Whether you’re a tourist who loves traveling, a businessman meeting or dealing in many countries or going on a vacation with family or friends, you need a hotel. Even if you’re traveling in another state, you need to stay in one place and need a roof over your head.
Back in the day, the idea of a hotel was simple, roof and food, and now the services have extended to a long list and more. The industry has been making a huge profit by adapting to new tech and providing better services with skilled staff. But, inconsiderable tax, weather, political and other issues have been disrupting the overall course of the hotel industry, which we will get to know in this hotel industry swot analysis.
Hotel Industry Overview
We can track down the history of the hotel industry back thousands of years when people could rent a small space and buy some food. The primary need was a roof and food. But, with time and modernization, the entire history of the hotel industry has changed a lot.
The modern hotel industry started in the 1700 century, and in the 1900 century, the industry boomed. And in 2022, the industry is worth over $4,390 B. Once, the hotel’s primary customer was the upper classes, and now no matter who you are, anyone can get the service.
The total number of employees in the hotel industry is more than 15 M, serving millions of people. Every country has a massive opportunity for the hotel industry, as tourism and business exist.
Competitors in Hotel Industry
Marriott | Hilton | Hyatt | InterContinental | Izmailovo | MGM Grand & Signature | First World Hotel
Did You Know?
There is a hotel named Balea Lake Ice Hotel in Romania, which gets built every year. Visitors can only go there using a single-line cable. It’s not just a hotel; it also has other features, such as a snow bar and restaurant.
Strengths – Hotel Industry SWOT Analysis
Stable Profit Margin: If we go ten years back, in 2014, the profit margin for the hotel industry was over 48% on average, and after five years, in 2019, the margin rose to over 85%. Even though the pandemic slashed the industry, the hotel industry recovered again and returned with over 57% profit margin in 2022. As we can see, the margin always stayed stabled and helped keep a healthy cash flow.
Home Environment: People choose the hotel because of what they offer: an environment just like home and even more. That’s why hotels have become an inseparable part of the tourism industry. Starting with the basic offerings to luxury, depending on the needs, the hotels can deliver anything to the consumers.
Boost Local Economy: Hotels are great for boosting the local economy, and the perfect example is Maldives’ dependency on the hotel and tourism industry. And, just like these, there are many other countries whose economies are boosted by these industries. Even some countries’ primary economy is based on the hotel and tourism industry.
Massive Employment: The stats show that the total number of hotel employees in the hotel industry now stands at 15.11 M, with a 23% growth rate. Even though the hotels had to let go of a big chunk of their employees during the pandemic, the industry got back on track with more employment opportunities.
Weaknesses – Hotel Industry SWOT Analysis
High Fixed Cost: The hotel industry itself is costly. The average cost for a hotel setup requires around $22,000,000, which is very high compared to the industries. And that’s just the minimum cost and only includes the infrastructure. Besides, the employee and maintenance cost alone is very high, which is a weakness and sets a high barrier for the owners.
High Tax Rate: The hotel tax rate varies depending on the country and even city or state. But, compared to the other industries, the average tax rate is high. In the USA, the tax rate starts as low as 2% to 18%, depending on the state, and the average rate is 8.25%. Even though many countries have easy laws and lower hotel industry taxes, the rate is still high.
Seasonality: The revenue of the hotels primarily depends on seasonality. Hotels are highly dependent on tourists and mainly built for them, so the hotel business only runs during the holidays, vacations and other seasons. Besides, as financial stability also depends on tourism, that also matters.
Other Industry Affects: Many industries can, directly and indirectly, affect the hotel industry’s overall situation, such as airline, tourism, etc. As for the other factors, a country’s people, politics, climate, and natural disasters can also highly impact the hotel industry. As a result, this industry’s risk and effects are too high.
Opportunities – Hotel Industry SWOT Analysis
Dynamic Pricing Strategies: Although many hotels have set their pricing dynamically, most are still stuck with old-school methods. They must set the pricing strategy based on demand in this modern age. As the business relies on the season and many other factors, they can also introduce loyalty programs. Besides, offering discounts and different prices in the off-season might also boost the revenue.
New Target Groups: The world has changed a lot, and so it the target market. As most people in this world are aged between 13 to 25, this is the target group the hotel industry should focus on in the upcoming days. Besides, targeting 25 to 35 years old is also another group. These people love to travel and spend money.
Strategic Collaboration: There are many opportunities for hotel companies to do strategic partnerships and collaborations with related industries, such as airlines, other transportation industries, tourism, digital financial services, etc. People want easy and smooth services, combining these industries can make that happen.
Unique Offerings: People want more and more and something new and trendy with time. The hotel industry should start finding the customers’ core needs and what they want and come up with unique offerings. As mentioned before, collaborating with other industries can help bring new offerings and attract new target groups.
Tech Adaptation: Integrating new tech with the overall industry can be revolutionizing. There are many scoops, such as AI, inventory management, automated services, smooth and digital transactions, and other features that can improve customer experience and make the work more effective and efficient.
Threats – Hotel Industry SWOT Analysis
Online Rental Companies: The hotel industry has changed in the last few years because of online rental companies like Airbnb. Airbnb alone has disrupted, affected and changed the course of the hotel industry. Because of that, there are now more new tech companies and new ideas that can disrupt more and decrease the market share.
Political Instability: In the last decades, there have been many political instabilities in many countries, and because of that, tourist has feared going to those countries, and the tourism and hotel industry has faced an enormous drop, and so has the hotel industry. And many countries’ hotel industry has been completely destroyed because of that.
Weather Issues: Weather has always been an issue for the hotel industry, and it can affect in a big way if there is any kind of inconvenience or untimely climate or weather change, then it will affect the tourism and the hotel industry. As a result, the regular seasonality and demand chain is disrupted.
Recession: During the 2008 recession, the occupancy rate in the hotel significantly dropped by 60% in the USA. As the economic downturn affected the tourism industry, the rate was even more downward. The hotel industry might face losses as it is a strong possibility of another recession in 2023-24 years.
[Bonus Infographic] SWOT Analysis of Hotel Industry
Recommendations for Hotel Industry
Even with a huge profit margin and skilled employees, the hotel industry has been facing some serious issues now. Here are some recommendations on how they can handle it better.
- They should work on setting better pricing strategies that might be flexible and easier for many customers.
- Strategic collaboration with other industries and companies can bring new offerings and services.
- Adapting new techs can be effective and efficient for the customers and the entire industry to serve better services.
- They should consider the political and economic factors to handle the situations in a better way.
Frequently Asked Questions (FAQs)
Who is the King of the Hotel Industry?
César Ritz is the king of the hotel industry.
What are the Latest Trends in The Hotel Industry?
The latest trends in the hotel industry are mobile check-in, digital payments, and digital and contactless services.
Final Words on Hotel Industry SWOT Analysis
The hotel industry has been in this modern world before the world has become modern. Catering to billions of people in its history has boosted the local economy and made the service more effective so that customers feel at home. It was possible because of the significant number of employees and high-profit margin. But, in this modern world, there are problems, such as Airbnb and other economic and political issues. And besides all that, the industry is still going strong.
References
- Hotels & Tourism Industry Profitability. (n.d.). CSIMarket.
- Maldives Overview: Development news, research, data. (2022, September 28). World Bank.
- United States: Sales Tax. (n.d.). Tripadvisor.
- Cabrito, B., Antunes, M. V., Abranja, N., Justino, M. D. R. T. F., & Quirós, J. T. (2019). The relevance of tourism in financial sustainability of hotels. European Research on Management and Business Economics, 25(3), 165–174.
- Millili, D. (2023, January 18). What Hotels Can Learn About Pricing Optimization from Other Industries. Hospitality Net.
- Proportion of selected age groups of world population and in regions in 2022. (2022, October 20). Statista.
- Roach, J. C. (2018, May). How Airbnb has affected the hotel industry. U.S. Bureau of Labor Statistics.
- Sheel, A. (2008). U.S. Recession and Its Impact on the U.S. Tourism, Hotel, and Restaurant Business: A Brief Review. The Journal of Hospitality Financial Management, 16(2), Vii–Viii.
