Hospitality Industry Pestel Analysis

Hospitality/Tourism Industry Pestel Analysis

If any of the industries is really too susceptible to the environmental factors then it is the hospitality industry. From changing weather to changing governments, all these factors can impact it deeply. Apart from it, technological and social trends too can impact it deeply. 2016 remained a great year for hospitality industry where a large number of jobs were added globally every month. With disposable personal income on the rise globally, 2017 is also expected to remain a profitable year for Hospitality industry. Several things have brought major changes to the industry in 2016. Technological innovation, terrorism, political instability, rising consumer demand and similar other factors have influenced it globally in varying ways. A report by Delloitte shows that many new changes in the industry environment in the past five years will affect the industry deeply in 2017. Here is a PESTEL analysis that checks these factors in the industrial environment and their impact on the hospitality industry.

Political factors:

Political factors globally have a direct and deep impact on the hospitality industry. Whether it is the changing government regimes worldwide or terrorism, the effect is always direct on the industry. Political stability is always good for the hospitality industry. Tourism flourishes in an environment free of turmoil. It cannot flourish in an environment of conflict or terror. An example is the Egyptian tourism industry which is struggling to pick up. The problem in Egypt has grown since 2011 and the nation is facing a tourism crisis since then. The Metrojet crash over the Sinai Peninsula has worsened the situation.

While the tourism industry is the main earner of foreign currency for Egypt, things do not seem to be taking the right turn there. If Europe and Asia Pacific have performed well, then it is to an extent due to the relative political stability there. Brexit was a significant political event and it had a noticable impact on tourism and the hospitality industry. Both Brexit and Terrorism are hurting revenues. All these political factors are important concerns before the industry and will have a significant influence on its revenue and profits even in 2017. A single terrorist event affects tourism deeply in an area for a prolonged period. Moreover, the status of  military and security apparatus in any nation and its reputation on the political landscape also affect the condition of tourism there.

Economic factors:

Economic factors have remained a major factor behind the high demand in the tourism sector globally in 2016. The labor market has continued to grow stronger and with it consumer spending. Not just this, disposable personal income as well as average hourly incomes have also risen. So, overall these are positive signs for the hospitality industry. The economic situation is a signal that the industry will continue to flourish in 2017. The situation of demand is healthy and the hotel brands would be able to benefit from the current situation. The airlines brands will also reap the benefits. In 2016, the major carriers had strong earnings throughout the year. However, rising operational costs will also create pressures.

The condition of the global economy is an important factor that affects the state of tourism industry. The recent recession proved that depending upon the economic conditions, the consumers of the hospitality industry would willingly cut on their travel expenses.  Condition of the economy affects the purchasing power of the travellers. If the economy is flourishing, the consumers would be able to spend more on leisure activities. Otherwise economic slowdown affects their pockets and then the industry. Under such conditions, the players including hotel brands and airlines are forced to cut down prices to fuel demand. The result is reduced profits. The exact opposite happens when economic activity is higher.

Social factors:

Like the economic trends, social trends too shape the tourism industry. The effects too can be just as deep. Consumer preference in lodging has taken a shift in the recent years. Their preference has shifted in the favor of private accommodations. The rise of Air BnB is a challenge for the established names in the hotel segment. Similarly, ride sharing brands are rising against the traditional taxi and cab brands. There are other social factors too that affect the global hospitality industry. Consumer preference is an important factor. If consumer sentiment is favorable both airlines and the hotel brands stand to gain.

Technological:

The technological factors have emerged to be the facilitators of demand for the tourism industry in the 21st century. From airlines to booking and even marketing, technology is the biggest influencer. Technology has facilitated communication and transfer of information bridging the gap between several parts of the world. More and more tourists now conduct research and try to find the best deals before they go for the final booking. If new tourist destinations have emerged then the credit to a large extent goes to the rise of technology.  Hotel and airlines brands are using information technology to serve their consumers better. Undoubtedly, technology is an enabler of tourism. However, that does not reduce the value of human touch. Hotel industry has upped the use of technology. Kiosks are more in use and digital check ins have grown popular. Social media and even the mobile technology are affecting it. Mobile technology has fueled the growth of tourism by facilitating mobile bookings, check ins, messages and several other things. Technology has worked in the favor of both sellers and buyers. However, the true power of mobile is still unexplored and in 2017 mobile technology, cloud technology and Internet of Things will affect several new changes. So, 2017 could be truly hot and happening for tourism because of technological factors.  Technology is shaping the travel experience at many other points too including on the ground and in the air.

Environmental:

Sustainability is a key concern in tourism too.  The focus has now shifted on ecotourism. United Nations has also recognized 2017 officially as the International Year of Sustainable Tourism for Development. Other environmental concerns are also important for tourism operators including transport operators and the hotel and restaurant brands. From managing ecological impact to waste management, all these concerns are important for the tourism operators. One even important thing is the impact of weather conditions on travel and tourism. Even the airlines industry is impacted directly by changing weather conditions. Airplanes cannot fly in stormy weather and if a disaster happens, it affects the entire industry. You all know of seasonal tourism and how changing seasons affect demand and supply of tourism in various areas. Tourists do not flock to an area all the year round like you would not like to go to places closer to the equator in hot season. Thus, environmental or ecological factors have a major impact on tourism industry. Cities that are greener and cleaner receive tourists in larger numbers.

Legal:

The regulatory environment in the tourism industry is complex. It is because both labor and public security are important concerns. Apart from it, there are other laws too that influence the sector but public safety and labor laws are two most important concerns for it. Tourism brands including the airlines cannot lose focus of risk management or they risk losing market share. The legal pressures and challenges in the tourism environment are big. Airlines have focused a lot on making air travel safer. For brands operating in several nations, it is important that they are familiar with all the local laws. Staff training has also become more and more important to prevent any legal hassles. Cities and nations that are considered safer and have lower crime level,  see tourists in larger numbers.

Sources:

https://www2.deloitte.com/us/en/pages/consumer-business/articles/travel-hospitality-industry-outlook.html

https://www.ft.com/content/b519e56e-83bd-11e5-8095-ed1a37d1e096

Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.