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Hotels need to adapt to new consumer needs

06 January 2022
Hotels are slowly coming to terms with a new normal where business travel will be lower than pre-pandemic. Top management in airlines and hotel mega-chains are still very optimistic about the return of the business traveler and the corporate meeting. On the other hand, listening to travel managers and meeting organizers, a quick rebound of business travel and conferences does not look as obvious.

The outlook for the recovery of the hospitality industry for the next couple of years looks very promising. All forecasts show that by the latest 2025, the industry has fully recovered measured as room revenue. Demand will increase as the virus slowly disappears or becomes a seasonal virus similar to the seasonal flu, and governments lift restrictions. People will start traveling again, provided that governments and travel companies remove the hassles of testing, vaccine passes, masks, and other inconveniences. If these new requirements for travel will stick around for years, people will be hesitant to travel, and some people might not even be allowed to travel. So, there are still obstacles on the way to recovery.

Not the same guests anymore

Be careful when you interpret the recovery statistics. Media only shows the forecast for room nights and room revenue. They do not tell you that the future guest is not the same as before the pandemic. There is a shift in the market segment mix that will impact the hotel's profitability. Hotels focused on individual leisure segments in some destinations will likely see a higher demand for their rooms, products, and services and, therefore, positively impact profitability. Hotels focused on individual business travelers and corporate meetings in big traditional business cities will likely see lower demand for their rooms, food & beverage, meeting rooms, and add-on services, negatively impacting profitability.
Demand will also shift from business to leisure destinations and large to small cities. Seasons will also change. High leisure seasons will be in even higher demand than before the pandemic, while business high seasons will disappear for at least the next three years, probably even longer. Instead, physical leisure events attracting large audiences, which will return as soon as it is safe to attend big events, will drive the future high-demand days.
For some hotels, the future looks bright, and for some other hotels, the future looks bleak. It is pure luck or unlucky because no one could foresee the shift in demand due to a pandemic when building the hotel.

All hotels need to adapt

The lucky hotels

These are the hotels in the right destinations focusing on guest needs accentuated during the pandemic. The demand for the high seasons will be overwhelming, so there is room for price increases as long as the products and services meet guest expectations. Even if these hotels will reach all-time highs, analyze future demand forecasts carefully before making decisions about extensions or expansions. Even if these hotels are lucky, there are still problems, such as the scarcity of people working in the industry.

The unlucky hotels

These are hotels in the wrong destination focusing on a past guest type that disappeared during the pandemic. If demand is too low, to best option is to close the hotel and convert the building to something else. Closures have already happened to many hotels in New York. If there is demand from other segments, the hotel might need to convert the rooms and facilities to attract different target groups. The hotel might also need a repositioning in the market and a new brand. It will almost be like opening a new hotel. The worst scenario will be all these hotels that hope for a recovery that never comes and therefore will struggle forever.

Fundamentals have changed

When consumer behavior changes, the old fundamentals for conducting business might no longer be valid. Changes in consumer behavior have wiped out many industries in the past. Just think of the film for cameras, the CD for playing music, and typewriters for publishing content. The reason for travel has changed during the pandemic, first temporarily driven by fear and restrictions, but in the end, by permanently changed consumer behavior. Just like people have continued to take photos without the need for film, people will continue to do business, but maybe without the need for hotels.