As the New Year emerges, operators, hotel owners and other revenue managers and strategists are anxiously awaiting what the New Year holds for their businesses. Will it be business as usual? Or will the demand for their services begin to drop and all operators will need to devise new ways of generating revenue? Based on how 2016 ended, here are the likely turns of events this year.
According to STR, the supply is expected to outpace demand this year even though both of them were at equilibrium in 2016. They both increased by 1.6 percent. Since supply is expected to rise by 2 percent and demand for hotel services is expected to increase by only 1.5 percent, there will be a 0.5 percent drop in occupancy. What will salvage the situation is the rate that is expected to rise by 2.8 percent.
The likely way out of the situation is consolidation. Even though there were a lot of consolidations in 2016, of which Marriott International’s acquisition of Starwood Hotels & Resorts was the largest, 2017 will definitely witness some consolidations too, if not more. The expected change will make revenue managers go back to the drawing board to re-strategize towards continuous profitability.
Airbnb, a company that emerged five years ago has already become a threat to other older players in the industry and considering its expansion strategies, it will definitely pose a bigger threat to several hotel owners and OTAs. The worst part is that it could also jeopardize the pricing power of many hotels thereby blocking the expected rise in the industry rate.
Having realized that Airbnb has become a force to reckon with, some industry players have decided to partner with it by advertising and selling their services through the site. That may not be a permanent solution as this major player will soon find other means to pull sales away from other players especially OTAs.
Google is already swinging towards being another big threat, even though its management claims to be planning towards partnership with players rather than going into online travel agency. While this development will help hotels retain their customers, it will also bring them closer to Google, which is already building its dominance in the industry.
Direct booking programs whereby customers who booked their reservations directly will be given some discount and other concessions are being planned as a way to gradually pull customers away from OTAs. It may not succeed because of most of these customers actually feel that the best deals can only be found on their platforms.
Corporate travel programs have also not been successful as about 78 percent of employees will rather plan their own trips individually even if it will cost them a little higher. To add salt to the injury already inflicted, popular social media like Facebook and Instagram are already making arrangements to begin to offer travel facilitation services. There is no doubt, 2017 will definitely be a crucial year for all players.