In this exclusive interview, Pascal Armoudom from Kearney discusses trends in hospitality, focusing on sustainability, innovation and balancing luxury affordability.
How can hospitality businesses navigate complex global markets?
Navigating today’s global markets has become increasingly complex, primarily due to a myriad of interconnected challenges and uncertainties. Economic fluctuations, following the Covid-19 pandemic and ongoing global conflicts, climate change and biodiversity concerns are all contributing factors. Additionally, the growing influence of accommodation platforms like Airbnb has significantly reshaped the overall industry landscape. Furthermore, trends such as leisure, staycations, and reduced emphasis on business travel further complicate the current market environment.
Resilience
Despite these complexities, the global travel and tourism industry has shown remarkable resilience in the face of adversity. Projections indicate 1.5 billion international travelers expected in 2024 and 1.8 billion by 2030. In 2024, the global tourism industry is projected to reach an all-time high of USD11.1 trillion in revenue. The hospitality sector is expected to contribute a substantial portion of this total industry revenue globally.
Market complexities
Our upcoming research publication, based on insights from a survey of 1,700 global respondents, addresses these critical trends. Hospitality businesses need to balance luxury with affordability, sustainability with convenience and global appeal with personalization. These strategies will help businesses navigate complexities and thrive in a competitive environment.
Luxury and budget travelers
For example, hospitality businesses should adopt a dual-segment strategy to cater to both luxury and budget-conscious travelers. In the premium luxury market, businesses must offer eco-conscious, immersive experiences that appeal to affluent travelers. Destinations such as AlUla, in Saudi Arabia, attract affluent travelers by combining sustainability with cultural richness and exclusivity.
On the other hand, for budget-conscious travelers, value-driven consistency and tech-savvy services play crucial roles in their decision-making process. Brands like Marriott’s Courtyard excel at providing quality accommodations alongside modern conveniences, such as mobile check-ins, enhancing overall guest satisfaction.
Personalization
Another crucial trend shaping the industry is the increasing importance of personalization for all travelers, regardless of their budget. Today’s travelers expect tailored experiences that cater to their individual preferences, making personalization essential. Technology allows businesses to offer personalized in-room amenities, digital interactions and customized itineraries.
By combining sustainable luxury, value-driven technology and personalized experiences, hospitality businesses can navigate global market complexities effectively. This approach enables businesses to cater to both affordable and premium luxury segments successfully in today’s dynamic environment.
In your opinion, what trends will shape the future of the hospitality industry?
The hospitality industry is evolving rapidly, shaped by several key trends, as evidenced by our comprehensive research findings. A notable shift is the growing preference for offsite experiences, with travelers spending most of their time exploring outside their accommodations. Interestingly, Europeans and Americans are particularly driving this trend, further emphasizing the global shift in travel preferences. This underscores the demand for authentic, culturally rich experiences, prompting hotels to offer curated itineraries and forge meaningful local partnerships.
Cultural experiences with luxury
Additionally, the Middle East combines cultural experiences with luxury, appealing to affluent travelers seeking unique and exclusive offerings. Conversely, Asia, especially rapidly growing markets like Southeast Asia, is focusing on making travel more accessible for a rising middle class. Meanwhile, sustainability is at the forefront, as a high proportion of survey respondents consider environmental impact in their travel decisions. Consequently, hotels have adopted greener practices, integrating sustainability into their day-to-day operations and overall guest experiences.
Emerging destinations
Furthermore, another significant trend is the rise and necessity of emerging destinations, especially as many iconic destinations are suffering from over tourism. As a result, governments and tourism agencies are pushing alternatives, encouraging travelers to discover new spots like the Red Sea coastline. Wellness tourism is also becoming a key driver in this shift, as more travelers prioritize health and well-being when selecting destinations. For example, wellness resorts now offer holistic family packages, including nature-based activities, fitness programs and bonding experiences.
Social media
In today’s world, where social media drives and amplifies every experience, businesses that embrace these trends will thrive. Consequently, businesses that adopt these practices will build loyal customer bases and stand out from their competitors.
How can hospitality businesses achieve sustainable growth and profitability?
To achieve sustainable growth and profitability, hospitality businesses must prioritize innovation, operational efficiency and strategic adaptability in a competitive market. This focus is especially crucial in regions like the Middle East, where tourism is expanding and driving significant economic growth.
According to our analysis of the broader travel industry, including comparisons of five leading companies, the hospitality and OTA sectors show contrasting revenue growth. Interestingly, the hospitality sector’s revenue grew at a CAGR of 40 percent from 2021 to 2023, reflecting steady recovery. However, OTAs experienced a higher CAGR of 51 percent, signaling faster recovery from the severe impacts of the pandemic.
Resiliance
Moreover, the stronger revenue growth in OTAs highlights their ability to recover, while hospitality demonstrated resilience with robust EBITDA margins. For instance, the hospitality sector increased its EBITDA margins from 29 percent in 2021 to 35 percent in 2023, reflecting operational improvements. In contrast, OTAs saw a significant recovery, improving their EBITDA margins from a negative 16 percent in 2021 to a positive 20 percent by 2023. This indicates slower but substantial progress in profitability within the OTA sector, which continues to improve.
Profitability
Within the hospitality sector itself, companies have demonstrated varying levels of profitability based on their individual strategies and market positions. Interestingly, some companies achieved exceptionally high EBITDA margins, emphasizing the effectiveness of their operational efficiency. On the other hand, others have faced challenges in maintaining profitability, with more modest margins requiring additional strategic focus. Consequently, operational efficiency and strategic innovation have been critical drivers of profitability for these companies, particularly those leveraging technology.
Innovations
Additionally, innovations like automated check-ins, mobile keys, and digital apps have streamlined operations and enhanced guest satisfaction. These improvements have contributed to a competitive edge, allowing businesses to differentiate themselves within the market. Furthermore, partnerships with leading technology firms have advanced digital transformation efforts, positioning technology as central to future growth. Overall, combining strategic innovation with adaptability to evolving market conditions enables hospitality businesses to achieve long-term success.
