What hotels must do to rise from recession

December 11, 2009 | Hospitality Industry

Hotels must work now to rise from recession and not be complacent that recovery will lift all. Hotels who don’t do their homework on current and future trends are likely to be left behind as the game is rapidly changing around them.

By Dr Des O’Mahony, Bookassist

It’s reasonably well documented that the hotel industry goes through a cycle of peaks and troughs in its economic fortunes. Data from STR Global, Forrester and our own Bookassist data over the last 10 years, seasonally adjusted, all show cycles of 7-10 years in the boom to bust behaviour for hotel markets, depending on location. Current data on RevPAR, ADR and occupancy across European main destinations would seem to indicate that the rapid fall through late 2008 and onwards into 2009 is now beginning to level out at the bottom of the trough, or has already done so, and that recovery is likely in mid to late 2010 on average, assuming nothing major throws a spanner in the works. Already cities such as Prague are showing better occupancy and a capacity to increase rates again, especially welcome in Prague which was strongly hit by the recession through 2009.

In the current economic cycle, where the peak is 12 o’clock and the trough is 6 o’clock, European markets in particular are sitting at about the 5 or 6 o’clock position and should see upswing to a tentative recovery in the next 2 quarters. This idea of an almost regular economic cycle is a welcome one for the industry as a whole and brings some comfort to hotels that there is light at the end of the tunnel. But this may well be false optimism for many, since averages are averages - at the risk of stating the obvious, the existence of a cycle is not an indication of what will happen to any one hotel. Hotels should not be complacent in assuming that they will follow the same safe path through the economic recovery cycle that they may have followed perviously. As usual, statistics need to be interpreted very carefully.

It’s All About Seizing Current Market Trends

While the industry as a whole will undoubtedly rise again through another recovery to peak, the hotels that followed that path at any time in the past did so successfully because they seized the market opportunities and adjusted to the realities of the market at that time. Likewise, those who will lead the recovery and benefit from it this time are those who have to embrace the clear shift towards consumer direct booking online through hotel websites with hotel booking engines. Those who miss this direct business opportunity will be left behind in the economic trough.

The recession has actually accelerated the consumer’s use of the internet to research and book hotels. All figures on the growth of internet booking and direct booking in particular through 2009 have highlighted this. This is likely because the consumer has increasingly shifted towards examining the detail of what is on offer and searching for real value before committing to booking. The simplest way for the consumer to do this research and comparison is online, and os the likelihood to then continue and book online is increased. Online booking directly through hotel websites with their own booking engines, as a proportion of total business, has continued to show double-digit growth right through the recessionary period. Consumers are now used to this online approach, are locked into this new methodology, and are likely to continue the trend of internet research and booking as recession gives way to recovery. The new value-conscious, researching booker is here to stay. In addition, supply has also altered since the last peak and trough cycle, and in some locations it has done so dramatically - Dublin is a prime example of oversupply generated by a tax-incentivised property boom. This change in the hotel landscape will have a strong effect on the manner in which the recovery takes place, with weaker hotels being forced not just downwards but fully out of the market.

Hotels must now seize the opportunities afforded by direct booking through their own websites, while managing distribution through third party channels appropriately. Hotels who cede control of their online inventory to third parties alone are increasingly losing control of their online presence and damaging their long term viability. Now is the time to develop and sharpen your hotel’s online strategy to focus strongly on building business and loyalty through direct booking on your own website, ensuring that it becomes the primary revenue generator for your online business. Not only is it the cheapest channel, saving you real cash for each and every booking shifted from channel to direct, but it puts you rather than a third party in control of your revenue and your cost base as the industry prepares to rise to recovery.

Dr Des O’Mahony is CEO and Founder of Bookassist, the leading online strategy and technology partner for the hotel industry. Follow Bookassist on Twitter at twitter.com/bookassist