Hospitality – Industry Perspective 2018
Travel and tourism (T&T) is a broad industry that encompasses hospitality, leisure activities, restaurants/dining and air travel. Combined, the industry directly contributed 2.6T USD to the global economy in 2017. This figure becomes more remarkable when indirect contributions are included: T&T represented >10% of 2017’s global GDP. Focusing on the hospitality sector, IBISWorld calculated the 2017 market size at, approximately, 0.9T USD with a 3.2% 5-year CAGR. The following factors help to explain why T&T and the hospitality market have experienced strong growth over the last several years:
Strategic Overview of the Industry
Beyond the growth factors, it is important to understand hospitality in the context of the broader market – from concentration and divestitures to an evolving business model that was not present 5 years ago. Taking these elements in aggregate enables an informed view of hospitality’s current landscape and the ability to forecast future moves.
Hotels, Leisure and Restaurants (HRL) Index and the S&P 500
Since the great recession, HRL has outperformed the S&P 500 through 2017. 3 and 5-year deltas are greater than 10%, and the 10-year delta is over 100%. YTD performance (as of 1 May 2018), however, has paralleled the broader market which has contracted thus far. How market performance may impact hospitality will be discussed in the section “Closing Thought – Applying Technology to Manage Economic Downturns”.
US and Global Hospitality Performance
Analyzing US and global RevPAR data against the US industry benchmark indicates consistent growth from 2013 to 2017,. That said, AOR plateaued in 2015 which suggests lodging companies increased rates. Studying ADR data confirms this assumption and calls into question whether hoteliers can continue to raise rates to maintain RevPAR performance.
Dynamic Business Model
The franchise and ‘property managed by’ models represent >80% of the market. Further, organizations are spinning off assets not deemed core to their long-term strategies – Hilton spun-off Park Hotels & Resorts and Hilton Grand Vacations at the end of 2016, and Wyndham Worldwide filed with the SEC in March to spin-off its hotel group.
Airbnb was viewed as a disruptor several years ago but, over time, has become an established player. To illustrate its transition to industry competitor, consider the following:
Due to low returns, high savings and a volatile RMB, Chinese firms invested heavily overseas to generate earnings; to illustrate, Chinese capital outflows reached $725 billion in 2016. One investment option was hospitality where target hoteliers were either acquired or had significant stakes taken in them. The capital migration, among other factors, placed pressure on the RMB which resulted in the Chinese government restricting the amount of foreign investments. Consequently, a series of divestitures are underway and, in one case, led to a government takeover of one Chinese insurer. To provide a synapsis of what transpired over the last four years, Table 1 depicts key M&A hospitality activity by three major Chinese firms.
Table 1: International Chinese Activity
|2016, acquired Carlson Hospitality Group||2014, acquired Waldorf Astoria New York for $1.95B||2015, acquired Louvre Hotels Group for $1.43B|
|2017, purchased 25% stake in Hilton for $6.5B||2016, acquired Strategic Hotels & Resorts Inc. for $6.5B||2015, acquired 80% stake in Vienna House Grp. for $289M|
|2018, attempting to sell stake in Park Hotels for $1.4B||2018, Chinese Government takes over Anbang and injects $10B||2017, increased stake in Plateno Hotels to 93%|
|2018, sold 25% stake in Hilton Grand Vacations for $1.1B|
North America and Europe are mature and saturated hospitality markets where opportunities to organically grow are limited. Given this and the strong economy, it is understandable that established industry players have pursued acquisitions as a growth strategy. Noteworthy M&A activity includes:
Technology’s Impact on the Industry
Hospitality leaders must be able to manage the inundation of consumer data to understand current and evolving trends, respond to social media feedback that has the propensity to go viral, and identify the right solutions to oversee global operations. Failure to be proficient at all three may lead to lower RevPAR, AOR and ADR. Accordingly, a comprehensive technology strategy is paramount in this ecosystem.
An important initiative that a sound technology strategy can enable is personalization. As discussed in the introduction, guests want to tailor their experiences and are willing to pay for it. Disaggregating customization into three categories depicts specific wants and how technology can facilitate them. Referring to Table 2, it provides an overview of each category and the corresponding technology enablers.
Table 2: Guest Personalization Through Technology
|Personalization Categories||Technology Enablers||Description|
|Digital Communication||VR, Social Media, Mobile App.||There are numerous ways to contact guests, share offerings, ask for feedback, etc. Similarly, guests can reach out to brands with requests, questions, etc. This digital 2-way communication enhances guest relations and facilitates customization.|
|Guest Predictivity||IoT, Analytics, AI||IoT enables connectivity between guests and properties & brands. Resulting data streams can be analyzed via metrics to better understand guest needs, and AI presents an opportunity to predict and address future needs.|
|Privacy||Privacy Settings, Authentication, Encryption, Backup||Meaningful measures are needed to safeguard guests’ data. Further, guests can indicate what they will and won’t share. Given recent data concerns, this customized approach will positively resonate with current and new guests.|
Closing Thought – Applying Technology to Manage Economic Downturns
The cyclicality of the hotel industry is understood and downturns tend to occur every 8 to 10 years. A primary reason for this trend is that hospitality is correlated with the macro-economy. Further, when the market dips and demand weakens, discretionary spending follows suit which impacts lodging. As such, managing slowdowns is an important aspect of hospitality’s business model.
Liberty Advisor Group is raising a cautionary flag for the hospitality industry based on following observations:
Considering the cautionary flag along with the market observations, technology strategies can assist with mitigating impacts from economic slowdowns. Several items of importance are:
About Liberty Advisor Group
Liberty Advisor Group is a mission-focused advisory and strategic consulting firm. We partner with our clients to solve their most complex business issues and improve enterprise value. Our experienced team has a proven track record in Business and Technology Transformation, Data Analytics, Business Threat Intelligence, and Mergers and Acquisitions. We offer original thinking combined with factual data to develop comprehensive, situation-specific solutions that work. With straight talk and proven results, we accelerate growth, drive efficiency and reduce risks. We are experienced. We are doers. We are Battle-Tested.
Liberty Advisor Group has more than 30 years of hospitality experience, including technology strategy assessments, product strategy capability studies, IT organizational design, creating and deploying universal analytics, and ERP architecture design and implementation.
 World Travel and Tourism Council, Travel & Tourism – Global Economic Impact and Issues 2018; https://bit.ly/2pwx4Te
 IBISWorld, Global Hotels & Resorts – Global Market Research Report; 2017
 Global Business Travel Association press release, October 2017
 Forbes, “Personalized Customer Experience Increases Revenue and Loyalty”; https://bit.ly/2Ku0kDC
 S&P 500 and HRL sector data captured from www.fidelity.com
 RevPAR, ADR and AOR US benchmark data captured from Choice Hotels International’s 2017 10-K filing
 Individual RevPAR, ADR and AOR data captured from Marriott, Hilton, Wyndham, Choice Hotels and Extended Stay 10-K filings. Note, Choice Hotels and Extended Stay were analyzed for the US market, all others were US and global markets
 AOR is the average occupancy rate and ADR is the average rate charged per room. RevPAR = AOR x ADR, and indicates average room revenue
PR Newswire, “Wyndham Worldwide Announces Filing of Form 10 Registration Statement for Planned Spin-Off”; https://prn.to/2HFLwUF
 Inc., “Disruption Lessons from Airbnb”, www.inc.com/thebuildnetwork/disruption-lessons-from-airbnb.html
 CFRA, Industry Surveys, Hotels, Restaurants & Leisure, Oct. 2017
 The Globe and Mail, “Airbnb buys Montreal-based Luxury Retreats to bolster high-end vacation offerings”; https://tgam.ca/2HgxhFw
 Orlando Sentinel, “Airbnb, developer partner on home-sharing apartments”; https://bit.ly/2xX7JJ2
 CNBC, “China’s crackdown on money fleeing the country looks like it’s working”; https://cnb.cx/2rbkSsI
 The Brookings Institution, “China’s New Investment Rules”; https://brook.gs/2jk3AVL
 Bloomberg, “China’s Bailouts Won’t End with Anbang”; https://bloom.bg/2GOuAXi
 Reuters, “China’s HNA Group agrees to buy Carlson Hotels”; https://reut.rs/2I88tPC
 Wall Street Journal, “China’s HNA Group to Sell Stake in Hilton Spinoff Park Hotels & Resorts”; https://on.wsj.com/2GWTK5Q
 Bloomberg, “HNA Group Sells Hilton Grand Vacations Stake for $1.1 Billion”; https://bloom.bg/2IoJCEB
 Forbes, “Chinese Insurer Buys Waldorf Astoria for a Record $1.95B”; https://bit.ly/2rf0BBz
 Bloomberg, “Anbang Said to Complete Most of $6.5 Billion U.S. Hotels Deal”; https://bloom.bg/2K39Gpx
 CNN Money, “China is pumping $10 billion into Waldorf Astoria owner Anbang”; https://cnnmon.ie/2F0Nngx
 Wall Street Journal, “Shanghai Jin Jiang to Buy France’s Louvre Hotels Group”; https://on.wsj.com/2K3DKRZ
 Hotel Management, “Jin Jiang acquires 80-percent stake in Vienna Hotels Group”; https://bit.ly/2qMjbkr
 China Travel News, “Jin Jiang Hotels increases its stake in Plateno Group to 93%”; https://bit.ly/2vxfjsX
 Data captured from Marriott’s 10-K filings
 Reuters, “AccorHotels to raise luxury profile with $2.9 billion acquisition”; https://reut.rs/2vu0lnz
 Las Vegas Review-Journal, “Las Vegas-based Diamond Resorts being sold for $2.2B”; https://bit.ly/2rb6cZE
 The Toronto Star, “Intrawest agrees to $1.5B friendly acquisition by Aspen Skiing Co., KSL Capital Partners”; https://bit.ly/2HHk4WJ
 Hotel News Now, “Best Western acquires Sweden Hotels”; https://bit.ly/2reoOrK
 U.S. Department of Labor, Bureau of Labor Statistics, “The Employment Situation – March 2018”; https://www.bls.gov/news.release/pdf/empsit.pdf
 CNN Money, “US job growth slowed in March”; https://cnnmon.ie/2JrjZDS
 The Wall Street Journal, “U.S. Economy Adds 164,000 Jobs in April”; https://on.wsj.com/2KCEWMK