Checking up on the health of mid-scale properties, mid-crisis

Everyone in the travel business has come to terms with the idea that 2009 will not be a good year. With travel budgets being slashed coast-to-coast, and leisure travellers taking a more serious look at economically responsible options for their holidays, there is bound to be some hoteliers who will struggle in the coming quarters.

However, as the old adage — and John F. Kennedy’s desk reportedly proclaimed — a crisis means both danger and opportunity.
On the opportunistic side, there are observers who suggest that an economic downturn need not be an entirely negative experience. In fact, a recent report from the Ottawa-based Hotel Association of Canada (HAC), in conjunction with Fleishman Hillard, noted that despite a downturn, Canadians still intend to travel in 2009. According to the study, which was conducted from Dec. 18 to 22, 2008, 74 per cent of Canadians intend to travel in Canada either for business or leisure this year. “They may not stay at the same type of hotel they usually stay at; they may spend less on food and drink and stay for a shorter period of time, but Canadians are planning to travel in Canada in 2009,” says Tony Pollard, president of the HAC. “Many people see travel as a right; something they do every year. They may cut their leisure or business budget, but they are still going to travel.”

Others in the industry say the idea of toning down travel budgets, as opposed to axing travel altogether, could position those in the mid-scale segment quite well in the coming year. “The mid-scale market is not immune to the downturn, but brands that have always been positioned for value will prove the most resilient,” says Troy Rutman, director, External Communications for Phoenix-based Best Western International.

Gopal Rao, regional vice-president with IHG, the operator of mid-market stalwarts like Holiday Inn and Holiday Inn Express, agrees the segment is poised to capture some new business. “In this uncertain economic climate there is a clear preference for brands that offer a better value proposition,” he says from his Toronto office. “As customers trade down and rationalize from luxury and upscale brands, the mid-market segment, which has always been advantageously positioned, now looks extremely attractive. It stands to greatly benefit from customers’ ready preference.”

The prime advantage to be leveraged by hotels in the mid-scale market revolves around their unique value proposition. “From my perspective, every segment is going to see some challenges,” says Bryson Forbes, a Canadian travel expert with Best Western. “But, of all of the categories, mid-scale properties are positioned the best. For those that see the opportunity, if they can hone in on those specific amenities that are truly important to leisure and business travellers, they can position themselves very well.”

In terms of identifying those amenities or services, the HAC/Fleishman Hillard survey presented some interesting findings. According to the study, one third of business travellers still view basic amenities such as business centres and express check out as important, and friendly service is still vital, with 88 per cent of leisure and 80 per cent of business travellers. However, in times of restraint, luxury items such as spas, room service, bar/restaurant and gold/club floors are not viewed as important, compared to past surveys. In the 2008 data, there was a 10 per cent drop in the number of leisure travellers who said that a restaurant/bar is important to them and an 18 per cent drop for business travellers.

According to Rao, understanding what is important to the individual traveller is a fundamental part of putting together the appropriate amenity package. “For us, it is all about understanding what our customers want, what drives and excites them,” he says. “When you invest resources in understanding what customers perceive as value added and are willing to pay for, you create a suite of products and amenities that actually are ‘deciders’ in the guest decision-making process.”

One decider, according to Rutman, is reducing some of the costs that can sometimes be a part of business travel, like Internet access and parking. “We offer free high-speed Internet and local phone calls, and in most locations, free breakfast and parking,” he says. “In addition, we are reviewing economical, high-impact ways in which members can enhance things like green standards, an increasingly important consideration to both corporate and leisure travellers.”

Another critical value-added example cited by both the industry insiders and the aforementioned survey itself are loyalty programs. According to that study, travellers are putting a greater focus on the kind of immediate value perceived with the accumulation of points, with 54 per cent of business travellers indicating that programs such as Air Miles and/or Aeroplan miles are important to them. In fact, almost half of Canadians (47 per cent leisure; 50 per cent business travellers) noted that loyalty programs are important to them. This is up 15 per cent from 2008, and up 23 per cent from the 2006 figures. With Aeroplan alone currently reporting more then 9 million active collector accounts, representing approximately two thirds of Canadian households, these results seem unlikely to slide in significance any time soon.

Rutman says his company has recognized the need to add value in terms of loyalty programs and is getting into the game. “Best Western planned ahead,” he says. “We have been redirecting funds for some time so that we can have a Best Western Rewards offer in the market virtually every day of 2009.”

Pollard also acknowledges the critical aspect of points in a difficult economy. “Loyalty programs may be something that people have taken for granted in the past, but in times of economic downturn, your points can make the difference between being able to take that vacation or that key business trip or not,” he says.

However, a rewards scheme is not, in itself a recipe for success, as Rao, whose organization runs the highly successful ‘Priority Club’, is quick to point out. “We have always advised our owners and GM’s…it’s better to focus on guest satisfaction — what he or she is really appreciative of — and to ensure that guests are delighted with exemplary service on every stay, because then and only then will they reward you with their loyalty.”

Finally, according to those in the industry, it is absolutely vital that competition for business remain on the aforementioned value propositions, not on rate. And, despite historical evidence, Pollard says he’s confident it will not come to that eventuality. “We learned that [discounting] is not productive, and does very little to stimulate travel,” he says. “This time around, I think they’ll follow their own advice.”

Others agree. “Slashing rates across the board has been proven to decrease a brand’s value in the eyes of the consumer, and to actually reduce a hotel’s RevPAR,” says Rutman. Gao and IHG see rate integrity as a “perishable asset. Once lost, it’s almost impossible to recover. We all know that rate reduction does not drive incremental demand, so we see no reason to engage in a price reduction strategy, as it presents no winners.”

Regardless of the win/loss column in the broader industry, the mid-scale market’s unique position in the food chain should give those in the mix reason for optimism. With both corporate and leisure travellers looking for different options, it’s a perfect time to get a new client in the door. As Forbes suggests, “The mid-scale market will get more exposure, particularly to corporate travellers, as they will be test-driving new properties that they wouldn’t have seen before.”

There’s your opportunity amidst the danger.

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