The summer travel season is here, and most of us are trying to just make it through the chaos of airports and long hotel check-in lines without completely losing our patience.
Ah, yes, and don’t forget about all those Americans heading to Europe this summer for Taylor Swift’s “The Eras Tour.” (I’m guilty as charged here. Twice.)
However, earlier this month, the CEOs of the world’s biggest hotel companies convened at the NYU International Hospitality Industry Investment Conference for an annual panel discussion on the industry’s state and future.
From the explosion of budget brands to the persistence of high hotel rates, the leaders of Marriott International, Hilton, Hyatt, IHG Hotels & Resorts and Accor had plenty to say on what will impact how we all travel in the months and years ahead.
Related: Top travel tips to keep your summer trip on track and on budget
Growing middle class ushers in brand expansion
If you look at the variety of new brands launched or acquired in the hotel orbit over the last two years, it’s easy to surmise that the major hotel companies see opportunities in more affordable travel segments. Brands like Hilton’s Spark, Marriott’s newly announced Project Mid-T, IHG’s Garner, Hyatt Studios and Accor’s Handwritten Collection all operate in the middle-market and premium economy segment.
What gives for all this midscale love? A booming middle class around the world.
“If you look at this industry for the next 10 or 20 years or the rest of my life, the rest of most of the lives in this room … it is fundamentally going to be a very good run for travel and tourism,” Hilton CEO Christopher Nassetta said during the NYU panel. “Why? The big megatrends in terms of demographic growth [and] the middle classes — that keeps chugging.”
Accor CEO Sébastien Bazin added, “The emerging middle class: This is the trend. You have an emerging middle-class population growing: a billion-plus [added] in the last 10 years [and] you will [probably add] 1.3 billion in the next 10 years, probably 25% coming from India but [also] coming from Mexico, South America [and] many other places in Southeast Asia.”
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The middle-class growth forecast comes as companies like Marriott acquire and sprout brands like City Express in Latin America and Four Points Express in Europe, the Middle East, Africa and Asia.
“There are a number of major markets around the world with this exploding middle class, and they want to explore the world,” Marriott CEO Anthony Capuano said.
The law of supply and demand keeps hotel rates high
While hotel giants appear interested in getting into more budget-friendly segments of the travel sector, the economy hotel space has been the one area in recent weeks where travelers can find discounts. But the major hotel CEOs say it’s a little premature to rejoice over the idea of widespread discounts permeating the overall industry.
Simply put: There aren’t enough hotels being built to keep up with demand. Interest rates are too high to move ahead with new construction, so most growth comes from converting existing hotels into a new brand — adding rooms to one company’s portfolio but not adding new supply to the overall market.
“We still have pretty good pricing pressure because demand is good and supply is low,” Nassetta said. “The next few years you have sort of a super cycle of very low-capacity additions by historical standards.”
But fret not — the industry is recognizing the need to have an offering for everyone and all wallet types. That’s why you see so many of these new midscale and premium economy brands emerging. IHG CEO Elie Maalouf pointed to his own company’s brand lineup, which ranges from the affordably priced Avid and Garner all the way up to ultra-luxury Regent and Six Senses, as an example.
“Most of our business is in everyday travel,” he said. “We have a stay for everybody. You can still book right now for June and for July in the United States at $100 plus or minus at one of our Holiday Inn Express hotels in resort destinations. For most people, it’s still very affordable. But if you want to really treat yourself, I think all of us have products and experiences where you can really splurge.”
(And if you are looking for ways to splurge through IHG, might I recommend Regent Hong Kong or Regent Phu Quoc?)
The future of AI and hotels
As with any industry, the hotel sector is pursuing an artificial intelligence strategy to make things more efficient for its workforce as well as travelers. On the workforce front, it largely boils down to the ongoing worker shortage: There was already a shortage of hotel workers before the coronavirus pandemic, and the global health crisis only exacerbated that.
“If you don’t use technology, you’re not going to be able to run these hotels properly,” Maalouf said.
Other hotel CEOs agreed that tech innovation is crucial to addressing labor shortages that are unlikely to disappear anytime soon.
“Let’s face it, how many years have you been trying to get to a unified, sensible immigration policy in the United States of America? A lot, and there’s going to be a lot more probably before we get to one,” Hyatt CEO Mark Hoplamazian said. “There are ways you can actually maintain full employment where you are today, even though you’ve got openings available to hire people and make it more efficient and effective in how you actually staff outlets and restaurants, how you staff banqueting and events, how you staff housekeeping and how you staff engineering visits.”
Hotel headaches
While unruly guests or staff shortages might appear to be leading contenders for things that keep a hotel CEO awake late at night, there was a unified response that geopolitical tension and instability around the world are the main headaches for travel at the moment.
“Our industry thrives in times of peace and stability,” Capuano said before noting the seismic number of people voting this year in elections around the world. “You’ve got four billion people going to the polls this year. You have the potential for tectonic plate shifts in the geopolitical landscape, and that level of uncertainty is not particularly productive for the travel and tourism sector.”
But there’s also optimism about what travel can do to pacify some of the tension.
“There’s more and more division, and somehow more and more actors that are trying to drive more division,” Hoplamazian said. “I think we can be the antidote [and] our industry can be the antidote to that. But I think it’s urgently needed that we play that role because we need to elevate understanding instead of all this friction.”
“My only headache is geopolitical instability,” Bazin added. “Travel tourism is the best medicine. The more you travel and experience somebody else’s culture, the more you agree.”
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