The future of AI in the hospitality industry
Pace Dimensions explores the huge potential of artificial intelligence in the hospitality industry
The hospitality industry has long been dependent on traditional methods of customer service and operations management. But just because it was, doesn’t mean it is. The industry is undergoing a technological revolution with Artificial Intelligence (AI) playing an increasingly crucial role in optimising hotel bookings and streamlining processes.
And travel companies that fail to use artificial intelligence tools to streamline their business will lose out to more nimble competitors.
In this article, we’ll dive into the fascinating world of AI and discover how it is transforming the way that hospitality companies work. Let’s get started…
What is AI?
Artificial Intelligence (AI) – a technology that mimics human intelligence to perform tasks – has become the number one buzzword but what exactly is it? Put simply, AI collects information, detects patterns of frequency, and then uses this information to draw conclusions.
There are four types of AI: Descriptive, Prescriptive, Predictive, and Generative. Let’s learn a little more about the different AI types and their potential…
Descriptive AI is all about using machine learning to uncover patterns and relationships within the data, promoting a better understanding of past performance, trends, and other relevant factors. This type of AI is quite mature.
Then you have Predictive AI which refers to the use of machine learning to make predictions about future events. For example, in the case of hotels, it estimates how many people will arrive on a certain day. Predictive AI leads to better forecasting which is very important as the travel industry only gets one chance to sell. This type of AI is in high growth.
Prescriptive AI goes a step further than Predictive AI by suggesting the best possible course of action. For example, in a hospitality scenario, a prescriptive algorithm
would determine – from the data available to it – the best room to offer the customer and proactively advise on steps that could be taken to reduce the likelihood of the customer changing brand loyalty. This is an emerging form of AI.
Lastly, there’s Generative AI – the hot topic of the last 12 months. From ChatGPT – the fastest-growing application of all time – to more niche and experimental tools focused on creating video, music, or 3D design content that will appeal to customers, the hospitality industry is now sitting up and taking note of this development.
What is driving the growth in AI?
The answer, for the hospitality industry, is threefold, according to founder and managing director of PACE Dimensions, Tim Davis. “The first driver is Cloud Technology – the ability to simply access and share data across a business, across the customer journey, across channels; across customers. A staggering amount of data can be stored in just one place,” explains Davis.
He continues: “The second is what we call the Big Data Phenomenon – we are physically capturing so much more information about all our customers and their behaviour and what they buy. The result is that we can now very accurately segment and predict their next moves.
“Third is the trillions of consumers that travel and stay, and their Digital Maturity. By this, we mean the extent to which customers use technology to interact and engage. How they search, how they complain, how they complement – all of these things consumers use digital technology for.”
Collectively these three strands – Cloud Technology, Data Phenomenon, and Digital Maturity – make the travel and hospitality industry very high potential for AI. However, it is the fragmentation of the industry, the margin, and the relation between capital investment versus what is available for sales and marketing that means the adoption of A1 is slower.
Make no mistake: adoption of AI has undoubtedly been slow in the hospitality and travel industry, and this can be attributed to a trio of factors. The first is market size – the number of large companies that have the appetite to invest and innovate in this kind of leading-edge technology. Travel hospitality companies spend billions and billions on technology. However, it’s a relatively fragmented industry – splintered by both the number of different suppliers and business models.
The second component is the level of investment. The travel and hospitality industry is an extraordinarily capital-intensive business: the cost to produce hotels and a holiday is very high compared to the cost it’s sold. And so, the margin is relatively small. As a result, the industry’s appetite to invest in technology is considerably less than when you have much higher margins.
Finally, there’s the willingness to pay. Some sectors – step forward telecoms, technology, banking, and finance – have a high willingness to pay because they perceive insight as being a core competitive advantage to the success of their business.
Where is AI most adopted in the travel and hospitality industry?
The road to digital transformation has most definitely begun, and AI is taking a central role in three areas.
First up, we have sales and marketing. AI, in this arena, is about targeting customers that have the potential to buy. It’s about offering relevant things and cross-selling and upselling at all stages of the customer journey to help improve performance.
Next, there’s revenue management. There’s no getting away from the fact that travel and hospitality is a perishable business. It’s not just about how much you sell or at what price. Rather it’s a combination of those things every night of the year. Revenue management is a data-driven science about predicting what level of demand a hotel or holiday will have and then balancing that by maximising the price (and the condition of sale) to boost revenue every single day and night of the year.
Humans can’t possibly calculate all the variations that are required given that the markets and customer segments are changing dynamically all the time. And so, in the realm of revenue management, AI has become hugely important.
However, there is one caveat – and that is when a consumer feels manipulated. “There is a difference between optimising price and revenue because of true market demand, and optimising price and revenue because someone has come up with a clever algorithm,” shares Davis.
“To demonstrate this point, let’s take a real-world example. A concert gets announced in a city and suddenly people start shopping for a particular day of arrival. Hotels can monitor that shopping for that specific day is surging and bookings are increasing. So, without being full, a hotel can start to suppose they might be busier than they expected.
“The hotel then hikes the price in real-time. The property anticipates that, on certain days of the week and at certain times of the year, people will shop more or less – and they can increase the price when people are shopping.
“That is verging on gaming because it doesn’t necessarily reflect the actual demand. What it does is destroy brand trust. The moment a customer feels as though they are being exploited and treated like a commodity, their relationship with the respective brand is effectively ruined.”
All told the message from Davis is this: AI – where it truly reflects market demand – can be very useful in maximising revenue. Conversely, when it’s used to deceive consumers, it can damage a brand’s reputation and have the exact opposite effect. Once a business has lost a customer’s trust, the likelihood is that they will never get it back. The industry needs to remember that there are dangers as well as great opportunities with AI.
The final area of travel and hospitality where AI is most prolific – and where it arguably has the most value – relates to guest experiences. The latter is all about understanding customers – their behaviour, and what they like and don’t like. When you have this comprehension, your ability to recognise not only historically valuable customers but potential valuable customers expands.
Conditions for success
Where AI has been adopted to date is where it has been developed as a point solution that hospitality companies buy. So, in many respects, it’s not the hotel industry that is figuring out or having to work out where AI can be used. This is because many hotel companies simply do not have the scale or investment to innovate themselves: they rely on bigger tech companies to build that innovation.
One of the reasons that the travel and hospitality industry has been historically slow to adopt AI is because, over the years, the industry has bought point solutions for different functions and departments. Each technology has traditionally done just one thing – be it help sell something online; help make a reservation booking; or help take payment.
The problem arises from the fact that in each system and unit, the information is stored in one place. Seldom does a hotel company know – from looking at one system – what the customer ate, where they slept, when they checked in and out, and how much they paid.
“The property has to access multiple systems to find out the entire information which is spread in countless places,” says Davis. “If we go back to the drivers of adopters we touched on earlier – Cloud Technology, Big Data Phenomenon, and Digital Maturity – the fact that they don’t have a centralised single view of information is a massive constraint to AI which relies on a large amount of data to make smart decisions.”
The upshot? Hotel companies mustn’t just buy best-in-class products to fulfil particular departmental functional objectives. Rather, they need to become better at technology architecture and integrate their systems to create single sources of truth across the business that capture every guest interaction.
Conclusion
To sum up, anyone who believes that there is no room for AI in the travel and hospitality industry is very much mistaken.
Hospitality businesses that take the time to understand how to leverage AI tools to become more efficient and effective, will become more valuable than ever. Meanwhile, those who don’t are likely to find themselves left behind, and may miss out on the benefits AI brings.
While it is important to note that AI is not a replacement for human intelligence (rather it compliments it), there is no getting away from the fact that AI offers enormous potential to revolutionise the hospitality industry – be it through more efficient processes, personalised experiences, or better decision-making.
By understanding and implementing AI trends, hotel and hospitality industry professionals can stay competitive and provide better service to their guests.
But if you’re worried about AI, put the panic on hold. Pace Dimensions can take the headache out of helping hospitality companies achieve their AI goals. Pace Dimensions knows the tools, loves the technology and can show you how to deliver the results you need.
Stop feeling like hospitality’s digital future is passing you by and start embracing the exciting opportunities it brings by scheduling a call with Pace Dimensions today.
BULLET POINTS
*There are four types of AI: Descriptive, Prescriptive, Predictive, and Generative
*Cloud Technology, Big Data Phenomenon, and Digital Maturity are all driving the growth of AI in the travel and hospitality industry
*Sales and marketing; revenue management; and guest experiences are where AI is being predominantly adopted in the travel and hospitality industry
*The travel and hospitality industry needs to recognise that Cloud computing is the way forward, allowing hotels to transform their customer experience from all levels of the value chain
PACE Dimensions is an expert in opportunity identification and prioritisation,
business architecture and design, operating model design, transformation
delivery, and change management. Find out more about how PACE Dimensions
can help your business excel at www.pacedimensions.com