The cost of travel has increased markedly in recent months. This is due to rising jet fuel prices and associated inflationary pressures, which are forcing airlines to consider dramatic fare increases and correspondingly large decreases in the number of flights.
This has already had a major impact on travel patterns. USA Today recently published an article discussing the fact that many domestic travelers who have “grown accustomed to flying for fun and business during the past 30 years” are finding it increasingly less affordable to do so. It is likely that Florida, Nevada and Hawaii, states that are heavily dependent on air travel will suffer the most.
Expected decreases in corporate travel are unlikely to be smoothed out by rising foreign visitation in the United States, Britain and Europe. At present, gateway cities such as New York are bucking the trend as the weak dollar is drawing in foreign tourism. However, as the global recession takes hold, increasingly squeezed foreign travelers may choose to stay at home.
An additional disincentive to long-haul travel at present are the recently announced bumper fuel surcharges, which are being added to the cost of tickets. Airlines such as British Airways and Virgin Atlantic, among others are raising their surcharges considerably.
Most believe that increased travel costs are here to stay. As a result, Doug Steenland, CEO of Northwest Airlines notes that, “travel patterns are going to change.” The airline industry as we know it may look vastly different in the years to come. Older, less fuel efficient planes will be retired. Routes will be cut and by this time next year, there could be 20% fewer seats available. Airlines may merge or go out of business entirely. Cheap travel will undoubtedly become a thing of the past.
Hoteliers need to be thinking about where demand is likely to come from in the future if air travel becomes prohibitively expensive. If most companies and individuals are priced out of doing business in regions far from home base, they may become more regionally focused, which in turn could provide a shot in the arm for local economies.
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Tags: General Industry
I visited South Africa for the first time in February when I got married there. The trip began in stunning Cape Town cradled between the mountains and the sea. We were then married in the wine region of Franschhoek before continuing on down the garden route to Port Elizabeth, up to Johannesburg by plane and out to Sol Kerzner’s first masterpiece, Sun City, before heading home.
The first night there we ventured to the Victoria & Albert Waterfront for dinner at Belthazar, a very stylish steak restaurant that featured an extensive wine list. Mid-way through the first glass of wine while waiting for our table, all the lights went out. We originally thought it was isolated to the waterfront, but it affected a good part of downtown Cape Town!
Rolling blackouts had been initiated because government funds allocated for upgrades were diverted over the years. Exacerbating the problem, there is a shortage of skilled engineers and technicians to help with the situation. While rolling blackouts have been suspended for the time being, the peak winter months are approaching. Some speculate that a collapse of the grid similar to that experienced on the East Coast of the United States and Canada in 2003 could be experienced, with power not returning in some places for up to two weeks!
While preparing for the wedding, we had to visit the priest on the outskirts of Cape Town. We arrived at the house on what appeared to be a quiet suburban street. Each house was fortified with 6+ foot high walls, barbed wire and/or electrified wire and mechanical gates, a situation which is repeated throughout the suburbs of South Africa. After we finished the meeting I asked the priest, ’so is it as dangerous as everyone says?’. He told us that the threat of random violence to everyday South Africans was so real that he went to bed each night wondering if he would be attacked before dawn as some of his neighbours had been.
Tourists visiting the famed Table Mountain in Cape Town are already feeling the effects of both the power failures and the crime. Earlier in the year, tourists were stranded on table mountain for 5 hours during power failures. While we were there, one tourist was injured when they tried to leap from a stranded cable car. Tourists are also being targeted by criminals on Cable Mountain who have threatened tourists at gunpoint and robbed them.
Central Johannesburg, once a thriving economic centre, has become a virtual ghost town with violent crime and derelict buildings populated by squatters. Of course this is a sight most tourists never see as the centre of business activity and hotels have moved into suburbs such as Sandton. A recent article in Hotel Chatter highlights the security issues that Johannesburg faces.
In spite of the challenges facing the country, there has been no shortage of announcements related to the hospitality and leisure sectors in South Africa. Orion Hotels of SA recently announced an alliance with identically named Orion Hotels on Houston, Texas to jointly fund acquisition and development opportunities in the Americas. CII Holdings recently announced the development of a new five star “dry” hotel in the area of Bokaap in the heart of Cape Town, which will target a middle eastern clientele with superior service and prayer rooms. Earlier this month Hyatt announced that it would operate a hotel in George along the garden route for MAK Hotel Holdings, which will be a Hyatt Regency. There are many more examples. The increasing interest of foreign hotel operators in South Africa was highlighted in a recent article in ehotelier.com.
All that being said, our recent trip was a delight from beginning to end. The scenery was breathtaking. The wine was delicious. The people were an absolute delight. But looming just below the surface was a certain uneasiness. An unspoken threat.
With the 2010 World Cup fast approaching one can’t help but wonder how the country will cope with the influx of tourists. Many are expressing concerns over not only the country’s slow progress related to the construction of required stadiums, but also the ability of the country to keep the lights on and tourists safe. I for one am glad to have seen the country today because I fear what could happen to the tourist industry should the government be unable to resolve issues related to crime and infrastructure.
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Tags: General Industry
While many midscale and budget hotels seem to have heard the message loud and clear regarding guest expectations when it comes to internet access, upscale brands seem to continue rolling out increasingly puzzling initiatives. In our first
article on the matter, we gave praise where it was due and questioned the policies of others.
Recently, one of the more questionable strategies to date was unveiled by Starwood and Microsoft, related to the new “Link @ Sheraton” program. Apparently the service will feature a signature communications hub located in the lobby to be called “The Link @ Sheraton experienced with Microsoft.” The experience will “include a unique virtual and physical lobby lounge space that will enable guests to work, relax and remain connected with friends and family during their travels…”
What they don’t tell you in their press releases, (and I’m only speculating here), is that you will need a room number and a passcode generated by some system in the front office to login. Further, I expect that this code will only last for a defined period of time before it shuts down, you lose the email you’re writing and have to go back and get another (stupid) code!
Oh, and since it is co-branded with Microsoft, you better not be using Firefox as your default browser! I am also glad that many of the computers in the lobby will feature webcams, because I look forward to holding important business video conference calls with tourists milling around in the background.
So for all us road warriors, and internet users everywhere (which is just about everyone), here are a couple messages that need to be communicated to hotel companies the world over:
- PEOPLE DON’T WANT TO SIT IN THE LOBBY TO USE THE INTERNET.
- PEOPLE DON’T WANT TO PAY TO USE THE INTERNET (IN THE ROOM OR OTHERWISE).
- PEOPLE DON’T WANT TO HAVE TO GET ACCESS CODES TO USE THE INTERNET.
- PEOPLE DON’T WANT TO HAVE TO PLUG IN TO USE THE INTERNET.
- SOME COUPLES HAVE A LAPTOP EACH AND WOULD LIKE TO USE THEM AT THE SAME TIME.
Its only a matter of time before the Internet Cafe/Lobby concept gets replaced with a Hotel Lobby experience. We hope there is room in the 2009 Capex budgets to make sure that happens!
Tags: General Industry · Technology
China has imposed a new Olympics-related visa crackdown in recent weeks, resulting in sharp declines in inbound visitors. The government has called the move a “temporary measure,” which is intended to allay Olympics-related safety concerns. However, tighter visa controls are having an affect on business and leisure travel and a corresponding impact on lodging demand.
A Wall Street Journal article reported that inbound travel from the US, Japan and Korea to China for the month of April was down 17.2%, 24.4% and 11% respectively from a year earlier. In addition, inbound travel from Hong Kong and Macau is down 30% year on year.
The tighter visa measures were unexpected and the impact has been worse than originally anticipated. Even expats residing in China are being asked to go outside of China to renew their visas and some are being refused re-entry.
The expectation amongst hoteliers is that the Chinese lodging market will expand in leaps and bounds in the coming years with many developers and operators banking on that fact. The outlook for new hotel development in China is staggering with 1,021 hotels in the current pipeline with 274,211 rooms coming online, according to a recent article in National Real Estate Investor.
Some already fear a glut of new product in the market and oversupply, but the dynamics are very hard to foresee. The strengthening Yuan is further exacerbating the situation, as it is becoming increasingly expensive to visit China, particularly Shanghai. However, many people believe that domestic demand will increase markedly in the coming years and this may well soak up excess hotel capacity but of course, time will tell if this prediction is correct.
More stringent visa policies for foreigners traveling to China certainly doesn’t bode well for the long-term strength of the Chinese lodging market. The mere uncertainty regarding visas may be enough to curb some development that hasn’t already gone past the point of no return. It will be interesting to see how investors and operators react to these new restrictions. Moreover, it also remains to be seen whether foreign visitors will simply choose to go elsewhere.
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Tags: Finance · General Industry
As the travel & tourism industry continues to get its arms around the green movement, it must also consider the impact that environmental awareness will have on corporate travel patterns. Travel involves different degrees of pollution depending on the method used and the distance traveled but nonetheless it is inherently less than green in nature.
A recent article in the Economist reported the results of a World Wildlife Fund study in which 100 FTSE 350 Index companies were asked about their employee travel policies. Of the surveyed companies, 89% noted that they intended to reduce business travel in the next 10 years. While the WWF praised these “green” initiatives, it is equally likely that the motivations behind such policies have less to do with the environment than the bottom line.
Most frequent business travelers would agree that it’s rarely fun being on the road but know that business trips are often unavoidable. That being said, many companies also have an interest in reducing travel for the simple reason that it’s costly.
At first glance therefore, cutting corporate travel certainly seems to be a win-win situation. If companies can get good PR by announcing policies for reduced travel in the name of CSR and the environment, they should certainly take advantage of this. Green advocates should also be pleased with the result as the ends would certainly justify the means.
Whether companies elect to put a green sheen on their cost cutting measures or simply reduce overheads, reductions in corporate travel will reduce hotel room nights and the impact to the global lodging sector could be significant. So how should lodging professionals react? The potential impact will obviously vary by hotel depending on market mix, with properties reliant on corporate travel, meetings and functions likely to be most affected. At present, the United State lodging market is benefiting from foreign leisure travel due to the weak dollar, which is filling rooms where corporate demand is softening. However, this source of alternate demand will not last forever and hoteliers should be planning for these impacts should they arise.
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Tags: General Industry · Green
The travel and tourism market is changing. A recent
article in the Economist, highlights the fact that we are in the travel industry’s third revolution. The first revolution came in the 1960s when cheap air travel and package tours made remote parts of the world more accessible. The second came when the internet gave consumers control over the planning of their travel.
The rise of the emerging economies has signaled the third revolution in the travel industry, marked by the increase in travel from people living in the Middle East, the BRICs (Brazil, Russia, India and China), among other places. Not only are people from these countries traveling at increasing rates but they are creating demand for new destinations, most notably in the Middle East and Asia-Pacific.
The Economist article comes in the wake of the recent study published in the April Harvard Business review that was extremely bullish on the future of the lodging sector. This study was also discussed in Hotels magazine, which ran an article in early April. The study drew numbers from the United Nations World Tourism Organisation’s (UNWTO) Tourism 2020 Vision, which forecast that the number of travelers worldwide will double between now and 2020. Authors predict that scarcity of place will lead to skyrocketing hotel rates as rising numbers of tourists compete for a finite room supply in the most desirable destinations.
Statistics in the Economist article highlight not only the scope of this shift in demand, but also the awesome size and strength of travel and tourism being generated from these emerging countries. Some highlights include:
- The World Travel & Tourism Council (WTTC) predicts employment from the global travel and tourism to rise 24% from 238m to 296m over the next decade.
- According to the UNWTO, international tourist arrivals grew by 6% last year to 900m. The total has gone up 100m in the last two years alone. The Middle East welcomed 13% more tourists last year (to 46m), Asia-Pacific was up 10% (to 185m) with much of that increase coming from within the region. Africa saw an increase of 8% (to 44m). Asia-Pacific is predicted to grow at the fastest rate in 2008.
- According to a McKinsey study, by the middle of the next decade almost a billion people will see their annual household incomes rise beyond $5,000, which is roughly the threshold at which people begin spending money on discretionary goods and services. Consumers’ spending power in emerging economies will rise from $4 trillion in 2006 to more than $9 trillion in that time period (roughly the purchasing power of Western Europe today).
- Last year the number of visits abroad by the Chinese reached 47m, 5m more than the number of foreign visitors to China. The Chinese also made 1.6 billion trips at home. According to WTTC forecasts, Chinese demand for travel and tourism will quadruple in value in the next ten years. By 2018, it is expected that Chinese demand for tourism will roughly match that of Americans.
- To speed the development of tourism and other industries, the Chinese government is racing to build roads, railways and airports. It will add 97 airports by 2020 to the 142 already in place. Investment in infrastructure will grow by double digits every year for the rest of the decade. Between 2006 and 2010, $200 billion is expected to have been invested in railways alone, four times more than the previous five years.
Growth from these emerging markets is being offset by decreased travel from the long-standing customers in rich Western countries, particularly Americans. This decrease is the result of concerns over economic conditions, rising fuel and inflationary pressure, among other worries.
Orbitz reported a decline of 6% in bookings from Americans in 1Q08. Some European operators are offering deals to Americans at stable exchange rates in an effort to lure them in. Nevertheless, WordHotels, a hotel marketing company, saw a 15% drop in business from Americans at its European hotels during the first quarter of this year.
In response to this projected increase in global tourism, hotel investors and companies are gearing up operations in the Middle East and Asia-Pacific. The number of projects being considered is staggering. Bill Marriott has been quoted as saying “[the] Middle East, India and China are the next big thing,” with the Middle East being larger than India and China eclipsing both. Marriott alone is looking to build 65 hotels in the Middle East by 2011.
But with travel and tourism expected to ramp up as predicted, hotel investors and owners should not be asking whether they should be making inroads into these parts of the world, rather they should be asking how best to do so. It might be wise for the hotel industry to build inventory to cater to all budgets.
I for one will be joining the ranks of those heading overseas to participate!
Tags: General Industry · Spa
As participants of the
Global Spa Summit finalise their meeting schedules and begin making their way to New York to attend this second annual conference (taking place from May 18th to the 20th) at
The Waldorf-Astoria, attendees are preparing to wrestle with laying the foundations for the future of the spa industry. It seems there are a several facts that must be considered when considering the future of the spa industry:
- Operating a spa requires a skilled labour pool for which there is a shortage of trained practitioners.
- Spa treatments are often considered a luxury item, which may be cut from the family budget in tighter times.
- Assessing spa performance requires meaningful data. A highlight of this year’s Summit will be the presentation of the first-ever “Global Spa Economy” report, conducted by SRI International. The report will be the first major study to define the size and economic impact of the global spa industry.
- The global spa industry continues to lack universal standards, which often makes service delivery inconsistent.
The industry has evolved to be a US$10 billion a year business in the United States alone. This growth has attracted returns-driven investors and spawned the creation of new brands, management companies, and consultants focused entirely on the sector. In certain instances medicinal and therapeutic aspects complement discretionary indulgences and beauty treatments in medi-spa concepts that represent a collision between the spa and healthcare sectors.
With so much change afoot in the global spa industry, what does the future hold? Each year, Spa Finder publishes its top 10 spa trends, with the most recent highlighted in this article. Given the uncertainty in the US economy, we believe this list of trends will change significantly in 2008, as discussed below:
- Stress reduction. Spa Finder noted Healthy Sleep therapy as a trend in 2007. With mounting financial pressures in this country, we believe anything to do with stress reduction will continue to influence spa operations for the next year or two.
- Retreats. Fewer individuals will be able to indulge themselves with longer retreats in the near-term as people tighten their purse strings. This may work in favour of better day spas.
- Medical Tourism - In search of affordable health. With ever-increasing medical costs in the United States and Europe, the trend of seeking out affordable healthcare the world over is likely to continue. Countries such as Thailand and India will likely continue to benefit. However, medical tourism in South Africa (home to organizations catering to this market) may start to wane, with political uncertainty mounting in that country.
- Spa Lifestyle Communities. The cancellation of the Canyon Ranch condominium property in downtown Chicago may signal the abatement of this trend for the time being in the United States. Individuals and investors are backing away from residential real estate due to over supply, declining values and lack of available financing at attractive rates.
- The Bottom Line. With the participation of more financial players in the sector, the bottom line will play an increasingly important role in the next year or two. With increasing competition and an abundance of new product having come on line recently and scheduled to open, we may see consolidation in the sector with those undertaking disciplined business practices emerging as the dominant forces. Those not implementing such practices and smaller operators may struggle to compete with these larger companies.
- Green. Green remains a major trend throughout the sector, with environmentally sensitive spas and non-toxic products finding a receptive market. As discussed hotel operators are now also catering to the green lodging sector.
In addition to these trends, we believe spas offering medi-spa treatments such as those that counteract the effects of aging and sun damage, as well as non-invasive medical-beauty treatments, will continue to perform well. On the flipside, salons that have also hung the “spa” sign on the door may struggle. However, true day spas offering superior service at a reasonable price are likely to perform better.
As a final thought, we believe the spa industry will continue to standardise and be increasingly dominated by branded products controlled by financially-motivated investors. This is likely to result in a loss of some of the soul the industry has historically prided itself on, which will be to the disappointment of long-time participants in the sector.
It will be interesting to see if the participants of the Spa Summit agree.
Interesting and related links:
This link provides some interesting history about the spa industry.
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Tags: General Industry · Spa
Ehotelier reported that the International Lodging Finance Council (ILFC) had announced the results of its annual survey of 41 active senior and subordinate lenders. Unsurprisingly, surveyed lenders expressed a conservative outlook, with palatable LTV’s dropping from the mid-70s to the low to mid 60s on existing assets, with only certain high leverage lenders still participating in the market.
Deals appear to be getting done based on existing relationships and significantly, with sponsors who have a proven track record, experience, and financial strength. Lenders are also concerned about the threat that pending refinancings pose to owners, particularly if operating results deteriorate further. Shrinking NOIs impact value and highly leveraged assets may no longer generate sufficient cash flow to meet valuation requirements, especially with more stringent lending criteria. Additions to supply, which continue to be rolled out, will only exacerbate these issues.
These sentiments have been echoed in conversations we have been having with owners seeking financing as well as lenders. Credit committees are taking longer to provide approvals, if they’re provided at all. Even those lenders providing approvals, are doing so with increasingly wide spreads, robust fees, and lengthy lockout periods. Loans for assets that are slightly out of the box with construction or repositioning risk, or which are located in challenging jurisdictions, are simply not getting done.
Having faced many credit committees pre-credit crunch, I know that banks have always been reluctant to approve more than $25 million for any given project or client and lent larger amounts strictly for relationship reasons. Such approvals came with requirements to sell down over time to more comfortable levels. With the secondary market for such paper currently dry and banks having no ability to sell down, larger deals are only getting done by assembling clubs.
The billion dollar question on everyone’s lips is how long will these conditions last? Most believe things will begin to improve in early 2009, but with real fears of inflation and waning consumer confidence, pessimists are whispering that improvement may take much longer. It will be interesting to see what sentiment is like at the upcoming NYU conference.
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Tags: Finance · General Industry
Now that the post mortem on the Sub Prime mess has begun (perhaps prematurely), the finger pointing is increasing. The more we find out, the more it appears that a perfect storm of sorts is revealing itself. In our recent article, LodgingInsiders pointed to the rating agencies as the enablers of what has come to pass. While I’ve held this opinion for some time now, many friends and former colleagues on Wall Street and elsewhere disagreed. However, it would seem I was not the only one with that opinion. As reported in a recent New York Times article, The Moody’s Corporation announced this week that Brian Clarkson would retire as president and coo of Moody’s Investor Service. Mr. Clarkson concluded that it was a good time to turn the leadership over to someone new. More to come from LodgingInsiders shortly on the Sub Prime and its continuing impact on the lodging sector.
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Tags: Finance · General Industry
You can’t read a trade magazine or website these days without someone complaining about internet service in hotels. Hotel Chatter has a great article on hotel WiFi. I think several of the interviewees made great points regarding the reasons as to why their internet is complimentary.
Most hotels are run with Telecommunications as a revenue center. This is a concept that has not kept up with technology. With the wide spread use of cell phones, the pricy in-room communications services have, unsurprisingly become less popular. As such, hotels have turned to internet to bolster the profits in this area.
But is this revenue stream worth aggravating guests? I would argue the answer is no. In the Hotel Chatter article mentioned above, I think Thompson Hotels presented a great approach to the issue of WiFi. Thompson have folded this function into their Rooms Division as they see it as a “rooms expense” and as a welcome guest amenity. Other hotels that do WiFi well include Holiday Inn, Omni (for members of that chain’s loyalty program) and the Maritime.
There is one additional issue regarding in-room internet that has yet to be addressed. Many couples or families travel with more than one laptop (my wife and I can’t be the only ones!). I left my first comment card at a Westin recently to complain about this. Not only does Westin charge for the internet service in the room (first mistake), the service is provided by cable only (second mistake), and once one computer has logged in, you have to pay again for a second computer! (third mistake).
All brands not offering free internet (and Westin is sadly one of many) should visit any of the properties mentioned in the Hotel Chatter article for some advice on how to re-think what amenities are really important to guests. Its not just about the doorman or the shoe shine kit in the cupboard anymore, most people’s lifestyles require internet access whether for work, travel, finding a restaurant or just a little surfing.
Free internet is such a hot issue for me personally (and many others) that it does make the difference between choosing a hotel or not. The Thompson Hotel is among those properties that have honed in on this fact; now it’s high time the rest of the industry did as well.
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Tags: General Industry
