PESTLE Analysis: Examining Hotel Sector & Tourism Demand Factors

This report conducts a PESTLE analysis of the hotel sector within the hospitality industry to evaluate external factors influencing tourism demand. It identifies key political factors such as political stability, trade restrictions, and taxation that impact hotel operations and tourist behavior. Economic factors like employment rates, inflation, and price fluctuations are analyzed for their effects on consumer spending and hotel profitability. Social-cultural factors, including population growth and age demographics, are examined to understand changing customer needs. Technological advancements, such as automated systems and internet services, are discussed in relation to enhancing customer satisfaction. Legal factors and government regulations affecting the hotel sector are also considered. The analysis uses real-world examples to illustrate how these factors shape tourism destinations, facilities, and services, providing insights into the hotel sector's external business environment.

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Hotel and hospitality management
Name
Institution

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Hotel hospitality sector
The chosen sector for the report is Hotel industry that is a major part of the hospitality
industry. Henderson (2011 p.237) defined hotel as an establishment that provides meals,
accommodations and other services to tourists and travelers. The hotel sector is segmented into
full-service Hotels, Select service hotel, limited service hotels and boutique and Themed hotel.
Full services hotels include 4 star and five star and resort hotels. Select service hotels include
airport hotels, inns, bread and breakfast, and several five-star hotels and four-star hotels. limited
service Hotels include one and two hotels, capsule hotels, motels and hostels. Themed and
boutique hotels include casino hotels, theme park hotels, cruise hotels and boutique hotels.
Hotels offer guest with services such as fitness, nightclubs, conference, banqueting sports and
facilities, sophisticated restraint casinos, bars and beauty spas. With increased in tourism
activities and every type of accommodation catering for every taste, the hotel sector is constantly
evolving and growing. Refining of the offering, creation of new and differentiating products,
improvement of experience and satisfaction of customer on a local and global level has enabled
the industry to expand and penetrate new markets. Different hotels offer different services
depending on management. Joining Hotel industry needs a deep analysis of external factors in
order to determine the future sustainability of the company. When joining the hotel sector,
competitive advantage between existing hotels and “market entry barrier” by new companies are
important things to consider. Therefore, the paper seeks to conduct an analysis of the external
business environment of the hotel sector.

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Trends and factors that influence the demand for travel and tourism destinations, facilities
and services.
The trends and factors the affects the External business environment of hotel sector
include political, economic, social-cultural factors, technological, environmental and legal
factors (PESTLE). According to Kolios & Read (2013 p.5023), PESTLE is a useful tool that is
used by diverse companies to understand market decline or growth, potential, position and
direction of the company. In addition, PESTLE factors and trends are used in the assessment of a
market in which a business needs to venture.
Political factors
Political factors determine the degree to which government intervenes in the economy
(Bwalya, 2009 p.1-13). The political factors include trade restrictions, tax, foreign trade policy,
political stability or instability in overseeing markets, government policy and environmental law.
In the hotel sector, tensions between countries, terror attacks, trade restrictions and political
instabilities are the key factor that influences how the organization does business. In addition,
these factors can also influence the demand for travel and tourism destinations, services and
facilities in either a positive or negative way.
Political tension and instability in some countries or regions are associated with a
decrease in demand for food and services in the hotel sector. A research conducted by Dwyer,
Edwards, Mistilis, Roman and Scott (2009 p.63-74) indicated that when there is political anxiety
or tension between countries, demand for hotel services and products falls significantly.
However, when there is political stability in a country demand for tourism destinations, products
and services also increase. Hotel sector depends so much on tourist to generate revenues and
therefore whenever there are political tensions, tourists tend to minimize their movements for

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their safety. For example, in 2008, Kenya experienced a post-election violence that significantly
affected the number of tourists visiting the country leading to a huge decline in demand for
hotels and services (Dercon and Gutiérrez-Romero 2012 p.731).
Increase and decrease in taxation also affect tourism destination and demands for services
and products. According to the research conducted by Durbarry (2008), an increase in taxation
leads to a decrease in demands while a decrease in taxation leads to an increase in demands of
products and services in the hotel sector. In addition, Rise in taxation contributes to high prices
of raw material that in turn contributes to high prices of products and services provided by
hotels. When the taxation is high .people tend to spend less and save more and therefore hotel
services and products fall.
Terror attacks also affect hotels operations significantly. When there are increased cases
of terror attacks in a certain region, the hotel sector in that particular region experiences a
significant decline in demands. For example, ever since the terrorist attacked the United States of
America in 2011, the demand for hotel products and services in that region have declined
significantly. Despite heavy security deployed in the region, tourists still fear for their safety to
spend more time in hotels around that place (Fletcher and Morakabati, 2008 p.537).
Additionally, the number of tourists from Islamic countries touring the USA has significantly
declined ever since the terror attacks due to higher surveillance.
Diverse political trends are circulating globally that might affect the tourism destination
and demand for products in the hotel sector. For example, the Qatar government is the current
trend in the market. The government is planning to increase taxes in order to raise more funds in
their preparation to host FIFA world cup 2018. The rise in taxation is likely to decrease demands
for hotels and service in that region. In addition, Italy is expected to conduct elections in 2018

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and there is tension in the country because of pressure from the five-star movement for the
country to retract from EU. The political tension in the country will lead to a decrease in
demands for hotel services and products.
Economic factors
Economic factors also impact how organizations do business and generate profits. The
economic factors and trends that affect an organization include income of business and
consumers, inflation, interest rates, exchange rates and unemployment rates, change in tariffs and
economic growth. Additionally, the economic factors are further broken down into micro-
economic factors that deal with the way people spends their incomes and macroeconomic facts
that deal with demand management in any given economy. Government expenditure, taxation
policy and interest rates are a commonly used mechanism for controlling the economy.
Employment rates are a major economic factor that influences tourism destination and the
demand for goods and products. The more people are receiving a steady income and have future
expectations of continuing to receive it, the more people are likely to visit diverse tourism
destination and spend most of the time on hotels. A research conducted by Dekay, Toh & Raven
(2009 p.373) shows that people with high incomes visit airlines and hotels frequently as
compared to low-income people. In addition, also the level of wages affects demands and
tourism destination. For example, when there is an increase in wages, consumers have more
income to spend and when the wages are falling or stagnant, demand for products is likely to fall.
The rate of inflations impacts the way people spend their incomes on products and
services in the hotel sector. High inflation rates have a negatively impact on purchasing power.
Therefore, when the rate of inflation in a country is high, people have less income to spend after
covering basic needs such as shelter and food. Positively, when the inflation is low people also

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tend to spend much of time on touring different destination and hotels as they have excess capital
to spend. In addition, the increase in inflation is associated with an increase in labor costs that in
turns results to low profit margin in the hotel sector. Furthermore, during the recession period,
also the demand for hotel services and products falls because people are forced to cost-cut. For
example, during the economic recession in 2008, the demand for hotels services declined
significantly with even some hotels and restaurants forced to shut done due to this economic
crisis (O’Neill and Carlbäck 2011 p.515). However, immediately the recession period was over,
the demand for hotels products and services increase again
Price fluctuation is also an important factor that affects demands and supplies in the hotel sector.
When the products are expensive, many potential consumers feel not worthy to purchase the
product and therefore the demand for that products declines significantly. However, the lowering
of the products price increases the demand. In hotel context, when price fluctuations are high the
demand for hotels service declines and when they are low the demand also increases.
The are many trends in the economy that impacts the demand for products and services in the
hotel sector. For example, Mexico economy is slowing down indicating that demand for hotel
services and products in that regions will be low. The inflation is Venezuela is set to be high
indicating that hotel demands and tourism destination in that country will decrease.
Social factors
Social factors are also known as social-cultural factors and have a deep impact on tourism
destinations, facilities and services. The social-cultural factors and trends involve areas of
attitudes of the population and shared beliefs. In general, social factors include career attitudes,
population growth, health consciousness and age. In addition, these factors have a specific
interest and have a direct effect on how organizations understand customer’s needs.

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The population is also associated with the demands of products and services in the Hotel
sector. The rise in the population increases demands hotel services and products while the
decline in population leads to a decline in demand. Most countries where a large number of the
population lives in Urban centers experiences high demand for hotel services as compared to
countries with a large number of people living in rural areas. For example, the demand for hotel
services and facilities is high in countries with a high population like China and Brazil as
compared to Ireland where the population is significant low. In addition, The significant rise in
population in Asian countries is a trend that affects the demand for hotel services in that areas.
Age and gender also affect demand in the hotel sector. Countries with a high number of
the aging population are likely to spend most of the times in the hotel and other tourism
activities. For example, Germany has a large number of aging people and therefore demand for
hotels in Germany is usually very high as compared to a country like Indonesia.
Technological factors
Technological factors affect organizations in several ways including new ways of
producing goods and services, new ways of communicating with target markets and new ways of
distributing both goods and services. Therefore, the fast technological landscape changes how
the organization does business. In developed countries, several places are not attractive but the
cities attract tourism in large number because of technological factors. The technology has aided
the growth of the hotel sector as it has also connected destinations and people. Currently, people
have more options for traveling to diverse hotels. For example, people can choose to travel with
electric trains to hotels that are cheap and first.
Advanced technologies used in the hotel sector has facilitated customer satisfaction hence
increasing the demand for products and service. Many hotels have automated their systems with

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the latest technology to work in a way that is convenient for customers. For example, Hotels
have provided strong wireless-fidelity (WI-FI) to their customers and businesspersons for them
to carry out their activities online. Therefore, the convenient internet services have increased
demand for the hotels with even organizations tending to hire hotels for activities such as
teleconferencing for them to carry out business.
The current trends of the automated vehicle may affect the hotel demand. With the trend
that by 2020 self-driving cars which many are likely to be electric, the hotels demand and
tourism destinations will increase rapidly. The availability of the speedy vehicles will make may
people to explore different areas and spend most of their time on hotels.
Legal factors
The organization must know what is legal and not legal for them to comply with
government regulations and policies and trade successfully. In addition, if the company operates
in global markets, legal factors affect the business significantly because each country has its own
set of regulations and rules. The legal factors and trends affecting an organization include
product safety, product labeling, health and safety, consumer rights and laws, advertising
standards and equal opportunities. In the hotel sector, health and safety trends impact the demand
for hotel and services significantly. For example, when there are some trends of cholera
breakdown in some countries, the demands for hotels services decreases significantly as people
feel they are not in a safe environment.
The legal trends that affect hotel sector include sustainability rules. Eco-friendly practices
have been mandated to take place. Many hotels are currently installing solar panels for and
updating their systems for lights and air conditioner to switch themselves on and off. The trend

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will increase the demand for hotel and services as customers are likely to spend most of the times
in hotels because of the conducive climate.
Environmental factors
Environmental factors affect many important aspects of the business. For example,
resource availability, employee efficiency and willingness of customers to buy a product.
Environmental factors affect demand in either a positive or negative way. The environmental
factors that affect how business does business include weather, climate change, availability of
non-renewable goods, pollution, floods, hurricanes and earthquakes.
Natural beauty affects the demand of hotels positively. The natural beautiful tourist
destination like mountains, parks and falls have a high demand for hotel services as compared to
other places. Weather also affects the demand for hotel services. For example, during
summertime demand for hotels are high as people spend much of time on beaches. However,
during the winter the demand decreases as people are not likely to spend most of the time in
recreational activities. Earthquakes and hurricanes affect the demand for hotel services
negatively. For example, ever since the latest hurricane that has been experienced in France has
led to a decline in hotel demands in the region. Many people are still worried about their safety
and therefore few people are touring the region. In addition, when an earthquake with Asian
countries experiencing earthquakes time after time the demand in that region has significantly
declined. Floods also affect demands significantly. During rainy seasons, the demand in hotel
sectors declines as people spend much of their time indoors.

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How the Hotel Hospitality sector has adjusted to meet the changes in demand and
consumer preferences
Hotel sector has adjusted to meet the changes in demand and consumer preference by
adjusting to new technologies, improving customer delivery, understanding macro environment
changes, developing sustainability environment, innovation and analyzing the political situations.
Globally, many businesses are keen on the latest technology and innovation trends for
them to adjust to the latest technologies that meet changes in demands. The technologies have
been able to improve customer delivery in the hotel industry. Through the technologies, the
hotel's sector has provided entertainment and internet services that have created an effective
experience for visitors. For example, many hotels have created social media platforms that can
track the needs of customers, get complains and feedbacks of customers regarding their
experience with hotels.
Environmental factors have facilitated the emergence of many hotels. With many people
touring national parks, mountain and other recreational facilities, the hotel sector has responded
by providing affordable services and products that cater to all classes of incomes.
The negative trend about the environment is that in near future earthquakes is expected to
hit some parts of Asia continent. Therefore, hotel demand in the continent is expected to
decrease because the earthquake time remains uncertain.
The role that government bodies and international agencies play in the Hotel sector and
how they may affect demand and supply
Government and international agencies play a crucial role in the hotel sector. Department of
health Bureaus of Community Environmental Health and food safety ensures that public health is

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protected and Food and service in the hotel sector are operated in an effective manner to
eliminate hazards. The control has impacted demand and supply in various ways. For example,
when food and safety measures are effective in the hotel sector, demand also increases. In
addition, with government bodies and international bodies controlling the quality of products
entering the hotel sector, the supply has also declined significantly.
Conclusion
The paper covered various external factors and trends that affect the hotel sector. Political
instability and tensions negatively decrease the demand of services in the hotel. Countries with
political stability have a high demand for hotel sector products and services. The economic
factors like recessions and employments determine the patterns of visitors in the hotel sector.
When the economy is favorable, the demand for products increases significantly. Increase in
social aspects like populations and ages increases demands for products and services. Advanced
in technology increases demand as customers are satisfied in their environment. Environmental
factors like natural beauty increases demand customers. Other environmental factors like
earthquakes and floods decrease demands for the products. Therefore, therefore overall macro
environment factors have both negative and positive impacts on the hotel sector.

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