Weekly briefing: We’re entering the golden era of hotel operations

It’s never been a better time to be a hotel operator – if you look at the big picture.

In a world filled with headlines of staffing challenges, inflation, and economic uncertainty that might sound like a stretch. But after spending a few days at the NYU Hospitality Investment Conference, I’m more optimistic than ever about both the short and long-term prospects of our business.

Let’s start with the big picture and then get into some of the opportunities and trends to watch for hotel operators.

A bright future in both the short and long-term

Reading the news and participating in the markets as an investor too often makes you want to unplug from it all and go live a monastic life in the wilderness. But listening to hospitality leaders, investors, strategists, and bankers at the NYU Hospitality Investment Conference reveals hospitality as a bright spot in a cloudy world.

A changed consumer

“Travel is one of the last things people will stop spending on,” IHG CEO Keith Barr said.

Sloan Dean, CEO of Remington Hospitality, made the case for the change in consumer spending patterns being permanent. “The Great Depression changed our grandparent’s psyche. In the same way, Covid will drive lasting change for millennials in what they value.”

Flexible work arrangements for many haven’t hurt. “Fridays are flexible and it’s like the weekend has increased by 50%,” said Margaritaville CEO John Cohlan.

Rebounding group travel

“Group business is raging,” said Hilton CEO Chris Nassetta. “Pre-COVID 80% of our business was SMEs. They were quite resilient and now they’re back over COVID levels. When times get tough for them, we expect they’ll be even more likely to travel.”

International travel just starting up

“We don’t even have inbound travel yet and we’re doing really well,” Nassetta said. “Chinese travel is coming in the second half of the year,” he predicted, which is important as China was the largest outbound market pre-Covid and should be again soon.

Constrained supply

The historical average supply growth – the number of new hotels entering the market is around 2.5%. “Right now we’re seeing 0.4% supply growth, which I’d argue is really zero with hotels becoming obsolete,” said Nassetta.

Typically something of interest to investors, the takeaway for operators is the ability to maintain high prices with the momentum in demand mentioned earlier.

Long-term changes in demographics

Accor CEO Sébastien Bazin spoke to new emerging markets that represent new demand sources. “Watch out for India,” he said, as the middle class of that country is expected to exceed 500 million in 2025 – more than double that of the entire United States.

“Ask yourself: Do you believe in the long-term potential of travel? We do,” said Mit Shah, CEO of Noble Investment Group. “The long-term opportunity is the tailwind of demand coming in the decades ahead.”

All of this may sound like an investor update – but the implication here for operators is we are working in a resilient and growing industry. It’s important this story is told because if we’re going to spend our career in the industry it’s important it has potential. And hospitality does.

Operations is the key to unlocking this opportunity

“This is an operating business and a big part of the opportunity to create value comes from operations,” said Shah, whose company has more than $5 billion in assets under management. “Even all the renovation work that we all do in all these hotels is done to support the operation.”

“I’ll take a great general manager over an asset manager any day,” said Michael Heaton, President at Waterford Hotel Group. “They’ll do whatever it takes to drive results.”

So how exactly do we use operations to unlock this value? This newsletter and HotelOperations.com focuses on people, processes, and technology, so I’ll use this framework to summarize the takeaways from the conference.