With every new year comes the chance to look back on the year that was and learn from the shortcomings to better prepare for the road ahead.
For example, last year was filled with occupancy growth for the hotel industry, but average-daily-rate growth did not keep pace. For some, that was unexpected.
“In Chicago, we started the year coming off a couple great years of ADR growth, and we thought that would continue in 2017, knowing new supply was coming into market,” said Steve Shern, area managing director for Thompson Hotels and GM of the Thompson Chicago. “That didn’t happen. We saw some hotels start to get aggressive with rate, and while occupancy remained positive, ADR growth didn’t materialize as much as anticipated.”
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The new year also allows the industry to look ahead and plan strategies moving forward. Sources said there are several key trends they have their eyes on that will have an impact on bottom line in 2018.
1. Resort Fees
Urban markets have been introducing resort fees, and Shern thinks this source of revenue has the potential to become a larger trend this year.
“It is a trend to increase revenue, but I’m not sure everyone is aware or accustomed to it in an urban market over a resort,” he said. “But these fees aren’t subject to occupancy tax, so it’s better than raising the overall rate.”
Although Shern said he hasn’t introduced these fees, he has seen other hotels in Chicago do so. Some are getting creative and are calling these revenue streams “facility fees” instead of “resort fees.”
“But it’s the same thing,” he said, adding that more and more hotels could look to these fees as additional revenue drivers as they face a highly competitive 2018.
2. Human Resources
Labor will continue to be top of mind this year, sources said.
“Healthcare is getting expensive. The costs of benefits is raising and causing labor costs to grow at a rapid rate above (consumer price index),” said Kirk Pederson, president of Kokua Hospitality. “This affects all levels of employees, and from the operator’s perspective enhances the need to carefully monitor and take these increases into account when forecasting and developing budgets.”
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Shern said labor-cost concerns can also affect the amenities hoteliers decide to provide guests. For example, he said many hoteliers are looking at what’s important to guests when it comes to 24-hour roomservice and turndown service.
“With turndown, people are becoming more private, so it’s becoming more based on request than an automatic service,” he said. “It’s costly, so if guests don’t care for it, why provide it?”
During good times, it’s not uncommon to see a boom of hotel renovations in order to prepare for the next downturn.
Pederson said when everyone is renovating, the worry then becomes how hoteliers can differentiate their property from the next one down the street.
“Things like brand loyalty and location, as well as service delivery and experiential guest offerings, are what hoteliers need to really sell to differentiate themselves in 2018,” he said.
4. Business travel
Especially in a high-supply market like Chicago, corporations enjoy more hotels from which to choose—and that can really affect revenue at hotels that cater to group business. Add to that the fact that many companies are tightening their purse strings, Shern said. That equation can have a negative impact on the bottom line.
“While companies are having success, they are making for a much more short-term booking window,” he said. “We see the trend with corporations not being as robust as they have in the past.”
Shern said that he believes booking windows for group and business travel will remain short this year.
He said it’s important that he and his team look to the market to ensure they are combating these issues, especially in Chicago where supply surpasses demand.
“It will be important to make our guests feel engaged with the hotel and make a personal connection to the hotel because the cost of doing that is far less than being part of a loyalty program or buying a guest,” he said. “We want them to return and recommend the hotel through personal or social media connections, highlighting our hotel as a place to stay.
“We find that endorsement far greater than any stamp of approval.”