AI Adoption in Hotels Requires Leadership and Investment, Experts Say

AI’s Role and Challenges in the Hotel Industry

Artificial intelligence (AI) is increasingly viewed as a tool that could help hotels streamline operations and reduce dependence on online travel agencies (OTAs). However, industry experts say that widespread, effective adoption of AI is still limited by several factors, including the need for disciplined leadership, significant financial investment, and the challenge of integrating new technologies into existing systems.

At a recent panel discussion held on July 1 at CoStar’s London office, Laura Brinkmann, founder of Effizia Strategic Partners, described a sense of “FOMO”—fear of missing out—among hoteliers regarding AI. Despite this interest, Brinkmann noted that the hotel sector has not yet seen substantial, groundbreaking activity in AI adoption. She characterized the current AI landscape as “the wild west,” with accessibility expected to increase and costs likely to decrease over time, though many uncertainties remain.

Brinkmann suggested that AI could eventually disrupt OTAs by enabling hotels to better manage and leverage their own data. Clean, detailed, and accurate data could make hotels more discoverable through AI-driven channels, potentially reducing the need for paid advertising and OTA fees. However, she emphasized that achieving this requires not only technology but also coordination across housekeeping, finance, and systems management.

Potential Benefits and Limitations of AI

Brinkmann argued that AI offers hotels an opportunity to gain greater control over guest preferences and booking journeys. As guest behavior evolves, AI could help hotels respond more quickly than OTAs to changing demands. For independent hotels in particular, AI could provide increased visibility and accessibility that were previously difficult to achieve.

Despite these potential benefits, Brinkmann cautioned that AI is not a turnkey solution. Implementing AI requires upfront investment and a robust technology infrastructure. She also noted that AI is not yet capable of handling all aspects of hotel operations, such as processing room payments, but suggested that such capabilities could be developed in the future.

Market Trends and Financial Pressures

Dave Goodger, managing director for Europe, Middle East, and Africa at Tourism Economics, highlighted the growing importance of AI as travel spending reaches historic highs. Since the end of the COVID-19 pandemic, hotel bookings and tourism have rebounded, driven in part by major events and concert tours. However, hoteliers continue to face rising operational costs, increased taxes, and higher business rates.

Jade Humphrey, hotel development sales director at BWH Hotels GB, noted that hoteliers are becoming more commercially aware and are focused on finding assets that offer viable returns. Sarah Green, director at Hotel Finance, said that the UK and other markets are currently favorable for buyers, with banks resuming lending. However, she pointed out that demand for midmarket hotels in secondary and tertiary locations is weak, as investors prioritize prime locations.

Impact of New Taxes and Levies

New taxes and levies, such as roomnight charges in the UK and similar measures in cities like Amsterdam, are adding to the financial burden on hotels. Goodger estimated that a proposed 5% tourism levy in the UK could reduce tourism numbers by about 2%, or approximately 12 million nights, with the greatest impact on midscale and domestic travel segments.

In many cases, these levies are intended to offset or replace other taxes, but their implementation varies by region and is often subject to local government decisions. The additional costs are expected to be difficult for hotels to absorb, especially in markets where pricing power is limited.

Supply Trends and Market Outlook

Aoife Roche, vice president of sales for Europe, Middle East, and Africa at STR, reported that hotel supply growth in Europe remains muted, with only about 1% annual growth and 185,000 rooms currently under construction. Most new development is concentrated in the luxury segment, which benefits most from higher average daily rates.

Roche also highlighted challenges in the London market, where consumer caution is limiting pricing power. STR’s forecast for regional UK hotels predicts minimal growth through 2026, with projections lowered due to ongoing geopolitical uncertainties.

Overall, while AI presents opportunities for hotels, successful implementation will depend on strategic leadership, investment, and the ability to adapt to evolving market and regulatory conditions.

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