New York Hospitality by Vijay Dandapani

Morbidly curious tourism

The Wall Street Journal reports that "after being scared off by the Fukushima Daiichi nuclear accident, Chinese tourists are visiting Japan in record numbers again, generating much-needed business and optimism for the nation's struggling retail and tourism sectors." (And in a nod to the economic might of the world's most populous country the article goes on to note that Chinese customers on average spend 7 times as much as a Western tourist in Japan.)

While Chinese tourists visiting Japan don't quite fall into the latest niche labeled as "Disaster Tourism" the seemingly morbidly curious do constitute a relatively meaningful subset of the tourism economy. Disaster tourism has a fairly long post-war history starting with visits to the concentration camps of Germany to droves of camera-toting visitors to what was till recently known as "Ground-Zero" the site of the bombed out Twin Towers of the World Trade Center.

The sinking of the Costa Concordia and resulting death of over 17 passengers has not deterred operators from organizing trips to see the coastline and the oversized whale like hulk of the doomed ship. Ireland's economic woes spawned its own unique version of disaster tourism where laid-off - strategically downsized in banking parlance - workers on their own initiative ran factory tours of idled plants.

Within the US, Disaster Tourism has not been without controversy. Last May Joplin, Missouri was struck by a catastrophic EF5 tornado, leaving a 22 mile long path of destruction that was a mile wide in some areas.  The tornado killed 162 people and injured thousands.  Nearly eight months later, the city’s Convention and Visitors Bureau was under fire for offering visitors a free “tornado travel” map which highlights areas hit by the tornado and can be picked up for free at local hotels and businesses. Six years after Hurricane Katrina, a disaster that heaped opprobrium on the US administration of the time, tour operator Gray Line, offers $48 tours that provide "an eyewitness account of the events surrounding Hurricane Katrina, the worst natural disaster on American soil."

No one has come up with a sugar-coated euphemism such as Memorial Tourism in honor of the dead and injured. Regardless of whether it is morbid curiosity, as seen in rubber-necking on the road, or a desire to commiserate and memorialize a disaster there seems to be a sufficiently robust demand for this sub-market.

 

Web Police? Google knows best

That Google is referee & judge to any and everything dependent on its search engine has long been a source of joy to some and frustration to many leading to a long running anti-trust review by regulators. Appearing at the top of a search engine results page is a holy grail sought by marketers in every field for being on the wrong (second or subsequent) page can likely mean a quick end to many businesses.

So when Google's Official Webmaster announced a "page layout algorithm improvement" last week e-Week termed it as punishing "Website publishers who dump loads of ads at the top of their Web pages to make more money at the expense of exposing visitors to their content.

The faux high-brow tone to Google's announcement did nothing to mask the fact that its writ will run unchallenged (for now) when it comes to making its 500+ algorithm changes that can have a devastating impact on some websites. The search giant says it "heard complaints from users that if they click on a result and it’s difficult to find the actual content, they aren’t happy with the experience. Rather than scrolling down the page past a slew of ads, users want to see content right away.

Sites that don’t have much content “above-the-fold” can be affected by this change."  Google's webmaster page went on to state that the "algorithmic change noticeably affects less than 1% of searches globally." That could still amount to a sizeable number of websites in absolute terms.

Google's nanny state solution ignores the fact that customers actually click on the ads on the allegedly ad-heavy "above the fold" (top of web pages). Few if any of thsoe customers are compelled to click on those ads and those that are averse to seeing pages which have in Google's estimation "excessive" ads always have the option of moving past them with a mere click. 

There are enough hotel search-engine-results-pages that have ads above the fold which could be affected by the new change. Reworking them per the new guidelines can only occur after Google's algorithm change results are available. In some cases, a restoration to status-quo-ante may simply not be possible.

 

 

Room Key: A winner or a fool's errand?

Late last week saw the launch (in beta form) of the latest salvo by hotel majors in the war against the high cost of distribution in the internet age.  MSNBC reported that "six major hotel companies formed a new online booking service, Room Key, as a way to reduce commission costs paid to online travel agencies (OTAs) like Expedia and Travelocity, whose hotel room sales continue to climb."

The new front is being led by an unlikely coalition comprised of Choice Hotels, Hilton Hotels, Hyatt, IHG, Marriott  and franchise king, Wyndham Hotels.  The website will list all the hotels in the groups' worldwide stable. Prospective clients can search for hotels by destination and will be connected directly to the proprietary  website to make a booking and will be able to snag the lowest available rate on the website while also collecting frequent stay points; something that has been proscribed for a while by hotel majors for clients coming through OTAs.

Room Key expects to offer reviews a la Tripadvisor soon and the six founding companies hope to persuade some noteworthy hospitality giants such as Accor, Starwood and Fourseasons to join them before long. Adding more heavyweights may help, at least initially, but is it likely to endure?

A cursory review of attempts in other industries would suggest otherwise. Morphing into a version, particularly a limited one, of the adversary posing an existential threat is an unlikley means of survival.  Votaries of this strategy in businesses such as the record label industry have found that it did not nothing to stave off their demise.  While the hospitality industry is one that can never disappear it's unclear the industry's profitablity can be larded back up in this manner.

For starters, the venture assumes that the constituents of the group will be unaffected by the fact that many potential customers are likely to be brand agnostic and that it won't result in gains for some at the cost of others. It is also likely that the proprietary websites of brands will see some erosion in traffic. Another element that potentially limits the new venture is that unlike the OTAs Room Key wont offer the full panoply of travel products such as airlines and car rentals.

Having control over one's distribution channel has long been a holy grail for the industry well before the advent of the internet. But digressing  into an area where the industry has heretofore come up empty in terms of innovation is only going to divert from from the industry's core focus, that of being a reputed hostelry estabilshment. It is not accidental the three decades old adage of needing to sticking to one's knitting put forth by management guru, Tom Peters, continues to hold true.

The solution for the industry's distribution travails lies in, among other things, the promotion of more competition amongst OTAs. It is unclear how that could be stimulated but if nothing else the passage of time and the arrival of new technology will bring in more competitors.  Only then will the disproportionately large commissions gouged by the OTAs begin to whittle down to more "acceptable" levels enable a better modus vivendi for the hotel industry.

Innovation: scourge or blessing?

Avoiding Innovation's Terrible Toll is the headline for an article in the Wall Street Journal's management section which explores the life span of corporations. The Journal cites a study conducted by two management professors that spanned over six million firms and came to the conclusion: that only a tiny fraction (of firms) reach the age of 40.  And with the rapid pace of technological change the lifespan is likely to be shorter in the years to come.

Some key observations of the study include insights from business leaders, academics and venture capitalists, all of whom say that "large companies that do manage to survive are ruthless about change. The most successful ones aren't afraid to cannibalize their big revenue generators to build new businesses."  Successful (those with longer lifespans) firms "often make frequent—but, crucially, small—acquisitions that bring in new technologies and open new markets. And there's always the unpredictable role of luck in business—both good and bad." Notably, firms that were "felled by creative destruction tended to be bureaucratic, played too much defense, and tried to catch up too late by lurching into huge acquisitions.

Many of the foregoing conclusions ought to be somewhat intuitive particularly in a very competitive marketplace. In a free market, something the Journal consistently espouses, innovation's effects ought to be viewed more as a blessing than a "toll". America's hotel industry abounds with examples where both companies and individual hotels have ceaselessly innovated to survive the ravages of competition.

Holiday Inns, for instance, grew to be an industry behemoth in little over a decade and reached its pinnacle in the late 60s but by the early 70s found its assortment of businesses like the Trailways bus corporation and its circular towered hotels were eating away its primacy.  The company retooled by divesting deadbeats while incorporating new brands like Hampton Inns, a process that continues to this day. The same is true of a host of other firms and individual hotels that continually come up with innovative concepts including some highly innovative ones such as the Gastwerk Hotel in Hamburg, Germany, formerly a 19th coal plant.

Joseph Schumpeter, the Austro-Hungarian who put forward the idea of "creative-destruction" as essential for a thriving economy likely would have cited the hospitality industry as exhibit-1 for the notion that innovation is unambigously a plus.

Tourism boom: A bigger bite at the Big Apple

New York City reported and feted a landmark that was achieved well ahead of schedule - the arrival of its 50 millionth visitor with 20% of those coming from overseas. Britain topped the list as a source for international arrivals at 1 million strong and, unsurprisingly, the City chose a British couple for the honor by showering them with a jackpot of prizes amounting to $25,000.

The gush of visitors had New York's Mayor somewhat justifiably gushing about the "quality of life" contributing to the uptick in tourism. Seemingly in endorsement of that,  a survey by NewYorkHotels.org, a hotel booking site, found "73% of New York City Visitors Happy With Their Hotel" giving the lie to alarmist headlines from a few months ago about bed-bugs that may have served to deter tourists.

However, the growth in visitation to New York City has also served up unprecedented growth in hotel rooms in most of the city's five boroughs. Official statistics put room inventory growth at 25% in less than five years. What has not kept pace with that is the hotel industry's holy grail - revpar growth that is prefereably exponential. For the same period, in real terms, it is barely treading water at $185.

Almost at the same time but at the other end of the globe, Hong Kong was celebrating its own tourist arrival landmark: the 40 millionth tourist. However, the former British port harbors under 65,000 hotel rooms. New York, in contrast, has the added and unwanted distinction of having the highest operating costs (fixed and variable) in the country.  The Big Apple's hotels also have some of the largest and most prominent hotel debt defaults such as the Westin Times Square reported by CMBS mortgage info provider Trepp with many more to come. Earlier in the year owners of two upscale hotels, The Mark and The Alex, found themselves without the keys to their properties. Clearly, the spate in room supply has been a boon for New York's visitors as real rates remain firmly in check. What is less clear is the fall out from hotel CMBS loans coming due in 2012 particularly if the macro outlook remains choppy or even takes a turn for the worse.