Will the Lodging Industry Follow the Airline Industry?
By Joseph Fischer ~ Exclusive Feature
Monday, 15th October 2012
Exclusive Feature:  Over the past few years, many airlines have merged or joined one of the Global aviation alliances; Only in the last few of days, Etihad and Qatar Airways announced code share agreements and memberships in a global alliance.

There are a number of reasons for these moves, the two key ones being: (1) Globalization and the need to offer a truly global route network; (2) Cost reduction through economies of scale, lower distribution cost and other cost savings.

Compared with the lodging industry, airlines have always been early adopters of new distribution technologies, yield management tools, loyalty programs and cost saving ideas. In the aftermath of the global financial crisis, the hotel industry is facing significant challenges. It may want to follow the airline industry in adopting some of these tools and strategies.

First, hotels are facing a challenging pricing environment. Large Online Travel Agencies – OTA's made brand loyalty secondary to price. Individual hotels and small to medium size brands are finding it increasingly difficult to manage yield efficiently and achieve an acceptable returns.

Even global brands that use advanced yield management systems have realized that OTA's are taking over their pricing strategies and decided (too late) to come out with a joint hotel portal called RoomKey.  Airlines discovered what those OTA'S were doing at a relatively early stage and got back their control on their own seat availability and pricing policies. 

Second, hotels are facing higher overhead and operational costs. Energy and food costs have gone up, thereby reducing profitability. When Airlines found themselves in a similar situation, they raised fares, added surcharges (for fuel, luggage, hand luggage, food and allocated seating) and created new seating classes, such as Economy Premium. So far, hotels have not been as successful in passing on cost increases to their customers.

The combination of revenue and cost pressures is driving many small and medium hotel chain owners, investors and even creditors to sell their properties. Times are even harder for individual hotels. Many private hotel owners in prime city locations and resorts in Europe and the US see the difficult times ahead and are looking to sell as well.

This presents an opportunity for large chains to move in. They can incorporate some of these properties into their existing portfolio and by leveraging their operational, marketing and global distribution capabilities, significantly increase their profitability. These acquisitions can be done by partnering with private equity and hedge funds, in the form of lease agreements, or management agreements with a cap or minimum GOP guarantee.

Another option for the big brands is to offer marketing and reservation services to local brands that will allow them to compete more efficiently.

A good example to such an alliance is GHA – Global Hotel Alliance that was created by Kempinski hotels and now has 300 member hotels with 15 different hotel brands around the world all deluxe category. A similar alliance in the lifestyle category is offered by Design Hotels partly owned by Starwood Hotels.

Preferred hotels & Resorts, Leading Hotels of the World and Worldhotels, all offer marketing distribution and loyalty club services but not to the extent found in truly global hotel brands' distribution network such as being offered by IHG, Hilton, Marriott and Starwood.

Global hotel brands should start offering local brands and individually managed hotels marketing alliances, making use of their own global distribution. This would be a win-win. For global brands, it would extend their portfolio to destinations difficult to penetrate with a classical management agreement. For small and medium local chains, it will provide a global platform that would allow them to compete more effectively, without paying for franchise or management.

Call it Code-Share, Global Alliance or marketing partnership - it is a viable solution as long as there are clear criteria and standards in place. Developing a versatile product / branding that could fit different classes of hotels from 3 Stars limited service city hotels going up to 5 stars club style resorts. 

Reprinting of this article in any shape or form requires prior approval from 4Hoteliers.com.

Joseph - Yossi - Fischer is the owner's representative and Executive Board Member IDB Tourism Holdings Leisure, Travel & Tourism industry.

IDB Tourism Holdings is the tourism arm of IDB Group, Israel's largest mixed use holding conglomerate - IDB Group. IDB Tourism consists of a Travel Agency chain called Diesenhaus-Unitours, Clal Aviation, NATOUR-UNITAL Wholesale, Diesenhaus Wholesale, Diesenhaus Incoming Travel, Israir Airlines, Yossi Tours, Open Sky - Airline GSA Representation The annual turnover of IDB Tourism is over US$ 800 millions which makes it one of Israel's largest Travel & Tourism groups.
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