As the Travel, leisure, and hospitality (TLH) industry rapidly evolves, businesses need to seamlessly connect technology adoption, operational model changes, and growth opportunities, all while keeping-up with shifts in macro trends.

Summarized from a panel discussion during a recent KPMG webcast, we highlight how companies can drive success and create exceptional customer experiences.

The Macro forces at play

In the fast-paced TLH industry, understanding economic and M&A trends is crucial for staying competitive and agile. Companies in the space must be aware of the factors driving these changes, from fluctuating consumer spending habits to the impact of rising interest rates and the cost of capital.

• Declining M&A market: TLH has experienced a decrease in M&A activity, with multiple factors contributing to the downturn, such as cost of capital and debt market challenges.
• Excess household savings: Although reduced from its peak, excess savings still exists primarily among high income households, presenting potential opportunities for the industry.
• Consumer preferences: A persistent trend towards spending on services and experiences, along with a notable percentage of Americans planning to increase their travel, indicates potential demand and growth prospects for the sector.

Strategy and transformation

The industry finds itself amidst rapid change and transformation, propelled by evolving consumer preferences, technological advancements, and the ongoing implications of the post-pandemic world. Staying competitive and adapting to emerging challenges and opportunities compel businesses to adopt innovative strategies and embrace transformational approaches to their operations.

• Innovation: The post-pandemic world demands innovative and reinvented approaches. Examples in transformation include utilizing outdoor spaces for well-being experiences and repurposing vacant retail spaces into leisure venues.

• Addressing workforce challenges: To address workforce challenges, companies are leveraging flexible working hours and digitizing aspects of the guest experience using technology and generative artificial intelligence (AI) to enhance service quality and resolve staffing headwinds. According to a survey by the American Hotel & Lodging Association (AHLA) in May 2023, 82% of surveyed hotels report staffing shortages.
• Keeping up with the consumer: Consumers increasingly prioritize experiences over material goods. To meet these expectations, businesses need to focus on providing personalized experiences through data analysis and consumer behavior insights.

Strategic and tactical

In the dynamic environment, companies must navigate challenges by employing clear strategies and agile tactics. A constant strategy guides organizations towards long-term goals and defines their mission, while tactical adjustments address immediate challenges and opportunities that arise from market changes and competition. By fostering a strong strategic foundation, companies focus on strategic scenario planning, risk mitigation, and effective coordination between finance and operational areas to ensure adaptability and success in the face of ever-changing circumstances.

On the other hand, companies with long-term outlooks and strong capital positions invest in growth opportunities and innovations, like implementing AI and machine learning technologies. In TLH, some examples of leveraging AI include:

• Lodging: Pre-trip booking assistance, post-trip customer satisfaction
• Cruise lines: Ship boarding with facial recognition, personalized recommendations on activities while onboard
• Travel services: Assessing outcomes of booking conversations and honing-in on the factors that lead to positive outcomes, followed by training staff from these learnings, leading to higher conversion rates
• Gaming: Making gaming experiences more interactive, such as with dialogue generation.

These investments drive revenue opportunities and improve market analysis, allowing businesses to recover from disruptive events and adapt to changing market conditions. By emphasizing strategic planning and tactical flexibility, businesses in the industry can successfully sustain growth and competitive advantages in the face of complex challenges.

Companies can adapt and evolve their strategies based on changing market dynamics while preserving the human touch and maintaining a long-term view of the business.

A can serve as a catalyst for strategic transformation and business growth

Companies are exploring creative deal structures such as partnerships, joint ventures, and non-traditional arrangements to overcome limited financing opportunities, diversify their portfolios, and boost growth prospects. As market conditions change, businesses must stay true to their brand positioning and maintain discipline around brand standards.

Organic growth strategies

To achieve organic growth, organizations should balance new constructions and conversions in their development strategies to leverage their scale and resources. Success in M&A and organic growth initiatives relies on effective cross-functional collaboration among corporate strategy, strategic finance, analytics, and operational teams—as well as adapting and evolving strategies based on changing market dynamics while maintaining a long-term view of the business.

Adopting ESG to drive sustainable growth

ESG factors have become increasingly important in recent years, transitioning from an optional concern to a business priority. It is profoundly impacting strategy and transformation within the TLH.

• Strengthening corporate citizenship: Prioritizing ESG demonstrates an organization’s commitment to being a responsible corporate citizen. In a competitive market, a solid ESG reputation distinguishes a company from its competitors, building trust with customers, investors, and regulators. Companies that fail to incorporate ESG into their business practices risk hurting their competitive advantage and missing growth opportunities.
• Data-driven approaches: Leveraging data-driven methods to monitor, measure, and report ESG performance and progress enables companies to make informed decisions and set targets. Collecting and analyzing data on environmental, social, and governance indicators provide valuable insights to shape strategy and transformation efforts in the industry.

Embracing Generative AI

Generative AI is a powerful tool in the business landscape, with the potential to vastly improve various aspects of operations.

According to the KPMG 2023 Generative AI survey released in June, three in four business leaders rank it as the top emerging technology that will impact their business over the next 18 months.

• Enhancing the customer experience: Generative AI revolutionizes the sector by streamlining operations, personalizing the booking process, anticipating customer needs, offering tailored services to enhance satisfaction and the overall experience, managing feedback, and addressing staffing challenges.
• Supporting growth: As generative AI identifies untapped market opportunities, optimizes pricing strategies, and streamlines promotional campaigns, businesses can attract new customers and retain existing ones—unlocking additional revenue streams and driving growth. Additionally, generative AI enhances operational efficiency by optimizing processes, reducing errors, and automating tasks, allowing staff to focus on value-added activities.

By incorporating Generative AI into growth strategies, companies can build on the personal touch, foster innovation, and stay competitive.

Closing comments

Amidst the rapidly changing environment, companies in TLH must adapt to evolving customer expectations, market dynamics, and emerging technologies like Generative AI. By prioritizing diversified portfolios, creative deal structures, data-driven approaches, and maintaining a strong focus on ESG factors, companies can seamlessly navigate ongoing transformations while ensuring sustainability and long-term value creation.