NASHVILLE, Tennessee — The hotel industry, from economy to luxury, is experiencing a normalization in rates and demand. Hoteliers advise that the main priority for the remainder of the year should be staying focused.
Average daily rates in the luxury hotel segment haven't accelerated in the past five months, but there also hasn’t been a significant decrease in rates either, said Raul Leal, CEO of SH Hotels & Resorts.
“We’re still substantially up over 2019, but we’re not seeing the double-digit growth that we saw last year,” Leal said.
Leal is still bullish, though. He said he expects luxury will continue to perform well as consumers continue paying higher rates.
Nicole Young, senior corporate director for commercial and revenue at Rosewood Hotel Group, said the hotel industry has been “drunk off these incredible leisure rates,” but that’s beginning to normalize.
“It’s not a surprise to anybody. I don’t think it’s a reflection of clouds in the sky, it’s just a part of the cycle that we’re in,” she said. “What we need to do is stay focused; I wouldn’t say necessarily on holding rate and preserving rate, we need to stay focused on the customer, their satisfaction and inspiring them to want to invest with us and spend more. That’s what this short-term trend tells us about where we’re going to find our optimism next year.”
The revised hotel industry performance forecast by Tourism Economics and CoStar Group’s hospitality analytics division STR projects improvement in key performance indicators across the board, but lower growth in every hotel chain scale from economy to luxury through 2024.
Jan Freitag, CoStar Group’s national director of hospitality market analytics and moderator of the session, said revenue per available room is forecast to grow in a recession, which “arguably has never happened … in the data set of STR. That is a new phenomenon.”
What Guests Want
Demand for hotel rooms isn't necessarily falling, but it is shifting.
Leal said SH Hotels & Resorts is adjusting its room revenue-management strategies to accommodate a wider mix of travel purposes and preferences from guests. For example, luxury guests are now more demanding of suite-style rooms and are willing to pay for them.
“We’re definitely adding more suites. Of course that changes, fundamentally, what you’re indexing. It’ll be interesting to see how that goes over time. You could actually just isolate the index of the suites and see how those are performing versus your [competitive] set,” he said.
Agnelo Fernandes, CEO of Cote Family Companies, which owns, invests and provides management services for resorts, said while an investment must yield return, customer satisfaction is what contributes to that return.
As guests increasingly take multigenerational trips, resorts that have multiple room product types are the winners, he said.
“Our resorts are coming on to 100 years of evolution. They started out as small lodges, then have grown. Year after year, people keep coming back. The grandfathers are bringing kids and grandkids,” he said. “Everybody is catching on to it, saying this is a phenomenal model, especially if you can share the risk. In our case, we have master-planned communities around the resort setting. We build, we sell, we put them into [a homeowners association] and rental program … it’s a great formula for success. I do believe that multigenerational travel is here to stay.”
Young said the ongoing fee stream of an HOA from a residential component helps hoteliers deliver a higher level of programming and combat seasonality.
“I would say it’s a great interest, especially in markets that have a higher barrier to entry,” she added.
The economy segment shined through COVID-19, said G6 President and Interim CEO Julie Arrowsmith. Even owners that have previously shied away from economy lodging and are now wanting a piece of it, whether it’s pure economy or the extended-stay component.
“It’s really competitive out there. You want to be a brand that has the best cost-per-room construction, the best renovation plans,” she said.
She said G6 owners know they must weather the normalization that’s occurring, and are able to make adjustments to their operating model. However, sometimes it requires repeated education by corporate teams on tiered pricing and use of revenue-management tools.
“The level of sophistication on the economy side really varies. We have owners that have multiple hotels, they’ve got their own revenue-management team and they’re savvy. Then, you’ve got some that have one hotel, they run it and it’s their baby,” she said. “We’ve got a strong revenue-management team and they really do try to partner with the franchisees to educate … and get them to be a little more aggressive in understanding it’s not just one rate for every room.”
Leal said his teams closely examine revenue-management strategies and price value. Some of the rates may seem exorbitant, he said, but it's the guests who decide if that's the case.
“We certainly don’t want to get to a point where we’re in a negative perception on brand value. Everything has a ceiling in the consumer’s mind. For us, that’s a critical strategy,” he added.
Learning From the Next Generation
In addition to resorts and real estate, Fernandes’ company also runs youth summer camps, which presents opportunities to teach the next generation about working in hospitality.
“Most of the counselors happen to be Gen Z. What’s interesting is, I hold town halls, we talk about career growth and culture. It’s interesting to find out what they think; they’re actually very purpose-driven. They want to understand that they are valued, their voices are heard,” he said. “Diversity matters to them. They thrive in those environments.”
Leal said that as much as the industry focuses on the customer experience, there needs to be the same for staff.
“Generations of today are looking for mission-led businesses,” he added. “Our philosophy with our team members is, in the industry, you can learn so much about so many different things. Stay with us for a while, we’ll educate you as much as we can. If you want to stay in the industry, great. If you don’t, we’re educating you for the future.”
Not only should companies promote environmental, social, and corporate governance, they need to back it up.
“People aren’t going to do business with companies that don’t have a real purpose. The amount of transparency today on everything … if [companies don’t back it up] they’ll know in a heartbeat,” he said.
At G6 Hospitality, the employee base is like family, which helps drive them to achieve the same goals, Arrowsmith said.
“Our most successful franchisees have learned that they’re going to have to pay more. They’ve enjoyed the rate increases and they also enjoyed, through COVID, the fact that there was a bit of a pause on renovations. It’s time to get normalized and pay the right rates to teams. The successful owners also tend to incentivize,” she said.
G6 is also focused on equity in travel. Arrowsmith said she knows not everyone can afford to stay in luxury hotels, and having that heart for service is helpful with hiring and retention.