HOTELS

Adam Kirby

Hotel Profits Poised To Soar With Tourism Surge
April 1, 2008

With an economic picture as uncertain as the one we’re facing right now, it’s easy to feel pessimistic about the hotel industry’s financial future. Some developers will be inclined to get out now, while they still can. But if you can manage to weather the short-term bumpiness, the future for our industry is incredibly bright.

A study in this month’s Harvard Business Review is about as bullish about hotels as can be imagined. Using the World Tourism Organization’s forecast that the number of travelers worldwide will double between now and 2020, Accenture analysts predict a scenario wherein “scarcity of place” leads to skyrocketing hotel rates, as rising numbers of tourists compete for a finite room supply in the most desirable destinations. As demand dramatically outstrips supply, some sort of guestroom resale market could emerge, akin to the bustling resale market for event tickets.

Moreover, the analysts say, as prime destinations begin bursting at the seams with tourists, some places will institute limits on the number of annual visitors. This would actually enhance a destination’s desirability, as the opportunity to travel there becomes a commodity in and of itself. We already see this, too, in the world of sports—demand is so intense for season tickets for the Green Bay Packers football team, for example, that a person who signs up for season tickets today would have to wait until the year 3074 to reach the front of the line. As a result, Packers fans easily and routinely resell their already pricey tickets at a 300% premium.

It’s not so hard, then, to imagine a world in which hotels take high-priced deposits simply for the option to book a room years later—a tweak of the timeshare model akin to the concept of personal seat licenses at stadiums.

It’s similarly plausible that a person might check into a room on the Las Vegas Strip for US$1,000 and immediately resell his keycard for US$3,000. Of course, a smart revenue manager would have already sold that US$1,000 room for US$3,000, eliminating the middle man. Point is, room rates will head in the right direction.

This future pressurized tourism market will also serve to boost secondary tourism markets, and create entirely new ones, as economy and mid-scale brands are forced from the primary markets. Non-high rollers will turn en masse to places like Detroit and Biloxi as cheaper alternatives to Vegas, and the Vegas trend of recreated landmarks will be further replicated worldwide as the real thing becomes out of reach for would-be globetrotters.

Now, from the perspective of a working-class traveler, this is a nightmare scenario, sort of the tourism equivalent to other more serious doomsday predictions, like peak oil or water wars. But for developers and hotel management companies, at least, the next decade sure looks like it will be a profitable one.

Posted by Adam Kirby on April 1, 2008 | Comments (0)