A downturn opens the door for disruption in hard hit industries, but the CEO at one of the world’s largest hotel companies says a business like his does more than any tech platform can replace.
The CEOs of Kayak and Sonder in the last week doubled down on the idea a low-cost technology platform could disrupt the hotel business at the property level. The idea is that technology can cut down on costs — who needs a staffed front desk and all those other features of a traditional hotel? — and drive a more efficient line of business for hotel owners.
Kayak is already underway with branded hotels in partnership with Life House while Sonder, which recently went public, continues to build up its business that acts like a hybrid hotel and short-term rental platform. Lower operational costs while maintaining widespread distribution can be music to the ears of hotel owners still financially struggling from the weight of the pandemic.
This kind of knife sharpening by tech providers eyeing the hotel space isn’t new for IHG Hotels & Resorts CEO Keith Barr.
“This is like when Oyo came out, and there was the question of what was going to happen with [online travel agencies], and I have to remind our board — and they get it — is distribution is a piece of the value proposition that we bring,” Barr said in an interview with Skift this week during the Americas Lodging Investment Summit. “It’s not the entirety of it, which is why what we do is so complicated.”
Sonder’s model is that it rents out units it manages through a lease or revenue share agreement with the owner of apartment buildings, and even actual hotels. Company leaders have previously stated Sonder can chop traditional hotel costs in half by its method of relying more on technology and less on physical staff and amenities that add up in overhead.
Kayak CEO Steve Hafner at Skift’s Megatrends event earlier this month specifically called out Sonder as well as other tech-reliant platforms, including the burgeoning Kayak-branded line of hotels, as having potential to disrupt the hotel business — especially coming out of a pandemic when owners are looking to trim costs.
If there is panic in the boardroom, Barr isn’t showing it. Instead, he touted what he finds traditional hotel companies can offer hotel owners that tech outsiders can’t.
“We have a digital distribution technology platform, which is what Kayak will have. We also have a massive global sales organization that they don’t have. We have a massive technical services organization which helps owners build and renovate their hotels. We have a massive [human resources] platform that gives training and skill development,” Barr said. “The only thing [tech disruptors are] solving is a piece of it — not the entirety of how we create value for owners and how we deliver experiences for customers.”
But there are signals hotel companies like IHG are still taking note of what might be a vulnerable point in holding onto franchise agreements.
Sure, traditional hotel companies have more bells and whistles than what Kayak could currently bring to the operational table. But those features also come with higher costs that might be the reason an owner wants to just throw in the towel and try something a little more tech savvy without all the headache of adhering to big brand standards.
Barr noted the company is investing more in its IHG Concerto technology platform to improve the digital experience at a hotel. The owner portal on Concerto provides real-time data on an individual property and offers suggestions on how to improve performance.
Mobile check-in and check-out as well as digital room keys may have been billed as a pandemic safety measure, but they also eliminate a friction point in the guest experience and cut down on operational costs.
“We always have to up our game, so we have to continue to invest more and more in technology, reduce friction in the digital experience, and find better ways of reducing costs for owners and our technology platforms,” Barr said. “We can’t sit still, but it’s pretty darn hard to replace [the traditional hotel experience]which is the advantage we have.”
A Roaring 2022 (In the US and Europe)
There is a swelling sense of optimism for the coming months at hotels, despite all the chatter from tech companies vying to snipe business from traditional hotel companies — even if the upbeat chatter does seem like a case of déjà vu.
The last time hoteliers took a giant bite of optimism, the Omicron variant reared its head and sent occupancy rates back into a nosedive and sparked some countries to go into lockdown once again. But hotel industry leaders at this week’s ALIS conference in Los Angeles seemed notably more upbeat about the recovery potential for hotels over the next year.
“If you remember in March or April of 2020, I said, ‘There’s a light at the end of the tunnel. I just can’t tell you how long this tunnel is going to be,’” Barr said. “And [now] you kind of feel like you can kind of finally see that the light is right there.”
The industry still isn’t bathing in the light at the end of this proverbial tunnel. US hotels still performed about 17 percent below pre-pandemic levels last, according to STR. That’s actually a strong showing compared to China, where performance was down 50 percent, and Europe, where it was a 43 percent decline.
But Barr’s sentiment isn’t a case of the hotel industry being a Pollyanna, either.
Newly reported case counts are on the decline in the US and in the UK, and some European countries are lifting restrictions previously rolled out to combat Omicron. The variant’s signal of a swift exit from many regions has executives like Barr cautiously optimistic that, thanks to so many people now having natural immunity on top of vaccine-induced immunity, some level of normalcy in the travel arena can return.
The additional approval of therapeutics to treat coronavirus on top of the vaccines in circulation provides better treatment options since even when the Delta variant ripped through only last summer. Coronavirus is likely to shift to an endemic disease — one that doesn’t go away but mainly has regional outbreaks like the flu — as early as 2024, Pfizer executives said last month.
But the chatter at ALIS would have some believe this endemic phase could happen in a matter of months in some parts of the world.
“It’s really feeling like you’re starting around probably spring break [and] onwards, you’re probably just going to see a phenomenal kind of [second and third quarter] in the US, without question, and Europe and then probably the Middle East as well,” Barr said. “When you get to Asia, you get a bit more mixed results because of the levels of vaccination. Then, the big question is China.”
China has shifted from the global leader in the hotel industry’s recovery to one with a giant question mark over it due to the country’s zero-case policy and strict lockdown measures that continue to dampen hotel performance. But Barr remains upbeat around reports travel restrictions there will potentially lift at some point later in the year.
A new variant can always be lurking around the corner, as recent history has repeatedly shown. But the swelling sentiment that, with effective treatments on top of vaccines increasingly readily available, the upbeat post-Omicron outlook may not be as naïve as when people were pontificating on a fast-approaching return of business travel once the Delta variant slowed down last fall .
“Spring will come,” Barr said. “I think society and governments have decided that we have to coexist with Covid. Seeing that vaccine efficacy is pretty solid — you’re seeing people not getting that sick … it just gives you confidence it’s going to get back to a level of normality.”