By Thomas Magnuson, CoStar – Dec 2th 2022
Outsourcing guest acquisition and thus revenue is an odd way of looking at business
Before 2001, the hotel industry was stable. Owners dealt with seasonality and some occasional minor economic swings, but they could always count on a rebound. Whether operating as a branded or independent hotel, business was built like a layer cake.
First, marketing began close to home by identifying all non-leisure business segments within a 50-mile radius of the hotel, such as corporations, factories, industries, energy, construction, transportation, medical, government and educational entities. Direct contact and an offer of direct rates built a base of approximately 50% of the property’s occupancy, covering overheard for the year.
On top of the foundation of predictable non-leisure business, partnerships were built with nearby leisure drivers such as golf courses, cruise ships, ski resorts, motorcoach tours, theme parks, national parks and museums resulting in more profitability with higher rates. It was all direct business, and hoteliers owned it.
But then came 20 years of nonstop challenges — 9/11, the Great Recession and COVID-19 — followed by the current state of inflation and labor shortages. So, what happens?
During times of nonstop uncertainty and stress, the promise of better days becomes an alluring message.
Collectively, we have outsourced our lives, finances and personal details to mobile phones, apps and invisible technologies. Hotel owners have surrendered complete control and decision-making of their hotels to the online travel agencies, rate automations and global franchisers such as Marriott International, Hilton, IHG Hotels & Resorts, Wyndham Hotels & Resorts, Choice Hotels International and BWH Hotel Group.
From proactive to reactive, an entire global industry has engineered a coping mechanism for a captive situation.
In a presentation this past June to the United Kingdom’s House of Lords, I on behalf of Magnuson Hotels outlined the rapid decline in the number of United Kingdom hotels owned by independent private businesses. Our research indicated independent hotels represented 78% of the U.K. hotel industry in 2010 yet will fall to 22% by 2026.
In just the last 10 years, 40% of independent hotels have closed. The power and scale of unregistered accommodations backed by Airbnb, Expedia and publicly traded global brands, with platforms and deep marketing budgets, are difficult to compete with.
By 2026, it is estimated that Airbnb supply in the U.K. will represent 835,000 rooms, greater than the estimated 2026 U.K. hotel room inventory of 732,000. In the U.S., Airbnb is now equal to 25% of the country’s total rooms.
Efforts and legislation are being made to rein in change, but will action be truly effective?
To manage the rapid rise in short-term room rentals, lawmakers are considering a “Tourism Accommodation Registration Scheme” in England. U.K. hotel owners maintain that because Airbnb and home-sharing rooms are not nationally registered as businesses, they are invisible competitors and are not subject to the same regulations and costs as the rest of the U.K. hotel industry.
Across the U.S., a movement called “fair franchising” is underway.
Thousands of hotel owners are rising up against the publicly traded hotel corporations with class-action lawsuits and legislation at the state level. United voices are alleging one-sided business practices, such as forcing hotel owners to purchase TVs from required vendors when the same TV can be purchased locally at a lower price.
Asian-American hotel owners, who own more than 65% of U.S. hotels, are challenging paying total franchise fees of up to 20% of total revenues as it is not sustainable in today’s economy, with rising costs of labor, energy, insurance and commissions from online travel agencies.
To make decisions against a backdrop of high uncertainty, what do we do?
When times are challenging, I recommend going back to the fundamentals to focus on the elements that can be controlled.
Go back to your local market, renew your relationships with the local chamber of commerce and convention and visitor bureaus. Get to know the people representing companies, government offices, industries and educators operating within a 50-mile radius of your property.
Take control. Choose your own amenities, renovation schedules and suppliers at the best pricing you can find.
Look for technologies and platforms that will support your hotel’s true identity rather than those that dominate and standardize. Consider independent affiliations or alternative franchise models that focus on accentuating uniqueness and profits, rather than on corporate shareholders.
You have the power to overcome the uncertainty of the world and take back control of your business. Just do it.
Prior to 2001, and even prior to the franchise explosion in the 1990s, hotel owners had to go out and get their own business. They did these things because they had to, and they owned their business directly.
Just because new platforms and technologies have been introduced doesn’t mean successful business developments that worked in the past should be abandoned. True progress can be made and built upon solid foundations. By uniting historical successful business practices with new technologies, there is no way you can lose. Even in these difficult times, we can all be successful, and that’s because global travel is growing at four times the growth rate of the U.S. and the U.K.
The business is there, we just need to go get it. So, let’s go!
Thomas Magnuson is the co-founder of Magnuson Hotels, which has headquarters in London and Spokane, Washington.