Where has all the innovation in the hotel sector gone?

Hotels used to be a byword for innovation. Lifts, steam-generated electricity and air conditioning found their way to the UK via the Savoy. And who, as a child, wasn’t fascinated by the seemingly limitless ice machine? Hotels were the first in the neighbourhood to offer colour TV, and then cable TV and in room coffee makers to remain competitive.

Innovation has now left the sector in favour of maintaining the status quo. The wifi is better at home. The television is better at home. The in-room entertainment is far better at home, but it’s not just about the room. 

The experience across the customer journey is being done better everywhere but in the hands of the hotel. The OTAs have mastered transactions with minimal clicks and are now trading on cancellations. Guests are turning to Uber Eats rather than have another tepid Club sandwich from room service. That in-room entertainment now comes from the guests’ iPads. 

How did we get here? The sector has never been more professional. The profile of those putting their money into the industry shows pension funds, sovereign wealth funds, investors with serious responsibilities who are happy to place their faith in the market, bringing it into the mainstream. 

The clue to the lack of innovation does, however, lie with these investors. The big global operators now have a number of paymasters: shareholders, hotel owners and, last of all, guests. The first party – the party which company dividends feed into – does not respond well to frightening things like change. It would like things to carry on much as they were, thank you very much. With a side of instantly-growing pipeline.

Perhaps innovation in tech or service isn’t necessary for profits when the global tourism industry grew 5% annually pre-Covid, twice that of 2019’s GDP growth rate of 2.5%.

Does this explain the enthusiasm at hotel sector events around the world for data which shows that a return to 2019 is coming along very nicely?  ‘When are things going to return to normal?’ is the most-asked question. The deals done since the pandemic began to illustrate that everyone is keen to ignore 2020 and act like it never happened. If only they could make it go away. 

We believe in realism, but realism with optimism. For the sector to move forwards, it must innovate, as every other asset class has been forced to do. Its response to the OTAs was to look to direct bookings, a move which added another layer of cost onto franchisees. The response to Airbnb – which now has a higher market capitalisation than any other accommodation company – was to say it didn’t affect the hotel sector, the hotel sector only cared about business travel. Now business travel is harder to come by and Hilton’s response is to turn to dog owners as a possible customer segment and revenue stream at a chainwide $50 per stay.

The truth of the hotel sector is that, even before Airbnb, hotel guests had other options than hotel rooms. For many people, particularly those without meaty expense accounts – and even those with – when travelling to a new destination, friends and family are sought out first. There is no imperative to stay in a hotel.

For the hotel industry to again lead, it can no longer wish change would go away.  If we can work as hard for our guests and employees as we do for our owners and ultimately shareholders, we can then move revenues forwards. Our industry needs to embrace the guest throughout the journey, making it easy and frictionless with technology and service that accountably takes ownership of the guest’s well-being. We want hotels to amaze and surprise again, to create those experiences which pull people back to hotels, not because they have to stay, but because they want to.

A new world of innovation for the hotel sector can make it a leader. Because if it stands still, it will get left behind by the next idea to target this $4.7* trillion sector. 

By Tom Magnuson, CEO of Magnuson Hotels

 *WTTC, 2020.