Automation Will Drive Recovery with Select Service Hotels Best Placed to Lead
Over time, technological advances have been shown to change the world in unexpected ways. If you look back at the 1940’s when aviation was making huge leaps, few would have predicted that within 5 years we’d go from planes made of wood, to planes flying 100 times further and faster using jet propulsion.
Today, as back then, it is stress that leads to major leaps in technological advances. This is as true for the hospitality industry as it is for any other. If the past is any indication of what lies ahead for our industry, then it will be those hotels with the simplest business models and the most limited services that are most likely to adapt to new technologies and recover the quickest; select service hotels.
In my view, there are two main reasons that select service hotels have this advantage. Firstly, the simpler a property, the lower the operating costs. When the business is entirely focused on room economics with no other distractions such as spas, food and beverage, gyms or retail it has more focus. The second reason is that during an economic recovery, travelers have less disposable income and therefore are looking for lower cost options.
During 2020, early signs in China suggest that simpler, room-only focused hotels have been the first to recover. According to a McKinsey study this recovery is being led heavily by midscale and economy hotels. Another interesting trend is that those doing most of the bookings are young people and those without children (i.e. the digital generation).
During the past two recessions, after 9/11 and the financial crisis in 2008, luxury travel brands, including hotels, were hit the hardest whilst select service segments fared much better. Resort and airport hotels were affected significantly, while highway and small town hotels performed better. Interstate hotels didn’t post a 12 month RevPAR decline following 9/11, but instead a 0.7% growth rate.
Today, with the greater use of mobile technology, hotels that are without the additional services are also now at a much smaller disadvantage in terms of offering guest comfort. A guest today can use their own phone to order almost any type of food they want and have it delivered right to their hotel room. In addition, if a property has a legacy property management system connected to food and beverage or spa, etc, it's much harder to upgrade to a more modern, cloud based system like Cloudbeds or Mews. Complexity and size does make it more problematic and costly - and therefore more difficult for a hotelier to adapt and switch to a more intuitive and efficient tech stack.
In a recent study by AirDNA and STR, it was shown that “hotel comparable rentals” (i.e. those with in-room kitchens such as studios and one bedroom apartments) have seen a quicker recovery than hotels. These businesses tend, in the most part, to have also been quicker to adopt new technology to ease operations.
For example, Mint House has aparthotels across multiple major cities in the United States. During March - July this year, the company was able to maintain a minimum 80% occupancy rate. This really is incredible, especially when compared, for example, to the Canadian hotel average for August of just 38.4%. Mint House implemented clever technological innovations which make up for the fact that their properties aren’t amenity-centered. For instance, in pilot units they are installing MIRROR, a fitness tech that does indeed look like a mirror, but is in fact a digital screen allowing for ‘virtual’ exercise routines with a virtual trainer. Think of Peloton but without having to take up valuable real estate with a huge bicycle. MIRROR comes with a greater variety of exercise options such as yoga, Pilates, aerobics or simple weight training. Mint House also partners with Operto to completely offer keyless entry for guests, making operations far less costly to run from a labor perspective and allowing for more competitive rates.
A similar “hotel comparable” short-term rental company is Jurny which has seen explosive growth in cities across the United States and now has its sights on international markets. Jurny has developed its value proposition with a very heavy technology focus with their apartments units. One of the tools that Jurny uses to achieve a scaled back offering, is their own guest app that will allow the guest to go through the entire customer experience including booking their stay, checking in, unlocking the door and even setting the thermostat. Jurny has cleverly leveraged advanced property management software from the vacation rental sector which tends to have more options for software with automations and distribution options than the hotel industry traditionally has.
Technology forward boutique hotels also seem to be recovering faster than large brands. Kasita, a boutique hotel developer and operator is leveraging the increased number of digital-first consumers. Convenience has led to more digital bookings, and now that the main priority has become safety, people are spending more time than ever researching online how properties will keep them safe. Almost 95% of consumers want physical protection and distance measures. Kasita fully employs keyless entry and a modern PMS (in this case Cloudbeds) to enable social distancing and virtually zero staff interactions, which keeps demand and nightly rates high, while keeping operating costs low, at their Kimber Modern hotel in Austin, Texas.
It’s clear that one other aspect all these ‘stripped back’ hotels and rental companies have in common is a very strong technology stack. All also operate without a front desk, and did so even before COVID. This has been in response to a growing expectation of guests, which was strong even before the events of this year. In 2018 Booking ran a study showing that 63% of guests preferred keyless entry. That number continues to rise. Most select service hotels also offer branded apps or microsites for guests. They have connected technologies for maintenance, cleaning and other operational services. In addition they all have property management systems with large numbers of OTA options which has also helped them focus on greater domestic / local travelers. Tech driven, select service hotels aren’t just lean and technologically advanced but have been quick to adapt and innovate. They also provide an exemplary product and service for their guests.
As with past economic recoveries, it's very likely that select service hotels will lead in this recovery. This time, unlike the past, technology looks like it will play a massive role in that recovery.
About Michael Driedger
Michael is the co-founder and CEO of Operto Guest Technologies, a property automation system that provides intelligent control of smart home/IoT devices at scale. Operto improves guest experience and operational efficiency for hotels, vacation rentals and serviced apartments. Prior to founding Operto in 2016, Michael had more than two decades of experience in architecture, building design, and construction and has a passion for energy efficiency, sustainability, and intelligent systems that are designed to improve our overall quality of life. www.operto.com