Today, the rapid and deep-seeded recessionary trends and lack of business confidence have indeed placed the hospitality industry's growth prospects in an extremely precarious and unknown territory. From riding on cloud nine a few years ago, the industry is now gearing to weather the potential storm ahead.
In this article, I have provided views into the various risks and challenges lying ahead for the hospitality industry in achieving optimal performance from their hotel assets.
If the market conditions were to further deteriorate, and indications are that they will, there will be a significant impact on demand growth, revenue performance and profitability of hotel companies. Performance pressures will continue to push industry players to explore more efficient business models and forge new partnerships. The industry will embark upon a journey of consolidation and we could witness conversions, mergers and acquisitions, more out of compulsions than out of choice.
A new set of competitive pressures through correction in the demand-supply imbalance will lead to improved choices and lead to fragmentation of demand. Further, the overall slowdown in economic activity will have a direct impact on demand across segments and feeder markets. Businesses are likely to adopt stringent austerity measures and discretionary spends on travel will be a sure victim. These measures are likely to erode demand, bring about substantial rate correction, rationalize spends on MICE events and lead to sub-optimum revenue performances across hotels.
The executive management at hotels will have to constantly innovate and adopt dynamic business practices to bring about inherent flexibility in operating cost structures. While hotels have already rationalized key fixed input costs like payroll and raw materials, continued improvements will be difficult to come by and hence guest satisfaction levels and employee morale will be negatively impacted. The commodity price cycle has already bottomed out and a weak rainfall is likely to further fuel inflation leading to increase in average service cost for each occupied room. Innovations in supply chain management and outsourcing will become crucial and would have to be focused upon. Customization, re-alignment and re-engineering of processes will play a pivotal role in determining the extent to which a company is geared operationally to deliver consistent profitability.
The rapidly changing macroeconomic environment and rationalization in asset values will provide attractive opportunities for acquisitions of hotel assets. However, to leverage opportunities for growth and expansion, it will be necessary to focus on immediate improvements in the health of the organization's balance sheet. A key challenge would be the implementation of debt restructuring strategy and plan for long-term capital availability.
There is likely to be a prolonged period of relative inactivity in the real estate sector and this will have a direct impact on hotels as a preferred asset class for investments. Further, non-availability of qualitysites for hotel development will force international brands keen to establish themselves in emerging markets market to become more flexible in terms of their product specifications. The development activity for new hotels will rapidly shift to Tier II and Tier III locations. The average inventory count for new-builds will be significantly lower and in our assessment the biggest development opportunities will be in the mid-market segment with efficient hotels that provide attractive value-for-money proposition to their respective end-users.
In this article, I have provided views into the various risks and challenges lying ahead for the hospitality industry in achieving optimal performance from their hotel assets.
If the market conditions were to further deteriorate, and indications are that they will, there will be a significant impact on demand growth, revenue performance and profitability of hotel companies. Performance pressures will continue to push industry players to explore more efficient business models and forge new partnerships. The industry will embark upon a journey of consolidation and we could witness conversions, mergers and acquisitions, more out of compulsions than out of choice.
A new set of competitive pressures through correction in the demand-supply imbalance will lead to improved choices and lead to fragmentation of demand. Further, the overall slowdown in economic activity will have a direct impact on demand across segments and feeder markets. Businesses are likely to adopt stringent austerity measures and discretionary spends on travel will be a sure victim. These measures are likely to erode demand, bring about substantial rate correction, rationalize spends on MICE events and lead to sub-optimum revenue performances across hotels.
The executive management at hotels will have to constantly innovate and adopt dynamic business practices to bring about inherent flexibility in operating cost structures. While hotels have already rationalized key fixed input costs like payroll and raw materials, continued improvements will be difficult to come by and hence guest satisfaction levels and employee morale will be negatively impacted. The commodity price cycle has already bottomed out and a weak rainfall is likely to further fuel inflation leading to increase in average service cost for each occupied room. Innovations in supply chain management and outsourcing will become crucial and would have to be focused upon. Customization, re-alignment and re-engineering of processes will play a pivotal role in determining the extent to which a company is geared operationally to deliver consistent profitability.
The rapidly changing macroeconomic environment and rationalization in asset values will provide attractive opportunities for acquisitions of hotel assets. However, to leverage opportunities for growth and expansion, it will be necessary to focus on immediate improvements in the health of the organization's balance sheet. A key challenge would be the implementation of debt restructuring strategy and plan for long-term capital availability.
There is likely to be a prolonged period of relative inactivity in the real estate sector and this will have a direct impact on hotels as a preferred asset class for investments. Further, non-availability of qualitysites for hotel development will force international brands keen to establish themselves in emerging markets market to become more flexible in terms of their product specifications. The development activity for new hotels will rapidly shift to Tier II and Tier III locations. The average inventory count for new-builds will be significantly lower and in our assessment the biggest development opportunities will be in the mid-market segment with efficient hotels that provide attractive value-for-money proposition to their respective end-users.
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