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Luxury and emerging markets, a focus on mobile and the rise of the ‘cool’ hostel are among 2017’s hotel industry trends. Sally White takes an in depth look

What is luxury? In the highly competitive accommodation industry getting this right is key for top-end RevPAR, and for maximum media headlines, too! Yet, while millionaires are growing rapidly in number, globally there are only 17.9 million of them, according to the Boston Consulting Group. The increasing number splurging out for special occasions or enhancing a work trip far outdistances that!

The luxury segment as well as emerging markets are showing the best growth numbers. Hence forecasts that the conventional luxury hotel market will be worth $19.5bn by 2021 against $15.5bm in 2015, according to US-based Zion Market Research (compared to a 2015 global total of $450bn). Hence, too, the steady increase in new luxury brands.

There have been plenty of allusions to new luxury brands from the major hotel groups in recent weeks. Hilton listed “a five-star luxury soft brand collection, a sort of ‘Hilton Plus’ brand, an urban micro brand and a ‘hostel on steroids’” for 2018. InterContinental Hotels Group (IHG), having got the launch of its new midscale Avid Hotels out of the way, is now talking of “something in the luxury space…”

Accor went as far as to say that for it, luxury would be “at the forefront of the next wave of growth”, along with emerging markets.

Accor - luxury would be “at the forefront of the next wave of growth”, along with emerging markets

Marriott too has its eyes on luxury AND Asia. It “plans to double its luxury presence in Asia Pacific by adding more than 100 luxury hotels to its current footprint of 113 luxury properties…” The group, which consolidated its luxury brands last December in a new Luxury Brands Group in December, says it now has 200 luxury hotels in the pipeline.

Those will be very different to the luxury ‘pop-up hotel’ that Marriot did with Coachella, a California music festival. Though pop-up has become a very popular new format.

Other concepts provide more memorable experiences. Icehotel in northern Sweden is built afresh each winter. In warmer climes, Zand Hotel in the Netherlands opened two pop-up hotels made from sand. On offer, too, are yurts in deserts at the back of beyond, (but with five-star kitchens), and hotels sky-high in jungle treetops. And in our anxiety-ridden decade, ‘well-being’ is the theme.  

In our anxiety-ridden decade, ‘well-being’ is the theme

If the mould fits….

Confusingly, for 2017 and 2018 luxury comes in many forms. Modern ‘luxury’ is all about intangibles – ‘superb experience’ or ‘enriching’ and ‘feeling like a VIP’ is what seems right now, rather than multi-square-metre rooms and pools. The diversity of travellers’ aspirations is reflected in 2017’s range of new top-end brands.

Categories may be business hotel, airport hotel, suite hotel, resorts, and others, business being the largest (41%) with a 3.8% CAGR, followed by airports (20%) at 3.7% CAGR. However, ‘others’ are coming up fast.

Though, somewhat cynically, global property consultants JLL say luxury can be found “where ever hotel owners can charge room rates high enough to offset the hotel’s higher operating costs”. Many new luxury hotels “don’t fit the traditional luxury mould, yet they still provide luxurious amenities and experiences in their own unique ways,” notes Geraldine Guichardo, Americas Head of Hotels Research with JLL’s Hotels & Hospitality Group.

Want to find about more? See EyeforTravel’s recent consumer report The Global Luxury Travel Consumer

Hotels beat most other industries

For all hotel categories, the accommodation industry globally has had a better 2017 than feared – as economic growth balanced anxieties arising from terrorism, hurricanes and the reign of Trump. A good bell-weather, the share prices of the major US-quoted international hotel groups, has been soaring, beating most other industries.

The share prices of the major US-quoted international hotel groups, has been soaring, beating most other industries.

In the all-important, vast US market, for example, a report from industry consultants STR and Tourism Economics says overall 2017 RevPAR as likely to come in at around +2.2% followed by +2.5% in 2018. The rise in demand is put at around +1.7% in 2017, +2.0% in 2018 and supply at +2.0% in 2017 and then +2.2%. Room rates may have been rising, however supply has been holding back gains in occupancy in some areas. Yet, not in luxury – that, according to STR is, in 2018, “projected to report the largest increases in ADR (+2.9%) and RevPAR (+2.8%).

An indication of travel’s buoyancy in Europe comes with the Global Business Travel Association’s forecast that hotel prices there will rise at a considerably higher rate in 2018 than a global 3.7%. “Across EMEA, hotel prices are likely to rise – 6.6% in Eastern Europe, 6.3% in Western Europe, but only 0.6% in the Middle East and Africa,” it states in Travel Weekly. “Norway is expected to lead with increases of 14% expected for 2018, while Russian hotel prices will rise 11.9% thanks to increased demand from hosting the 2018 Summer World Cup.” North America’s figure is a modest rise of 2.3%.

While 2017 has been quieter on the M&A front than in recent years (though Hyatt spent $215 million on Miraval in January), the majors still have shopping lists. (Acquisitions remain a major weapon to combat profit dilution from the growth of home-sharing and the incursions on the on-line travel agents.) IHG’s CFO Paul Edgecliffe-Johnson, for one, has made no secret of his ambitions, and says “our preference would be to find somewhere where we are already established.”

For now the majors have been spending much of their rising profits on openings and sign-ups. IHG, in Q3, for example had the “fastest opening rate since 2011” and its “highest signing rate since 2008.” China, with RevPAR “up a top-performing 7%”, has been a favourite with the group.

Another choice destination continues to be Africa. Hotel revenues are forecast to rise by 8.7% CAGR between now and 2021, according to international consultants PwC. Room revenue in South Africa, Kenya, Mauritius and Tanzania has been gaining at a rate of over 12%. (Hilton has just committed to spending $50m in Africa.)

The year of the mobile

Hoteliers have also been focusing on renovation and digital and marketing initiatives to boost traffic and capitalise on growing tourist numbers. It has been the year of the mobile. Virgin’s hotel app ‘Lucy’ provides some visibility as to where things may be headed. Branded as the app that ‘Makes Things Happen’, Lucy enables guests to change their room temperature, order room service, book spa appointments, and even text with hotel staff and other guests.

Approximately 70% of room nights for the US lodging industry are business stays

Innovation is essential as Airbnb and its look-alikes make inroads into the market. Airbnb is on track for over 100 million guests in 2017. Half of those who used Airbnb last year replaced a traditional hotel stay, according to a report from investment bankers Morgan Stanley. This is where Airbnb’s efforts to attract business travellers — including partnering with large companies to accommodate their employee travel needs and surfacing ‘Business Travel Ready’ listings — are hitting. Approximately 70% of room nights for the US lodging industry are business stays.

Despite growing hotelier and local resident protests against Airbnb in major tourist cities, some 25% of leisure travellers are expected to use it at least once in 2017, up from 19% last year, according to Morgan Stanley research. The report projects that 23% of business travellers will use Airbnb this year, up from 18% in 2016.

Competition is also on the rise from a traditional section of the accommodation market – hostels. Revamped as cool, affordable places to stay, hostels’ development is attracting major investment funds. Marriott has joined Hilton in looking to upmarket, designer hostels as another way of countering Airbnb – built, for example, to accommodate groups of travellers in linked rooms.

As Zacks Research comments, in 2018 hoteliers can remain optimistic “particularly those willing to venture out of their comfort zones...!”

Smart Travel Data Summit 2017

November 2017, Amsterdam

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