Airlines and Hospitality

The hospitality industry has long taken its cues on many fronts from the airline industry. Given the chronically ill status of that industry many would argue that it is a horrible precedent to follow. Nevertheless, as a leading indicator for our industry it offers several pointers that spur (or dampen) development and it is a given that the arrival of new terminals and flights spark development in the vicinity of an airport. Examples of positive emulation include yield management, product differentiation and, of course, affinity programs.

However, negatives abound and today’s Wall Street Journal has an article on how travelers can move into the first and business class cabin paying less than for a full fare coach ticket. Business seats, according to the article, are loss leaders with most seats taken by non-revenue frequent flier awards. The Vice President of revenue management for American, Scott Nason, is quoted as saying” “In other industries, they take their best product and sell it for the most money. We take our best product and use it as a lure to [get people to] buy on us, period.” That sounds awfully familiar to many hotel owners and operators, particularly in lean times when suites – the hotel equivalent of business class – are used to draw customers and often given away either as an upgrade or even free. In crowded urban settings, suites are non-starters except in the very high end of the hotel market where an array of esoteric accoutrements help garner high rates. Anyone contemplating doing an all-suite hotel in city center locations such as Manhattan, Boston or Chicago in today’s ADR rich environment ought to consider what a downturn in the economy will do to all those square feet. It clearly won’t add up.

While on the topic of downturns, PWC’s latest report points to a surge in supply as compared to last year. The same issue of the Journal has another article headlined a “Flurry of New Hotels”. With projected new supply at 119,800 as compared to some 82,000 last year, it could presage over-supply in some markets – a sure portend of a downturn. Oddly, the report mentions that last year’s lower supply number was attributable to high construction costs. Surely, construction costs have not gone down this year? The evidence is entirely to the contrary.

One area that the hotel industry will do well to follow the airlines is in instituting a “bereavement policy”. Many airlines have bereavement fares and offer priority to travelers headed to a funeral. In contrast, most hotel companies offer neither bereavement rates nor priority, at least not officially.