Interest rates are low, consumer confidence is stronger, oil prices are high and employment is very uneven.
The Purchasing Managers Index (PMI) is at 60 in November 2021, down from 61 in October. Any number over 50 shows that the economy is expanding, so the PMI is good news.
Threats from COVID-19 variants appear to be waning despite concerns that this winter could bring another wave. Perhaps the biggest threat is inflation, as that is starting to affect the middle class as well as those in lower income brackets. The silver lining is that this inflation might cause hotel room rates to grow beyond the 6% inflation rate.
During most recessions, there is a significant reduction in value of hotel assets as the demand for lodging is normally in direct relation to the asset value. During the pandemic, this has not been the case. Values have largely held as the fundamentals have improved so rapidly that values are being based on 2023 earnings. If you doubt the values of hotels, take a look at the stock prices and you will see that Wall Street values hotel companies on 2023 numbers. Amazing!
Consolidation will continue as cash is still flowing and private equity is still in abundance, despite this unique cycle. Debt is readily available at relatively low interest rates and while the current economy is somewhat fragile, 2022 looks good due to political policies, and cash is burning holes in consumers' wallets.
Minimum wage growth and labor shortages have led to increased interest in robotics and artificial intelligence. AI has taken a prominent role in revenue management and will grow in all areas soon. Immigration policy must be fixed to accommodate those who want to work and obtain a U.S. work visa as the jobs that are badly needed in hospitality can be filled with foreign workers. Personalized service must return and staff shortages do not help to provide personalized service.
There is a marketing war between the short-term rental industry and hotels. To stay competitive, hotels must review trend reports and competitive-set information from STR as well as meet with competitors and use lead lists to aggressively pursue business. Websites must be laser-focused on selling, armed with “can’t resist” creative, digital content. The focus must be on experience, not the amenities. The use of storytelling and videos is paramount to success and tech-savvy staff members should keep an eye out for social media trends.
The hotel industry was never known to be an early adopter of technology, but the adoption of technology rapidly accelerated following the start of the pandemic. Some technology served to reduce the spread of COVID-19, like guest-facing contactless technology. Now, technology implementation at hotels is shifting toward long-term operational efficiencies to retain and supplement — rather than supplant — employees, and to provide support for high performers. This will help provide better service to guests and also retain these newly minted rock stars.
This is a reminder to stay on top of reviews and respond to all of them. We have noticed a sharp decline in positive reviews over the past several months. Guests will no longer accept excuses when they are paying top dollar — and they are! In addition, mobile, digital key, in-room entertainment and the internet of things will drive business going forward. VR, robotics and “contactless” technology will drive customers to hotels and there is more good news — international travelers are now coming and business travelers will be back next year as groups are booking future dates.
The bottom line for hoteliers in 2022 and beyond will continue to be “cash is king.” Unforeseeable occurrences, like a recession, pandemic or unfavorable weather and drought can happen. Owners are the ones who must protect cash for a rainy day, and we just had a long, rainy day! Armed with a hyper-local forecast, competitive analysis and clear strategy with detailed action plans, 2022 will be a great year!
Robert A. Rauch, CHA, is an internationally-recognized hotelier, CEO and founder of R.A. Rauch & Associates, a leading hospitality management and consulting firm based in San Diego. Rauch has more than 35 years of hospitality-related management experience in all facets of the industry. Visit www.hotelguru.com for more information.
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