Travel, tourism and leisure

What lies ahead for the hotel business: revolution or decline?

Mati Nõmmiste Mati Nõmmiste

The hotel business is going through major changes. The loyalty of customers is harder to win, it’s getting hard to stand out from the competition on online sites like booking.com, and the commissions they charge aren’t on the low side. The rise of Airbnb has also left a bitter taste for hoteliers, as the site’s 2 million “local hosts” are stepping hard on the toes of traditional lodging providers.

Hotels have no other option but to start implementing new business models. Positive examples can be found all over the world. The Hyatt chain has acquired a stake in Onefinestay, a more expensive version of Airbnb. Some hoteliers feel that despite competition with the traditional hotel business, the sharing economy platforms are actually a good thing, because they grow the market and put the possibility of travel within reach for more people.

Some hotel chains have now started listing on Airbnb. Elizabeth Randall-Winkle, the strategy director of the American company STR, which does analytics for the lodging business, notes that Airbnb’s commission is only 3%, compared to the 10-25% charged by traditional booking sites.

Doing as airlines do

After a booking is made, many airlines send customers information on their destination, car rental and hotel options to make the trip more convenient for the customer. Hotels could follow the same model, offering useful information and services to customers while they’re staying at the hotel. For example, besides its main business of booking apartments, www.bemate.com offers customers services from partner hotels. That means a customer staying at a Bemate apartment can order room service, babysitting etc.

Lowering prices to attract customers could generate a short-term effect but isn’t sustainable. Instead, like airlines, differentiated pricing is one possibility that hotels might consider. Many airlines charge an extra fee for baggage-drop and meals are similarly often not included in the airfare. Hotels could use the same approach. The prices of rooms could be classified according to the view from the window (a good view costs more) or by the location of the room on the floor (rooms next to the elevator not as quiet and thus cost less). A lower price could also be offered to those who don’t need their room cleaned every day. Pricing should be flexible and the price-to-quality ratio in place.

Four innovative features in the hotel business:

  1. A number of hotels have started offering the possibility of booking through Airbnb. The first ones to list on the site are New York’s Box House Hotel, Riff Hotels and Union Hotel.
  2. Hilton, Starwood and IHG are working with Uber. Hilton guests who use Uber can check in on the Hilton HHonors app and get a digital room key. When Starwood guests use Uber, they can earn Starwood rewards points.
  3. Marriott International is taking aim at China’s growing middle class, offering them booking through the online retail giant Alibaba’s affiliate, Alitrip.
  4. AccorHotels has opened its booking site to other hotels, too, offering a chance to book a room in 10,000 other hotels around the world. With that step, AccorHotels is increasing turnover as it charges the other hotels a commission for using the booking system.

This article is based on the Grant Thornton auditing and accounting firm’s overview “Business model innovation: hotels’ roadmap to 2020 [ 1929 kb ]”.