provider do with degreasing demand. "There's [been] nothing like this in history, in terms of falling demand" says Bjorn Hanson an industry analyst with New York University's hotel school (Time.com, 2008). I have succeeded in finding some examples, how hotels are dealing with degreasing demand.

“One is to cut services — closing gyms, shutting business centers earlier and no more 24-hour room service. Of course, this is easier for mid-price hotels to cut than luxury hotels, where customers expect a certain level of service.

One option most are rejecting is reducing the overall room rates, because hotels feel they got burned doing that in 2001. "They found that the math doesn't work," says Yesawich, CEO of Y Partnership, and a travel industry consultant; "you have to book too many more rooms to make up the lost revenue." What they are doing this time around is offering promotions and upgrades: Fairmont is offering third night free and $100 gift cards.

Discreet discounts, on the other hand, are all the rage. Priceline, for example is expanding its roster of top-flight inns. "Hotels that we've wanted for a long time, like five-star hotels, are coming in," says Chris Soder, president of North American travel. Yesawich explains that hotels are taking a portion of their inventory, maybe 20 to 50 rooms, and selectively discounting them in this opaque way. "Even a modest rate is better than no rate at all." (Time.com, 2008).

One group of traveller can benefit from such situation – business travellers. Due to decreasing prices for hotels their position as customers is improving. Hotels are directly bargaining with corporate travel managers, offering lower room rates than in the past, "I'm hearing that they're doing better in negotiating with hotel pricing," says Caleb Tiller of the National Business Travel Association (Time.com, 2008). Corporate managers are also in a good position to negotiate with hotels for add-ons, like free Wi-Fi, gym use and breakfast.

However (I don’t like to use “however”) some authors and experts in travelling are warning that discounting can be dangerous for the image of company. They are suggesting (HSMAI, 2008):
• Protect the brand when discounting
• Add value rather than discount if possible
• Reward the loyal guest rather than all guests
• Integrate marketing with yield to optimize promotion and marketing spend
• Make the best from what you get through up-selling and merchandizing
• Negotiate shorter corporate deals to provide flexibility in the recovery

And finally we are getting to marketing and other investments. “Many hotel businesses will be tempted to freeze infrastructure investments, mothball new growth hotel projects and defer integrating the latest acquisition. Advertising and recruiting investments are easily cut, as are loyalty programmes for customers and staff. However, some hotel businesses will take a different approach and selectively invest where others are cutting back. These are the businesses that will benefit“ (hotelmarketing.com, 2008).

From this point of view there are easy to cut marketing costs and investments opportunities, however, if you do this you can lost your way, how to recover from nowadays situation. Another output of these statements is to get closer to customer. Continue investing in relationship or leverage new media are two of many topics by Dorothy Dowling (hsmaieconnect.org, 2008). Very popular approach is social marketing. Sites such as blogs, forum, facebook, myspace and so on are really worth to travel companies.

Let me conclude this article. I hope it doesn’t sound too ambitious - Travellers are likely to cancel their trips and accommodation providers are more than aware of it. Therefore their prices are falling, services are upgrading, other types of accommodation are available, more benefits are offered and etc. In my opinion travellers don’t need to cancel their trip, they need to open their. And the oversupply is very favourable for travellers. Maybe in two years when the world will recover from the crisis these benefits or options will be reduced.

From the point of accommodation provider I can say that the fight for customers will be harder than ever before. It is crucial to convince travellers to travel, because it is worth for them. So my point is not to reduce marketing or investments but completely another approach – get closer to the customers. It is essential to be seen by travellers. Other point is to deliver added value to customers. Because world of mouth (social marketing) is very powerful tool for today’s marketers.


Resources:

Report of Price Waterhouse Coopers: “Hotels: managing in a downturn“, accessed December 2008, http://www.hotelmarketing.com/downloads/pwc_managing_in_a_downturn_nov08.pdf

New York Times: “Hotels Struggle, but Guests Less So“, accessed December 2008, http://www.nytimes.com/2008/11/18/business/18road.html?_r=3&ref=business

Time.com: “Hotels Try to Adapt to Hard Times“, accessed December 2008, http://www.time.com/time/business/article/0,8599,1866717,00.html

HSMAI: “Leading Through the Economic Crisis and Preparing for Recovery“, accessed December 2008, http://eo2.commpartners.com/users/hsmai/series.php?id=798

HSMAI: “Back-to-basics marketing tips for today’s challenging economic conditions“, accessed December 2008, http://www.hsmaieconnect.org/file/152003601.pdf

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