Skift Take

In 2017, the hotel industry took stock of the prior year's major mergers, focused on putting them all together, and worked on figuring out a path into the future.

The year 2017 was one preceded by a roller-coaster of a year in hospitality that saw a multitude of mega mergers, one of which — Marriott-Starwood — was particularly drama-filled.

Last year wasn’t without its fair share of excitement, too, but it was also a period in which brands took time to really focus on what lies ahead. Now that those big mergers have taken place, the hard part has arrived: figuring out how to put everything together, and leading these companies well into the future.

Here’s a look at some of the biggest hotel stories and themes we covered in the past year, and what to pay attention to as we head into the next one

The Era of Consolidation Continues

We didn’t see in 2017 as many mergers and acquisitions of the magnitude that we saw in 2016, but there were a number of smaller transactions that took place and, as Marriott CEO Arne Sorenson predicted, consolidation is likely to continue.

Some notable acquisitions in 2017 included Airbnb’s purchase of Luxury Retreats; AccorHotels’ $930 million bid for Australia’s Mantra Group, as well as its purchases of Squarebreak and Travel Keys, and AccorHotels’ investment in the storied Orient-Express brand.

Wyndham Worldwide also made some moves, prior to announcing its planned spinoff, which it hopes to execute in 2018. In July, its hotel group bought the AmericInn chain for $170 million and in August, its RCI division bought Love Home Swap, one of the world’s largest home exchange programs.

Best Western bought Sweden Hotels in an attempt to broaden its portfolio in Europe, and Scandic Hotels purchased Finnish hotel company Restel for $127 million.

On December 18, Choice Hotels announced its intent to purchase economy extended-stay brand WoodSpring Suites.

The industry is also keeping a watchful eye on the integration processes associated with the mergers that took place in 2016. Marriott’s Sorenson has repeatedly said that the integration of Marriott and Starwood will take some time, and that technology is the “biggest risk” in the merger. There should be some movement on the combination of Marriott’s three loyalty programs toward the end of 2018, and there are plans to rejuvenate the Sheraton brand.

Acquisition-happy AccorHotels has a lot of work to accomplish with integrating many of its new prizes, namely the luxury Fairmont-Raffles-Swissotel brands, and its luxury vacation rental business, which it consolidated under the Onefinestay brand earlier this year.

SBE, which finally (finally!) managed to close its Morgans Hotel Group deal in 2016, is also in the process of integrating those brands into its portfolio, while continuing to grow the company on a global scale. We’ve heard the company plans to debut a new loyalty program in 2018. Still up in the air is whether SBE can close its deal to buy nightclub and restaurant operator Hakkasan Group.

So, who’s next? What other mergers and acquisitions can we expect to see in 2018? I suspect the big will get bigger, but that’s also creating opportunities for smaller players who are more niche, more focused, and have great stories to tell. Hotels in the middle without a particularly strong brand identity might find themselves on the menu for the next merger.

Simon Turner, managing member of Alpha Lodging Partners and the former president of global development at Starwood similarly said, “The consolidation we’ve seen will continue. It’s just something that will become more and more familiar to us. But consumers are also crying out unique and highly customized travel experiences, and that means smaller, more entrepreneurial, highly specialized, and agile players will emerge.”

Vacation Rentals Are Ripe for Disruption

The hospitality industry started paying much closer attention to vacation rentals in 2017, especially those in the luxury space. These rentals are becoming a preferred way to stay, particularly for celebrities and other high-profile travelers seeking more privacy and space.

The first signal was when AccorHotels announced its intent to purchase Travel Keys, followed by Airbnb’s acquisition of Luxury Retreats.

So why all the interest in vacation rentals? Because it’s a sector that’s ripe for disruption.

Evan Frank, co-founder of Onefinestay and the company’s former CEO, said, “I think, quite frankly, the thing that’s so interesting is that distribution channels for homes have not really been built yet. All of a sudden, HomeAway is quoted as saying this is a $100-billion market, the vacation rental market. It’s quite fragmented. There’s no one, real, distribution channel that all of these homes go through and the way these properties are actually sold is still very much being figured out and that story is not yet written.”

He added, “So, when I see these distribution companies being acquired, I think it’s really about the know-how to really be able to sell this very new accommodation product, which has really only come up over the past five to 10 years.”

Beyond luxury vacation rentals, established brands took a closer look at the sharing economy. Hyatt decided to invest in Oasis, after AccorHotels gave up its interest in the company. Wyndham’s RCI division bought Love Home Swap.

Airbnb, while looking to grow its luxury product with Luxury Retreats, focused on providing more tools to professional vacation rental managers. Airbnb is a confirmed bidder for Wyndham’s European vacation rental brands.

AccorHotels, for one, seems intent on sticking to the luxury end of the vacation rental market, having consolidated its Squarebreak and Travel Keys acquisitions into the Onefinestay brand. But, as Skift has noted, it has a lot of work to do with Onefinestay to bring it to profitability.

So, what’s next for vacation rentals? If you ask newly appointed Onefinestay CEO Javier Cedillo-Espin, it’s “hyper personalization.” My hunch? More consolidation in the space, and more innovation in terms of how these rentals are distributed and marketed.

The Direct Booking Wars Have Evolved

The perennial battle between online travel agencies and hotel companies certainly evolved in 2017, and the truth is, they probably won’t end anytime soon no matter who seems to claim victory. And in some regions, like Europe, the direct-booking wars myth is just that.

The year 2016 was dominated by messages to “stop clicking around” and to note that “it pays to book direct,” but 2017 saw an evolution in how hoteliers marketed their direct- booking pushes. While 2016 was more about educating the consumer and convincing them to book direct, 2017 was more about the tussle between online travel agencies and hotel management companies for the hearts, minds, and wallets of the hotel owner.

This played out when Hyatt staged its standoff with Expedia. Hyatt sent a note to owners warning them that their properties may go dark on Expedia’s numerous booking channels. That note also included some justifications for why Hyatt was raising its fees for owners of its North American full-service hotels and global select-service properties. At one point, Hyatt signed a deal with as a hedge against an impasse with Expedia. In the end, Hyatt and Expedia signed a new deal, but that hasn’t stopped Hyatt and its peers from talking up the benefits of direct booking.

In 2018, we can expect to see more hotel companies argue the benefits booking direct, but also trying to convince hotel owners and developers of the benefits of being part of the chain’s massive portfolios.

They may try creative approaches to disrupting distribution channels, too. Although AccorHotels’ scrapped its experiment in acting as a third-party distribution channel for independent hotels, it is unlikely to be the big brands’ last attempt at trying to bring more independents into their fold. For evidence, look no further than all those soft brand collections they keep rolling out. And, well, if all else fails, there’s still RoomKey, right?

Airbnb’s Road toward an IPO

The award for most highly anticipated hospitality/travel IPO (other than Uber) would likely go to Airbnb. In March, Airbnb CEO Brian Chesky said Airbnb’s IPO was “halfway ready,” but I don’t think we will see an IPO from the $31 billion company in 2018. Why? It hasn’t grown enough yet and it’s still got a long list of challenges to address.

I looked at those challenges in my long-form exploration of “Airbnb’s Road to an IPO: Everything You Could Possibly Need to Know.”

But here’s a Cliff’s Notes version of the topics you can expect Airbnb to pay more attention to in 2018: improving the company’s relationships with hosts; combatting slowdowns in growth its more mature markets, whether because of regulation or consumer concerns; and working more with local regulators.

A big part of overcoming those obstacles will involve a bigger focus on China, and building up Airbnb’s luxury and traditional hospitality offerings. It’s likely that in 2018 Airbnb will debut its rumored “Airbnb Lux” product, and that the company will continue evolving its platform to try and compete better with the Expedias, Pricelines, and Ctrips of the world.

If the online travel agencies thought they escaped the disruptive impact Airbnb has had on hotels, they are probably very wrong and this dynamic is likely to heat up in 2018. Airbnb’s latest deal to bring more bed-and-breakfasts and inns onto its platform is a signal of its bid to get more comprehensive in its face-off with the online travel agencies.

As Hilton CEO Christopher Nassetta noted in Hilton’s second quarter earnings call, as Airbnb transforms itself into becoming more like an online travel agency, “the more competition there is in any space, the better off we are. More competition, in theory, would have the effect of driving prices down and driving distribution costs down. As the competitive environment heats up, I think the net result is good.”

Airbnb Will Get Deeper Into the Hotel Business

However, while hotel CEOs like Nassetta often repeat the refrain that they are not in direct competition with Airbnb, and that Airbnb caters to “different travel and trip occasions,” that won’t be the case for long. As of August 2017, more than 15,000 boutique hotels advertised their rooms on Airbnb and that number will continue to grow in 2018.

And in 2018, Airbnb will open its first hotel-like concept outside of Orlando, an experiment in co-living where apartment residents are encouraged to rent out their homes on the platform. Niido got a big boost in December with Brookfield Property Partners investing $200 million to help grow the concept throughout the U.S. It’ll be interesting to see how well Niido Powered by Airbnb will fare, and if it will become an established residential development concept in time.

China’s Importance Grows

One market that the entire travel industry is paying attention to is China. But China isn’t like any other global market; it’s historically been difficult for Western companies, from Google and Amazon to Uber, to break into. Still, that won’t stop U.S. travel brands from trying.

Marriott partnered with Alibaba in August to court the Chinese travel market even more. Airbnb really showed its commitment to growing its business in China, rebranding itself there and appointing co-founder and chief strategy officer Nathan Blecharczyk as its new Airbnb China chairman. The company’s strategy for doing that involves a tighter focus on quality and quantity.

Chinese investment in the hospitality industry, especially when it comes to the investments being made by HNA and Anbang, will be an issue this year. There’s not much transparency about what these companies intend to do with their respective hospitality investments in brands that include Carlson Hotels, NH Hotels, Rezidor Hotels, Hilton, and Strategic Hotels & Resorts. Hopefully, that changes in 2018.

(Almost) Everyone Wants to Go Asset Light

Last year started with the announcement of the completion of Hilton’s spinoff , and it tailed off with Wyndham announcing its own planned spinoff to be completed in 2018. AccorHotels is also still in the process of spinning off its HotelInvest unit.

Everyone, it seems, wants to be asset light — even Hyatt, which has historically been more of an “asset recycler” than an asset-light company like Marriott.

But for many hotel companies, being asset light equates to more scale and growth. The business tends to be more stable and yields higher profit margins. At least those are a few reasons Red Lion Hotels pursuing a more asset-light strategy.

Still, there are hotel companies, including Loews Hotels, that would rather be more asset heavy than light. But if 2017 were any indication, expect asset-light to be even more popular in the years ahead.

Hotels want to be more than Hotels

Another theme evident in 2017 was hotels and Airbnb want more than than just a place where you sleep. In 2016, Airbnb launched Trips, and Hyatt looked to “adjacent spaces” like wellness, purchasing Miraval and Exhale in the process. Marriott invested in PlacePass, a metasearch site for tours and activities.

AccorHotels deepened its investments in the sharing economy and, at the same time, it launched new flight and hotel packages for its loyalty members. AccorHotels also launched AccorLocal, a local services app that’s designed for people to use anytime — not just when they’re traveling or staying in an Accor property.

In short, both hotel brands and Airbnb want people to think of them for the entire traveler journey and even in our daily lives. Expect to see more of that in 2018 and beyond.

Let’s Launch a Soft Brand

When Ian Schrager says hospitality is a “me-too” industry,  I often wonder if he’s referring to the sector’s knack for not only launching lots of brands, but rolling out a lot of the same kinds of brands all at once.

That was certainly the case this year when it came to soft brand collections. Hilton launched Tapestry Collection, with another planned soft brand collection on the way. Wyndham debuted Trademark Hotel Collection. Best Western unveiled its third soft-brand collection, and Red Roof joined the soft-brand hotel movement too.

And no doubt we’ll probably see more soft brands in 2018, as larger hotel companies try to bring more independent hotels into their fold.

… Or a Midscale Brand

If a hotel company wasn’t launching a soft brand collection in 2017, chances were high they were planning to launch a midscale brand. Trump Hotels announced American Idea. InterContinental Hotels Group  said it would roll out a midscale brand, Avid Hotels. Hilton, which opened its first Tru by Hilton property in 2017, revealed it would be launching a new “hostel on steroids” in the near future.

But one defining character about each of these new midscale brands is that hotels are getting smarter about not letting them be boring. Even brands that have existing midscale brands put in some effort to market their brands as being more innovative and contemporary, whether to consumers or to hotel owners and developers.

Hotel Loyalty Gets an Update

There were a lot of changes in hotel loyalty in 2017. There’s the continuing process of bringing together all three of Marriott’s loyalty programs. AccorHotels, too, must figure out what it wants to do with Fairmont’s loyalty program. And three years after it announced its purchase of Kimpton Hotels & Restaurants, IHG is finally merging the programs beginning in 2018.

In other news, Hilton debuted new updates that borrow from the airlines. Hyatt launched the new World of Hyatt program. Wyndham teamed up with Caesars and even added an online auction for loyalty program redemptions

Programs, such as Hyatt’s, which added Miraval to its program and has said it will add Oasis to its Unbound Collection by Hyatt soft brand, focused on unique experiences.

This year should see hotels unveil their grander visions for their loyalty programs to serve as platforms for better personalization. They are making progress, but there is more to come.

Cancellation Policies Got Tougher

Cancellation policies have gradually become stricter over the past few years, but 2017was the year that Marriott, IHG, and Hilton announced tougher policies all in succession. Not to be outdone, Hyatt also announced a stricter cancellation policy just before year’s end.

Their argument for doing so? It’s not only better for their hotel owners in terms of being able to manage inventory, but better for guests in the long run. Going forward, expect to see changes in how hotels are priced and sold.

Business Travel: More of the Same, Despite Early Optimism

Hotel executives started off 2017 optimistic about business travel, believing that this might be the year that corporate travel bounces back. But that optimism was tempered by a number of factors, including U.S. tax reform, and how it will impact business travel in 2018.

And with regard to business travel and short-term rentals, Airbnb also made a lot of inroads in business travel in 2017, debuting a new business travel search tool, a Concur integration, and a co-working pilot with WeWork.

Smart Rooms Are Closer to Becoming a Reality

The day that you’ll be able to use your voice or your smartphone to change the temperature, or play your favorite Netflix show in your guestroom is that much closer thanks to brands’ experiments with the Internet of Things.

Those brands include Best Western, Marriott, AccorHotels, and Hilton, which will roll out its “Connected Room” concept in 2018 throughout the U.S.

Some bigger questions to ask include whether consumers want this? Will this become the norm? Can the technology keep up with what’s already on the market for homes? And more importantly, will hotel owners want to pay for this in their properties?

Everyone Wants You to Be Well

While hotel rooms are gradually becoming “smarter” and more connected, they are also becoming increasingly attuned to people’s wellness needs. Many hotel brands, especially in the luxury space, have launched wellness-oriented rooms, and earlier this year, Hilton debuted a new design that brings the gym into the room.

Hyatt bought Miraval and Exhale, and has expressed plans to incorporate those brands’ wellness experiences into its broader portfolio of hotels. And in general, hotel fitness has become more on-demand, tech-driven, and branded.

Whether hotels market this as “wellness” or “well-being,” don’t expect them to stop exploring this area and trying to find ways to incorporate more of these principles into the standard guest experience.

Dining’s Importance in Hospitality Grows

Today’s hotel bars and restaurants, heavily influenced by boutique hotel pioneers like Kimpton Hotels and Restaurants and Ian Schrager’s Morgans Hotel Group, have become an integral part of the guest experience, and the experience of locals, too. And let’s face it: Chances are you’ll frequent a hotel restaurant or bar more often than you’ll actually check into a hotel room.

That’s why hospitality brands are beginning to experiment more with dining, specifically with restaurant reservations software and on-demand food delivery. In 2017, IHG decided to allow its loyalty members to earn points when they use OpenTable and Grubhub, and Airbnb’s integrated Resy onto its platform.

The more these brands bring dining under their brand umbrellas, the more ways their offerings can resonate with their customers.

Changes in Executive Leadership

Legendary boutique hotelier Chip Conley stepped away from his full-time duties at Airbnb to become a part-time consultant for the company. Carlson and Rezidor hotels had a CEO shuffle. IHG CEO Richard Solomons retired, and longtime IHG executive Keith Barr stepped in.

Nikki Leondakis left her CEO post at Two Roads Hospitality to head up Equinox Fitness Clubs. Andre Balasz left The Standard International. Choice Hotels CEO Steven Joyce left and was replaced by Choice Hotels veteran Pat Pacious.

In December, Hilton announced it would start the new year with a new CMO. Extended Stay America began 2018 with a new CEO, Jonathan Halkyard, the former CFO who took over from CEO Gerry Lopez on January 1.

Data Breaches

In 2017, there were multiple data breaches at numerous hotels, leading us to wonder: When will this stop, and are hotels doing enough to protect their customers’ data?

Hotel Security

The mass shooting that took place on October 1 in Las Vegas, killing 58 people and injuring more than 500, cast a spotlight on hotel safety and security measures, and raised many questions for the travel and hotel industry to consider.

But will those questions result in significant changes in hotel safety and security? It might be too soon to tell now, but it’s certainly something we hope the industry will consider in 2018.

The Hotelier-in-Chief Continues to Confound

Last year was the first we’ve had a hotelier in the White House, and one might assume that having a fellow industry colleague in office would lead to the establishment of policies that would promote and encourage travel.

That, however, was not necessarily the case. Some in the hospitality industry, like Airbnb and Choice Hotels, were quick to call out the absurdity of Trump’s travel bans, but others stayed mostly silent at first. They did, however, eventually speak up more by the middle of the year.

Not only that, but Trump’s policies and other factors did, in fact, lead to a Trump Slump in visits to the U.S. by international tourists. Will that worsen in 2018?

When it comes to this administration, the hotel industry — and the world — must prepare to expect the unexpected.

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Tags: airbnb, hospitality, loyalty, mergers and acquisitions, vacation rentals

Photo credit: Hyatt invested in Oasis in 2017, as the hospitality industry put new focus on vacation rentals, especially in the luxury arena. Oasis

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