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Hotels seek to diversify business models in search of revenue

Friday, July 12, 2013

Hotels seek to diversify business models in search of revenue

During the past few years, demand for serviced apartments and furnished extended stay accommodation has increased substantially as tourists and business travelers alike seek to maximize their return on investment and beat the crowding often associated with chain hotels. In some popular destinations in the U.S., hotels have examined their current business models carefully to identify opportunities for increasing revenues. According to The Wall Street Journal, some hoteliers have taken a rather innovative approach to leveraging their premium amenities by marketing them to residents of the affluent neighborhoods in which their properties are located.

Members only
The news source reports that many luxury hotels are seeking to attract locals to their facilities. With high-end restaurants, large swimming pools and state-of-the-art fitness centers, many hotels are certainly equipped for the most discerning guests. However, occupancy rates and challenging market conditions have resulted in declining revenues for many service providers in the hospitality industry, necessitating a slightly unorthodox approach to maximizing revenues.

As a result, some hotels have launched "lifestyle membership" programs to tempt local residents to use their amenities without having to actually stay at their properties overnight. These exclusive clubs are far from cheap, with some membership plans costing as much as $1,500 for couples and $1,000 for single members. Despite the high rates, these initiatives have proven popular with some locals who would not otherwise have the opportunity to enjoy these services.

"I do have a swimming pool in my backyard, but no one comes through and offers me water and cleans my lounge chair," Anne Leahy Jones, a retired marketing executive from Menlo Park, Calif., told the news source. "It is a treat."

Challenging markets
Although membership programs have not yet become a mainstay of the hospitality industry, hoteliers face an uncertain future. In places like Hawaii, one of the world's most popular tourist destinations, hotel occupancy has dropped even though revenues have remained steady, according to the Star Advertiser. While this is good news for hotels, the mid- to long-term situation could be less promising as tourists and business travelers seek more cost-effective accommodations, such as short term rental apartments or corporate housing.

In other parts of the world, rising airfares and hotel rates are actually contributing to inflation. According to the Irish Independent, hikes in the price of travel-related services are placing consumers under significant financial pressure, which, in the long term, could have a negative impact on Ireland's economic recovery and future expansion. Fewer tourists are embarking on vacations due to price increases, and as a result, service providers are struggling to find reliable sources of revenue. However, this could result in a more competitive market from consumers' perspective.

"Continued weak consumer demand will in general put downward pressure on prices in the months ahead," Alan McQuaid, a financial analyst at Merrion Stockbrokers, told the news source. "The austerity measures announced in Budget 2013, in particular the residential property tax, will again hit disposable incomes, which in turn will weigh negatively on spending power."

Mixed blessings
Despite the struggles reported in Ireland's and Hawaii's hospitality sector, other regions have experienced robust growth in demand. According to Arab News, hotels in Abu Dhabi have seen strong increases in hotel occupancy. 

During the first quarter of 2013, demand for hotel inventory rose across virtually all demographics, most notably international visitors. Overall guest figures rose by more than 6 percent in Q1, with occupancy rates and the average length of stay increasing by 8 percent and 15.7 percent, respectively.

The global hospitality sector remains volatile, and although heightened competition could result in lower rates for guests, alternatives to chain hotels like corporate apartments and furnished extended stay apartments are likely to remain popular with budget-conscious business travelers and tourists.