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Navigating hotels performance in 2023 in the new travel environment

From the recent hotel budget season, several considerations have consistently been discussed in the various meetings with operators and owners in the new travel environment.

December 23, 2022

Preparing hotel annual budgets is never straight forward. As we approach 2023 and beyond, after the shock of the pandemic, forecasting the year ahead should not be based on a return to “business as normal”.

Prior to the pandemic, hoteliers could usually rely on historical data points as their guide for ensuring that forecasts and budgets aligned with results.  However, the rules of hotel budgeting have been completely upended.

While flight schedules are ramping-up and Covid restrictions have been removed in most countries, there still exists numerous external factors that could have significant implications for predicting hotel demand drivers.

For example, geopolitical uncertainty, energy costs, supply chain blockages, labour shortages, stock market volatility and the highest inflation rates in decades, are influencing many budgeting decisions.

Forecasting a hotel’s drivers, while realistically assessing changes to costs, will be critical if operators are to deliver an accurate budget for owners in the year ahead.

From the recent hotel budget season, several considerations have consistently been discussed in the various meetings with operators and owners in the new travel environment.

Demand sources in 2023 could be markedly different

Hotels will need to review their market segmentation, capitalising on what has successfully materialised in the latter half of 2022, yet hedge against potential economic uncertainty for the year ahead.

While we have seen good uptick in corporate travel year-on-year, with some markets benefiting greater than others be it through domestic or regional demand, several top multi-national companies have indicated that they have raised the bar in terms of corporate travel, responding to rising costs of travel and tumbling share prices and performance.

The technology sector was a significant driver of corporate travel before the pandemic, but – ironically – their success in selling video conferencing is likely to have a medium-term impact on business travel, despite acknowledgement that face-to-face meetings can be far more effective. We are noticing a trend where we are seeing less frequency of travel, yet with longer stays per trip.

In contrast, travel for events-related travel is accelerating – literally.

The Singapore F1 Grand Prix 2022, one of Formula 1’s most anticipated races, saw a record attendance of 302,000 spectators, the highest in the race’s 13-year history.

Importantly, Singapore’s events calendar is not solely restricted to sports, with the city-state boasting an impressive calendar of industry exhibitions and conferences as they try and catch up after two years of lockdown.

Other Asia Pacific destinations are similarly investing heavily in attracting high-yield meetings, incentives, conferences and events, which will directly impact hotel forecasts in 2023.

Diversifying market sources

Asia Pacific’s most popular resort destinations have bounced back quickly as restrictions have been removed and can anticipate strong performances as travellers favour short-haul locations, especially as long-haul flights are likely to remain prohibitively expensive.

Over the next 12 months, we expect to see pent-up demand for leisure travel realised, with trips cancelled in the two years prior being rescheduled.

City hotels will need to continue enhancing their leisure profiles by reviewing facilities, services and product styles. Catering for ‘bleisure’ travellers, linking the hotel more closely to events, partnering with key attractions, enhancing health and wellness options, and upgrading dining can attract guests into the city. The work previously invested into attracting the leisure domestic staycation demand should not be forgotten. 

Maximising rate in a highly competitive market

Whilst the pandemic did slow down hotel development, many commercial and resort destinations across the Asia Pacific will see the completion of delayed projects, which will result in new room supply over the next two years. Normally, this could put pressure on rates, but in most destinations, properties have managed to maintain rates and even increase them in 2022, and this should continue into 2023.

This could be the time to consider a strategic shift reviewing the business mix and static rate agreements. In a turbulent market environment, this could be challenging for individual hotels and smaller chains, travel partners may be more inclined to accept the change if extra services or incentives are offered as part of the transition.

Sustainability: a key weapon to fight inflation

For the first time in well over a decade, rapid inflation is impacting economies worldwide, and it is uncertain when costs will peak.

If properties haven’t already acted to reduce energy usage by introducing significant sustainability and waste reduction measures, the time for action is now.

A complete review of energy and other utilities has the potential to deliver a powerful long-term return on investment.

The word “sustainability” is frequently used by hoteliers these days but requires appropriate measurement. For instance, if motion and heat sensors are installed, what impact will they have on energy consumption per room or corridor?

The rising energy costs make such innovation more imperative and should lead hotel managers to consider what is necessary for a room to deliver a satisfactory stay, but also restrain costs.

Does a room require so all the bathroom amenities put out, or could some of these be on requests? Is the uneaten bowl necessary? Are these items keeping clients or winning new business?

Re-shaping the future of space

With market considerations distinctly different from 2019, hotels will need to audit their spaces to determine whether they are maximising revenue potential.

If a hotel believes its primary target markets are likely to change, does it have the facilities and services to match those changes event if there a short to medium term tweaks?

For instance, if a hotel is forecasting a softening in the corporate market, perhaps a review of a significant club lounge could be required. Can the club program be adapted to the be appealing to a different target or the space be temporary be repurposed to generate new revenue flows?

F&B space should also be reviewed, with the operating strategy reassessed to ensure it optimises space and best complements the hotel’s marketing direction.

Making a hotel restaurant more relevant to the local market will help smooth out fluctuations in travel, or a hotel could consider leasing out the space to a suitable tenant that better appeals to the market and reduces overheads.

Lobby spaces can also be multi-functional e.g. design to adapt into a co-working space, supported by appropriate, low-service F&B offerings. This is regularly discussed yet we have not seen much adaption here.

Conclusion

Hoteliers may desire to return to 2019 practices and operations, but trading conditions have changed, requiring a new approach to forecasting and budgeting.

A review of costs is not necessarily about reducing the guest experience; it is about delivering what guests want and are prepared to pay for.

The immediate future will depend heavily on quality resources, so to ensure hotels have access to the best teams, management need to review salaries and benefits (as a whole) as they gear up for a highly competitive future. We have seen how much hotels have been able to adapt, and it is imperative that they continue to understand where the opportunity lies and how to create more demand for the hotels.

As we close 2022, marked with both tailwinds and headwinds, we look forward to 2023 with cautious optimism; hotels with the right strategic growth mindset to be bold yet adaptive, will likely set themselves apart.  

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