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After a turbulent year, what will 2016 hold in store for the global lodging industry? Euromonitor International looks ahead at the upcoming year, with performance forecasts and developments we will be keeping an eye on.
The global hotels industry saw healthy growth in 2015. While there was strong growth in Asia Pacific, Latin America and North America, Europe struggled and underperformed. Geopolitical issues in Ukraine, the EU’s boycott on Russia, the eurozone crisis in Greece, and the terrorist attacks in Paris at the beginning and end of 2015 all impacted travel in the region.
It is expected that hotels will continue to perform strongly in 2016, as average GDP growth will remain positive and disposable incomes in key countries like China will further increase. This is expected to result in more people travelling, more hotel stays and higher average daily room rates. Challenges lie ahead, however, as certain regions remain volatile, and the continuing rise in private rentals is expected to increase competition for hotels.
Source: Euromonitor International
Note: 2015-2019 data are forecasts
After the late 2015 deals struck between Marriott and Starwood, and AccorHotels and FRHI Holdings, it is unlikely that 2016 will be a quiet year on the mergers and acquisitions (M&A) front. Instead, expect hotel companies to aggressively look for opportunities to add brands to their portfolio. Marriott acquiring Starwood shows the need for even the largest hotel operator to increase its scale if it wants to effectively compete with online travel agencies like Booking.com and Expedia, and peer-to-peer platforms like Airbnb. Expect to find Hyatt in the buyers’ market, after rumours that the company was in advanced talks to buy Starwood, before Marriott jumped in. InterContinental Hotels Group is another player attracting a lot of rumours, but since their acquisition of Kimpton Hotels in 2014, it has been quiet. This might change in 2016 if the right offer comes along.
Action is most likely to be seen in China. Most Western hotel chains are trying to increase their foothold in the Chinese market by building new properties, but they are being upstaged by Chinese companies which have been extremely successful in the past few years. China is therefore an interesting market to keep an eye on, as, on the one hand, Western companies might look to acquire a Chinese player, while, on the other hand, Chinese players will start to look outside their own borders for growth opportunities.
It is expected that by the summer of 2016, the acquisition of Starwood by Marriott will be approved and the merger of both companies will begin. This will be an interesting period, with expected job losses, especially at Starwood’s headquarters. Marriott will have to come to terms with owning 30 brands in its portfolio. Some of these brands might cannibalise one another, with Sheraton and Marriott Hotels, for example, close competitors, with a similar service standard and offering. Marriott could: 1) decide to invest heavily to rejuvenate the struggling Sheraton brand; 2) rebrand Sheraton hotels to increase Marriott Hotels’ reach: or 3) put the brand up for sale to acquire a capital boost. There will no doubt be plenty of buyers willing to take the Sheraton brand off Marriott’s hands.
The growing influence of Airbnb was evident when it was announced that Expedia had acquired HomeAway. Both Expedia and HomeAway are looking for ways to compete with Airbnb, and this deal has the potential to offer this. It increases the number of holiday rentals on Expedia’s platform by around 1.2 million, instantly making it the second largest holiday rental platform. Meanwhile, HomeAway will benefit from this merger through Expedia’s expertise in online bookings. The holiday rental company has struggled to get all 1.2 million of the holiday homes it features bookable online, which was one of the reasons why Airbnb overtook HomeAway as the largest rental platform in 2015. A major push is needed by Expedia to bring all its listings into the 21st century, so booking through HomeAway becomes easier and the company improves control over, and income through, online bookings.
Just as Amazon started selling books, but now sells pretty much anything consumers would want to buy, Airbnb is expected to push on to improve its offering. In the past few years, it has built a strong platform, which is now recognised worldwide, and the company can now start to fill this platform with services and products which go beyond its core product (private rentals). Airbnb is pushing to extend its offering of holiday homes – HomeAway’s core product – on its platform; it is expanding its offer of in-destination experiences, and it has started a collaboration with Virgin America to offer an end-to-end product. Expect this drive to continue and extend in 2016, with hotels possibly even offering their rooms on Airbnb.
TripAdvisor introduced Instant Booking facilities on its website in the US in 2014, but the past year has seen the company stepping up its attempts to become an integral part of the lodging booking process. It has extended the facilities to the UK, and has signed up The Priceline Group to allow consumers to book rooms from any Priceline Group website (e.g. Booking.com, Priceline) directly on TripAdvisor. Meanwhile, Google has been quietly working away at extending its Book on Google facilities. Both technology players are now becoming direct competitors to online travel agencies (OTAs), and it will be interesting to see how this battle plays out over the coming years. For small independent hoteliers, this development might be beneficial, as it could reduce the power of OTAs in the booking process, and could ultimately reduce commissions taken by these players.
The past year has been a turbulent one, with many mergers, acquisitions, new brand launches, legal battles, and new companies entering lodging. There are no indications that 2016 will be any different, so expect another volatile year.