Hospitality: Hotels pivot

• Features

• 15/03/2022

The hospitality industry is huge, employing multitudes worldwide. Data from Statista puts the global hospitality industry at USD 3,486.77 billion in 2020 and the prediction was for it to grow further [bit.ly/33pBHpC].

The wide-ranging banner of ‘hospitality’ covers everything from five-star hotels to backpacker dives and all the ancillary services around them. For this article, we will be specifically narrowing the focus to hotels in Asia Pacific.

Covid-19 disruption hit the hospitality industry hard. Hospitality’s link to travel and tourism, both of which were significantly curtailed and are still only possible with restrictions and regulations, meant that hotels lost business. Additionally, the prevailing uncertainty and business climate meant that investment in the hospitality sector came with additional risk.

However, there are positive narratives from the hospitality sector in Asia Pacific. Leveraging market specific knowledge and pivoting bore fruit for some and we delve into these narratives further to uncover learnings that can be applied more broadly.

Moving forward

We start with looking at the hospitality sector in Bangkok, Thailand and speaking with Thitikorn Sopchokchai from Vichai Trading 1983. The integrator’s chops in the hospitality sector are easily established, seeing that it is the reigning champion of the Inavate APAC Awards Hospitality Project category for its work on the Kimpton Maa-Lai Bangkok hotel.

Sopchokchai starts: “Bangkok can easily be considered one of the biggest tourist cities in the world, on par with cities like London or Paris. And what this meant for the hospitality sector was that there was an oversupply of hotels and rooms. This also had the effect of keeping hotel prices down and keeping the segment very competitive. So, we had started to see a slowdown in the hospitality sector even before Covid-19 and the pandemic just exaggerated the situation.

“However, at the same time, the new direction of the government’s tax policy in Thailand means than if your land holding is not being used, if it isn’t classified as agriculture, commercial or residential, it will be subject to a vacant land tax. And this means that landowners are being incentivised to develop their properties. So, we have these two competing factors which are at odds with each other.”

With the pandemic, matters were complicated and Sopchokchai says: “The Thai hospitality sector’s response to Covid-19 disruption can broadly be classified in three ways. The first was obviously the ones that shut down, reduced staff, cut operational costs and tried to weather the storm. The second would be those that decided to undertake some upgrade work during the enforced downtime. And the third would be those that tried to pivot and go ‘hybrid’ to try and make sure that their spaces kept generating revenue.”

The ‘upgrade’ route meant that there was some investment in technology. Sopchokchai elaborates: “Usually, hotels are on a 10-years to 15-years renovation cycle, and in Bangkok a lot of the hotels are about to hit that mark. Seeing the disruption caused by Covid-19, some hotels took the decision to go ahead with planned renovations if the timing was right. The focus of upgrades was on cosmetics, which falls in the court of interior designers.

“On the technology side, hotels are showing interest in LED. They want the most cost-effective LED solution because it is fast becoming the norm for event spaces in hospitality. And the competitive nature of the Thai hospitality sector means that you cannot afford to be behind the curve. If your event space does not have the option of providing clients LED, then you might not be able to compete with the other hotels.”

And then there is the opportunity to go hybrid. The option’s attractiveness to hotels is obvious; to continue making money in tough times. However, there are challenges as Sopchokchai says: “Going hybrid is easier said than done. As a hotel you need to start looking at the kind of event space you have and the kind of clients you cater to. With the focus of most Thai hotels being on weddings and events of celebration, it is difficult to really turn these kind of events into hybrid ones. Sure, you can have some remote participation but in general people want to attend these events in person. But if your space catered to corporate events, then going hybrid makes sense because remote participation is now more accepted. The same holds true for trainings and seminars. The trend of hybrid has really been adopted by hotels that see the benefit in going hybrid.”

With international travel resuming, the prospects for the Thai hospitality sector look good. Sopchokchai concludes: “Off the top of my head, I can think of 20 hotels that are being developed and set for completion within the next five years. The Covid-19 disruption was hard for the hospitality sector in Thailand, but I think we are just beginning to climb out of a slump that was there before the pandemic as well and we are going to see plenty of hotel projects, but at more competitive margins than before. The really interesting trend is that hotels are going bigger and bigger. We’re not just seeing a single hotel property being developed. Instead, we are seeing whole areas and sections of cities being turned into hospitality areas, with multiple hotels in close proximity together with lifestyle destinations and much more.”

Local tourist

From Thailand we jump to India and speak with Rhythm Arora from Qubix. Qubix was the winner of the Inavate APAC Awards Hospitality Project Award in 2020 for its work on the Mayfair Resort hotel in India. According to Arora, the disruption caused by the pandemic did not derail the hospitality industry in the country much: “Most of the hotel projects which were close to completion, we can say those that were already over 50% of the way to be finished, they kept proceeding. There was a desire to have these projects completed because half the investment had already been made and they wanted a return on the investment. The other factor to consider is that the people who build hotels are hoteliers, they’re familiar with the sector and how business proceeds.”

In fact, he believes that the hospitality industry is in robust health: “The interesting thing is that occupancy rates [one of the most important metrics for hotels] in India are high, the data shared with me puts it close to the 80% mark. And this means that the hospitality sector is in extremely good health. This is due to the emerging trend of ‘staycation’.”

In India the ‘staycation’ trend is magnified by the prevailing economic progress being made by the country. Arora explains: “There is huge domestic demand in India for travel and also for hospitality. Pair that with the increased purchasing power of the everyday Indian and you can see why the demand is high. A five-star hotel stay which was once a luxury available for only a select few, is now well within the reach of many Indians.”

Hospitality has also been able to make gains as consumer behaviour shifted: “Disruption also changed the spending habits of consumers in India. Things like social distancing and mask wearing meant that many outlets for entertainment, like going to the cinema or eating out, were curtailed. Compare that to a ‘staycation’ and essentially a lot of those restrictions are negated. You can order in food and watch a movie in your hotel room without disruption. And if the overall hotel experience is good, you can see why customers would shift and spend their dollars on hospitality instead when the other options are not as good.”

Even as the fight against the pandemic continues and regulations persist in response to spikes, such as the one caused by the Omicron variant, Arora believes the hospitality industry is back on track. He says: “There is growth in the hospitality sector. Events like weddings and celebrations can’t disappear. Conferences and corporate events have taken a hit, but in general people in India are still spending on events and domestic spend in the hospitality sector is robust. What we are experiencing right now is the fact that the events that were deferred are back along with new ones and now there is a glut. The business events maybe disappeared or didn’t happen during the pandemic years, but the pent-up demand for weddings is keeping the hospitality sector busy.”

Is the return of events changing the technology infrastructure at Indians hotels? Arora answers: “Rental makes a lot of sense for the hotels. There is an established events industry, and they operate in a certain way. These event guys are also the main touchpoint for the end user or the client. This means that while a hotel can have all the technology available on premise, that reduces the profitability for the events provider. Plus, as a hotel why would you want to take on the added liability? If you go with rental and there is a tech failure, the liability lies with the events provider and not with the hotel.”

It is obvious that domestic demand alone is enough to keep India’s hospitality industry moving forward. It is no surprise that new hotels are coming up to meet this demand. Arora says: “We are still far behind in supply [when it comes to hotels]. India has eight metropolitan cities and a population of more than one billion. There is enough untapped domestic demand, which is growing, that needs to be catered to.

“The new hotels are mainly four- and five-star properties. And the locations for them are also interesting. There is an exceptionally good hotel that has already been completed in Udaipur, and there are two hotels coming up in Jaipur. These properties are primarily targeting the events and wedding market, providing the domestic Indian market with options for ‘destination weddings’ which is the current prevailing trend in the wedding market for India. If you look at cities like Mumbai, the hospitality sector is close to being saturated and the only new hotels being developed are more like ‘boutique’ properties that are catering to the corporate events segment.”