Every business, including a hotel, is exposed to a number of internal risks that careful management and planning help to mitigate. Hotels also face a number of external risks that they have little hope of controlling, even with careful management and planning, such as economic changes, technological innovations and competitors.
The overall state of the economy hinges on multiple circumstances, and hotel owners are at the mercy of these influences. During economic downturns, pleasure trips and vacations often wind up on the chopping block for cash-stressed families. As other businesses face similar drops in their profit margins, business travel often is cut as a cost-saving measure, compounding the plight of hotels. As occupancy drops off and profits shrink, hotels are in a bleak situation. They can opt to cut prices in the hopes of boosting occupancy, but they do this at the risk of damaging cash flow, profit and even their brand.
Evaluating existing competition when deciding on a hotel location is standard business practice, but once the business is in place, competition remains a problem. Say, for example, that a hotelier opens a midsized luxury hotel adjacent to a city’s downtown core. Assume the owner selected the location based, in part, on the minimal competition in the immediate vicinity. After opening the hotel, the owner is vulnerable to any other hotel owner or chain that decides to set up shop nearby. If, for example, a luxury hotel brand, such as Hilton Hotels & Resorts, opens across the street, the local hotel faces the prospect of losing a significant portion of its clients to the international brand. The local hotel owner can take little or no action to stop the external threat of a competitor.
Technological innovations change how people live and, as a byproduct, what they need or want when they travel. As such, changes in technology present an external threat to the hotel industry. Hotels must stay up to speed on technological innovations that customers use and competitors make available. The number of mobile devices that require a universal serial bus, or USB, port to charge continues to grow; in response, many hotels now offer rooms with integrated USB ports. A failure to provide USB ports or WiFi places a hotel at a disadvantage simply because the hotel didn't keep pace with changes in technology.
The features that attract guests to a hotel, such as proximity to a beach, also put a hotel in the path of external risks from nature. Hotels on the Atlantic coastline, for example, often face the threat or reality of hurricanes that can cause billions of dollars of property damage and lost business. Hotels that survive hurricanes and other natural disasters often benefit from increased occupancy in the aftermath, but the external risk of disaster is always there.