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Steady As She Goes

Positive Data For Hotel Industry Unveiled At AAHOA Conference

Tuesday, April 18, 2017
Dennis Nessler
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Some positive news was offered to hoteliers at last week’s annual AAHOA Conference in the form of a continued positive growth forecast for the foreseeable future as well as the apparent progress of branded hotels in getting consumers to book direct.

Mark Woodworth, senior managing director, CBRE Hotels, offered an economic update on the U.S. hotel industry, while Cindy Estis Green, co-founder/CEO, Kalibri Labs, detailed for the first time the results of a recent survey that shed some light on how hoteliers are faring in comparison to the OTAs.

Woodworth—who noted that 2015 was a record year for the industry in terms of occupancy and that was exceeded in 2016—said CBRE remains bullish in its outlook. “Overall, we think we’re going to stay at a very high level for at least the next couple of years and more than likely beyond that,” he said.

Woodworth later added, “steady is the word, not necessarily remarkable growth, for the year ahead and some markets are likely to do much better than others.”

He explained that markets like Houston and Dayton, for example, were attractive moving forward, primarily because of their recent struggles. Meanwhile, he noted markets like Baltimore, Philadelphia and Charlotte, which have seen notable increases in supply, are likely to experience fairly minimal RevPAR changes.

“We’re in that part of the cycle where the disparity we see between those markets doing well and those that are really underperforming is very, very large,” commented Woodworth.

He noted that CBRE focuses on 60 of the largest U.S. markets for its research, and he acknowledged that “of those 60 markets 51 of them are expected to experience an actual decline in occupancy this year.” However, Woodworth added that “will be the peak” and he expects that trend to turnaround quickly.

Furthermore, Woodworth insisted that prospects for profitability remain solid, however, he noted there are some headwinds. “Profit growth is clearly going to continue, we’re very confident about that. But labor costs in the vast majority of markets for all property types will continue to become more of an issue,” he said.

Another ongoing issue for the industry remains the continued emergence of online companies like Airbnb. Woodworth pointed out they will continue to have an impact. “Even though the industry has been going to great lengths to establish a level playing field, we continue to see a lot of growth in that particular segment,” he said.

Meanwhile, Estis Green noted the information gleaned from the company's expansive database in this case included some 12,000 hotels—ranging from upper-midscale to luxury properties during the period of May through December—which ran book direct programs.

She began by addressing what’s behind these campaigns and the company’s overall objectives. “If you recall the reason that everybody gave for wanting to try and get more direct bookings is if these campaigns were effective then consumers would be more likely to book on brand.com. There would be more recurring visits because there would be more loyalty members; acquisition costs would be reduced; and consumers would start getting the message that there really is a price advantage to booking on brand.com as opposed to booking on a third party [site]. There’s this perception by consumers that it’s cheaper to go to the OTA, when in fact, brand.com often, and for the most part, has the lower rates,” she said.

According to Estis-Green—who explained that the survey examined only transient retail business that would be affected by the aforementioned campaigns—brand.com grew 13.2 percent compared to OTA growth, which came in at 12.1 percent. In total, the overall sample of hotels achieved growth of 9 percent during the six-month period.

“It was a very healthy period, the hotels did very well on a revenue basis,” said Green. She further noted that brand.com actually exceeded in revenue growth the growth of all other channels.

Estis Green touted the importance of loyalty programs for hotel brands in the fight against OTAs. “The loyalty contribution between midscale and luxury hotels was between 40 and 60 percent and has been growing at a very healthy rate, like between 5 and 8 percent a year. It’s been transformative against the third parties who don’t have the ability to put loyalty programs in. Even though they have loyalty programs they don’t have control of what goes on inside your hotel; the ability to give the guest a different kind of experience because they’re a loyalty member,” she noted.

Estis Green continued, “they don’t have the ability to communicate that way. When you have loyalty [representing] 40 to 60 percent, that’s the kind of power a brand has when being put up against the $6 billion being spent by Expedia or Priceline. Brands don’t have $6 billion to spend but the loyalty has been and is proven to be very powerful in the marketplace.”

Estis Green summarized the overall results. “Brand.com still has a premium average rate on a net basis over an OTA booking, even with the discounting incorporated into it. That premium varies and each hotel was slightly different, but there’s no question there was a premium there…Overall, I would say the book direct campaigns have definitely worked. There was absolutely a cost associated with them, but the cost was small enough to have been compensated for by an incremental number of loyalty members who appear to be recurring,” she noted.
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Dennis Nessler    Dennis Nessler
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