Macy Marvel was at the IHIF conference this month to report back on latest trends in the hotel sector.
The CEO panel is always an eagerly awaited event at IHIF. This year’s panel held on Tuesday 4 March was particularly diverse, ranging from Accor, the French giant, which operates the most hotels of any chain in the world, and Club Med, the originator of all-inclusive holidays, to Interstate, a large white-label hotel management company and the luxury hotel group, FRHI (Fairmont Raffles Hotels International), which owns the Fairmont, Raffles and Swissôtel brands.
Accor’s new CEO, Sebastien Bazin, appointed last August, who was formerly with the private equity fund, Colony Capital, a major Accor shareholder, explained to the audience why they have abandoned the indiscriminate sale of hotel properties and have instead chosen to split the company into two divisions, as follow:
- HotelServices – a hotel operator and brand franchisor that is fee-oriented and P&L driven
- HotelInvest – a hotel owner and investor that will be yield-oriented and balance sheet driven
According to Bazin, following a benchmarking exercise with comparable chains, it was found that Accor’s service delivery was relatively profitable, but that the asset management side was underperforming. The strategy now is to restructure the 1,400 hotels (out of a total of some 3,800 properties) that are either owned (300) or under lease contract (1,100), which can be either fixed or variable (turnover – based). Bazin, who has recently come from the private equity world, says he sees no reason to allow opportunistic investment funds to profit from any rise in hotel asset values. Rather it is his intention to improve performance and to sell the assets at their full value as the market improves. Indeed with the prospect of rising RevPARs in Europe over the next couple of years, it is likely that the group will be able to sell their hotel assets for a better price in the future. Otherwise, Accor has placed a temporary moratorium on signing new lease contracts, in order to favour expansion via franchise and management contracts. This move however, could put the chain at a significant competitive disadvantage in the key German market which continues to be very lease-driven. Nevertheless, the chain continues to expand at a rapid rate, opening an ibis, the group’s core brand, every three days. Indeed, there are now 1,700 ibis hotels – mostly located in Europe- which account for 40% of Accor’s total network, according to Bazin.
Club Med has moved up market
Club Med has now essentially completed its move up market, which was initiated half a decade ago and has seen 2- and 3-Trident resorts replaced by more upscale 4- and 5- Trident resorts, according to the group’s CEO, Henri Giscard d’Estaing, son of France’s former president, Valéry Giscard d’Estaing. This is particularly true of the burgeoning Chinese market where the Club is positioned as a premium product and the average rates are about 20% higher than the company overall. Mauritius has become a sought-after destination for the Chinese. Indeed, Asia Pacific accounts for two-thirds of group profits currently. While the core domestic French market remains problematic due to a soggy economy, incoming demand from overseas is well supported. Giscard d’Estaing cited the example of 3,000 Brazilian skiers, who came to France this winter season. A key strength of Club Med is distribution: the group realises 61% of its bookings in value terms by direct channels of which 19% are via internet.
Interstate is a multi-brand manager
Interstate is what can be termed a ‘second-tier’ or ‘white label’ management company. Indeed the group has no brand of its own, but rather manages its portfolio of over 380 hotels (some 73,000 rooms) under 44 different brands (such as Marriott, Sheraton, Hilton, ibis, etc.), through the use of franchise agreements. Interstate plans to continue its present strategy of horizontal integration as it continues to acquire small-to-medium-sized hotel management companies in Europe. Interstate is growing faster in Europe and Asia than in North America and, according to Abrahamson, select-service (eg Hilton Garden Inn or Courtyard by Marriott) and boutique brands have particularly attractive growth prospects. Looking ahead to the end of the year, the group’s CEO, Jim Abrahamson, sees RevPAR up 6% for Interstate’s portfolio in 2014. Otherwise, he believes that hotel brands may cede to OTAs in the long run, as online intermediaries tighten their grip. This would appear a bit exaggerated as the big hotel chains have consistently generated between two-thirds and three-quarters of their online sales on their own websites over the last five years.
Fast growth in the pipeline at FRHI
Fairmont Raffles Hotels International, who manage almost exclusively in the luxury segment, are fortunate to have deep-pocketed owner-investors behind them, such as the Saudi Arabian, Prince Al-Waleed, the 26th – richest man in the world, according to Forbes magazine. Thus, the firm has the means to grow its hotel stock by 50% over the next four to five years, according to FRHI’s CEO, Michael Glennie. Otherwise, he notes that it has become particularly important to have a very detailed display of a chain’s hotel properties on the website as customers like to see the exact location and disposition of their rooms before arrival. There is also less need for concierge services as customers nowadays will have already scoped out what restaurants to book and what sights to see with their iPhones before arriving at the hotel. There’s also no need to provide a lot of in-room entertainment, as guests bring their own. What is needed, however, is the right sockets and docks, as well as good, reliable high-speed internet.
Change at the top at Wyndham
Interestingly, Eric Danziger, CEO of Wyndham Hotel Group, the world’s largest hotel franchisor, who was on the programme, was not present on the panel due to his sudden resignation. It was announced on Monday (3 March), the day prior to the panel, that Danziger, who had led the company for the last six year, is to be replaced by Geoff Ballotti, head of Wyndham Worldwide’s timeshare exchange and vacation rental division. This move indicates a possible shift in emphasis away from the hotel side of the business towards interval ownership and holiday rentals, which is a fast-growing sector that is progressively consolidating and which also contributes more to group revenues and profits than hotel franchising.
