What are the key trends hospitality leaders need to be aware of in 2024?

Hospitality businesses are operating in tumultuous times. As we navigate challenging times ahead, what are the key trends hospitality leaders need to be aware of in 2024 and beyond? By Pace Dimensions’ Tim Davis, leading management consultant for the hospitality, travel and leisure sector

What will travel look like in 2024?

As hospitality managers, you will be planning for scenarios that are likely to be playing out two or even five years down the line. Climate risks, labour and supply-chain issues and news of a recession have made for an unsettled start to the year.

What will travel look like in 2024? As hospitality managers you will be planning for scenarios that are likely to be playing out two, or even five years down the line. Climate risks, labour and supply-chain issues and news of a recession have made for an unsettled start to the year.

If 2022 and 2023 were about resetting and returning to normality, 2024 will be a year of belt-tightening as the industry grapples with geopolitical instability and tight fiscal conditions. 

Added to that are the ‘Covid hangovers’ that have hit hospitality more than most. A haemorrhaging of staff during the pandemic has led to prolonged labour shortages and unprecedented supply-chain issues.

Key findings from Deloitte’s 2023 European Hotel Industry ​​survey* conducted at the annual European Hospitality Industry Conference, showed that managing inflationary pressures, maintaining profitability and increasing cash flow are the immediate priorities for most hotel industry executives, along with hiring and retaining talent and performance improvement also remain key focus areas for executives in the year ahead.

1. A softening in growth of demand 

The facts make for uncomfortable reading. Tight fiscal conditions globally are softening demand growth. Post-COVID growth has plateaued, and uncertainty in Eastern Europe and the Middle East is fuelling market volatility. Businesses’ own costs are rising exponentially.

 All of these factors, combined with recession woes and a potential supply glut, call for a more conservative approach to how we plan, manage and conduct businesses this year. According to PwC, unlike in previous years, ‘the outlook for slowing growth in demand in 2024 will be felt right across the UK.’ [PwC UK Hotels Forecast 2023-2024].

2. Consumers are more ‘values-driven’ about their choices

Opinions matter, and today’s consumers (corporate buyers) and customers are far more discerning and values-driven when it comes to making accommodation choices. We know how powerful social communities are, and in this transparent ‘real-time sharing’ world, you should expect customers to be vocal about sustainability, inequality, corporate behaviour and more.

Digital maturity is not just influencing buying choices, it is also shaping and amplifying views and opinions. There is nowhere to hide! Access to information from so many sources raises the stakes in terms of reputational risk and, ultimately, asset values.

3. Emotion-led buying 

Emotional uncertainty is causing consumers to spend on distractions that are considered ‘pleasures.’ Post-Covid, in the race to make up for lost time, most consumers were hungry for experiences. Now, as tensions rise around the globe and consumers seek ‘escape’ and ‘delight’, purchase decisions are becoming more frivolous. 

According to behavioural science company Adcock Solutions, studies show that positive emotions towards a brand have a far greater influence on consumer loyalty than other judgements that are based on a brand’s more rational attributes.  

Whether it’s a sustainability track record or reputation by association, the driving forces behind accommodation choices are changing. Emotion-led buying is a potential tension point that tourism companies need to look out for.

4. Tech: the final hurdle 

We know how empowering product personalisation can be. It’s a fillip for improved productivity, service orientation and enhanced consumer sentiment. And yet, the hotel industry hasn’t quite caught up with the technology.

For travel and hospitality, hardware fragmentation, disjointed monolithic systems and point solutions built around now-redundant architectures that are oriented around business units and lines of business continue to hamper progress. Shifting to architecture that is abstracted from customers and channels, where all capabilities are in one place, and where we can join the customer journey at every brand point of sale is essential to future success.

Customers’ expectations are high. To nurture consumer engagement, we must move towards a seamless, frictionless, high-quality omnichannel customer experience, and we must do it soon. 

5. Unlocking the potential of Ai

All future-proofed hotel operations will have recognised the potential of Ai as a key management tool. In travel and hospitality, where staff find themselves at the coalface of customer service, AI has huge potential as a time-saving tool (freeing up mundane tasks) and can provide valuable insight into understanding the customer’s needs, wants, likes and dislikes. 

Used well, AI can help better detect the root causes of issues and increase operational agility. 

Knowing what makes a customer tick leads to smarter allocation of resources and clearer segmentation, paving the way for better targeting of deals, offers and booking incentives. 

AI can also simulate alternative scenarios in response to geopolitical events, weather events and external market factors. Forecasting market data means better predictions and, again, the opportunity to alter pricing and increase revenue.

Increased engagement with the customer is a happy by-product of AI engagement – all in all, a win-win.

6. What next for corporate sustainability?

According to IMD (The Institute for Management Development), ‘sustainable business models, where profitability converges with societal impact, will drive entrepreneurship and innovation.’

We know how fundamental sustainability and ESG are to corporate strategy, and compliance with the wider sustainability agenda is essential. Larger hospitality organisations are making their own pledges. With a goal of net zero by 2040, UK Hospitality has pledged to eliminate unnecessary single-use packaging by 2025 and reduce food waste by 50% by 2030.

UK Hospitality’s Chief Executive Kate Nicholls says: “We’re entering a crucial phase in dealing with climate change, which makes our new Environmental Sustainability Commitment vitally important if we’re to deliver on 2040 net-zero aims for the sector.”

Note that it’s not younger consumers who are driving the sustainability agenda but those who can afford it. And the better off can afford to be more discerning. At a time of rising cynicism, claims of greenwashing have the potential to erode trust and integrity. Sustainability is at a pivotal point. 

How you manage your sustainability policy will be crucial to the bottom line.

7. Increasing legislation in Europe 

We may have left the EU, but many hospitality companies remain subject to certain EU directives and laws. ESG will be subject to further scrutiny now as the EU’s Corporate Sustainability Due Diligence Directive comes into force. 

Says Deloitte: ‘The Corporate Sustainability Due Diligence Directive (CSDDD) is a major piece of EU legislation that will require EU and non-EU companies to conduct environmental and human rights due diligence across their operations, subsidiaries and value chains.’

The new rules include value chains inside and outside of Europe, which means we still have to navigate and assess the impact of regulatory changes.

One only has to look at farmers in France – where protesting about excessive regulation on environmental protection has brought motorways to a standstill – to see how crippling proposed directives can be to business.

It’s worth remembering that companies tend to rise to the highest common denominator – just because it’s playing out somewhere else in the world, it doesn’t mean it won’t impact you.

8. An epidemic of brands

Big brands have invested huge sums in chasing market share to the point where brand proliferation is almost an epidemic. This expansion has little to do with brand appeal and everything to do with scaling up. The result? Brand identity is being eroded due to a lack of differentiation. And it’s a scenario being played out as the industry begins to consolidate. 

Companies are spending a fortune on corporate brands that are far from distinctive and which, frankly, few consumers care about or feel any loyalty towards.

9. More competitive pricing is coming

Price is no deterrent for some, it seems. Around the world’s major cities, recent super-luxe hotel additions command eye-watering room rates that were unimaginable just a few years ago. Average hotel rates have increased by more than 50% in the last 5 years. 

But price acceleration is well beyond the normal inflation trends. According to PwC: ‘Growth in demand for UK hotel accommodation is expected to stall in 2024, with the pain likely to be shared equally across London and the regions.’ [PwC UK Hotels Forecast 2023-2024].

The organisation highlights the risk of over countrywide oversupply – just as the so-called post-Covid ‘revenge travel’ bounce recedes.

‘We expect the surge in new development to come to fruition just as demand wanes – with consumer spending down and pressure on businesses to curb their budgets in line with ESG targets.’

More competitive pricing is coming. 

10. The competition conundrum

Indirect competition is rising rapidly from both buyers, suppliers and substitutes. More than 70% of digital advertising is through two digital media companies: Google and Facebook. As intermediaries, they commoditise brands through their uniform categorisation and content. Changes in the technology ecosystem have seen rapid consolidation in the branded hospitality world, with Booking.com and Expedia dominating digital commerce for travel and hospitality with more than two-thirds of digital bookings.

There is also the issue of branded supply versus independent supply (which considers local markets). More than half the world’s supply of hotel rooms is branded, and the top ten hotel groups control 55% or more of the supply of branded hotels. 

There is also rising polarisation and consolidation around three business models: brand franchising, management companies and hotel owners/investors. And it doesn’t just stop at hotel rooms. Consumers can rent apartments, holiday lets, and Airbnbs from just one OTA. We have fast learnt that this is a double-edged sword. 

The benefits of increased exposure must be weighed against revenue, compromised autonomy and ground-up dynamic pricing. The hospitality industry will face significant challenges in 2024. By staying ahead of these trends, businesses can position themselves for success, safeguard their reputation and increase customer engagement.

PACE Dimensions is 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