When the next downturn comes, will YOU be ready?

While the successes of recent years have led (finally!) to an ebbing in the growth of supply, the reality is that most markets in the US will have to absorb additional inventory growth in 2016.  Admittedly, 1-2% average supply growth is significantly more “bearable” than the higher growth rates of recent years, but at this point, there really aren’t any markets that truly need additional hotel rooms.

Nonetheless, our history is at least consistent; results improve, supply grows, new rooms are absorbed, improvement levels off, the cycle moves downward, and so it goes.  We aren’t on the downward side just yet, but a harsh reality for all of us is the fact that, for 2016 and beyond, real success is going to come only to those who are strategic and proactive enough to seek out and implement new ways to do business.

Experts seem to agree that 2016 will experience solid RevPAR growth once again (+5.8% according to STR and Tourism Economics).  So why should this growth force operators to change their methodology?

The answer is “mix of business.”  Put differently, continued growth is forecasted for 2016, but if operators think that they are going to achieve this growth by doing business as they have been in recent years, they stand to be sorely disappointed.  Competition becomes fiercer as markets add keys, and this forces the proactive in our industry to find new ways of continuing to grow.  For many of us, this means a concerted effort to shift our mix of business to accept the fact that more supply will cause customers to slip away to new or existing competitors. This, in turn, leaves us to determine how to best replace these lost room nights.

The good news is that there is plenty of opportunity for those who are out in front of this curve with a strategic plan to protect themselves.  Hotels that currently enjoy Group business need to have a roadmap in place to do more Group.  Hotels that are heavily-focused on Transient need to have a roadmap in place to steal Transient from their competitors.  Hotels that never considered base business (i.e. airline crew, tour series’, etc.) need to have a roadmap in place to successfully solicit and win this business for 2016.

For the asset owner, the responsibility is clear; what are you doing to challenge your operators to reinvent themselves for 2016?  Truthfully, if the strategic planning process to drive this reinvention hasn’t already been underway for some time, the results for the new year will suffer.  First there must be recognition of the fact that we must do business differently in 2016; next, there must be a specific and measurable plan in place (more to come on that in my next post) to make these new strategies a reality.  As owners of hotels, it is incumbent upon you and your representatives to demand from your operators that they map out a strategic plan for the immediate coming years which will cause them to operate significantly differently than they have in the past.  While a downturn may not be imminent, it is inevitable; those who do not recognize this and act now in their planning will find themselves not only losing share when their markets begin to slide, but will find it hard to dig themselves out of that downward spiral that will ultimately affect many of us.  The good news is that those who are proactive in adjusting the way they do business today will not only fare better in a downturn, but will be positioning themselves for success when the next uptick in the cycle occurs.

It is always easy to keep doing things the way you've done them, but as we move into the New Year, I challenge you to ask yourself the hard questions, make the difficult decisions, and proactively change the way you do business to prepare yourself for difficult times ahead...