Challenges Ahead for Global Hospitality Industry - Research Paper Example

 Business Theories Individual Report -Travelodge- Contents Contents 2 Introduction: Travelodge is the pioneering budget hotel brand in UK which started its operations in the year 1985 and since then it has 330 hotels and 20,000 rooms under its operations, which is expected to go up to 70,000 by the year 2020. The hotel chain has served more than 6.5 million customers in the year 2007 and has had a 20% revenue growth in the year 2007.n 2007 it had revenue of £243.8 million in comparison to £203.5 million in 2006. Therefore the company has been able to show good financial performance even during the initial phases of the global financial slowdown. This shows that the low cost business model which the company has been following has been successful in connecting with the customer. Testimony to this fact Travelodge has ranked the number one budget hotel brand and its site the number one travel site for UK. (Travelodge Announces Results for Year Ending 31st December 2007, March 2008) Mission Statement: Travelodge does not have a Mission Statement. Suggested Mission Statement for Travelodge: ‘To make quality hospitality accessible to everyone at affordable prices.’ The proposed mission statement signifies the key focus areas for Travelodge. First of all the focus is on quality. If the quality service is provided, customers will move towards the brand and if they are satisfied they should stay with the brand. Being a hotel chain and operating in the hospitality industry, offering a hospitable service is crucial. How welcome the customers feel or the degree of hospitality being bestowed upon the customers, once they are inside the hotel would decide the success for the Travelodge brand in the long run. Again offering these services at prices which are affordable for a wide section of the consumers would ensure that the brand is well accepted by a broad section of the socio-economic segment. Making its services accessible to a huge customer base through use of IT and making the brand approachable for the target customer is also pertinent to its ultimate success. In the context of prevailing downturn in the global economy Travelodge has ample opportunity to expand its business taking opportunity of the fact, that both business and general consumers are looking at cutting travel costs and therefore are prepared for accepting a brand which offers them value for money services. Travelodge’s proper focus on quality hospitality at prices which are not prohibitive and reachable by an extensive section would play key roles in it achieving its business objective. Porter’s Five forces Analysis: Due to the economic slowdown the global hospitality and tourism industry has been facing a downturn over the last 2 years. Companies and general consumers alike are cutting their business travels and pleasure trips, owing to their falling disposable incomes. This scenario has affected the tourism and hospitality industry as a whole in a negative way. (Challenges ahead for global hospitality industry, 2009). Intensity of Rivalry: Hospitality industry is quite mature and is room to different kinds of players. Form five star hotels to budget hotels, there is a wide range of offering for the customers. In each segment there are a considerable number of hotels and they are vying for the consumer’s attention. The five star hotel segment is highly ranked in terms of service offerings and equally high room rates. Being accomplished brands all of them, the five star hotels have very little in terms of differentiation and therefore ‘degree of rivalry’ is naturally very high as they focus on the same high profile customer base. In context of the current credit crisis and Economic slowdown this rivalry is bound to increase. In case of budget hotels, they would want to take advantage of the slowdown and attract those customers who would have otherwise stayed at higher priced hotels but are now forced to shift to comparatively cheaper ones and therefore giving rise to high rivalry. Threat Of new entrants: Though on the surface it might seem that this time of economic crisis is not the time for new players to enter the industry but it is also true that during times like these many organizations fall prey to slow or negative growth of revenue and business. Bigger companies with deep pockets lap up these opportunities and acquire the ailing ones and they also look at entering the market afresh at these times because the cost of all resources is comparatively much lower than times of economic boom. Threat of Substitute products or services: The threat doesn’t only come from five start hotel chains or high value resorts but also from good quality budget hotels. During economic crisis, business traveler segment , which forms a chunk of business for any hotel, generally cut down on their travels and try and meet their business demands through methods like teleconferencing, web broadcast, etc ( Schreck A. and Wilen J., February 2008) . In case they travel, they prefer decent budget hotels over the expensive ones. Bargaining power of buyers/ customers: Demand is not high at present; therefore the hotels are hankering for the same customer base of which has diminished in size due to the economic downturn. They have to resort to rebates and concessions to attract the customer. They cannot even think of increasing prices right now as that would surely push the customer towards rival brands who might not have r increased room rates. Hey would rather be focusing on their top line right now. Bargaining power of suppliers: Due to the prevailing downturn, tourism and hospitality is weaker and demand is lower, therefore the suppliers also feel the crunch. They won’t be in a much powerful position right now. Macro environment: The subprime crisis I the US housing market and the consecutive credit crisis has given rise to a economic slowdown in major countries in different parts of the world. The US went into recession December 2007 and the crisis percolated to other countries, particularly those which had strong economic and financial tie-ups with the US. This slowdown has been predicted to be a profound one spread dangerously amongst the major industrialized countries of the world. These countries again form a major part of the global GDP. Europe, Japan, China, India, Middle East all have fallen prey to this recession and better news seems distant (Bovino A. B., March 2009). With the crisis deepening more, the hotel industry is also under pressure. Cut down on business travel and leisure travel has had its negative effects on the sector. Butrecent reports say that Asia, Latin America, Middle East offer a little better scenario for the industry amidst slowdown. In recent past many new hotels were being built as part of urban improvement but with the slowdown, this would make way for mixed properties i.e. a combination of hotels, office space and other rental options. At the same time costs for different resources for the industry has come down and organizations are keen to restructure their cost patterns. Reports have also predicted that value of hotels will and are going down as the slowdown get more entrenched world over. In this context many organizations with deep pockets are waiting in the fray to acquire the distressed hotel or hotel chains at much lesser price levels. (Challenges ahead for global hospitality industry, 2009). A recent report focusing on the major countries of the world points out the prevailing scenario in the hotel sector. It has mentioned that ADR or average daily rate had the maximum increase in Tokyo over the period December ’07 to December’08. Again the largest fall in occupancy was seen in the cities Beijing, Cairo and Buenos Aires. While in the West, London showed a decline of 26.8% in its average daily rate and a fall of 29.6 % in revenue per available room or RevPAR. More importantly it has come out that not a single city has shown rise in occupancy during the period but compared to this Paris showed minimum fall in occupancy i.e. -0.3 %. (STR Global, STR release December 2008 and Year-End '08 Worldwide Hotel Performance Results, February 2009). Again this present economic scenario has pushed consumer both business and general, to cut down on their travel budgets. They are now demanding value for money accommodation rather than expensive hotels. The budget hotels are introducing newer models of self check-in, net-booking etc and the customers are responding positively. Some budget hotels like the ‘Travelodge’ in UK are even planning to launch 36 new hotels in 2009. (Barret F., February 2009). So while some big hotel chains are seeing fall in demand, value for money budget hotels are doing better. Ansoff Matrix: Market penetration: Travelodge has been taking some very innovative strategies to penetrate more into its existing customer base and market. It has commissioned a report which has come up with the finding that only 46% of Brits citizens can understand regional dialects. This study also found out that as many as 86% of Brits were able to understand at least some foreign phrases. In this context Travelodge has come up with free 'UK Regional Lingo Guides' for the British people to understand eachother more and therefore to travel better. These guides act as free marketing vehicles also. Again to help its insomniac customers the hotel chain has introduced motivational ‘Nodcasts’ featuring renowned therapist Greg Laws. It has also introduced the concept of ‘cuddillow’ which is special pillow to for lonely guests who feel lonely sleeping alone. (What's new?, 2009). Market Development: Travelodge is building 12 new hotels in England and Scotland this year at an expenditure of $108 spanning London, Liverpool and Edinburgh (Travelodge to Build 12 New U.K. Hotels in 77 Million-Pound Move, March 2009). Product Development: The hotel has built a 100 room hotel out of shipping containers, using 88 of them in the process saving around £.5 million and then weeks of construction time. These have been imported from China with basic necessities pre fabricated and attached within. The management thinks that they the guest won’t be able to tell the difference and comfort levels would be same. The company terms this concept as ‘box and breakfast’ (The new Travelodge hotel made out of shipping containers, January 2008). Diversification: At the moment the Travelodge chain is busy expanding and taking opportunity of the consumer’s liking for their value for money service rather than diversifying into new unknown areas of business. Fordism and Post –Fordism: Fordism stands for mass production of products, mass consumption by smaller families, use of assembly line operations, and use of labor with low or semi skills. Whereas Post- fordism though has emanated from frodsim, yet has got unique points of reference. It is flexible in terms of the use of technology, workforce or systems. It or electronics act as an important element in it. It signifies flexible production levels and uses skilled workers from the service sector alongside high profit through use of new age technology like IT. Travelodge Hotel chain was the pioneer of budget hotel brands in UK long back in 1985. It has more than 330 hotels operating not only in U but also in Ireland and Spain. It has 20,000 rooms at present with the goal of expanding it to 70,000 by 20220. (About Travelodge, 2009). Online technology and IT plays a very vital role in its operations as it offers booking through its website much like the model followed by successful low cost airlines like Ryanair. One of the very interesting features in its website offerings is that the company monitors room rates of more than 1000 competing hotels and puts them on its site in real time thus ensuring complete transparency in their own pricing which is according to them value for money and often lowest for the customers. Also being in the hotel industry their business is dependent on the cyclical seasonal demand from the market. (The Travelodge price check, 2009). It therefore operates with post- fordism characteristics of IT, flexibility, International presence, etc. Evaluation of Operational management in context of IT: A hotel has different operations going on simultaneously at any point of time. Whether it is booking, pantry and lodging, room cleaning and laundry, car parking, along with general operations like HR, marketing, finance, inventory, etc; every single operation has to be managed properly to drive productivity in the organization. This is even more important for no frills operators like Travelodge who provide budget hotel services. IT and allied technology can play a very important role in saving cost, resources and time. IT helps in standardization and integration of processes and makes them faster and more accountable. Travelodge utilizes IT and leverages its power to increase bookings and cut costs. The chain operates 330 hotels spread across England, Spain and Ireland and has 20,000 now under its fold. (About Travelodge, 2009). To cut cost and increase efficiency the chain has introduced room bookings through their website. They have initiated an innovative technology in the website which is known as ‘price check’ (The Travelodge price check, 2009). Through ‘price check’ the hotel tracks room rates of 1000 hotels which are its competitors, and puts them up on the site. It has also launched the first GPS application for hotel bookings on the iPhone through. It is known as ‘Travelodge iBooker’. This application can be downloaded free through iTunes. The management by launching this application whishes to make the hotel chain more accessible to prospective and present customers. The procedure is easy, not costly and easily available to anyone with an iPhone. It is predicted that iPhone users worldwide would be around 45 million and therefore this technology can surely bring in many more customers for the hotel chain (Trvaelodge roles out iPhone booking, March 2009). Ryanair one of the most successful low cost airlines in the world started online ticket bookings through its website in 2000 and now 100% of the tickets are booked online, thus saving cost, resources and time for the airline (Goehl D., et. al., October 2006). Travelodge could consider Ryanair as model and follow its strategies since both of them operate in the low cost and no frills sphere. Other strategies which the chain could follow in terms of IT or use of technology is, they could put up online links of their sites on airlines and railways booking sites, through pacts with these organisations. This would help it expanding its customer base. Travelodge in turn could offer links of those airlines or other transport booking services as a part of the deal, on their own website. This would act as a complete travelling solution provided online by Travelodge’s website and draw in more customers. References: Travelodge Announces Results for Year Ending 31st December 2007, March 2008, [Online] Available: http://www.travelodge.co.uk/accounts/Travelodge-Results-Announcement-20071231.pdf [April 17th 2009] Challenges ahead for global hospitality industry, 2009, Ernst & Young LLP report identifies ten key trends to shape the industry in 2009, [Online] Available : http://www.ey.com/global/content.nsf/US/Media_-_Release_-_24-02-09DC [April 17th 2009] Schreck A. and Wilen J., February 2008, Companies Curtailing Travel Budgets, [Online] Available: http://www.usatoday.com/travel/flights/2008-02-26-company-travel-budgets_N.htm [April 17th 2009] Bovino A. B., March 2009, The Economy: A Scorecard for the Global Slowdown, BusinessWeek, [Online] Available: http://www.businessweek.com/investor/content/mar2009/pi2009039_260372.htm?campaign_id=rss_null [April 17th 2009] STR Global, STR release December 2008 and Year-End '08 Worldwide Hotel Performance Results, February 2009, The Center for Hospitality Research, Cornell University – School of Hotel Administration, [Online] Available: http://www.hotelschool.cornell.edu/research/chr/news/newsroom/detail.html?sid=36974 [April 17th 2009] Barret F., February 2009, Check out the UK's budget hotels, [Online] Available: http://www.dailymail.co.uk/travel/article-1150135/Check-UKs-budget-hotels.html [April 17th 2009] What's new? , 2009, [Online] Available: http://www.travelodge.co.uk/whats_new [April 17th 2009] Travelodge to Build 12 New U.K. Hotels in 77 Million-Pound Move, March 2009, Bloomberg, [Online] Available: http://www.bloomberg.com/apps/news?pid=20601102&sid=az3pZUJnbRHI&refer=uk [April 17th 2009] The new Travelodge hotel made out of shipping containers, January 2008, Dailymail, [Online] Available: http://www.dailymail.co.uk/news/article-506794/The-new-Travelodge-hotel-shipping-containers.html [April 17th 2009] About Travelodge, 2009, [Online] Available: http://www.travelodge.co.uk/company_information/ [April 17th 2009] The Travelodge price check, 2009, [Online] Available: http://www.travelodge.co.uk/price_check/ [April 17th 2009] Trvaelodge roles out iPhone booking, March 2009, [Online] Available: http://www.breakingtravelnews.com/article/20090325134103390 [April 17th 2009] Doug Goehl D., Hayes S., Schmenner M., Tao Q., October 2006, Ku The University of Kansas, [Online] Available: http://www.business.ku.edu/_FileLibrary/PageFile/431/RYNAARcase_Group5.pdf [April 17th 2009] Read More