Impact Of External Events On Hotel Industry

With the passing time, hospitality industry is growing. In this globalized era, there are various such events that has potential to influence this industry. The present report discusses impact of various such events like 2008 sub-prime crisis, Strong Swiss Frank, Various trade sanctions etc. Firstly, the impact of these events is critically analyzed on the hotel industry. After this, a recent trend of ‘sharing economy’ is being discussed on hotel industry. It is also analyzed that how this sharing economy is influenced by this new concept. At the end, it is recommended that how hotel industry should react to this sharing economy.

1.Main body

1.1.Impact of events on hotel industry

The recent economic and political events have influenced hospitality industry to a great deal. The economy has fallen and the banking system is going into bankruptcy. Starting with the 2008 recession the performance of hotel industry declined resulting in negative RevPAR (revenue per available room) (Avraham and Ketter, 2008). The reduced travel expenditures are causing a decline in revenues of major hotel chains during 2009. Since the corporate tourists have to travel across the world, therefore the industry will continue to expand. Although this expansion might be delayed for a little while, as the banks are restricted to give loans. In September 2008 when stock market turmoil occurred, five stars luxury hotels’ occupancy declined worldwide by 6% and 14% in October. Luxury market and four stars witnessed 17% and 10% fall in RevPAR respectively. This further resulted in slowdown in corporate business where executives could not stay in a five-star hotel paying 500 US dollars where other 500 employees were laid off. Financial institutions therefore advised its customers to stay at four-star hotels (Smeral, 2009).

France, which receives the largest number of tourists in the world, has seen the revenues of deluxe going down to 30% from 60%. Considering the turbulent economy where stock market grows in one phase falls down in another.  The corporate travelers who make visits for conferences and meetings mostly sustain the industry. In addition, the development of local tourism should be strong enough to reduce the expenses. The demand of hotels is growing with sustainable development at the heart of it, considering that today’s customer is more aware and educated (Chathoth et al, 2003). 

The hallmark of millennials is interaction, exploration and emotional experience. They will comprise of 50% of the travelers globally by the year 2025. The hospitality industry has become more tech-savvy and sensitive to customer connection.  Payment, eating and shopping are facilitated with technology.  Social media like Twitter, Facebook and TripAdvisor is now days used to enhance feedback and improving the services at reasonable rates (Osterwalder and Pigneur, 2013). Moreover, political tensions and terrorism are on its peak. The citizens across the globe are sensitive to weak governance and have started to challenge ingrained political parties. Civil unrest has increased due to punishing economic policies, growing austerity and religious, cultural and ethnic tensions (Barrows et al, 2008).

This megatrend in Europe will continue to rise therefore the Governments are facing this ongoing challenge of delivering quality social services. Terrorists today are tech savvy which is a threat to the political system across the world but the threat is likely to remain high in the US and Europe. Inequality tops the economic trends list in the US, which is viewed as the most unequal of the world's rich nations. The wealthiest American hold 288 times more wealth than the average middle class American family. This deepening income inequality has adversely affected the economy in Asia thereby reducing the travelling and tourism options for middle class families.  The hotel industry is now facing the challenge of providing quality services, as people are now conscious of their personal health. Monitoring and adjusting health has now become more important than ever. Increase in technology and telehealth (remote consultation) allows more personalized care. Since the online patient portals expand, people have easy accessibility to health services. Ebola outbreak in the West Africa raises new challenges for managing healthy living and infection control while traveling. Therefore, more innovative ways are required to win the confidence of customers. Vitamin infused shower water, Air purification, yoga space, energizing lighting, in-room exercise equipment are the few ways to start with (Altinay et al, 2015).

Another factor influences hospitality industry such as the issue of sustainability and resource Constraint.  Hoteliers are now focusing on eco-friendly practices. Therefore, hotels now have the pressure to have an attractive "green policy". Hotels with certain type of environmental program attract more customers and generate more revenues from their eco-features. Critical resources like electricity and power have higher demand, which is leading to increase in price increases, volatility and even shortages. Scarcity of water poses significant challenges to regimes in the Middle East, Asia, Africa and northern part of China. Therefore, hospitality industry encounters challenges of being energy efficient and invest in RE (Renewable energy) projects can help making the effective use of resources. Oil prices are falling showing a shift from hydrocarbon present to a sustainable energy source. This would have a negative on the powers like Iran and Russia; air travels would grow significantly with lowering prices of jet fuel (Litvin et al, 2008).

People in today’s world want connectivity.  If the economy becomes globalized, it would result in political stability in the world. The financial systems across the world are striving to become transparent to allow free capital flows. Since the global market is likely to grow for trained professionals while the ageing countries will allow more immigrants, the migration will continue to increase. The traveling industry forecasted to support 328 million jobs by 2022 as reported by the World Travel and Tourism Council. Only the citizens of Finland, Sweden, North America, Europe and the UK have the most freedom to explore and travel across the word, while passport holders in Middle East, Asia and Africa have the least. Free visa or visa on arrival offer for Chinese tourists is confined to 50 countries only. This trend in the global economy also shapes the present and future of hospitality industry (Timur et al, 2008).

Emerging Growth Markets are also affecting the hospitality industry in various regions. Global growth in GDP is moderate at 3.2% in 2015 for the US with projections of 3.1 %, 1.3% for Europe, 7.1% for China, and .8% for Japan. Hotel Industry in Japan is flattering again, and Europe is likely to be in the economic rut, China stands higher as compared to other nations. Moreover hospitality industry growth in China is unprecedented and attracting a lot of entrepreneurs and hoteliers (Altinay et al, 2015).

1.2.Impact of Sharing Economy on the Hotel Industry

The sharing economy is also called “collaborative consumption” or the peer economy. It has been disturbing many industries. It is the one in which the products or the services are shared such as spare rooms or cars. There is nothing like individual ownership. (McNamara, 2015). Airbnb is the one of the pioneers of the sharing economy and has probably disrupted the traditional hospitality market. Airbnb rents lodgings in 190 countries providing services to more than 34,000 cities and 17,000,000 guests. It was once thought of as a place to navigate vacation housing but is currently and frequently being used by the business travelers as well. According to the statistics of 2014, the company has seen 10% of its revenue coming from business travelers (Smith, 2015).

It seems that the actual revenue impact is minimal; according to a recent study, “1% increase in listings [on Airbnb] in a given market would result in a 0.05% decrease in quarterly hotel revenues.” (p.12).  Airbnb siphons revenues from hotels with a minimal impact, but still its rapid growth worth watching. Considering the current expansion rate Airbnb is likely to surpass Hilton and the InterContinental Group as the world’s largest hotel chain” (McNamara, 2015).

There are mixed messages by hotel industry regarding Airbnb’s competitive threat. While hoteliers are publicly quoted as saying that they are not concerned, and exploring other legislative options against shared housing services such as Airbnb. The members and participants are pursued by many jurisdictions as its basic premise of renting out greatly violates local housing laws.  Some hotel owners are actively supporting these efforts. The legislative differs on a country-by-country basis and on a state-by-state basis. It does not address the issue of competing against the disrupters in the US. There is a continuous rise in sharing economy and it brings along opportunities and threats with it. There is a need for powerful marketing efforts and revenue management (Ikkala and Lampinen, 2015).

The companies like Airbnb give a variety of accommodations choices to people when they travel, that makes the business better for hoteliers. People are trying to get used to the idea of sharing services but they are not very much comfortable with the idea yet. Taxes and insurances are barriers to companies such as Airbnb and Uber, facing legal battles across the globe. Economist Robert Vaughn has highlighted key sectors of the sharing economy: Peer to peer finance and accommodation, car sharing, online staffing and music/video streaming. These are growing rapidly. They are long-term megatrends driven mainly by technology advancements, social change and resource scarcity. In the upcoming years potential value would be created by these sectors such that today 15 billion US dollars global revenues in these sharing sectors would rise overr $300 billion by 2025 (Guttentag, 2015).

1.3.Recommendations for Industry

Hoteliers should be great with the information and products they have. They need to offer a multi-product customer experience and should be good at using new platforms for delivering their products and services in an integrated and friendly way.  Hotels should aim at delivering superior customer service to have that excellent feedback; and to look into new platforms. For instance, with Marriott’s Six Degrees application (developed by MIT’s Mobile Experience Lab) guests staying at the same hotel can connect by making the hotel lobby more of a social gathering place. Legislation is a weapon for the hotel industry to beat Airbnb and other sharing economy disrupters. They might win the market but will miss the opportunity to transform their own businesses (Zervas et al, 2015).    

2.Conclusion:

This report gives insights into the issues affecting the hospitality industry and examines the role of quality services in boosting the hotel industry revenues. It also analyses the distinctive accommodation features by accentuating on quality management. It has analyzed various events events that influence businesses in general and hospitality industry in particular. With the growing advancements in technology and customer awareness hotel industry is posed with significant challenge of upgrading their system, otherwise the activities would be disrupted. Likewise, European regimes should adopt a transparent and flexible policy to facilitate hoteliers. Moreover, it has analyzed that concept of shared economy would continue to rise and it is not a disruptor, rather it will increase the revenues in certain key segments which has been discussed in detail. It is also found that with a fair competition, the hoteliers can strive for a proper legislation which will boost the growth in hospitality Industry in the long run. Moreover, it is found that sustainable development and eco features of hotels would greatly appeal customers and can be a major source of revenue generation. Most importantly, terrorism is the major issue due to which the routine business activities go haywire. Reliable regimes must walk abreast to make all businesses progress in general and hospitality industry in particular.

References

Altinay, L., Paraskevas, A. and Jang, S.S., 2015. Planning research in hospitality and tourism. Routledge.

Avraham, E. and Ketter, E., 2008. Media strategies for marketing places in crisis: Improving the image of cities, countries, and tourist destinations. Routledge.

Barrows, C.W. and Powers, T., 2008. Introduction to Management in the Hospitality Industry, Study Guide. John Wiley & Sons.

Chathoth, P.K. and Olsen, M.D., 2003. Strategic alliances: a hospitality industry perspective. International Journal of Hospitality Management, 22(4), pp.419-434.

Guttentag, D., 2015. Airbnb: disruptive innovation and the rise of an informal tourism accommodation sector. Current issues in Tourism, 18(12), pp.1192-1217.

Ikkala, T. and Lampinen, A., 2015, February. Monetizing network hospitality: Hospitality and sociability in the context of AirBnB. In Proceedings of the 18th ACM Conference on Computer Supported Cooperative Work & Social Computing (pp. 1033-1044). ACM.

McNamara, B., 2015. Airbnb: A Not-So-Safe Resting Place. Journal on Telecomm & High Technology, 13 (1), pp. 149

Osterwalder, A. and Pigneur, Y., 2013. Business model generation: a handbook for visionaries, game changers, and challengers. John Wiley & Sons.

Smeral, E., 2009. The impact of the financial and economic crisis on European tourism. Journal of Travel Research. 5(6), pp. 45-49

Smith, M.K., 2015. Tourism and cultural change. Routledge

Timur, S. and Getz, D., 2008. A network perspective on managing stakeholders for sustainable urban tourism. International Journal of Contemporary Hospitality Management, 20(4), pp.445-461.

Valentine, G., 2008. Living with difference: reflections on geographies of encounter. Progress in human geography, 32(3), pp.323-337.

Zervas, G., Proserpio, D. and Byers, J., 2015. The rise of the sharing economy: Estimating the impact of Airbnb on the hotel industry. Boston University and School of Management Research Paper, (2013-16).

 


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