Order # 15839.edited

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Kenyatta University *

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Economics

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Nov 24, 2024

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1 Analysing the Contemporary Hospitality Industry for Investment Opportunities Amidst Global Challenges Facing the Hospitality, Travel, and Tourism Industries Student’s Name Professor’s Name Course Date

2 Task B: Pestel and SWOT Analysis of the Hospitality Industry Introduction The UK Hospitality industry is enormous, and it is constantly changing. Startups are always entering the market while existing companies implement changes to meet the expectations of travellers. The industry is vibrant and an essential workplace for many people with diverse talents and skills. The industry has recovered from the effects of the COVID-19 pandemic, although the companies might encounter disruption soon due to increasing commodity prices (Condor Ferries Ltd 2023). Various destinations, such as those in London, are attracting new investors and developers. The increasing annual RevPAR shows the capacity of the industry to bring in new investment projects in the food and beverage, travel and tourism, lodging, meetings and events, and recreation industries. Despite the progress, hospitality businesses can encounter challenges from internal or external environments, affecting their performances. This report uses the SWOT and PESTEL models to analyse internal and external factors affecting businesses in the hospitality industry, with a specific focus on the Four Seasons Hotel, London. PESTLE Analysis of the UK Hospitality Industry A detailed PESTEL analysis evaluates the influence of macro factors influencing the UK hospitality industry. The industry is success depends on businesses' capacity to respond to external factors such as political, economic, social, legal, technological, and environmental challenges. These factors are beyond the reach and influence of organisations in the industry. i) Political Factors Political factors affect the hospitality industry in the UK in different ways. Changes in the policies of the UK government, attitudes, and regulatory measures largely determine the success and growth of businesses in the industry. Stable, strong government support for the industry boosts chances of growth. A growing industry increases revenue from the tourism

3 and hospitality industry to the government, making it to develop supporting regulations and policies (Master Inholders 2023). For instance, travel bans, such as those witnessed during the COVID-19 Pandemic, significantly impacted the industry because they reduced the number of visitors, leading to the closure of businesses. Political stability is crucial for the development of the tourism and hospitality industry. According to HM Government (2019), the UK government announced the ‘Tourism Sector Deal’ showing the commitment to constructing over 130,000 new hotel rooms by 2025, 75% being developed outside London. Such a deal supports the industry, enabling companies to expand and grow (HM Government 2019). Besides, political stability in the UK is attributed to the high hotel occupancy rate of 81% in September 2022 (Statista 2023). On the contrary, security breaches and turbulences affect hotels and restaurants, leading to the cancellation of bookings and the provision of other supplementary services. Consequently, the revenue of businesses in the industry decreased significantly. Elections and similar changes can favour or harm the tourism and hospitality industry. A political party can make some decisions favourable to the industry because it is vital to the economy. On the contrary, some regimes might remove favourable policies, considering the opinion about the industry. Alternatively, elections can create fear among travellers, affecting business operations in tourism and hospitality. Rathore (2017) adds that political factors are linked to the taxation of businesses in the hospitality industry. Taxes influence the costs and profitability of companies in the industry. Specific tax reforms can benefit businesses because they reduce expenses, and money is used for investment. ii) Economic Factors The economic environment in the UK has a critical effect on the tourism and hospitality industry. According to Liu and Pratt (2017), economic factors affect market segmentation and targeting for restaurants, hotels, airlines, and theatres, among other

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4 businesses. Certain types of hotels and restaurants operate based on people's circumstances. For instance, luxury hotels, boutique hotels, and budget hotels target customers based on their disposable incomes, which depend on economic indicators. Currency strength can bolster the industry. Whenever the international currencies are more potent than the Sterling pound, foreign travellers increase in the UK, boosting the industry (Condor Ferries Ltd 2023). An opposite effect is reported for a weakened currency. Economic cycles are another factor affecting business operations in the industry. The hotel and restaurant industry is among those first affected by economic cycles because they go through them first and are the first to emerge from the shock. The effects of the economic shock depend on factors such as unemployment, job growth, and travel expenditures (Rathore 2017). Last is the capacity for hotels and restaurants to tailor their services to patrons in different locations. For instance, Marriott International acquired Starwood Hotels and Resorts Worldwide, while Hilton Hotels changed its guest offerings based on location. Travellers appreciate product and service offerings tailored to their needs because they satisfy them, encouraging them to be loyal in the future. Lastly, favourable economic conditions enable many startups to venture into the industry, increasing competition for existing entities (Liu & Pratt 2017). Companies respond to competition through product differentiation and making their services outstanding in a crowded marketplace. iii) Socio-cultural Factors An emerging trend is the desire to travel among millennials, who enjoy many rooms on Airbnb. Millennials prioritise unique experiences, sustainability, and the use of technology in travel destinations. Individuals can quickly and conveniently book rooms through mobile phone apps, which are often less costly than hotels and restaurants in the area. Airbnb (2023) reported a growing demand for long-term stays in hotels. Companies respond to these demands by providing eco-friendly amenities, incorporating local cultural experiences in

5 hotel offerings, and purchasing the latest technologies to improve guest experiences. According to Airbnb (2023), changing consumer preferences and tastes in the tourism and hospitality sector entails increased preferences for private accommodations, thus increasing the demand for Airbnb. Hotels and restaurants are changing to incorporate the changes by investing in Airbnb. Another social trend is an increased demand for the fitness and well-being of travellers. Hotels fulfil these needs by increasing investment in wellness-focused amenities and services, such as fitness facilities, spa services, and healthy dining options (Master Inholders 2023). The aging population is another social trend that businesses in the industry should consider. The number of older guests is likely to increase. Hotels and restaurants should respond by providing accessible rooms and amenities, personalised assistance, comfort, and a quiet atmosphere to such guests. iv) Technological Factors Technological change creates many elements disrupting the tourism and hospitality industry, such as social media, blogs, and scratching reviews. Hotels and restaurants have changed from traditional media to new digital media necessitated by the Internet. Social media platforms like X, Facebook/Meta, and mobile applications provide new channels of advertising and interaction with customers (Ezzaouia & Bulchand-Gidumal 2022). Social media reduces advertising expenses and enables a direct interaction with customers. Social media is essential for sharing news about incidents near business premises in the hospitality industry. Incidences are reported in minutes, and responses in seconds. Moreover, hotel blog reviews can make or break the reputation of businesses. Any person can write a review about a hotel, airline, or restaurant, post it on a blog, and share it on social media. Travellers like taking photos and writing honest reviews about tehri experiences (Gupta & George, 2020). Posting their reviews can be good or bad for the hotel industry because those confident about

6 their products and services pay social media to write about them to grab attention. Lastly, business websites make it easier for guests to price-shop destinations. v) Legal Factors Crime rates, innkeeper laws, and truth-in-menu laws are some of the legal elements affecting business operations in the hospitality industry. According to Rathore (2017), people are interested in staying in safe places, meaning having low crime rates is essential for travellers to stay in the locations. Innkeeper laws guarantee the safety and welfare of guests and their properties. Hotels must post innkeeper regulations inside the door of each guest room. The law states the compensation the guests will receive in case of stolen property. Truth-in-menu laws are about telling the truth about the food and beverages they serve to guests, especially about the calories and nutritional value. Restaurants and hotels are also expected to comply with the General Data Protection Regulation because they collect information from guests. Other rules that hotels and restaurants should comply with are the Gas Safety (Installation and Use) Regulations 1998 and the Safety and Work Act 1974. Breach of data security can cost businesses in the hospitality industry. An example is a fine of £ 18.4m that the Information Commissioner's Office fined Marriott for a data breach that affected £339 million guests (Rathore 2017). Other hotels in the UK are fined for breaching a wide range of issues. vi) Environmental Factors Businesses in the hospitality industry are increasingly concerned about environmental and sustainability issues. Environmental awareness has increased, with many travellers seeking eco-friendly destinations. They are willing to pay a premium to be accommodated in such hotels. Hotels and restaurants consume water, electricity, and gas and contribute to shortages of resources. Consequently, they are under pressure from environmental activists. Businesses need to determine the amount of energy consumed and use innovative

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7 technologies. They can adopt LED lighting and solar power to reduce consumption and reliance on renewable energy. Investment in recycling projects for water and plastics improves the company's reputation and profitability. SWOT Analysis Strengths Strengths and weaknesses are internal factors affecting businesses in the hospitality industry. The significant strengths of the industry are the provision of a safe and comfortable environment away from home and the capacity of the industry to cushion the local economy. Hotels and restaurants provide rooms with necessary facilities like beds, blankets, electricity, internet connection, and service experience that make guests feel at home or even better. Businesses in the industry support the local economy in different ways (Takacs & Vaduva 2017). For instance, they provide employment and provide state revenue through taxation. When people stay in the hotels, they consume local goods and services with the money paid for ending up in the hands of locals. Weaknesses Businesses incur high set-up costs that make hotels and restaurants charge premium prices, which are beyond the reach of many people. Affordable hotels offer lower standards of service. Unfair taxes increase the cost of operation for many hotels, making services costly for guests (Goranczewski & Puciato 2010). The seasonality of operations makes business in the industry vulnerable. Hotels depend on the influx of tourists, holidays, and seasons. It is difficult to predict high and low seasons, especially due to other external environmental shocks like the COVID-19 pandemic that disrupted operations. Opportunities Utilizing new technologies and exploiting the millennial market are significant opportunities for the industry. Companies in the industry use artificial intelligence (chatbots),

8 automation of check-in and check-out, and blockchain for making payments, among other technologies, to improve services (Takacs & Vaduva 2017). Opportunities for uniqueness and price dynamism are crucial elements for competitiveness. Secondly, millennials are the new target market because they love technology, travel, care for sustainability, and green tourism. Threats Major threats arise from competition from similar businesses selling differentiated goods and services. For instance, Airbnb is a major competitor to hotels and restaurants in the UK because they offer a variety of rooms at cheaper prices than hotel rooms (Takacs & Vaduva 2017). The Covid-19 Pandemic is another threat affecting business operations in the industry, given that many organisations are still recovering from the effects. Conclusion The UK tourism and hospitality sector comprises many businesses operating in different industries, such as the recreation industry, food and beverage, travel and tourism, and lodging industry. Internal factors emerge from within the companies, and external factors influence their operations. Internal factors include strengths and weaknesses that can help business to overcome challenges from the external environment, such as political and legal challenges or threats from competition. Combining strategic management and other models can help hotels and restaurants overcome business shocks.

9 Reference List Airbnb (2023) ‘ Make the most of the growing demand for longer stays’ , available at: https://www.airbnb.co.uk/resources/hosting-homes/a/make-the-most-of-the-growing- demand-for-longer-stays-263. [Accessed Nov. 19, 2023]. Condor Ferries Ltd (2023). ‘ Hotel industry statistics’ , available from: https://www.condorferries.co.uk/hotel-industry-statistics. [Accessed Nov. 19, 2023]. Ezzaouia, I. & Bulchand-Gidumal, J. (2022) ‘The impact of information technology adoption on hotel performance: Evidence from a developing country’, Journal of Quality Assurance in Hospitality & Tourism. Goranczewski, B. & Puciato, D. (2010). ‘SWOT analysis in the formulation of tourism development strategies for destinations’, Tourism , vol. 20, no. 2, pp. 45-54. Gupta, A., & George, J. (2020). ‘The Role of Artificial Intelligence and Machine Learning in Customer Relationship Management’, In Handbook of Research on Global Business Opportunities (pp. 433-453). IGI Global. HM Government (2019). ‘ Industrial strategy: Tourism Sector Deal’ , available from: https://assets.publishing.service.gov.uk/media/5d14ecbc40f0b635eaf773e5/tourism- sector-deal-web.pdf. [Accessed Nov. 19, 2023]. Liu, Y., & Pratt, S. (2017). The economic value of the UK hospitality industry. International Journal of Hospitality Management , vol. 62, 56-69 Master Inholders (2023). ‘ New tourism sector deal’ , available at: https://masterinnholders.co.uk/news-views/new-tourism-sector-deal/ (accessed 14 April 2023). Rathore, K. S. (2017). How has PESTEL Factors affected hospitality industry ? available from:

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10 https://www.academia.edu/10122060/How_has_PESTLE_factors_affected_Hospitalit y_Industry. [Accessed Nov. 19, 2023] Statista. (2023). ‘ Revenue per available room of regional hotels (excluding London) in the United Kingdom from 2019 to 2021, with a forecast to 2023’ , available from: https://www.statista.com/statistics/1365883/annual-hotel-statistics-for-revpar-in- provinces-in-the-united-kingdom-uk/. [Accessed Nov. 19, 2023]. Takacs, J. & Vaduva, S. (2017). ‘A SWOT analysis of the global hospitality industry’, Revista Economica, vol. 69, no. 6, pp. 105-119.

Order # 15839.edited

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