Not So Fawlty Towers: The Hotel Industry Makes a Comeback

Not So Fawlty Towers: The Hotel Industry Makes a Comeback
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The hotel industry is hot. Remember when Airbnb was going to hobble hoteliers by driving up the supply of rooms while driving down room rates? Following a miserable 2015 stock performance when lodging shares slumped 20 percent, Merrill Lynch downgraded hotel stocks and Morgan Stanley revealed that high-occupancy nights (when hotels are 95 percent full) had plunged by 17 percent. Hilton and Hyatt looked like clumsy dinosaurs in the fast-paced sharing economy. Instead, Airbnb has been stumbling. Earlier this year Airbnb’s chief financial officer, Laurence Tosi, quit and the company quashed talk of an eagerly awaited IPO. Meanwhile, hotel shares have climbed as the companies in the space have clawed their way back. How did hotels spruce up their properties, their prospects, and their share prices?

It would be easy to say they're merely coasting on the wave of a trumped-up economy. Sure enough, the Trump administration has lifted labor regulations that undermined hotel chains. For example, in 2015 hoteliers and fast-food companies panicked when President Obama’s National Labor Relations Board (NLRB) ruled that they could be held liable if an independent franchisee violated safety or wage regulations. This aggressive ruling threatened to topple the entire legal apparatus of franchising, which supports about 620,000 lodging jobs. In December 2017, the Trump-appointed NLRB overturned the Obama-era ruling. The thriving macroeconomy also helps as more people travel. But note this: hotel shares have outperformed other cyclical sectors, including airlines and railroads. That’s because smart hotel owners are upping their game and learning to exploit their own advantages in the battle for vacationers and business travelers.

No doubt hotels were slow to the technology race, and even now Airbnb’s interface looks slicker than most hotel websites. Nonetheless, they're catching up. Travelers are starting to believe hotel claims that they offer the lowest prices. Recent hotel technology spending ranges from the mundane such as improving WiFi, to the cutting edge. For example, guests at certain Aloft hotels can order room service from a bow-tied robot called Botlr.

Aggressive competition which surely includes Airbnc has also forced hoteliers to upgrade towels, TVs, and overall service amid an industry-wide, multi-billion-dollar refurbishment trend. Guests are checking in to spiffier properties, spanning from Disney’s Grand Californian Hotel, to the national portfolio of Crowne Plazas, to boutique hotels across the country.

Review sites such as Yelp and TripAdvisor have also forced change. Speak to any hotelier and he’ll complain of angry, impulsive reviews—some legitimate, others complaining that the advertised 1,000 thread-count sheets only have 997. Regardless, ratings cannot be ignored. Hotels must respond to bad reviews or suffer a plague of empty rooms. The customer may not always be right; but review sites ensure that the customer wins.

A strong economy is a boon to cyclical sectors such as hotels, but it isn’t always enough to keep doors from shuttering. The dustbin of business history is filled with names like PanAm, RCA, Borders, and Blockbuster, companies blindsided by new competitors and technology. By investing in new innovations and amenities, personalizing properties, and simply listening to their customers, hoteliers are escaping the dustbin and instead sweeping in the customers they almost lost.

Victoria J. Buchholz is an attorney and business strategist in Los Angeles who consults and writes on the travel and entertainment industries. Todd G. Buchholz has served as White House director of economic policy, managing director of the Tiger hedge fund, and is author of The Price of Prosperity (HarperCollins) @econTodd. 

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