Lodging as a contrarian bet?

In a recent interview with the FT Andrew Cosslett, chief executive of InterContinental Hotels Group claimed not to have answer as to why despite a two pronged conflict in the Middle East, significant terrorist activity in the UK, draconian restrictions on hand luggage and extra security checks across the world, the hotel industry continues to thrive. In the aftermath of 9/11 there appeared to be a direct correlation to the drop in business to the terrorist attacks in the US. But despite a seemingly more unsettled world with considerably more restrictions on travel, travelers remain undaunted. Is there a case to be made that hotels are a contrarian bet at least in the context of terrorism?

One answer, could be the little advertised fact that the industry is a lagging indicator. Currently, supply lags demand and as inventory comes on line in conjunction with a general slowdown in economic activity, there will be rapid slowdown as has occured in the past. Related industries such as airlines and travel operators are good indicators of where hospitality could be heading. In a later issue of the paper, the Financial Times notes that MyTravel, the UK package tour operator, highlighted the August anti-terrorist alert among a host of factors contributing to a fall in its projected profits. While My Travels’ ailments do not necessarily mean an industry downturn, terrorism has clearly affected airports and airlines negatively. While the latter are facing rising costs due to heightened security checks and aborted flights besides frustrated travelers, the interesting fact is that travel numbers have not dipped. The hotel industry apart from isolated instances like Bali and Amman has fortunately been spared the direct attention of terrorists. While consumer sentiment remains strong despite institutional obstacles to travel, the numbers are unlikely to drop. Another answer may well be that, worldwide, the consumer has accepted there is an unquantifiable probability of a terrorist attack and won’t be deterred by that. If that is indeed the case, the industry may well be a better bet than its brethren in the tourism sector – airlines and airports who have to deal with costs directly associated with terrorism.

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Vijay Dandapani

Co-founder and president of a New York based hotel company for 24 years. Grew the firm to five hotels in Manhattan and also developed a greenfield project at MacArthur airport, New York. Speaker at numerous prestigious forums including Economy Hotels World Asia, Lodging Conference, NYU, Columbia University Real Estate Roundtable, Baruch College's Zicklin School and ALIS. President and ceo of New York City Hotel Association since January 2017.

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