Healthy consumer spending
While much of the hype around disruption often centers on technology and innovation, travel and hospitality companies must keep a close eye on economic trends, since consumers will be quick to cut travel from their budgets at the mere hint of a financial downturn.
The US economy, with low inflation and low unemployment, seems poised to sustain 2 to 2.5 percent growth through 2018. Incomes are rising, which points to more confidence to spend it.
In Vietnam, 2017 is a successful year of the tourism industry with the total number of international visitors reached 12.9 million visitors (an increase of 2.9 million visitors compared to 2016) and 73.2 million domestic visitors; revenue from tourists reached more than 23 billion US dollars, 25% more than in 2016. These numbers are expected to increase higher in 2018.
For UK, it has been a rough year since the weaker pound and higher inflation has squeezed real household incomes and has taken the edge off consumer-led growth. However, as the global economy is growing well, overseas visitors are encouraged to travel more, and the fall in the value of the pound since the Brexit vote in 2016 has provided an added incentive for visitors to come to the UK.
Healthy corporate travel demand
Strong economies drive business activity. 2018 is forecasted to be a robust year for corporate travel spending, for more than 6 percent, the highest growth rate since 2011.
Going back the global trend, in UK, according to ONS data there has been a decline in inbound business travel with passenger numbers falling by 7% in June 2017. Better news is that although fewer business people actually stayed in hotels those that did stayed longer and the number of nights in hotels increased modestly.
From products to experiences
Travel is outpacing the demand for goods. Spending on recreation,travel, and eating out is up, while spending on many durable goods and staples like clothing is down. That’s why midscale competition or home stay competition in Vietnam is poised to heat up in 2018.
Compared to upscale and luxury hotels, midscale properties are cheaper to develop, do not require large staffs to operate and can provide the modern design aesthetics and unique experience of a pricey lifestyle hotel in an affordable package. Awareness of the opportunity is growing, and forward-thinking hotel chains are launching new brands with increased cadence.
Brands who fail to innovate have high risk losing market share. With just a few swipes in a travel app, today’s consumers can compare more hotel and private accommodation options than ever before. With hotel reviews and virtual tours at their fingertips, travelers can easily sniff out “big-box” properties that have high tendency to offer something “run-of-the-mill” hotel experiences.
However, hoteliers most are concentrating innovation up-market—leaving the midscale segment in desperate need of an upgraded experience. If there is one segment that should capture the attention of hotel developers in 2018, it is midscale hotels.
Aside from that, in Vietnam, VNAT is forecasting a further increase in international tourist arrivals to 15-17 million visitors and in domestic visitors to 79 million in 2017, so to facilitate the increase, the government has introduced an online visa system from mid-2017 for short-term and business travellers from top source markets and is also extending the waiver of visa requirements to more countries.
Globally, hotels are struggling to drive up-room rates in a market flooded with new supply. Competition from alternative accommodation choices such as the sharing economy and serviced apartments arealso likely to eat into hotel market share.
In US, since 2008, the number of hotels in New York City has grown 55 percent to 634 properties and 115,000 rooms. Already competing with a rise in private accommodation rentals, hoteliers aiming to keep their properties full must offer attractive rates. Then some hoteliers are resorting to cutbacks around service, maintenance, and even lobbying with city officials for property tax reform.
In VN, justin 2017, 106 establishments in the 3-5 star segment were recognized. The system of tourist accommodation throughout the country continues to grow with more than 500,000 chambers, including 116 5-star hotels with over 33,000 chambers.
In UK, Pipeline data suggests 7,000 new rooms open their doors across London could open in 2018 and that’s a lot of new rooms to fill. The continued increase in new branded budget supply and the increase in other branded budget hotels share of new room openings continue has been a factor in the midscale/economy market under performance.
While strong post-recession gains appear to be cooling off, the hotel sector is projected to sustain strong 5–6 percent growth throughout 2018, setting up the industry to hit a record-breaking $170 billion in gross bookings.
Hovering around 66 percent, occupancy seems to have hit a peak, however, this prolonged strength of the hotel sector to be a cause for concern. Historically, hotel performance has proven to be cyclic, with long runs of growth often followed by intense downturns, generally occur every 10 years. With the last down cycle occurring in 2010, some speculate soft market conditions to be imminent.
So while positive signals continue to emanate from the broader hotel industry, as always, success isn’t guaranteed in 2018.
Compiled from PwC, Deloitte, Vietnam National Administrators of Tourism Reports