The U.S. travel and hospitality industry appears to be in recovery mode as occupancy rates reached 60% in May according to STR[1]. Consulting firm Oliver Wyman predicts U.S. domestic air travel will normalize by the end of 2022, with recovery being led by increasing leisure demand[2]. Additionally, the TSA reports that small vacation-oriented airports are nearing normal passenger volumes compared with February 2020 volumes, while airports like Washington DC National and New York’s Kennedy Airport are down 65%-70% during the same period[3].

During the pandemic, under-performance moved asset managers and owners to initiate significant changes in brand relationships, most notable Service Properties Trust (SVC) executing its termination rights with Marriott and IHG and moving those properties under the Sonesta brand.  Similarly, Magna acquired distressed assets in the form of deed-in-lieu-of-foreclosure, such as Embassy Suites in New York for $115 million, a nearly 40% discount from the price paid by Ashford Hospitality Trust 18 months earlier.

The adverse effects of the pandemic are unprecedented and managing hotel assets has never been more challenging, nor has the role of the asset manager ever been more essential. While property performance and valuations are derived from market dynamics and asset manager and operator decisions, the underlying impact of associated technology choices is also increasingly consequential to a property’s ultimate success. Capturing fair-share of the leisure-led recovery requires properties to have the digital infrastructure to cost-effectively promote and maximize bookings across the proper channels.  Likewise, the decision to change or affiliate with a new flag often requires committing to a specific, often mandated technology platform embedded with software that is directly tied to property performance, such as revenue management. 

The confluence of the external events and the very source of hotel demand means that the influence of technology on asset performance is massive. Virtually all travel is now booked online, and mobile solutions predominate outside the U.S. Yet, how well has the hospitality industry adapted to the text or chat-based habits of Generation Z and Millennials that are increasingly the drivers of the recovery? The industry has hyped personalization, but arguably the efficacy of today’s individually curated offers doesn’t compare with those delivered by the likes of major ecommerce companies. Moreover, pandemic-related downsizing and curtailed investment has understandably resulted in a focus on operating necessities to the detriment of in innovation and the introduction of new capabilities to owners.

Whether independent or flagged, the property disposition is a bet on the operating performance contributing to the hold valuation of the real asset.  More than ever that bet now must consider the implications of technology decisions and rapidly evolving guest preferences. It logically follows that owners and asset managers also need to be increasingly technology savvy to better assess the appropriateness and direction of future capital allocations and strategic dispositions.

Additionally, technology platforms and individual software applications must have a better linkage to business value and stronger competitive differentiation. Some observations across the industry, based on conversations with senior asset managers, include:

• Technology tends to be overlooked and is viewed as lagging in the hospitality industry.
• A brand’s technology platform has typically not come “into play” during the selection process and is generally seen as comparatively similar.
• Few companies can scale and innovate efficiently with a highly fragmented owner base.
• Technology plays a big role in asset performance but does not replace good management.
• The Central Reservations System (CRS), Property Management System (PMS), and Revenue Management (RMS) are seen as the most critical technologies.

Asset managers should consider that technology investments not only have the requisite service level agreements (SLAs) but also achieve the expected level of designed business value. Consider how many technologies impact revenue across the guest journey as described in the chart below:

STAGE OF THE GUEST JOURNEY	MAJOR TECHNOLOGIES IMPACTING ASSET PROFITABILITY	DIRECT IMPACT TO ASSET PROFITABILITY
Guest Inspiration & Acquisition	Reservation Systems	Individual Room Offers
	Revenue Management Systems	Promotions
	Property Management Systems	Packages
	Customer Relationship Management (CRM)	Ancillary Sales (Spa, Golf, Etc.)
	Property Website / Digital Marketing
	Loyalty Management Systems
Group Acquisition	Sales & Catering Systems	Group Pricing
	Group Revenue Management	Group Upselling
	Room List Management
On-Property	Guest Engagement Software	Ancillary Sales (Spa, Golf, Etc.)
	Restaurant Reservation Software	Food & Beverage Sales
	Point of Sale Systems	Ancillary / F&B Upselling
Post-Stay	CRM	Promotions / Loyalty
	Social Media / Reputation Management	Social Network Remarketing

A host of technologies also address costs, including the labor, typically the largest operating expense.  In addition, guest room technologies, digital signage, kiosks and IOT-enabled solutions (Internet of Things) are also a direct impact on profitability. 

Given the direct and increasingly important link between technology and profitability, understanding how properties are helped or constrained by their technology choices should be strategic.  However, it is increasingly difficult to provision a hotel with  individually selected best-in-class solutions, challenging the asset manager to evaluate more holistic solutions implicit in brands and operators’ platform of mandated solutions, including many of the vital revenue-related technologies like revenue management, reservations and property management. Based upon the property or portfolio profile, a comparative analysis of the platforms offered by different brands should be conducted as a matter of routine.   Owners and asset managers should ask whether the mandated technology platform is open or closed to third-party vendors and evaluate the ease with which it is to integrate with new capabilities and/or other platforms. In other words, if a critical component of a mandated stack is not delivering value, what avenues are available to an alternative solution?

Information technology has become inextricably linked to property performance and value and, as such, can no longer afford to be an afterthought.  Rather, like decisions regarding major capital deployments or the selection of the brand and/or operators themselves, technology decisions require the highest level of emphasis in evaluating brand agreements, developing budgets, and overseeing operations.  The degree of available innovation is astounding and ever evolving.  Every owner and asset manager should be aware of how potential solutions could benefit  - or impede – the value of their hospitality investments.

[1] Press Release, STR: U.S. hotel results for week ending 22 May; May 27, 2021, https://str.com/press-release/str-us-hotel-results-week-ending-22-may

[2] Press Release, Oliver Wyman: US Domestic Air Travel To Make Full Recovery by Early 2022; April 5, 2021, https://www.oliverwyman.com/media-center/2021/apr/us-domestic-air-travel-to-make-full-recovery-by-early-2022.html

[3] The New York Times: Air Travel Is Already Back to Normal in Some Places. Here’s Where; April 1, 2021, https://www.nytimes.com/2021/04/01/upshot/flights-rebounding-vacations.html

CONTRIBUTING AUTHORS:

Clay Dickinson
Managing Director – Hotels and Valuation Advisory Services
Caribbean and Latin America Region
JLL Hotels & Hospitality

Andrea Grigg
Head of Global Asset Management
JLL Hotels & Hospitality

Greg Pesik
Co-Founder and Chief Executive Officer
PROVision Partners