Even as the spectre of recession looms, hotel leaders are optimistic about the rebound. Hilton expects corporate travel to return to pre-pandemic levels by the end of this year, said the group’s chief financial officer Kevin Jacobs recently.
Listed hotel companies continue to benchmark their current performance against 2019. As the percentages edge upwards, the implication is that very soon, demand from all segments will once again reach and exceed pre-pandemic levels.
Are we experiencing a recovery that rubbishes the drastic reductions predicted for business travel?
In 2020, Microsoft founder Bill Gates famously forecast that business travel would permanently halve and days spent in the office fall by one third.
Was Gates wrong? A 50% drop in business travel sounds like an overshot today, but evidence on the return to offices, air travel, and corporate climate change goals all point in the same direction.
Office occupancy in the US is still only at 41% of 2019 levels, according to Kastle’s Back to Work Barometer for the week ending 6 June 2022.
Before the pandemic, US airlines earned half of all their revenues from high-paying business travellers who represented just one third of ticket sales, according to the industry body Airlines for America. Now, several carriers, including Delta and American Airlines, have replaced business class seats with ‘premium economy’ as a better use of available floorspace.
Major multinationals, such as Microsoft, Deloitte, McKinsey and EY, have pledged to become net zero companies by 2030, with significant reductions in travel an inevitable consequence.
“Microsoft saved billions on travel and entertainment during the pandemic. Still they sold stuff and still their valuation went up so you ask: ‘do we need to go back to full spending on travel?’,” John Burns, president, Hotel Technology Consulting, said.
Thomas Magnuson, CEO, Magnuson Hotels, added: “I talk to many people at top companies who have been advised that budgets for travel could be cut by up to 80%.”
New Landscape
From a hotelier’s point of view, there are other developments that have the potential to compensate for such losses. Business travel is changing and the most successful hoteliers are understanding and responding to a new landscape.
“It’s not a loss, it’s an adjustment,” said Burns. “The question is, when do we smell the coffee and say we need to change in terms of what we offer in terms of meeting space and bringing teams together?”
There will be a much greater emphasis on small regional meetings going forward, and hoteliers need to be more “aggressive and tuned in, to offer something appealing and new,” he said.
There is opportunity for hoteliers in targeting SMEs and those industries that have no choice but to travel. Magnuson Hotels, a franchisor for individually owned and operated hotels in the US and UK, has succeeded in doing this to great effect.
“Sam Walton, the founder of Walmart , said: ‘You will never believe how much business there is in small towns,’ and we take that further to say: ‘You will never believe how much business there is right under your nose,’” said Magnuson.
“We operate in all 50 states and we closed our 2021 with a 40% RevPAR increase over 2019 because of a focus on essential business travel (supply chain, transportation, government, construction, industrial, medical).”
Magnuson noted a big swing back in SMERF (social, military, educational, religious and fraternal) group bookings recently: “All of these micro markets of little groups are getting back out and getting together, not so much in the big cities, but in secondary, tertiary, rural and highway - a little bit away where it’s more fluid and affordable.”
Co-Working Opportunities
Another opportunity is to target those who struggle with working from home. Village Hotels started converting under-utilised restaurants into co-working spaces across its UK portfolio in 2018. The brand, owned by KSL Capital Partners, has found that the co-working spaces attracted more people into the properties for more hours of the day, leading to increased ancillary revenue in other areas of the business such as F&B and the leisure and sport facilities.
Village’s co-working spaces are not just popular with individuals and freelancers. Several companies have bought sizable memberships for their teams, most of which fulfil corporate wellbeing agendas by including the use of leisure facilities and the swimming pools.
At the group’s Leeds North hotel, the co-working membership consists entirely of employees from five different companies who have their own dedicated desks.
“With 24 million employees working from home at least two days per week post pandemic, remote working is widely seen as the perfect antidote to the feelings of isolation, lack of interaction and disconnection many professionals experience when staring at the same four walls,” Jamie Hunter, director of business development and VWorks at Village Hotels, said.
As many companies downsize their office leases, there are potential new revenue streams for hotels.
The experience of Village Hotels indicates that hotels can take market share from workspace providers like WeWork and Regus by offering a professional environment that combines work and leisure facilities.
The rollout of co-working spaces at Village encouraged management to look more closely at the possible returns on investment per square metre rather than just top-line sales.
One area that can be a real struggle for hotels is the daily grind of selling small meeting rooms. During the pandemic, Hunter sold two meeting rooms at the Nottingham Village hotel to a recruitment company on a two-year licensed agreement. The hotel is now a surrogate HQ for 60 employees who turn up for work there every day.
The booking process for meetings and event planners and hotel venues has often been a source of frustration, made worse by the proliferation of technology platforms.
It now appears that one platform is emerging as a dominant force. This April, Blackstone was part of a $35m investment in Groups360, a tech company behind the plaftorm GroupSync. The deal gives Blackstone’s 100,000 hotels access to the service, which streamlines what is often a laborious process for hotel sales teams. This follows the $50m investment in GroupSync collectively made by Marriott, IHG, Accor, and Hilton in 2019.
It’s a positive sign that the major hotel groups are collectively serious about improving the sales process for meeting and events for both their staff and clients, especially for simple meetings of fewer than 30 people.