What Does The Increase In Hotel Deflagging Mean For The Hospitality Industry

Of late it would appear that independently-owned hotels are no longer turning to large hotel chains to use their brand name and thereby provide a safety net in running their hotel business. Instead, they seem prone to discard the big brand name in exchange for an independent name that promises a unique reservation experience.

This is called “deflagging” in industry speak.

When the owner of a hotel discards the franchise they purchased, they’ve “deflagged” their business. (The “flag” in “deflagging” comes from the hotel no longer displaying the brand flags on their hotel property.)

One reason for this phenomenon is the increasing popularity of independent boutique hotels and other unique hospitality businesses. 

It has been the norm for hotel property owners to turn to big chain hotels like Marriott International or Hilton Worldwide to help them. Branding a hotel with a big name has its benefits — established brands not only reduce individual marketing costs for the smaller hotel but also provide operational guidance, software and training.

Lately though, some chains are downsizing both staff and services. For example, many hotels have eliminated daily housekeeping and in-room dining. The famed breakfast buffets have changed to “to-go” bags. These are supposedly temporary changes in a time of stress for the hospitality industry.

But not only do these moves affect brand integrity but it gets worse when temporary changes become permanent to keep costs low as hotel chains recover.

But this is an opportunity for the smaller hotels. For example, Marriott predicts that business won’t return to 2019 levels for another three years. In this time, boutique hotels could take advantage of their smaller sizes to return to a higher level of service more quickly. 

Another reason why deflagging could be a trend is because of a generational shift.

Younger travellers have more brand loyalty to online travel agencies like TripAdvisor, Booking.com, Expedia and Airbnb rather than to legacy hotel brands. They are less brand loyal to the large hotel chains as previous generations.

And then, travellers who book hotel rooms on mobile devices prefer booking rooms through online travel portals rather than from  hotel websites; and this, by a 3-to-1 margin. They also prefer to use them for better price transparency.

And next, travellers don’t want cookie-cutter hotels anymore. They want an experience that’s unique and different, which big brand hotels can’t always provide.

Some hotels have taken note of this, and they’ve adapted by making their businesses more boutique. 

Many hotels are struggling due to the pandemic, and some are close to going bankrupt. This once-in-a-lifetime factor combined with the consumer trends mentioned above has caused some hotel owners to file for bankruptcy to clear large amounts of debt incurred during Covid-19 and start anew with unique branding to get more business. In addition, some hotel owners in large cities and other urban centres will convert their hotel properties to apartments and other long-term rentals, as articulated in this Wall Street Journal piece.

Virender Razdan
Virender Razdan

How does this impact the hospitality industry?

It is likely that the competition will increase. Each business will strive to provide a unique experience to outdo the competition.

One result of this will be the increase in the number of specialised hotels, inns and B&Bs, there may be too many choices for the typical traveller — causing them to make choices based mainly on price. So, I predict the hospitality businesses that provide a unique experience and are cheaper than their competition will greatly benefit while this trend is relevant. 

Additionally, I believe hotels that utilise technology to improve their overall customer experience will be able to stand out from their competition. Hospitality businesses that have the technology to allow travellers to work on site and to feel safe from potential health risks will have guests that feel appreciated and special.

Some examples of how hotels can use technology to enhance the guest experience includes contactless check-in and departure via app or text messages, keyless entry, wireless charging devices, portable streaming devices and smart controls for lights and temperature. Another innovation is a smart speaker, for guests to talk to the front desk or request housekeeping or a valet.

For most hotels it is inescapable that they must develop their individual “brand story” to provide a comprehensive local experience, to adapt to these emerging trends.

One such initiative is providing a local tourism guide, to help them discover things to do around the hotel; and by this, communicate how their hotel enhances the local experience in a non-cookie-cutter way.

Deflagging is now the norm. Hotel owners will compare the cost versus benefit of the franchise fees paid to legacy hotel brands, and many will go independent.

Deflagging will create greater competition and diversity between hospitality businesses, especially those who already have guest experience focused technology implemented into their business.

Virender Razdan is CEO & Founder of  incode Business Services, a hospitality consulting company helps with the launch, operations and growing a hospitality business.

His recent piece was about the game plan for the hotel industry’s future: https://executivetraveller.in/article/virender-razdans-game-plan-for-the-hotel-industry-reinvent-rebuild/

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