By Michael Driedger
Whatever your occupancy is right now, you know that one day it’s sure to go up. The hotel industry is currently experiencing something never seen before, and with this also will come pent up travel demand. When the recovery begins and we are all more confident about traveling internationally again, have you thought about where you want your hotel to be strategically?
Early signs of what recovery in travel will look like is coming from countries like China where tourism has started again in earnest. According to a McKinsey study this recovery is being led heavily by midscale and economy hotels.
The rise in popularity of midscale and economy hotels has been ongoing for a decade or more. The most interesting recent growth story is perhaps that of Oyo Rooms, that emerged from India. Who would have predicted that making sure a room was clean, taking better photos, and marketing 2-3 star hotels in India could become a billion dollar business? While OYO hasn’t been getting the greatest press of late, what the brand has done in this area is pretty incredible.
Pre-COVID, a very strong economy and low-cost air, generally led to more and more people worldwide being able to travel. Add to this the Millennial predisposition to ‘experiences’ over assets and a change in perception of travel being seen as a need rather than a luxury. Most travelers had limited budgets for accommodation which has given rise to so many more “amenity light” hotels. Airbnb’s introduction into the lodging space after the financial crisis of 2008 showed that people would stay pretty much anywhere as long as there was a clean toilet, clean shower and a bed. These 3 basic amenities were the key elements to the recovery from that crisis and it’s likely that midscale and economy hotels will lead the recovery this time around too.
The home sharing economy has changed a great deal in those 12 years since Airbnb was founded. Travelers now expect the same level of hospitality and standard from a “host” as they do from a hotel. It became about more than just a spare bed or room. This increased expectations gave rise to a new asset class that resembled the suite hotel, and that is the apartment suite hotel.
Reducing a hotel down to its barest components of a clean room with strong wifi makes for a far more efficient model – especially in tough times and times of recovery. It’s also much easier for a hotel to re-open at full strength when you don’t need to make physical distancing considerations for a pool, spa, restaurant or gym.
The main advantage and lure for budget travelers for these apartments has often been their strategic location. By being near gyms, restaurants, pools and spas, there was no need to provide these amenities on premises but instead adopting a new model of acting as local guide to these new partners in a hospitality setting. As we’ve seen in China, the USA and Canada, the first apartment hotels, and hotels to recover have been for budget travelers in smaller cities and resort locations.
The business model employed by these operators gives them every advantage to firstly remain open during the pandemic and secondly to be the first to open and recover once lockdown has been over. These businesses have very low overhead (only rooms) and rely on strategic locations near beaches, hiking trails, parks, or other outdoor locations to attract guests.
There are operators all over the world employing this asset light strategy as well as making the best use of tech. Better Stays in the Netherlands are employing this strategy by managing touchless (no front desk) hotels and apartments for owners of either asset class. McDreams in Germany has also been one of the first economy hotels to recover in the region with keyless check in. Mint House in the USA has been able to achieve greater than 80% occupancy throughout the late spring and summer of 2020 by advertising themselves as “hotel amenities, with no contact.”
Economy and midscale hotels were also the first to re-open to front line workers. They worked directly with governments to service essential workers who needed to quarantine. The state of Victoria in Australia, launched a Hotels for Heroes program where both clinical and non-medical staff working in healthcare facilities can stay for free to isolate. The Annex Hotel in Toronto created a similar program funded by private donors.
When one thinks about the unit economics and social impact of such actions there is much to be optimistic about. These operators have not just been able to achieve strong occupancy rates during the pandemic, but have also managed to do it with reduced staffing (and therefore lower overhead costs), while also building tremendous loyalty. In 2018 Booking ran a study showing that 63% of guests preferred self check in. Operto ran a study in June of 2020 showing that 30% of travelers are more likely to choose self check-in now than they would have 6 months ago. Not only are these hotels reducing costs and increasing revenue, but they are meeting clear guest desires that pre-date the onset of the pandemic.
As we all begin to think about recovery and travel again, these examples of ‘amenity light and high tech’ economy and midscale hotels should serve as a call to others. They have managed to take what seemed like a disadvantage (few amenities and no front desk) and turn it into the way forward for hotels in a post pandemic age.
