By Keshav Menon (Columbia University) and Priyal Maheshwari (New York University)
Synopsis
It is no secret that COVID-19 has had a huge impact on the world’s economy, and with many industries still reeling from the global economic slowdown the hospitality sector is in dire straits. However, a closer look suggests that the hospitality industry has been in decline for a long period of time. As industry leaders lose ground to cheaper competitors like Airbnb, COVID-19 may be the catalyst for technological innovation in a sector that is lagging behind.
Table of Contents:
Section 1: Overview of COVID-19’s impact on hospitality Industry
Across the hospitality industry, hotels are expected to lose USD $400 million per day, as millions of jobs are furloughed due to a complete lack of demand
Investor confidence for hotels remain at an all time low, as REITs and Hotels continue to underperform against the S&P 500
Section 2: COVID-19 - a symptom or the problem
In reality, the hospitality industry has been in decline for awhile
Thin margins have meant that competition has stagnated and innovation is slow
Consumers are beginning to favour cheaper, more intuitive vacation rental alternatives
Section 3: Technology is where the road to recovery lies
Hospitality tech is a growing trend that is swiftly being introduced by hotels to enforce and track health and hygiene protocols
Software companies that offer automated services have experienced a surge in demand from companies in the hospitality sector
Section 4: Looking ahead
While the recovery of the hospitality sector will last for awhile, hospitality tech software could be an important catalyst for change in an industry mired in problems
Overview of COVID-19’s impact on hospitality Industry
Of all the industries that have been marred by COVID-19, the current plight of the hospitality industry is a well-documented story. Facing unprecedented times, the plummeting drop in demand for hotels is a direct result of limited mobility for everyone. With businesses shutting down and people unwilling to test the boundaries of a virus that has wreaked havoc across all six continents, the repeated lockdown, and travel ban policies introduced by countries all over the world has resulted in hotels struggling to stay afloat.
Ever since the virus escalated to a U.S. national crisis in March, STR and Tourism Economics have projected a devastating loss of USD $400 million in revenue per day across the industry, accumulating to a projected 50% revenue loss for the year. With 4.8 million jobs culled over the past few months, hotel workers are on a path to lose more than USD $1.7 billion in earnings each week. The gradual dilapidation of this industry is exemplified by the closure of New York’s iconic Roosevelt Hotel earlier this week, as “very low demand” and limited “federal aid” forced a cessation of operations. While there has been a slow pick up in occupancy rates over July, the 48% figure is still a far cry from expected levels during times of normalcy. With hotels already missing out on traditional profitable seasons like July 4th weekend and “back to school” sales, Mckinsey’s detailed report on the hospitality industry highlights the bleak road ahead. Irrespective of time frame projections for a vaccine, investors remain pessimistic. Publicly traded hotel companies have experienced a 60% share price decrease -- underperforming the S&P 500 by 25%. Mid-Cap REITs have performed even worse, with share prices falling as much as 70% since January 1st.
Figure 1: Estimated job loss in hospitality industry after losing 3 months of sales [Economic Modelling]
COVID-19 - A symptom or the problem?
However, there is a case to be made that COVID-19 is merely a symptom of a larger problem that has continued to plague the hospitality industry - the lack of modernisation. While the virus underscored the fragility of the business - arguably the main cause for the dramatic loss of jobs - even before the pandemic the hotel industry was a sector in decline. Despite a steady increase in tourism over the past decade, New York City room revenues through the first half of 2019 fell by 3.8 percent. As room prices continued to increase, the rise of cheaper vacation rental alternatives like AirBnB and HomeAway were emblematic of the general perception that traditional luxury hotels were not worth the inflated price. At its core, however, was the industry’s stubborn resistance to technological innovation.
While disruptive technological trends have managed to spark structural reforms within multiple industries from insurance to healthcare, the hospitality industry has continued to lag behind. Given how susceptible the hospitality industry is to fluctuations in the economy, along with the high rental-, maintenance-, and staffing-costs associated with hotels, the adoption of technology within this sector has been cautious and slow. With revenue margins traditionally being very thin, the cost of assimilating new, innovative products are simply seen as “not worth it.” Furthermore, the infrastructure requirements for the introduction of technologies that would enable integrated room controls, seamless Property Management System (PMS) integration and boost broadband connectivity are, at times, expensive or even impossible. The integration of these technologies require physical support, causing problems for hotels in cramped, major cities which prioritise optimising functionality and services-offered to offset high rent.
Technology is where the road to recovery lies
COVID-19 has fundamentally changed the hospitality landscape. The road to recovery for the industry is primarily centered around the ability for hotels to guarantee the safety of its guests by taking the precautionary measures necessary to restrict the spread of the virus. A Mckinsey’s survey on this very question depicted the strong correlation between intense room cleaning measures adopted by hotels and the willingness of guests to stay in those locations.
Figure 2: Graph depicting health measures introduced hotels and guest willingness to stay in those locations [Mckinsey]
Social distancing is an essential way of facilitating these hygiene and health protocols, as reluctant customers become more comfortable and eager with hotel standards. The current climate could act as a crucial pivot to usher in much-needed reforms and act as a springboard for customer demand. The rising trend of mobile appointment services was first identified by an Oracle Hospitality survey at the beginning of this year. According to the survey, more than 90 percent of hotel executives identified digitized appointment services as a feature that could enhance guest experience and cultivate customer loyalty. Smart hotels was already a concept identified by hospitality tech pioneers earlier in 2019. The introduction of occupancy sensors, smart thermostats and smart energy-management systems is reported to improve operational efficiency and reduce hotel energy costs by up to 20%. Mobile technology is a crucial element of this trend and can also be applied to address current requirements. These smart, mobile features could boost transparency across the board by enforcing COVID-19 health and hygiene standards, helping guests stay informed and assisting hotel management track the health of guests. Currently, with hotels viewed as sites for COVID-19 clusters to easily develop, smart hospitality tech companies like Jumy and Mint House which offer touchless hotel amenities are becoming increasingly popular.
Automated check-in and check-outs is another feature that is gradually being assimilated into hotels. In an overview of the hospitality industry, the Wall Street Journal identified the increasing introduction of an artificial intelligence-based software, built by cloud communications firm BluIp, in multiple hotels across the west-coast, with the service offering a digitized platform for hotel customers to ask questions related to check-in time, restaurant hours, directions and other questions via phone. UiPath, a software company enabling the automation of tasks, experienced a 30% increase in new customers from the hospitality industry during its first quarter ending April 2020.
Looking Ahead
The recovery of the hospitality industry will be a long one. While travelling will fluctuate as COVID-19 cases rise and fall, hotels that are well equipped to guarantee the safety of their guests will quickly surge ahead. The assimilation of disruptive technology within this sector will be a key method for hotels to enable touchless, digitization of otherwise labour-heavy processes. Hospitality tech software solutions will allow for better tracking of guests, while mobile technology can boost transparency for all. These measures will prove essential in quelling guest qualms, as hotels would be able to proactively contain potential outbreaks as they occur across all their hotel locations.
The impact of technology on this sector could have important, long-term implications that extend beyond the COVID-19 crisis. For a sector that constantly stresses over thin margins, innovative, hospitality, tech software could improve operations and introduce efficient, cost-saving practices. As an industry quickly losing ground to cheaper and more simple vacation rental competitors like Airbnb, hospitality tech could finally kick start some healthy competition driving innovation in a sector that is stubbornly lagging behind.