The third-quarter earnings season has, so far, taught us that this is the pandemic of the marginal. Over the summer we heard Hilton talk about about the lower-priced leisure demand - “the biggest bucket of demand” which, incidentally, was the OTAs feeding ground and something of an aberration for the big branded players.
This quarter we are hearing about the “everyday business traveller” which Wyndham described as a “steady and reliable” segment which had been less disrupted than others by the pandemic. Much as with the less-than-minted leisure traveller, this is a segment which is not one the larger players find particularly exhilarating. They would much rather go after the corporate accounts of, say, a Google, than pick up the nights of the travelling construction worker.
But this is where we are and the likes of Hilton are now working out how they can go after those on the periphery and best hop to it or owners would add that to the ‘remind me why I have a brand?’ list they have pinned on their dart boards.
But while the everyday business traveller and the less-than-minted leisure traveller are expected to be passing ports in a storm, there is one segment which has proven itself beyond question during the pandemic and is now reminding hotels why it can’t be ignored any longer; short-term rentals.
This week we heard from Merilee Karr, chair, Short Term Accommodation Association, about the group’s partnership with STR to measure the performance of serviced apartments, short-term rental accommodations and hotels. It is expected that this will bring much-wanted facts, data and clarity to a sector which has mystified hotels and governments alike, by using KPIs such as ‘occupancy’ which hotels like to live and die by.
What have we learned already? That, in London, occupancy was about 10% higher than hotels in the first two months of data being collected. Not a terrible shock to anyone with a hotel in London at the minute, but a few more months of that and the truth will start to reveal itself to anyone who hasn’t already clocked it: if you want to play a well-rounded loyalty game, you need to offer customers access to what Expedia calls ‘alternative accommodation’.
This game has already been played once, of course. In May 2017, Arne Sorenson, president & CEO at Marriott International, told analysts that sharing platforms had been “less impactful than folks might have imagined. They are serving a different customer than what we serve at Marriott. They are skewed much more towards leisure. They are skewed much more towards a value-centric customer in the bulk of their business, I’m not sure necessarily that that customer immediately pops up and shows up in our hotel suites”.
In 2018 the hotel company announced a sharing trial in London, through the group’s Tribute Portfolio brand, later expanding it to Paris, Rome and Lisbon, with Sorenson commenting: “It’s one thing for a start-up to engage in a business that really does not comply with law, it’s another thing altogether for a 90-year old company like Marriott to step into a business which is fundamentally illegal. It’s a place where branding can make a difference. It’s a place where we can deliver an experience both in terms of service and quality that we want our customers to have. And it’s a place where we can feel really good about connecting it to the loyalty programme.”
By last year Stephanie Linnartz, EVP & global CCO told the company’s security analysts’ meeting: “I should note that this type of offering does not add meaningful profit. However, we do believe that it will add value to the Marriott Bonvoy programme.”
The picture was similar at Accor, which bought Onefinestay in 2016. In 2018 it wrote off €246m from Onefinestay and concierge brand John Paul after failing to find “synergies and scaling plans” but said that “both serviced private homes and concierge services offer strong potential in the group’s ecosystem”.
In 2019 it announced that it was cutting 30% of the properties listed on the platform. Chairman & CEO Sébastien Bazin said: “On Onefinestay we decided to go into the sharing economy, but we decided to go premium, so we have to provide service for that. There we collect 50% of the rental proceeds and 50% is barely enough for us to make a living. It depends on the inventory. If you have at least 90 days of availability in the same apartment or house, then you get to know the property quite well, the welcomers know how to do the staging - those are fine.
“What we had accepted too easily were the apartments where we only get the benefit of three days three times a year and this is not enough for us to understand the property and you don’t make a living. So we have reduced the inventory to those where we have availability for more than 100 days per year.”
So short-term rental: nice to have, doesn’t bring in any cash. Karr could see a time when this would change, telling us: “What we’ll start to see is that if you start to integrate operations - check in, linens - you can significantly cut costs. There is a model where this can be delivered at scale, at reasonable costs and profitability.”
Should you be taking your hoarded cash and getting into rental? Now could be the time to bring the margins in.