Hospitality Sector Expected to Continue Positive Growth Trends in 2022-2023

The global pandemic has impacted and disrupted businesses all over the world. However, few other sectors have been hit as hard as the global hospitality industry. With lockdowns across countries and severe restrictions on traveling to control the spread of the virus, the hospitality sector has pushed through a tremendous crisis and is still reeling from the effects of COVID-19. The unpredictable nature of the pandemic as countries were hit with wave after wave of different variants of the virus, has only exasperated problems for this industry, including accurate forecasting in this sector.

However, with mass vaccinations there has been a reduction in the severity of the viral spread and economies have finally reopened based on Dubai Investment Fund (DIF) Research. The hospitality market is now seeing a resurgence and the industry Is gearing up to meet the new unforeseen demand.

Hospitality Sector in the Global Pandemic

The effects of the COVID-19 pandemic on tourism and subsequently the hospitality segment have been severe. According to figures from the World Tourism Organization (UNWTO), international arrivals, which had seen years of consistent growth, saw a tremendous drop of -73% in arrivals in 2020 and -71% in 2021.This unprecedented decline was linked to border closures around the world and the introduction of travel restrictions to control the virus’s spread. 2020 has been recognized as the worst year for the tourism sector with a decrease of 1 billion in international arrivals and US $1.1 trillion in international tourism receipts based on DIF’s study.

DIF is a leading middle-eastern investment initiative focused on sustainability and diversification in global asset classes to promote stability. Insights from the initiative have been central in dictating a shift towards economic growth in the hospitality industry.

Resultingly, the hospitality sector saw the biggest economic decline. The occupancy rate of hotels in the United States as of November 2020 stood at 40.3% and was a 304.5% decline as compared to 2019. For the UK, the economic downturn peaked in April 2020 as economic output in the food and accommodation sector was 90% below pre-pandemic levels and 42% lower than in 2019. The hospitality output was 21% lower than in 2019 and the industry’s share in UK’s economy fell from 3% in 2019 to 2% in 2020 and 2021.

A major problem during these tough times was the inability to use traditional forecasting strategies due to the unexpected circumstances brought on by the pandemic. Strategic decision-making required a structural overhaul and different perspectives needed to be considered for estimating future results regarding potential capital expenditures and management of acquisitions and dispositions. As showcased by the declining sales figures of Marriot International during the pandemic, core issues in the industry have exerted a detrimental toll.

The critical issues faced by the industry have now brought lasting changes in this sector as the world in which the market now finds itself has changed. Consumer behavior has been drastically affected as new habits and expectations have risen. Discretionary spending has taken a hit, and spending patterns have changed. For the hospitality industry to recover, it will be crucial to recognize and adapt to shifting consumer behaviors. To gain and keep customers’ trust, businesses will need to reinvent the customer experience and reengage with them. To negotiate the difficulties of doing business in a post-pandemic world, they will also need to increase their operational agility and financial resilience.

Hospitality Industry to Bounce Back

According to the Hospitality Global Market Report 2022, the global hospitality market is expected to rise from $3,952.87 billion in 2021 to $4,548.42 billion in 2022 at a compound annual growth rate (CAGR) of 15.1%. The market is anticipated to reach $6,715.27 billion in 2026 at a CAGR of 10.2%. DIF experts further point towards the growth potential being accelerated by digital adoption trends.

This growth has been primarily attributed to the rearrangement of operations by organizations in the hospitality sector and recovery from the COVID-19 impact, which had previously resulted in restrictive containment measures involving social distancing, remote work, and closure of commercial activities that created operational challenges. The growth in this sector is also aided by a stable economic growth that is forecasted in many developed and developing countries. According to the International Monetary Fund (IMF), global GDP had reached 3.3% in 2020 and 3.4% in 2021. It is also anticipated that the recovering commodity prices, which experienced a considerable decline in the recent past, will also help in the market growth. Consistent growth is anticipated in developed economies over the forecast period. Emerging markets are also expected to grow slightly faster than the developed markets. In addition to this, UNWTO has predicted a return of international arrivals to 2019 levels within 2-4 years, with 2022 already seeing an extremely positive growth trend. A major new study from the World Travel & Tourism Council (WTTC) has shown that its contribution to the global economy might reach $8.6 trillion in 2022.

With an uplift in economic activity across the globe and lifting of travel restrictions, the hospitality industry continues to show resilience and is expected to show an upward trend in the coming years.

Macro Trends Driving Growth of Hospitality and Tourism

1.The increase in the global economy’s contribution to the per capita income has given the sector a boost

Since 2009, the global GDP has risen steadily at a rate of roughly 2% annually, which has raised the demand for both domestic and international travel spending. While the pandemic caused a shock -3.12% fall in GDP in 2022, 2021 data and subsequent projections for 2022 and beyond will average out losses from that year.

2. Over the past three decades, air travel has steadily become more economical, but will this trend continue?

Due to a decline in fuel prices, carrier competition, and the expansion of low-cost carriers, air travel has become slightly more affordable. While this may not be good news for the airline industry, which uses ancillary fees to boost profit margins, it is good for customers who can spend more money. However, the global energy crisis might reverse this trend, and airlines might raise prices as a result, which would then affect consumer travel habits.

3. Corporate travel is expected to continue expanding and is yet another factor in the positive outlook

Due to the region’s rapid economic growth, business travel is increasing significantly in China and India in particular.

4. Hotel owners are looking to add more properties to their portfolios through targeted acquisitions of smaller regional chains

Over the past few years, the number of mergers and acquisitions in the hospitality industry has considerably decreased as operators look to grow their businesses in a more regulated manner.

Major Challenges the Hospitality Sector Still Faces

Post Pandemic Effects

The migratory character of the hospitality workforce and the decline in international travel, tourism, and restaurant services during the pandemic, had a significant influence on the hospitality business. The significance of this sector can be realized by considering that the industry contributed 10.4% of global GDP pre-pandemic, supporting one in ten jobs on the planet. This proves that the tourism industry is one of the principal job providers, which the hospitality sector inherently needs, even if it requires adopting extraordinary measures.

Hotels, bars, and restaurants and other hospitality businesses have made several sanitary improvements that have raised supplier costs, and many of them still do so in light of the fact that customers’ expectations have changed to reflect this new sanitary environment.

Hotels must also reevaluate their current service offerings in order to adjust to the uncertainty in changing customer requirements following the pandemic, so as to adapt changes in:

  • Customer experience
  • Customer perceptions
  • Shift in consumption patterns
  • Quality asset management

On the human resource side, many hoteliers and hospitality companies had to reduce their workforces in order to adjust to the decline in demand. The challenge is bringing back and retaining these trained professional employees. Better working conditions for employees, such as greater base pay, paid sick days and holidays, and adequate vacation time, may hold the key to finding solutions in a competitive labor market.

Industry Consolidation

The concentration of size and power among the major companies has increased as a result of corporate consolidation. Hotel owners will look to add more properties to their portfolios by carefully buying up smaller regional chains. The management of structures with a wide variety of brands and geographies generates additional complexity and poses a threat to increasing overall rigidity, even though the end goal is to create value through cross-organizational synergies.

Competition from Technological and Digital Players

By providing technological solutions and developing new markets to draw in new types of clients, major technology companies like Google or Facebook pose a real danger in replacing hotel brands, Tech giants were able to drive out established market leaders into niche areas because of their control over all forms of data relating to consumer behavior, both offline and online. Businesses that fail to define their niche run the risk of becoming mere revenue generators for these tech companies. Some large enough brands may be able to survive, but their business will become more difficult.

Climate Change

Numerous popular tourist spots will be negatively impacted by the threat of climate change. The risks brought on by climate change, safety and security issues, and unprecedented migrations flows will further increase problems. The lack of predictability, the size of such occurrences, and how quickly the industry can respond and adapt are the primary issues facing the hospitality sector. One potential response from the hotel sector to these rising hazards could be hybrid operations.

What the Future Holds

The COVID-19 pandemic provided players in the hospitality sector a chance to rethink, reset, and respond to new obstacles brought on by the crisis. The leaders in the hospitality industry responded to all the obstacles with strength and exceptional agility, coming up with innovative solutions to complex problems. A significant change in consumer behavior and thought also occurred during the epidemic. This has permeated the hospitality business and is leading to the emergence of new trends:

Demand is Evolving

There is now a distinct change in behaviors and preferences. Travel, both domestically and internationally, is in flux, and leisure time is returning to pre-pandemic levels, but this shouldn’t be taken for granted. The hospitality sector has already embraced the fact that outdoor activities are the preferred option for customers. Consumers trust recommendations from friends and family 92% of the time.

Pandemic After-Effects

Hygiene, safety and health have become the top priority for the global population. Despite the global relaxation of social distancing and quarantine regulations, maintaining the new hygienic standards is still encouraged in order to stop the virus from spreading. Eighty percent of passengers are more afraid of quarantine rather than of contracting the virus. Also, 69% of travelers list hygiene and health precautions as the most crucial element of a travel brand’s crisis response.

Digitize and Innovate

The integration of modern technologies and digitalization proved to be an essential part of operations for the hospitality sector during the pandemic. Online shopping platforms, contactless technologies, and food delivery services were seen as the true winners of the pandemic period. 45% of air travel passengers are willing to dispose of their paper passports for digital identities. However, a major portion of the hospitality sector believes that the skills gap in local labor market is a barrier to the adoption of new technologies.

Sustainability is the Future for Hotels

55% of international tourists say they are more determined than ever to book sustainable accommodations than they were the previous year, while others believe that the hospitality industry should play its part in providing sustainable solutions that are beneficial to the environment. DIF Research points toward sustainability being a critical factor in the rebound of the hospitality sector.

It can be concluded, with facts and figures providing evidence, that the hospitality industry is well on its path to recovery, primarily because it is an essential part of modern human lives that people derive much pleasure and discovery from. It is simultaneously undergoing huge digital transformation and other shifts to adapt to consumer sentiment.