I published an article/novella on TalkMarkets as Part I of this series on the lodging industry, Hot Hotel Stocks? Look Before You Leap. I recommend you read that first article in order to see just how hotels are typically owned, managed and marketed. It isn’t what most people assume. Part I provides the background in which hotels operate — company owned, managed and branded; investor group owned, externally managed and externally branded; franchised, etc. In it, I also discuss how the industry is rapidly evolving, and provide my investment suggestions for your further due diligence. When you return to this Part II article, begin here…
The Gallery Bar at the Millennium Biltmore Los Angeles, a member of Millennium Hotels, London.
All hotel stocks have performed well in 2017. That was not just the rising boat phenomenon of a good market; it was outsized performance that beat the market as a result of investor expectation of rising business and leisure travel in 2018. But we cannot assume that all travelers will select traditional hotels. Nor can we any longer assume that the hotel owners and/or managers and/or branders — the “flag” companies like Marriott (MAR), Hilton (HLT), and Hyatt (H) — will be as profitable given increased competition for the traveler’s dollar.
The first assault has come from the online travel agencies (OTAs) like Hotels.com, Booking.com, Priceline (PCLN), Expedia (EXPE), TripAdvisor (TRIP) and the rest of the aggregators of hotels, motels, B&Bs and other traditional lodging. Hotel owner-managers (if they are independent) or managers (if they represent owners) tend to have a love/hate relationship with such sites.
On the one hand, no owner or manager wants to see a hotel room that has cost money to market, maintain and clean remain vacant. The Priceline and Expedia’s of this brave new world help fill those rooms – for a fee that cuts into the hoteliers’ bottom line, of course. On the other hand, better to pay 10% of something that get 100% of nothing.
I use Priceline, TripAdvisor, and Expedia as examples because these three now control, via aggressive acquisition, much of the industry. For instance, Expedia owns Expedia.com, Hotels.com, Hotwire.com, Trivago, Venere.com, CheapTickets, hotwire, vacationrentals.com, Travelocity, Orbitz, VRBO, and HomeAway.
Priceline owns Priceline, Booking.com, Kayak.com and many others that are not hotel-related but which refer from cheapflights.com, rentalcars.com, Open Table, etc. to suggest a hotel vacation.
TripAdvisor owns (again, not all hotel-related but all will link to lodging sites) Airfarewatchdog, BookingBuddy, Citymaps, Cruise Critic, Family Vacation Critic, FlipKey, GateGuru, Holiday Lettings, Independent Traveler, Jetsetter, OneTime, SeatGuru, SmarterTravel, Tingo, VacationHomeRentals, Viator, andVirtual Tourist.
Most of these travel sites will funnel travelers to lodging sites… Graphics courtesy of tnooz.com
These various sites dilute the likelihood that a hotel website will gather 100% of the “eyeballs” when trying to get the attention of the traveling public. Especially if they believe they are in the “hotel business” rather than the more complex “guest hosting business” then they will rapidly fall behind in the basic technological and cost-saving appeal of the OTAs.
It is not that deep-pocketed owners, management firms and “flags” (the big chain names) cannot compete in this crowded field; it is instead a matter of how profitable they can be and how much of their gross revenue can be brought down to the bottom line. But many believe there is a greater threat to the hotel industry than the online travel agencies:
What if people simply stopped staying at hotels? That would be a different matter. And that is the concern engendered by the entry of Airbnb and its newer competitors as well as by the many “vacation rental by owner” companies like Expedia’s VRBO and HomeAway and TripAdvisor’s FlipKey.
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