PESTEL analysis of the hotel industry
This detailed ‘PESTEL analysis of the hotel industry’ aims to evaluate some of the macro factors that influence the global hotel industry, with particular references to the USA, the UK, and the EU. Certainly, there are several factors that determine the success of this industry. Therefore, an in-depth analysis of those factors is very useful for hoteliers to devise their business and marketing strategies.
Political factors that may impact on the hotel industry
The hotel industry is a subdivision of the hospitality industry. Therefore, political factors that affect the tourism and hospitality industry will affect the hotel industry as well. For instance, if the US or the UK governments impose travel bans, it will hurt the hotel industry immediately as demand for accommodation from tourists will be very low or none.
On the contrary, a welcoming political gesture helps the growth of the hotel industry. For instance, if the US visit visa rules are slightly flexible, then more visitors would come to the country for holidays and most of them would stay in hotels.
Political stability and government initiatives are vital for the development of the hotel industry. For instance, the UK government announced a new deal dubbed as ‘Tourism Sector Dear’ which confirms its commitment to building over 130,000 new hotel rooms by 2025 with 75% being built outside of London (Master Inholders, 2023).
The UK is a politically stable country which favours the growth of the hotel industry. This growth is further fuelled by the government initiatives. The hotel occupancy rate in the country was 81% in September 2022 (Statista, 2023).
Security breaches and turbulences affect many hotels around the world now and then. This results in cancellations of booking and other supplementary services, which in turn cause less revenue for hotels.
Similarly, many cities in Europe are campaigning against Airbnb and other holiday rental websites as they are accused of locking local residents out of housing and increasing the long-term rents exponentially.
Economic factors that may impact on the hotel industry
Economic environment is the next issue to discuss in this PESTEL analysis of the hotel industry. It influences the hotel industry in many different ways. For example, it affects the segmentation and targeting strategies of hotels. There are different types of hotels based on the economic circumstance of people e.g. luxury hotels, boutique hotels, and budget hotels.
Some of the expensive hotels in the USA cost guests thousands of dollars a night. Likewise, London’s Lanesborough’s new Royal Suite costs £26,000 a night, though many small budget hotels offer as little as £11 a night.
The strength and weakness of currency also impact on the hotel industry. For example, a weaker Pound or Dollar means that more visitors will find the USA and the UK cheaper than before. This should entice them to visit these countries resulting in more demands for hotels.
Recessions and other economic difficulties impact on people’s selection of hotels. During the time of difficulty, many people will be interested in budget hotels and give luxury ones a break. In fact, some hotels were decimated in the last few years because of economic difficulty and lockdowns.
Conversely, in times of economic prosperity, people tend to travel more, leading to higher demand for hotel accommodations. Likewise, seasonality may also affect hotels’ occupancy rates.
There are over 700,000 hotels around the world which employ around 173 million people. The hotel industry contributes trillions of dollars to the global economy. These stats show the importance of this industry in the global economy and lives of some many people (Condor Ferries Ltd, 2023).
The hotel industry is characterized by intense competition. With countless hotels, resorts, and alternative accommodations available, travellers have more options than ever before when it comes to where they choose to stay. As a result, it is essential for hoteliers to differentiate themselves from their competitors and find ways to stand out in the crowded market.
Social factors that may impact on the hotel industry
Social environment is the next element of focus in the PESTLE analysis of the hotel industry. Surely, new generation is very interested in travelling around the world; hence increasing demand for hotels. In addition, Airbnb (2023) reports that there is a growing demand for long-term stays in hotels.
The millennial travellers now make up a significant portion of the global travel market, and their preferences and expectations differ from those of older generations. For example, they tend to prioritise unique experiences, sustainability, and technology when choosing a hotel.
Catering to these preferences may involve offering eco-friendly amenities, incorporating local culture and experiences into the hotel offerings, and investing in the latest technology to enhance the guest experience.
Consumer preference in accommodation is changing rapidly. Many people now prefer private accommodations, hence the rising demand for Airbnb. Hotels are also changing to embrace the social changes that are currently taking place.
An important trend impacting the hotel industry is the growing importance of wellness and well-being. As travellers increasingly prioritise their health, hotels can cater to this demand by offering wellness-focused amenities and services, such as fitness facilities, spa services, and healthy dining options.
Another demographic trend to consider is the aging population. As the global population ages, the number of older travellers is expected to increase, and they may have different needs and preferences than younger guests.
Therefore, hotels may need to adapt their facilities and services to accommodate older guests, such as offering accessible rooms and amenities, providing more personalised assistance, and ensuring a comfortable and quiet atmosphere.
The hotel industry is often a major employer in many developing countries and many hotels are pledging to recruit more young people in the future which is good news for young people, and people with some kind of social disadvantages.
Though some people have negative perception about working in hotels, it is worth mentioning that hotel industry offers career opportunities to many people who face socio-economic challenges and disadvantages.
Technological factors that may impact on the hotel industry
Hotels use technology in different ways to serve their consumers better. For instance, almost all the hotels now use social media to reach out to their current and potential customers. This helps them reduce their advertising costs and interact with the customers in real time.
Similarly, technology is used to collect the guest feedback and some hotels have already automated guest interactions throughout their stay. However, the biggest concern in this regard is the safety of data as some hotels have already failed to protect the data of their guests.
Environmental factors that may impact on the hotel industry
Another key element is this PESTEL analysis of the hotel industry is the public concern for the environment. Environmental and sustainability concerns are increasingly important factors affecting the hotel industry. As awareness of environmental issues grows, many travellers are seeking out eco-friendly accommodations and are willing to pay a premium for hotels that prioritise sustainability.
Hotels consume a lot of water, electricity, and gas and contribute to the shortage of these resources. Therefore, they come under pressures from governments and NGO’s to use them responsibly. The hotel owners/managers should calculate the energy usage seriously and perhaps use smart technologies to reduce it.
Hotels should adopt practices such as installing LED lighting, using solar power, or offering electric vehicle charging stations. Additionally, they can reduce their environmental impact by minimising single-use plastics, adopting water-saving measures, and sourcing sustainable and locally produced food and other products.
Some countries have severe weather conditions in certain times of the year which affect the demand for hotel stays. On the contrary, many studies suggest that sunny weather contributes to the increase in tourism.
Legal factors that may impact on the hotel industry
Legal environment is the last topic of discussion in the PESTEL analysis of the hotel industry. Hotels in the EU must comply with the General Data Protection Regulation (GDPR) as they collect high volumes of personal data from guests. Likewise, hotels in the UK must comply with the UK GDPR. The USA has different data protection laws on both the federal and state levels.
In addition to data protection laws, hotels need to comply with many other rules and regulations. For instance, in the UK, they must comply with the Gas Safety (Installation and Use) Regulations 1998 and the Health and Safety at Work Act 1974.
Failure to provide data safety may costs hotels millions of pounds. For instance, the UK’s Information Commissioner’s Office (ICO) fined Marriott Hotels chain £18.4m for a major data breach that may have affected up to 339 million guests.
Likewise, the owner of a hotel in Barking (London) was ordered to pay £50,000 after continuing to take guests despite being issued with a prohibition notice for serious fire safety failings (Mewawalla, 2022). Relevant authorities also fined many hotels in the UK, USA, and Europe in the past over a wide range of issues.
Summary of PESTEL analysis of the hotel industry
In conclusion, the hotel industry is dynamic and exciting that presents numerous opportunities and challenges for business owners and managers. By leveraging technology, embracing sustainability, providing exceptional customer service, and staying informed about industry news and trends, hotels can maintain continuing progress in this exciting and ever-changing industry.
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Last update: 14 April 2023
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 14 April 2023)
Condor Ferries Ltd (2023) Hotel industry statistics, available at: https://www.condorferries.co.uk/hotel-industry-statistics (accessed 4 April 2023)
Master Inholders (2023) New tourism sector deal, available at: https://masterinnholders.co.uk/news-views/new-tourism-sector-deal/ (accessed 14 April 2023)
Mewawalla, T. (2022) Owner of hotel in Barking fined over fire safety failings, available at: https://www.barkinganddagenhampost.co.uk/news/23061855.owner-hotel-barking-fined-fire-safety-failings/ (accessed 12 April 2023)
Statista (2023) Monthly occupancy rate of hotels in the UK, available at: https://www.statista.com/statistics/1339099/hotels-occupancy-rate-by-month-in-the-uk/ (accessed 14 April 2023)
Author: M Rahman
M Rahman writes extensively online and offline with an emphasis on business management, marketing, and tourism. He is a lecturer in Management and Marketing. He holds an MSc in Tourism & Hospitality from the University of Sunderland. Also, graduated from Leeds Metropolitan University with a BA in Business & Management Studies and completed a DTLLS (Diploma in Teaching in the Life-Long Learning Sector) from London South Bank University.