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Tag Archives: Hospitality

2015 Travel, Hospitality and Leisure Industry Outlook

Backed by the current growth momentum, Travel, Hospitality and Leisure (THL) companies are heading strong into 2015. Amid pent-up demand, it’s important that companies leverage technology to effectively respond to newer forms of competition and a globe-trotting wired customer. Guy Langford, Vice Chairman and U.S. Travel, Hospitality and Leisure leader, Deloitte LLP, shares his thoughts on the opportunities and challenges for the industry in 2015, as well as some steps companies can take to grow. 

Where do you see the opportunities for growth in your sector? 

US THL companies performed very well in 2014 and they are expecting continued robust growth in 2015. US visitor exports—the measure of money spent by international tourists—are expected to increase four percent to $200 billion in 2015, thanks to improvement in the global economic environment and increasing income levels in emerging markets.¹

A part of what Millennials want is a customized experience. The hotels that are best able to provide a customized, differentiated experience to customers will be winners in 2015 and beyond. Hotels have to find the right combination of personalization, design, ambience and technology to build lasting loyalty with the Millennial customer. Where Millennials are concerned, consumer engagement is not something that begins at the hotel’s front door; it begins with online search and must be ongoing and evolving.

Millennials also want transparency and the sense that they are receiving “value for money”. Generally speaking, fast casual restaurants get this and offer what most effectively cater to younger diners—fresh and locally sourced fare and tech-friendly, communal settings with the meal prepared in a way that the customer can literally see. This is what Millennials seek and they are willing to pay more for a meal at a fast causal restaurant precisely because they sense that they are receiving incremental value.

Millennials also have a robust appetite for innovative technology. For them, free Wi-Fi in a hotel or restaurant is ”table-stakes” and no longer a novelty. They are always testing the technology readiness of THL players and seeking out new digital payment platforms. Additionally, Millennials have used technology to shape a “shared” economy, an emerging trend that will continue to loom large within the THL space in the years ahead. This trend is finding expression in such platforms as AirBnB and Uber. AirBnB, for example, is more than a cost-saving social media rental site–it has become a gateway to thousands of personalized, one-of-a-kind lodging experiences in destinations around the world.

Emerging platforms such as AirBnB and Uber are gradually becoming mainstream and challenging established players. In the race of traditional vs. alternative, the winners will be those who can create value for customers that they can experience and measure. Time will tell how this battle unfolds. In response to AirBnB, for example, we may see the emergence of a residential boutique segment that truly reflects the trappings of home (beyond a kitchen), as well as new sub-brands that emphasize a more personalized stay experience with greater proprietor and concierge involvement that appeal to Millennials especially.

These disruptive and new technologies in THL present a key question for existing and long-standing market participants – compete, lobby to regulate/shut down or collaborate? How these challenges and new entrants are handled will ultimately shape who will be the key “next generation’ market leaders.

With the confluence of global expansion, emerging and disruptive technologies, and a rapidly expanding Millennial population, it is clear that the next five years will be very different from the past five years and new “winners” and market leaders will emerge.

What should businesses be mindful of as they plan for growth?

As important as growth is across the THL spectrum, it should not be pursued blindly. Yes, everyone must get the table stake attributes right—comfort, price, food taste, loyalty programs, among many other things. Yet, players across the THL spectrum must grow smartly, and not try to be all things to all people. In this regard, two key questions come to the forefront: What kind of brand engagement are they seeking—and with whom are they seeking it? Each consumer cohort is characterized by a unique set of preferences, even if they all want the basics.

But smart growth also means the highest standards of data privacy. Customers have different appetites in sharing personal information with companies; however, each customer wants to ensure that personal data find safe custody. The risk of cybersecurity breaches looms increasingly large, especially in consumer sensitive sectors. Whether THL companies’ legacy systems are good enough to catch up with innovative breaches is a question that needs deliberation.

Smart growth also demands a thorough and current understanding of the regulatory framework of each domestic and foreign market that a company serves. In the US alone, THL players must navigate an ever-changing labyrinth of federal and state regulations covering everything from food safety to pollution controls. As THL players expand globally and fall under the jurisdictions of foreign markets, that burden multiplies many fold. Global expansion also implicates additional US federal laws such as the Foreign Corrupt Practices Act, which governs relations between US companies and local government officials in foreign markets.

For its part, the gaming industry often experiences headwinds with the introduction of new regulations or changes to existing ones related to market entry. Macau, for instance, hosts the world’s largest gaming market with a notable presence of US gaming players. However, recent changes to Macau’s transit visa rules–accompanied by more stringent enforcements—are restricting visitors’ ability to visit as often and for as long as they like. Perhaps unsurprisingly, Macau’s gaming revenue was down 23 percent year-over-year in October, which is the fifth consecutive monthly decline.²

Finally, smart growth means situational awareness. Today’s geopolitical situation appears more fragile than ever before. From the civil unrest in Thailand and Hong Kong to the political disturbances in Ukraine and Egypt to the economic sanctions in Russia, geopolitical factors are likely to impact growth of THL companies in 2015. While looking for international growth avenues, especially in politically sensitive regions, THL players need to make sure that their risk management strategies are appropriate.

What’s the next big thing? What markets do you see emerging in the sector?

Any discussion of the next big thing must start with the generational shift that will drive all other emerging trends in the THL space. Millennials—those between 21 and 35—are now beginning to enter their prime earning years. The Millennial cohort will represent up to three quarters of the global workforce within ten years.³ To “win the Millennial”, any consumer-facing business must understand the needs and desires of this critical consumer demographic. The good news for THL industry participants is that Millennials love to travel, even more so than previous generations.

A part of what Millennials want is a customized experience. The hotels that are best able to provide a customized, differentiated experience to customers will be winners in 2015 and beyond. Hotels have to find the right combination of personalization, design, ambience and technology to build lasting loyalty with the Millennial customer. Where Millennials are concerned, consumer engagement is not something that begins at the hotel’s front door; it begins with online search and must be ongoing and evolving.Millennials also want transparency and the sense that they are receiving “value for money”. Generally speaking, fast casual restaurants get this and offer what most effectively cater to younger diners—fresh and locally sourced fare and tech-friendly, communal settings with the meal prepared in a way that the customer can literally see. This is what Millennials seek and they are willing to pay more for a meal at a fast causal restaurant precisely because they sense that they are receiving incremental value.Millennials also have a robust appetite for innovative technology. For them, free Wi-Fi in a hotel or restaurant is ”table-stakes” and no longer a novelty. They are always testing the technology readiness of THL players and seeking out new digital payment platforms. Additionally, Millennials have used technology to shape a “shared” economy, an emerging trend that will continue to loom large within the THL space in the years ahead. This trend is finding expression in such platforms as AirBnB and Uber. AirBnB, for example, is more than a cost-saving social media rental site–it has become a gateway to thousands of personalized, one-of-a-kind lodging experiences in destinations around the world. Emerging platforms such as AirBnB and Uber are gradually becoming mainstream and challenging established players. In the race of traditional vs. alternative, the winners will be those who can create value for customers that they can experience and measure. Time will tell how this battle unfolds. In response to AirBnB, for example, we may see the emergence of a residential boutique segment that truly reflects the trappings of home (beyond a kitchen), as well as new sub-brands that emphasize a more personalized stay experience with greater proprietor and concierge involvement that appeal to Millennials especially.These disruptive and new technologies in THL present a key question for existing and long-standing market participants – compete, lobby to regulate/shut down or collaborate? How these challenges and new entrants are handled will ultimately shape who will be the key “next generation’ market leaders.

With the confluence of global expansion, emerging and disruptive technologies, and a rapidly expanding Millennial population, it is clear that the next five years will be very different from the past five years and new “winners” and market leaders will emerge.

Public-Private Partnerships and the Hospitality Industry

Public-private partnerships (P3s) are not a new phenomenon, but they are an expanding and increasingly necessary one. As local governments compete with each other for tourism dollars and finicky and demanding workforce, the hospitality industry has become a focus of potential P3s as a way to revitalize fatigued districts and compete with the city next door. With more governments seeking to partner with private industry in this way, a unique opportunity has been created for hospitality developers. Public-private partnerships can come in different forms, but the basic concept is not different from what the name implies. The government — often with land and resources, always with a need — partners with a private entity. The project often includes infrastructure or other public improvements, which can be partly or entirely funded and built by the private entity.

For the Government, a Funding Partner

To understand the government’s increasing reliance on P3s, one need look no further than the now all-too-frequent news stories about crumbling bridges, seemingly endless gridlock or dilapidated schools: the country’s infrastructure is deteriorating and in dire need of repair and upgrade. Many bridges, tunnels, schools, utility lines and other public buildings and structures are no longer equipped to handle increases in traffic, population and advances in technology. But these necessary repairs face one major hurdle: there are simply not enough public funds to pay for them.

Addressing the growing imbalance between the need for infrastructure improvement and insufficient public funds available to make those improvements has caused many governmental entities — from the federal through local levels — to court private businesses to help fill the void. As the cost of infrastructure repairs continues to outpace public revenue generation, it is only inevitable that the proliferation of public-private partnerships will continue to grow, if only out of necessity. And in addition to infrastructure improvements, P3s are also seen by communities as a means to increase affordable housing stock, generate needed jobs, support surrounding businesses and increase commercial activity.

For the Developer, a Potential Boon

 For the hospitality industry, P3s often involve hotels, convention centers and other mixed-use developments. The prospect of P3s has created a potential boon for hospitality companies and developers with several advantages over traditional development structures. Property that would otherwise be unavailable for development — often property owned or controlled by governmental entities — is regularly made available for mixed-use P3 projects. Further, in what is becoming an increasingly important issue within the context of soaring land prices, developers will often have access to such properties without having to produce or finance the property’s upfront acquisition costs, particularly if the transaction is structured as a long-term lease. Developers of these P3 projects will frequently receive tax breaks, deferments and other incentives, and potentially even the ability to earmark or control their tax payments (or payments in lieu of taxes) for specific public improvements beneficial to their own projects. Before delving into the P3 world though, hospitality developers should consider a number of preliminary issues to help ensure that the project will be successful:

Team Assembly: The first step for every developer considering a Public-private partnerships project should be to put together a strong and experienced development team. The due diligence process for P3s is often more demanding and arduous than in private developments, if simply because there are more constituents to satisfy. A good P3 development team has all of its bases covered, starting with legal and zoning (any zoning changes will usually require substantial lead time), governmental liaison, and community outreach. The developer’s financing team must also be engaged early, as economic feasibility is the driving force of all development — P3 or otherwise. Also playing an early role should be the design and construction teams, who, if engaged early and working together, will be able to develop a design that meets the project’s goals and can be constructed within budget. The developer’s team members should all be experienced in P3 projects and willing to coordinate their efforts with each other.

Public Outreach: Perception becomes reality, and so it is important for the developer to get its message to the public as early as possible and before third parties shape the narrative. Community response is unpredictable, even for projects with the most community-minded of goals. The earlier a developer can partner with the public – agency and community alike — the better the chance of turning that support into a successful project. Early engagement is also important to help define the community benefits (affordable housing, local hiring, etc.) that the government and community will seek, allowing the developer to negotiate those benefits and incorporate versions acceptable to them into the development plan. In many ways, the community outreach and approval process is just as if not more important than the results of that process. Controlling the process and making sure the necessary constituents have had a voice will almost always foster a good relationship and pay dividends later in the project.

Patience: The public approval process for non-P3s can be long and grueling. It is often more so for P3s, as multiple jurisdictions — often in conflict with each other — will need to be satisfied. Developers need to prepare themselves and their partners for the long haul. This includes producing realistic schedules for project financing and development (including governmental approvals), and educating project partners and constituents on those schedules so that expectations are pragmatic and managed.

Set Clear Goals: In order to be successful, P3 projects must achieve both the government and private parties’ political and economic goals. Accomplishing those goals, however, will be difficult unless both the hotel developer and its governmental entity partner start their relationship by clearly establishing their respective goals for the project. Once those goals are established internally, the developer and governmental entity must each clearly and explicitly communicate those goals to their counterpart. Just as important, they must each make sure they understand, accept, and respect their partner’s goals. Setting clear goals and understanding each other’s goals at project inception will ensure that everyone’s goals are both practical and aligned with the project’s economic feasibility. Then the parties need to stick with those goals, while at the same time …

Be Flexible: Although somewhat contradicting the previous point, it is incredibly important that hospitality developers taking on P3s maintain flexibility in working towards their goals. Even the best and most thorough planning cannot anticipate every hurdle that will arise on the path to a successful project. The developers who are successful in P3 development are those who are most creative and able to adapt, often in response to unanticipated or changing community objections or requests, and frequently to help the governmental entity achieve its goals for the project.