The U.S. hotel industry is in a state of flux these days, facing competitive challenges from digital upstarts like Airbnb, but also benefiting from an increasingly confident American travel public that’s spending more cash on travel and leisure activities in 2017.
Industrywide, the domestic sector is seeing moderate growth as the spring and summer travel season beckon, experts say.
“Solid lodging fundamentals, a steady rise in business and leisure travel on the back of an improving economy and positive employment numbers are favorable developments for the industry,” according to a recent research note by Zacks.com. “Strong investor appetite thanks to higher transaction volumes should also help.”
Additionally, a more favorable tax and regulation environment and updated trade policies are likely to aid industry growth in 2017 and “contribute to improving economic conditions, surging capital markets and rising business and consumer confidence,” according to Zacks.
[See: 7 Dividend Stocks to Benefit From Trump Tax Changes.]
On the downside, a stronger U.S. dollar (which makes it more expensive for foreign travelers to visit the U.S.) and rising industry costs could crimp U.S. hotel industry growth.
Looming over the sector is the digital shared-economy competition from companies like Airbnb, which is muscling in on traditional hotel territory. But that challenge may not be as severe as some industry veterans might think — for now, anyway.
Case in point: A 2017 study from STR, a hospitality research firm, pinpoints several revealing takeaways on hotels and Airbnb market share, using data supplied by Airbnb in 13 global cities.
From July 2015 to July 2016, Airbnb trailed hotel occupancy rates, recording 46 percent compared to 78 percent occupancy rates at hotels.
Average nightly pricing stood at $158 for Airbnb and $178 for hotels.
Only 10 percent of Airbnb’s stay demand came from business travelers, suggesting that hotels and Airbnb are targeting disparate markets.
Still, growth rates have been impressive for Airbnb, which hit the 100 million customer mark last year after rolling out its overnight services in 2008. What’s more, travel industry investors know it.
“Compared to Airbnb, traditional hotels have a few barriers,” says Adam Dailey, a hotel and real estate investor based in La Jolla, California, who owns and operates several Airbnb locations.
“With Airbnb, there is a real person answering a customer’s questions, and usually in a very responsive way,” Dailey says. “There’s also a built-in community with Airbnb that fosters trust and inclusiveness.”
But the real differentiator may be dynamic pricing. “Hotels can’t promote last-minute specials in a meaningful way, while Airbnb owners are anxious to liquidate empty inventory,” Dailey says.
Consequently, Dailey believes that traditional hotels are threatened. “The trend of renting out your home/apartment is only getting traction,” he says. “Plus, the more that people can wrap their head around it, the more inventory will come into the market.”
What are hotels doing to fight back and convince investors their portfolios are in good hands? Plenty, it seems.
“Traditional hotels are making some smart moves,” says Olan O’Sullivan, vice president of marketing at Trek Soft, in Bern, Switzerland.
Marriott International (ticker: MAR), in particular, has been active, O’Sullivan says, especially in taking an equity investment in Placepass, a metasearch provider for travel and leisure activities.
[See: 11 Easy Ways to Slash Travel Costs.]
“This is a smart move, as selling activities is not Marriott’s core business,” he says. “Using a metasearch provider that can provide a wide array of inventory for the brand to package with their hotel rooms makes sense.”
While expanding more aggressively into concierge services via metasearch tools is a nascent move by hotels, the payoff could be big.
“It’s too early to tell if their share prices will benefit from these types of initiatives, but hotels are already primary sources for information for restaurants and activities, a lot more so than Airbnb,” O’Sullivan says.
Hotel decision makers are taking nothing for granted as they kick-start new programs and services in the U.S. and abroad to get travelers into their lobbies.
“Many of the major U.S. hoteliers are exploring more growth opportunities abroad in emerging markets, especially in unsaturated outlying areas around major cities where there isn’t an existing glut of lodging options and the long-term growth outlook is strong,” says Stuart Eisenberg, national real estate practice leader at BDO. “The less concentrated their holdings, the less of a bite hotels will feel from disruptors.”
Hotel chains are also steering toward dual-branded hotels controlled by one franchisor, like the Marriott-Moxy lifestyle hotel that just broke ground in midtown Atlanta, Eisenberg says.
“That could also take off internationally, especially as a way to differentiate in sought-after locations and at premium price points,” he says.
Also, instead of building more hotels, the merger-and-acquisition route is an attractive option for companies to satisfy customers’ hunger for unique experiences across price points, Eisenberg says.
“For example, Wyndham recently acquired Fen Hotels, a leading hotelier in Latin America with boutique holdings,” he says.
[See: 7 ETFs That Allow You to Invest in Space.]
But to win the battle with shared economy lodging companies, hotels must hold onto customers who value the hotel experience, with its stringent health and safety standards, while accommodating younger consumers.
“Hotels are polishing and perfecting their experience to pull ahead on comfort criteria where shared options don’t yet compete as much,” Eisenberg says. “Hotels will need to take that to the next level by combining consistency with ease. Features like mobile check-ins and in-app amenity customization are key.”
So far in 2017, the jury is out on the hotel industry’s financial performance. The most recent Baird/STR Hotel Stock Index rose 0.5 percent to close at 3,723 in January. That’s after the index closed a banner year in 2016, posting a 19.6 percent hike.
The bigger hotel chains fared well last year, with Hilton Worldwide Holdings’ ( HLT) stock gaining 24.4 percent, Marriott gaining 20.2 percent and Hyatt Hotels Corp. ( H) returning 14.7 percent.
More from U.S. News
7 of the Best Health Care Stocks to Buy for 2017
6 Things to Know About Mark Zuckerberg’s Manifesto
20 Awesome Dividend Stocks for Guaranteed Income
Investors Watch as the Hotel Industry Takes On Airbnb originally appeared on usnews.com
