Going beyond the obvious
The end of the boom?
After five years of unparalleled growth, 2018 shows the first signs of a serious slowdown. So far, this has a more significant impact on occupancy than on prices, but we all know that the latter variable takes more time to adjust because of the contracting cycle.
I have some doubts about whether we are in a moment of stagnation or just a slowdown. According to an “Insight Brief” released by BlueShift in November, the growth rates of international tourist arrivals at major airports – 11% in both Lisbon and Porto at the time – doesn’t seem compatible with the slowdown or retraction observed in hotel overnight stays in the same destinations. Thus, the theory that the hardships of the hotel sector are, at least in part, due to a structural change in consumer behavior is becoming plausible. Throwing the theory that AirBNB-style Short-Term Rentals do not compete with hotels out the window…
Now what?
No one doubts that the years to come, with more or less confidence, will be a bit more challenging. Obviously, no one will take away the 45% growth in overnight stays since 2012, nor the high visibility and word-of-mouth of Portugal in international markets. But with less growth, we will surely see some pressure on prices and profitability.
The sector has well-identified challenges and areas that need attention in the coming years. But I believe that, in many cases, it is essential to go beyond the obvious in responding to these difficulties. I will focus on the two most discussed topics and a third one that is less pointed out than it should: human resources, service quality, and revenue management.
More talent, fewer workers
Probably the most talked-about challenge among industry intelligence is talent. Clearly, hospitality professional and management schools do not have the capacity to train the volume of professionals needed. And the gap is such that a demand slowdown will not, by itself, solve the problem.
I consider that there are two major mistakes that need to be corrected in the approach to talent: the first is limiting the recruitment universe to specialized schools. The sector needs managers who bring a new vision and different tools. Of course, attracting and retaining this type of talent requires structural changes in the organization. This reinforces the severity of the second mistake – insisting on a strongly hierarchical organizational culture that is not very supportive of initiative. If hospitality companies persist on this mistake, they may forget the entire Generation Z that is now entering the market.
Service, but human
It’s the industry’s cliché – service, service, service. Totally agree. The question is, what service? The millennial customer increasingly seeks what is local and genuine and avoids what is standardized and, in some way, fake. I believe it is necessary to dust off the perspective a bit and start having more genuine people serving customers. Each with their personality and capable of having an interesting conversation about what to do this afternoon in the city. Obviously, this does not mean total free will; it means finding a balance between standardization and spontaneity. No, it’s not easy. It is done by hiring the right people and a lot of training. See CitizenM.
Revenue what?
After some years where it was an exclusive for hotel groups with higher critical mass, revenue management finally seems to have democratized. It would be excellent news for an industry seemingly changing cycles, where it is crucial to defend price and profitability. Unfortunately, this trend is more apparent than real, especially when we talk about stand-alone units not linked to international brands – the majority of the industry’s business fabric.
In my consulting work, I often encounter entrepreneurs and managers who claim to have this process well in hand. Unfortunately, when you look deeper, you find that they limit themselves to having an employee set prices on online platforms, at best with the support of an external provider offering them packaged answers – X% occupancy = Y€ price. Revenue is not e-commerce or dynamic pricing yielding. It is a macro-process to define and implement a strategy for the entire business. And without strategy, who defends us when the dark clouds come?
Written by Filipe Santiago
February, 2019
This article was published in Ambitur. You can access the printed version here and the online version here.
