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Carlson’s hotels mooted for sale

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Volume 12 - Issue 2 Jan/Feb www.hotelanalyst.co.uk

Observers have suggested that Rezidor Hotel Group, in which Carlson has a 51% stake, would be a strong fit to take on the business.

A merger or a partnership are the other alternatives the company is exploring, the Wall Street Journal reported. Sources close to Hotel Analyst confirmed that, given the current consolidation trend, Carlson was unlikely to escape scrutiny. Carlson is reported to have appointed Morgan Stanley to review its options.

A sale would affect not only Carlson, but Rezidor Hotel Group.

A source close to Rezidor who declined to be named told Hotel Analyst: “I can’t understand why anyone would want to take Carlson without also taking Rezidor. The best way would be for Rezidor to take the whole lot, but that would be a complicated, messy deal to do. Carlson’s revenue stream is not so huge - it might look like Carlson is bigger, but Rezidor has leases.

“Rezidor has a very strong balance sheet, but I don’t think the Rezidor management wants the Country Suites and the Radisson hotels in the US. It would love the Asia business and the control of the master franchise agreement.”

At the end of 2014, family-owned Carlson Worldwide included over 1,370 hotels in operation or under development under the Carlson Rezidor Hotel Group banner, in addition to owning the

business travel management company Carlson Wagonlit Travel. Of those hotels, Rezidor Hotel Group had, at the end of the third quarter, 351 hotels open and 106 under development. The estate at the end of the third quarter was 61% managed, 18% leased and 21% franchised.

The group has seven brands, including the recently-launched Quorvus Collection of ‘curated’ luxury hotels and Radisson Red, its third brand under the Radisson flag, focusing on the Millennial guest and launching initially in Asia and Europe, but last year announcing its first hotel in the US. The group plans to have 60 hotels under the brand by 2020.

The group’s dominant brand globally is Country Inns & Suites, with 519 sites in operation or under development, with Radisson Blu, at 389, in second.

The relationship between Carlson and Rezidor Hotel Group began in 1986 when SAS International Hotels (later The Rezidor Hotel Group) signed a partnership with Carlson, leading to Rezidor taking a Master Franchise Agreement for operation and development of the Radisson brand in Europe, the Middle East and Africa in 1994.

In 2002, the second Master Franchise Agreement followed for the Park Inn, Country Inn and Regent brands in Europe, the Middle East and Africa. When SAS sold the business, Carlson

took a 25% stake in the Scandinavian group, increasing gradually after Rezidor went public in 2006 to reach 50.3% in 2012, at which point the two joined forces in a strategic partnership and went to market as Carlson Rezidor Hotel Group. Rezidor Hotel Group remains listed on the Stockholm stock exchange.

As previously reported in Hotel Analyst, documents filed with the SEC pertaining to Marriott International’s takeover of Starwood Hotels & Resorts found that more than 30 hotel companies approached or were approached by the group, both within the US and outside, with a view to a potential takeover or, in one case, strategic partnership.

Inside06

Hotel price growth slows

19 Investors see India upturn

21 Fifteen years of growth

24 2015 closes on a high

28 Meteoric growth of homestay

Continued on page 3

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Savills HotelsFor investors, owners and operators alike, the hotel industry faces singular and extraordinary pressures. Our team understand some of these pressures, and they know the role property plays at the heart of any hotel business.www.savills.com +44 (0)20 7499 8644

Carlson is reported to be exploring a sale of its hotel business, among other strategic alternatives.

At the Gulf and Indian Ocean Hotel Investors’ Summit, held this February in Abu Dhabi, it became clear that hotel brand companies are facing an increasingly difficult conversation with owners about what they are delivering in return for the fees charged.

Simon Allison, CEO of owners group HOFTEL, said that charging franchise fees that were as much as 14% of room revenue was questionable given the rising power of online travel agents. But he was adamant that hotel brands have several key advantages over OTAs and were a “friend and not an enemy” for owners.

The past decade has seen an uneasy truce between hotel brand companies and OTAs as they worked together to drive overall business volumes. But now the brand companies are declaring war once again.

The first move was made by Hilton and Marriott in an aggressive rewriting of the terms of business between the chains and the OTAs at the end of 2015. The chains, of course, argue that it is merely a long overdue rebalancing of the relationship but it is a clear challenge to the status quo nonetheless.

There are two areas in particular where the chains are setting a new course: on rate parity and on last room availability. Both are bold moves.

The last major skirmish between hotel brands and OTAs was back in 2004 when InterContinental announced a new standard for its dealings with online travel companies. The net result saw IHG brands delisted from Expedia between August 2004 and November 2007.

The IHG standard centred on what it saw as egregious practices by the OTAs including bidding on hotel company brand names in online advertising; not including tax and charges in advertised prices; advertising rooms as sold out on their own sites even when rooms were still available at the hotel. Of course, the high fees being charged were also a major concern.

While the OTAs made some concessions after this stand-off the level of fees came down only a little. What at the time seemed a particular victory was an agreement that OTAs would not undercut the prices being charged by the hotels on their own website. This morphed into a rate parity clause which suited both sides in the belief that consumers would accept that there was little to be gained by shopping around.

Now the brand companies are complaining that OTAs have foisted rate parity clauses on them and the practice should be stopped with

the best prices being offered on brand company websites and to loyalty club members. The process is being enhanced by regulatory action in a number of jurisdictions.

Prior to rate parity, the market was extremely confusing for consumers. Hotel brand companies this time around believe they can convince enough consumers that the best price is always going to be on the hotel brand company website.

But this is a risky approach. The reach of hotel brand companies is much, much weaker relatively than it was even a decade ago. The advertising spend of the two biggest OTAs - Priceline (Booking) and Expedia - is more than USD4bn a year. This dwarfs anything hotel brand companies can muster.

For the average consumer, the first port of call is never going to be a hotel brand company site. Even after the current round of mergers the industry is simply too fragmented. The big aggregators have a clearly superior offer in this regard as they are able to list many more hotel options.

In addition, hotel brand companies are removing last room availability. If you want the room, you have to go to the hotel brand company website.

But for owners, what this effectively means is that their rooms are being removed from the shelves of the strongest retailers. When you go shopping, if your favourite cereal is not there do you go to another shop to buy it or do you plump for another brand? It is a brave gamble by the hotel brands to think they can persuade consumers to make the effort to buy through brand.com. Will the savings on commissions be enough to make up for the lost business? History suggests that it will not.

The mindset shift that has to happen with hotel brand companies is to see OTAs (and for that matter all the other myriad online platforms such as Airbnb) for what they are: very good retailers and market places. Hotel brand companies are excellent at branding their product offering and this is where they should be deploying their resource and focus.

In the short-term there is probably value to be retained by the hotel brand companies in maintaining some focus on retailing but ultimately it is hard to see how they are going to win the war given the overwhelming firepower of the opposition.

Volume 12 - Issue 2 Jan/Febwww.hotelanalyst.co.uk

ContentsNews review 3-20Starwood names CEO - Price growth slows - Millennial brands launch - Accor spins off assets - Investors view alternatives - Sharing impact growing - Starwood joins TripAdvisor - Uber looks to travel - TUI’s Hotelbeds sale - China operators hit - ‘Upturn’ in India - Homeinns merger

Analysis 14, 21 - 25An Instant solution - 15 years of growth - Transactions on a high - Britain’s homestay market

The Insider 32No Easy money - Towering informer - Food for thought

All enquiriest +44 (0)20 8870 6388Editorial director Andrew Sangstere [email protected] editor Chris Bowne [email protected] editor Katherine Doggrelle [email protected] Dr Peter O’Connore [email protected] Sarah Sangstere [email protected] Anna Drabickae [email protected]

©ZeroTwoZero Communications 2015IMPORTANT - Unless otherwise attributed, all material in this publication is the copyright of ZeroTwoZero Communications. Subscribers are reminded that the publication is circulated to named individuals only, on the understanding that material contained herein is not copied, reproduced, stored in a retrieval system or oth-erwise disseminated, whether inside or outside subscribers’ organisations, without the express consent of the authors or publisher. Breach of this condition will void the subscription and may render the subscriber liable to further proceedings.

Hotel Analyst is published byZeroTwoZero Communications LtdPO Box 1228, Cambridge CB1 0WSt +44 (0)20 8870 6388f +44 (0)20 8870 6398e [email protected] w www.zerotwozero.co.uk

It’s getting hotter Commentary by Andrew Sangster

Like a frog sitting in a pan of water that is gradually heated up until boiling point, have hoteliers realised too late that the internet has shattered existing business models?

hotelanalyst

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0101...It confirmed that, at the meeting to

launch the review, Starwood Hotels & Resorts had authorised Lazard to approach Marriott International and another, unnamed, US lodging company, on the grounds that they had the potential to provide the most value to Starwood shareholders, “given their size and business mix”.

The group confirmed that the other US company was one which Starwood had held similar discussions with in 2013, but said that, after two months of talks, the group decided to pursue a standalone strategy. This was rumoured to be Hyatt, but with Carlson having more brands in the mid-market and budget segments, including Park Plaza, Park Inn and Country Inns & Suites, it is possible that it too was looking to flesh out its portfolio with Starwood Hotels & Resorts’ higher end stable.

As speculation rises, what does seem certain is that, should Carlson decide to pull out of hotels, interest will be considerable, possibly from its nearest and dearest.

HA Perspective [by Chris Bown]: The Marriott-Starwood merger has focused many minds on the bigger picture in the hotel business. The challenge remains from the OTAs, and that challenge is not getting any smaller. Scale is clearly seen as a defence, with brokers and agitating shareholders singing with one voice. And so many are letting their guard down, to take a look at where they might most profitably link up. Even privately-owned groups such as Commune and Destination, which announced a merger in late January, are seeing value in being bigger together.

Carlson - with the help of its strategic advisors - needs to decide what business it is in. A couple of years ago, it was a business with three strands: travel management, hotels, and restaurants. The restaurant business went in 2014, at about the time it bought in the part of the travel management business it did not own. The talk then was of growing both of the two remaining parts of the company.

While Carlson declares substantial gross revenues from its travel management business, and in mid-2015 bought French company Ormes to add to that business, there must be questions about the long term success of the division. Dealing direct and dealing online must be the aim of most travel business suppliers, leaving one to wonder how an agency can continue to deliver value as an intermediary.

Take this view, and Carlson would be sensible to pull the global hotel business together under its single ownership, or engineer some sort of a merger with a complimentary hotel sector player. Rezidor’s progress in emerging markets must be an attractive medium term play, particularly for any hotel group still predominantly in the US market.

Alternatively, perhaps Carlson sees the travel agency business, in which it is a dominant player, having a successful future, just so long as the company concentrates all its efforts on that. In which case, Carlson Rezidor is in play.

Additional comment [by Andrew Sangster]: This is going to be a complicated deal. Carlson became the majority shareholder in Rezidor in 2010 and by Carlson selling its hotel business it will trigger an effective takeover of Rezidor.

Technically, Rezidor has no direct say in the whole process other than through the non-legally binding structure of the Carlson Rezidor Hotel Group set up in 2012 as a “strategic partnership”. Who would want to buy Carlson’s hotel business when much of the value is tied up in a business with minority shareholders who might not be willing to sell?

An obvious deal here is for Rezidor to buy the hotel business from its parent, part funding the move through a sell-off of Country Inns & Suites in the US and property disposals of owned Radisson hotels (although as a private company it is not clear exactly how much real estate is owned). Will Rezidor’s current minority shareholders have the stomach for such a move?

The mood music coming out of the Americas Lodging Investment Summit held in Los Angeles at the end of January was that the US hotel market is at an all-time high but there were growing concerns that a downturn is coming.

The concern in the US caused hotel REITs to be the worst performing REITs in the US in 2015, with their share prices dropping by 26% against the general REIT index (which itself was down 2%) according to Cannacord Genuity.

This negativity towards lodging REITs came despite the outlook for revpar growth looking reasonable and most forecasts predicting that

supply will continue to lag demand increases.Cannacord Genuity argued in a recent note

(Lodging REITs - 13 January) that US revpar is likely to climb 5.9% this year provided there is no US recession (against predicted supply growth of 2%). Although there are fears about transient demand for US hotels dropping back a bit the momentum in the conference business should see this segment grow 3% during 2016, believes Cannacord Genuity.

The overall outlook in the US then is one where it is probably as good as it’s going to get for disposals and Carlson is timing its exit well, if indeed that is what it decides to do. The questions for Rezidor look more interesting, even after it has solved the 3D chess puzzle of the current deal.

In particular, how should Rezidor participate in the consolidation game if it is left holding its own and Carlson’s hotel businesses? Right now the Stockholm-listed Rezidor looks like a mid-sized hotel group compared to the biggest global majors. To join the ranks of the big boys it will have to do a major deal. Whether this is doable while retaining a primary listing in Stockholm or whether it has to look to a US listing instead (perhaps as well as) is a key issue.

Maybe it believes it can simply stand aside: after all it has outperformed many of its larger peers in developing markets such as Russia and Africa. But this tactic is risky when so much emphasis is currently being placed on scale.

Maybe Rezidor will be unable to shape its own destiny: it could be taken out if a suitor can win over both Carlson and Rezidor’s minority shareholders. This is a big challenge and it seems doubtful that the most obvious suitors such as InterContinental and Accor currently have the appetite. IHG is handing cash back to shareholders and Accor is still getting to grips with Fairmont Raffles.

Having decided to let the genie out of the bottle, Carlson is going to struggle to simply sit on its hands. And the complexity of the deal is going to make the lawyers and other advisers involved very wealthy. For the rest of us, it will be an intriguing spectacle as the future of one of Europe’s most important hotel companies is determined.

Although there are fears about transient demand for US hotels dropping back a bit, the momentum in the conference business should see this segment grow 3% during 2016, believes Cannacord Genuity.

3

News

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The news came as the company revealed that it had engaged with more than 30 parties during its strategic review, including both US and overseas hotel companies.

The appointment is a promotion for Mangas, who previously held the role of CFO at the group, joining in September 2014 having spent two years as CFO of Armstrong World Industries and 20 years at Proctor & Gamble prior to that. Alan Schnaid, SVP, corporate controller and principal accounting officer, will take over as CFO.

Mangas said: “I am thrilled to take on this new role as we continue to provide our guests with Starwood’s unique brand of hospitality, grow our footprint around the globe, drive value for our hotel owners and shareholders, and ultimately bring together two great companies and the talent within.”

Aron, who took over from Frits van Paasschen in February last year, has been named as CEO & president at AMC Entertainment Holdings, replacing Gerry Lopez, who resigned to become CEO of Extended Stay America.

The acquisition of Starwood Hotels & Resorts by Marriott International came one step closer during the festive period, with the filing of a joint proxy and registration statement with the US Securities and Exchange Commission. The statement confirmed that, after the closing of the deal, Starwood Hotels & Resorts would be an indirect, wholly-owned subsidiary of Marriott International. Shareholders will meet to discuss

the proposal on 28 March.The document also confirmed that, since

announcing a strategic review of the business in April 2015, Starwood Hotels & Resorts was approached by a number of hotel companies, both within the US and outside, with a view to a potential takeover or, in one case, strategic partnership.

It confirmed that, at the meeting to launch the review, Starwood Hotels & Resorts had authorised Lazard to approach Marriott International and another, unnamed, US lodging company, on the grounds that they had the potential to provide the most value to Starwood shareholders, “given their size and business mix”.

The group confirmed that the other US company was one which Starwood had held similar discussions with in 2013, but said that, after two months of talks, the group decided to pursue a standalone strategy.

Over the course of the year, until the announcement in November, a further two US companies showed an interest in Starwood Hotels & Resorts, as well as a number of foreign hotel companies and foreign companies with hotel investments. These included a foreign hotel company which “expressed an interest in making a minority investment in Starwood as part of a strategic partnership”.

In mid-August Starwood Hotels & Resorts itself considered bidding on a foreign company,

while, at the same time, Marriott International decided not to pursue a possible combination with the company in light of, among other things, the relative trading prices of the stock of the two companies at that time. October saw Marriott International change positions on this and re-engage with Starwood Hotels & Resorts.

Over the course of the strategic alternatives process, more than 30 parties were contacted or made contact with.

The statement also included forecasts prepared by Starwood Hotels & Resorts, in which it makes a conservative estimate of revenues from owned, leased and consolidated hotels rising from an estimated USD1.06bn in 2015 to USD1.28bn by 2020.

Following the merger, Marriott International’s board is expected to expand from 11 to 14 members, with the three additional members to come from Starwood Hotels & Resorts, although the pair have yet to confirm who. The number was one down from the four members initially suggested during the negotiations, but is unlikely to see the most recent appointee cut.

HA Perspective [by Chris Bown]: Despite the assertions of agitating shareholders, and industry analysts that consolidation made sense, it is clear that finding a good strategic fit between Starwood and a potential partner was by no means an easy matter. While the business media did pick up on some rumours and talks, there were plenty more taking place in secrecy as the Starwood board looked for their best exit.

What is also clear, is that it will be business as usual at Starwood for some time - no one should expect a swift integration of these two massive businesses. And Mangas doesn’t sound like a caretaker manager. In a statement declaring Starwood’s record openings and record pipeline signings in 2015, he insisted Starwood will continue to “vigorously compete in the marketplace”.

Meanwhile, subsequent deals such as Accor-Hotels’ purchase of FRHI suggest that Marriott has in no way overpaid for Starwood. Could one of those 29 other parties take a fresh look, and decide that Starwood now looks sufficiently attractive for a counter bid? The deal is not over the line just yet.

Starwood names CEOStarwood Hotels & Resorts has named Tom Mangas as its new CEO, replacing interim CEO Adam Aron.

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Barrie Williams, managing director, hotels, told this publication that he expected prices to rise at a slower rate this year, after “a fundamental change of the number of hotels available”.

The report found that growth in hotel prices had slowed from 17.2% in 2014 to 9.2% in 2015. Williams said: “In 2014/15 there were private equity groups fighting over assets, which pushed prices up.

“There was a massive increase [in prices] in the regions in 2014, with large platforms being created. In 2015 those platforms have been built and what we saw were smaller portfolios coming out of the larger portfolios. There was a fundamental change of the number of hotels available. 2016 will see this continue, with the private equity groups divesting groups of assets. We will continue to see single asset transactions out in the regions - the volume side of transactions will be in the regions, but the value will come from London.

“Now, there’s an element of some investors seeing value in Europe, but some Middle East and Asian investors still look to the UK. Prices will move forward again, but probably not as much as this last year.

“Given the switch in investors there will be some types of hotels where yields will sharpen. The hotel sector always has something pushing on it and the skill of the sector is finding innovative ways to manage that.”

The study reported that London remained a strong home for investment, but that the significant growth in transaction volume in 2015 had largely been driven by the regional market, which has seen increased investor confidence. It said: “While high net worth individuals and institutional investors continue to show interest, private equity firms and overseas buyers have been prevalent, as they realise debt availability has improved and acceptable returns can be made as the economy and hotel operational performance continues to grow.”

Joanne Jia, the group’s head of investment, Asia, confirmed that: “Over the last two years, we have seen a shift in attitudes within the Asian markets with investors who had previously concentrated solely on residential and office opportunities now considering hotels in Europe.”

There were concerns around the impact of the new National Living Wage, the upcoming business rates revaluation and supply pipeline in the UK.

While supply in the regional UK was falling, supply was also seen as an issue in Germany, where Lukas Hochedlinger, managing director, Germany, Austria & CEE, said: “Germany is a sellers’ market and there is strong demand from German institutions and pension funds, as well as overseas investors from Asia and the US. While investors used to only be interested in the key cities, lately there has been demand for secondary or even tertiary cities.”

Hochedlinger identified the budget and mid-range sectors as areas of growth, including brands such as Premier Inn and Moxy. There was also growth in lifestyle brands in Germany and Austria, such as 25hours and Ruby, which it expects to continue in 2016. There are fewer openings of premium brands in Germany and Austria due to high development costs.

Ireland was also strong, where, despite there being marginally fewer asset disposals in 2015 than in 2014, the volume of spend in the sector increased overall through rising values across the

country along with increased appetite for lending to the sector from the domestic banks.

Dave Murray, director of brokerage, Ireland, said: “We will see a number of new international investors entering the market for both prime Dublin and more regional hotel assets over the course of 2016”.

Williams added: “London has never had a recession, it’s so different from an investor perspective. It’s always been very different in the regions. There are gateway cities which have returned quickly to normality, then there are secondary and tertiary cities.

“What’s different on an operational level is that there has been fantastic revpar growth, but that is slowing. Whilst the revpar growth is close to 2007, it’s there with occupancy, but rate has yet to catch up.”

With the additional pressures expected this year, and an uncertain interest rate environment, eyes are on the regions to see whether hotels can pull rate up.

HA Perspective [by Chris Bown]: Let’s hope the busy transactional agents put some of their sales commissions from 2015 into their savings accounts, as the year is increasingly looking like it will be a peak in the investment market, at least in the UK.

Private equity is now into mainland Europe in the search for opportunities, meaning their...

Hotel price growth slowsThe growth in hotel values slowed last year by eight percentage points, according to Christie & Co’s Business Outlook 2016.

“We will see a number of new international investors entering the market for both prime Dublin and more regional hotel assets over the course of 2016.” Dave Murray, Director of Brokerage, Ireland


hotelanalysthotelanalyst

Yet just as two major groups decide to expand their brand portfolios, others view the outlook as being one of better together. The privately-held Commune Hotels has merged with Destination Hotels, to create a 90-strong portfolio of boutique and lifestyle properties.

Hilton’s Tru aims to fill a void in the midscale category in the US market, and in Canada. The idea is to embrace value, while still promising a great stay and Hilton says the brand will appeal to a broad range of travellers, who are united by “a Millennial mindset”. It insists no brand is currently meeting the needs of such travellers at the price point Tru will hit.

“Tru will serve the largest segment of the hotel market, but a segment where no brand is meeting guests’ current needs,” said Hilton president & CEO Chris Nassetta. “Tru will provide guests with a high-quality, contemporary, consistent and fresh experience at a great value

for customers, while at the same time delivering strong returns to our owners.”

Tru will feature the Hive, its public space with four distinct zones; a play zone for gaming; a “build your own” breakfast bar and a fitness centre. “We’re breaking through the clutter of undistinguished offerings to capture the hearts of today’s travellers and anticipating the needs of tomorrow’s guests, while delivering a hotel that’s a place travellers will want to go to rather than just through,” promised executive vice president, global brands, Jim Holthouser. “More than 40% of all US hotel stays are within the midscale and economy sectors and Tru by Hilton addresses a gap in the marketplace by appealing to the youthful mindset demographic, pushing the industry to marry quality and value.”

Hilton says it has already signed 102 sites, with a further 30 in the pipeline. A 98-room prototype has been developed, sitting as a new

build on a site of less than two acres.Meanwhile in Shanghai, FRHI has opened its

first Neqta-branded property. Designed to appeal to the younger Chinese traveller, particularly the Millennial age group, the aim is to grow the brand with local property developer partner Jiangsu Golden Land Group.

A joint venture will see Neqta properties placed within Golden Land developments, and already a second property is being prepared in Nanjing. “We believe there is a natural opportunity to develop Neqta Hotels within many of Golden Land’s predominantly mixed-use developments,” said Joseph Soh, a Singaporean with extensive major brand experience, who has been made managing director of the new venture, which FRHI is stressing will be...

06...involvement in the UK is now likely to be as sellers.

The problem for the regional UK market remains profitability and room rates, which have not returned to levels seen previously. In some respects, this could be down to a changing landscape, with the budget chains fundamentally changing the structure of the market. However, while such concerns may be the focus for operators, the disconnect with what investors are prepared to pay looks to remain, and well located properties are set to see continuing strong bidding.

Additional comment [by Andrew Sangster]: Calling a turn in the property market is a mug’s game and certainly not one that is going to be entertained by brokers who are looking to sell clients’ real estate.

Back in 2008, here at Hotel Analyst we ran a piece on this same Christie & Co event with the headline “The only way is down”. I’d like to claim that we were prescient enough to foresee the full disaster of late 2008 but that would be a distortion.

What we did believe was that the market for real estate was at a peak and was looking way too frothy.

This time around, at the 2016 event, a similar call might seem in order. But it would be wrong.

Transaction volumes may well slow but asset prices look to have some way to run. That’s not to say that prices are not frothy - they are - but there is probably even more left in the tank before the cycle turns.

The main reason for this is the ongoing monetary stimulus. With central banks pushing up asset prices by the twin methods of ultra-low

interest rates (which are unlikely to be cut in Europe this year) and quantitative easing (which has governments buying their own bonds, pushing up bond prices and therefore having a knock-on effect down the line to other assets).

With topline growth in hotels looking increasingly strong over the next few years, appetites for something delivering a return anywhere above the measly 1% or 2% of bonds looks very tempting.

Previous cycles saw investors buying on the basis of baking-in future uplifts in trading to make the numbers work, getting ever more ambitious with these projections as the cycles draw closer to their ends. There is no reason to suppose it will be any different this time.

While there will always be contrary indicators, most signs suggest we have a few years left to run before there is a real correction.

Brands launch as consolidation proceedsHilton has launched its thirteenth brand, Tru, while FRHI has announced a new Asian brand, Neqta. Both are aimed at Millennial travellers, though on different continents.

News

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...marketed separately from the existing FRHI collection of brands. With AccorHotels still completing the acquisition of FRHI, in a deal agreed late last year, the company is, for now, keeping the launch under the FRHI banner and separate from the AccorHotels parent.

The lifestyle brand is aiming to have properties with around 150 rooms, of 28 to 32 square metres each. Multi-function public spaces will transition from coffee shop by day to lounge bar in the evening, while there will be a choice of meeting spaces for business travellers.

“Guided by extensive research and our own customer insights, we have designed a contemporary hotel brand that will be highly attractive to both property developers and the Chinese consumer, in particular the Millennial business traveller in the 22 to 40 age demographic,” said FRHI’s senior vice president of operations, Asia Pacific Wayne Buckingham, who will chair the new joint venture.

Jiangsu Golden Land is headquartered in Nanjing, and has built a number of commercial high rise developments. It developed and continues to own FRHI’s Fairmont hotel and residences in Nanjing, which opened at the end of 2012, and is working on a Swissotel in Jinan.

Yet while the bigger groups are busy launching new brands, those with less strong brand vehicles are mulling over the benefits of working together. The latest combination is that of two privately-held US hotel groups, Commune and Destination.

Commune, privately owned by Geolo Capital, the investment vehicle of John Pritzker, has agreed to merge with Destination Hotels, creating a group with more than 90 properties. The pair say the move will give them greater presence in the market together.

Commune has more than 30 properties under its Joie de Vivre brand, eight Thompson properties and the upcoming launch of its tommie brand in New York this year. In mid-2015, Commune acquired Alila, which gave it a presence in Asia. Alila currently has 10 hotel properties and four villa offerings in Asia, and will open six additional properties during 2016.

In somewhat of a contrast, Destination has a diverse collection of more than 45 properties that it manages across the US, including golf resorts and spas.

“The Destination team and the Lowe family share our passion and commitment for offering locally relevant, unique and personal experiences to our guests, while also delivering strong financial results for our property owners,” said Commune chairman John Pritzker.

While Robert Lowe, co-CEO of Destination’s parent company Lowe Enterprises commented: “Joining forces with Commune will allow us to position the combined company as the most sought after operator in this exciting segment of the industry and enhances our ability to deliver differentiated experiences to travellers across the globe.”

HA Perspective [by Chris Bown]: Hilton’s new brand has been developed in response to a gap that has opened up due to the success of Hampton in the US. In that market, Hampton has gravitated upmarket from its original positioning, leading to Hilton going back to the drawing board.

That opportunity has allowed Hilton, in Tru, to put something together that is far less corporate than its other brand offerings. Some might feel they need sunglasses on to experience the colourful interiors of the new brand, but Hilton has clearly sought to deliver something more in tune with the moment, and facing a Millennial audience. There’s more than a hint of Marriott’s Moxy about the look, and in time the appeal of Tru’s speech bubbles on the reception carpet may be rolled out further afield, should it look to be a winner.

Neqta looks to have been well researched and, with experienced brand man Soh in charge, should be set fair. Golden Land is, by Chinese standards, a small but dynamic developer, so another partner may be needed down the line, if Neqta is to roll out at pace.

AccorHotels, which recently acquired FRHI, made no mention of this new brand in its presentation announcing the acquisition, though clearly it has been some time in the preparation. But Neqta looks as though it has no crossover with the group’s existing activities in China. AccorHotels has developed its Mercure into Grand Mercure for Asia Pacific, with a Chinese tilt for the market there; while it has also just inked its deal with China Lodging that should see its mid and budget segment brands grow substantially in the country.

As for the Commune/Destination deal, one commentator has described it as a “sauna deal” - something dreamt up in the steam room of an alumni club, which seemed like a bright idea at the time. Commune, with Alila added to it, looked to be gently building a brand portfolio. And with Alila, it has a hand in the dynamic Asia Pacific region. Destination’s disparate portfolio of entirely American properties doesn’t immediately look as though it will lend many conversion opportunities to those brands. Unless the two can deliver a truly strong customer service proposition that unites a stay in any of their properties, what is there to bind them together? And with two rich, strong-minded individuals apparently prepared to co-chair the merged company, what could possibly go wrong?...

07


hotelanalyst

Additional comment [by Andrew Sangster]: Tru looks set to fulfil the promise that the early incarnation of InterContinental’s Indigo brand showed. While Indigo has gone upmarket, firmly into the upscale, if not upper upscale, market position, the original plan had been to offer a midscale conversion product.

Also, and whisper this quietly around any Hilton people (and possibly Starwood’s lawyers), but Tru has been built to satisfy the niche that Denizen was targeting. But Tru looks to be a much more fully realised concept than Denizen even if the new-build requirements of Tru mean that its potential in Europe is more limited.

It is then no surprise that Tru is being rolled out in the US first. Perhaps in a few more years it will cross the Atlantic to take on the likes of Marriott’s Moxy.

There are two broader points which Tru highlights. The first is that despite consolidation, there are more and more brands emerging into the industry. This makes sense if you consider the new entrants as more targeted offers, servicing specific consumer needs. After all, BMW does not make one generic car: the One series is a very different proposition from the X5 and that is before you start mentioning the Mini and Rolls Royce.

The main point is that Tru is very much a Hilton hotel and will be serviced by the parent group in the same way as all its brands.

The second, and related point, is that Tru joins a long list of brands targeting “lifestyles”. In fact, it is hard to think of a brand that has been launched in the past decade that doesn’t describe itself as part of the lifestyle boom.

And as older brands are being repositioned they are increasingly referred to in the context of being a lifestyle brand. This is going to happen more and more.

There has much speculation of the future of Starwood’s brands following completion of the Marriott takeover. But it is hard to see why Marriott would want to trim the number of the brands, rather it will slightly re-spin how some are presented to owners and guests.

This will be done in the context of lifestyle. In effect, the so-called lifestyle segment is taking over the whole of the hotel market.

Accor spins off assetsAccorHotels is splitting off 85 European hotels into a new franchisee business, in which it will retain a minority stake.

08

The news came as the company finalised its long term alliance with Huazhu Hotels Group - also known as China Lodging - and as rival Jin Jiang took its stake in AccorHotels up to 5.5%.

AccorHotels described the decision to spin off 85 sites in Europe as part of its transformation of HotelInvest’s hotel portfolio, with John Ozinga, COO, HotelInvest, commenting: “We are delighted to be contributing to the emergence of a major new hotel investor in the European market, which we intend to support over

the long term. The deal will create value for AccorHotels, for all of the employees and entities involved in the transaction, and for the new entity, which will serve as a key partner for the group going forward.”

In July president & CEO Sébastien Bazin declared the asset restructuring of HotelInvest one of five key priorities for 2015, with acceleration a desire; since then, rumours have been circulating that the company was about to move on from its recent hotel acquisitions spree.

The involvement of Eurazeo has caused a number of commentators to recall the period shortly prior to the ousting of previous CEO, Denis Hennequin, who was pressed to spin off the company’s assets by Eurazeo and fellow activist shareholder Colony Capital. At that point, local press reported that Bazin, the then-European head of Colony, had proposed such a deal at a board meeting in December 2011. Hennequin was ousted in 2013 after failing to meet the board’s ambitions for a

speedy turnaround in the group’s finances.Accor has 3,792 hotels of which it holds

1,336 in its HotelInvest division. The properties are split 367 owned outright, 322 on fixed leases and 647 on variable leases. Looking specifically at France, it has 509 owned or leased properties, of which 357 are in the economy segment.

The newly-created entity will be owned by Eurazeo (70%) and AccorHotels (30%), with the group adding that the partners “may rapidly be joined by a third institutional investor”. The entity will have access to what were described as “significant resources” to restructure and develop its portfolio, including a budget of more than EUR100m for hotel renovations. It will be Accor’s HotelServices’ largest franchisee.

The portfolio was given an asset value of EUR504m, including: 28 hotels assets and the business interest of all 85 hotels, sold by Accor-Hotels for EUR146m and 57 hotel assets covered by the purchase agreements containing a substitution clause for the buyer signed with Foncière des Régions, Axa IM - Real Assets and Invesco, for a total of EUR358m. All of the hotels included in the transaction will retain their AccorHotels branding under long-term.franchise agreements....

News


....The majority of these hotels are located in France (61 hotels, primarily in regional cities and on the outskirts of urban agglomerations) and Spain (nine hotels), while the remainder are spread across Italy, Portugal, Germany, Austria, Belgium and the Netherlands.

AccorHotels also finalised its relationship with Huazhu, which it had initially announced in 2014. Under the arrangement, AccorHotels takes a 10.8% stake in Huazhu and a seat on the Chinese group’s board of directors. Huazhu becomes the master franchisee for Ibis, Novotel and Mercure in China, and will open up to 400 new hotels in the next five years. The pair will also share loyalty programmes and distribution systems.

While Accor’s economy and midscale platform in China will become part of Huazhu, Accor will continue to lead the ownership and development of all its luxury and other upscale brands in China, including Sofitel, Pullman and MGallery. Huazhu will become a 10% shareholder in Accor’s luxury and upscale business in China and will, the pair said, help support future development in the country.

Bazin said: “This ground-breaking collaboration

will leverage the strengths of Accor’s global brands with a leading player in Chinese hospitality. Joining Huazhu’s unparalleled local expertise with our brands will create a hospitality power-house which will deliver unprecedented value to both groups and to our customers.”

AccorHotels has also been attracting the attention of Jin Jiang, which has increased its stake in the company to 5.5%, having taken it up to 4% in the summer last year. Jin Jiang is already active in the French market, having bought Louvre Hotels from Starwood Capital in 2015. It has also been active in the UK through Interstate Hotels & Resorts, which it has a 50% stake in alongside US-based Theyer (the latter currently owned by Canada’s Brookfield).

As the M&A frenzy currently occupying the developed markets continues, with Carlson the latest to potentially enter the fray, could AccorHotels find itself facing a battle for ownership in the East?

HA Perspective [by Chris Bown]: True to its word, Accor is moving quickly to tidy up its property vehicle, HotelInvest. This deal looks to gather up properties that might

otherwise have been less attractive to straight real estate investors, into an arms-length vehicle that can then move in various directions. Initially at least it sits as a franchisee with a management business, and some ownerships.

The notification that a mystery third investor may get involved, suggests a further twist in this tale before too long. One hint of who that might be, would be to look back at Bazin’s 2011 proposals, which he finally looks to be getting his way over.

In China, as ever the proof of the intent with Huazhu will be when the first AccorHo-tels branded properties actually start to open. However, the company’s new Chinese partner has been no slouch in growing its own portfolio across the country, and so long as the same formula is applied, openings could start to build up quite quickly.

Will Jin Jiang move any further on Accor? It already has a major presence in the France with Louvre, albeit at the lower end of the market. Charitably, its interest could simply be in having linkage with a destination hotelier that has mid- and up-market hotels, into which it can direct well-heeled outbound Chinese visitors.

09

With student housing and serviced apartments rising in popularity, investors were eager for more information, while all the while Airbnb is posing a threat to all areas of the real estate market.

James Chappell, global business director, Horwath HTL, said: “We’re up to the same transactions levels as 2006/7. If hotels are on their way down, it makes sense to diversify. But the number one issue in the sector is lack of information. Even with serviced apartments it’s very fragmented, very split.”

Simon Johnson, director, hotels & specialist markets, CBRE Hotels, added: “Investors are moving from hotels into student housing. The investment market points to yields which are closer to mainstream than hotels in student accommodation. They are moving into areas which were too exotic or too hard to understand - investors are looking at alternatives as they become a mainstream asset class and there...

Investors hoping to diversify from hotels and other real estate are increasingly looking at the alternative sector, delegates at the Hotel Alternatives Event were told.

Investors look to alternatives


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“ Everyone is chasing yields, yields are compressing. The volatility is lower with serviced apartments, and higher profitability.” Tom Walsh, CEO, Staycity

...are major returns to be made for first movers.” He pointed to research from CBRE which reported that the alternative sectors had risen to “around 20% of transactions by value in 2015”.

Tom Walsh, CEO, Staycity, agreed, commenting: “We’re seeing appetite from institutional investors, they understand hotels and try to get a grip on how ours perform differently. We can convert four-star hotels into more keys than they can get. Everyone is chasing yields, yields are compressing. The volatility is lower with serviced apartments, and higher profitability.”

Sean Worker, president & CEO, Bridgestreet, said: “In five years it has come leaps and bounds as a true real estate conversion model and a true real estate model. Look at the alternative use in a downturn - we have the flexibility. That’s two yield parameters and two risk parameters.”

At Meininger Hotels, where the company operates a hybrid along the hostel model, CEO Navneet Bali echoed Chappell, commenting: “Institutions are coming into the sector, but there is a paucity of information. There will be more interest in trade buyers in the future. But we perform better than hotels, which is reassuring for investors. The essential rent cover is strong and we have low volatility. We get resilience from the education market and the traditional hostel market - we have families who would have to get two hotel rooms.”

Chappell added that the lack of recognisable brands “makes it harder from a lending point of view, because institutional lenders need a brand

- but maybe we don’t need it. With the advances in distribution and technology - why do you need a brand?”

Toby Barker, partner of UK head of real estate finance, DLA, suggested that investors in Europe could learn much from their US cousins. He said: “We are behind the US in terms of alternatives - less so on student [housing] - often we find the bankers will follow their investors”. Barker added: “If anything the cost bases are lower, it’s simpler. Lenders like that and it being less cyclical. The LTVs will still be slightly lower than a mainstream hotel, but they are workable alternatives to hotels for debt providers.”

Andrew Harrington, partner, AHV Associates, commented: “There’s huge amounts of dry powder in private equity.”

He said he saw family offices getting involved in alternatives. “The essential inefficiency in the capital markets” is that many investors don’t understand alternatives. “The awareness of non-traditional is growing fast, because the story is good.”

Enthusiasm from investors was already on the rise, according to Mark Clacy-Jones, VP, research, MSCI, who told delegates: “25% of investment allocation is now attached to the alternative bucket’ up from 5% 20 years ago”. He added that alternatives had risen from 2% to 12% of institutional holdings over last 20 years.

Clacy-Jones pointed to the enduring popularity of hotels as an asset class, reporting that over the past 15 years, total annualised return has been 9% for hotels, 7.9% all properties and that total return for UK hotels last year was 13.6%, with income return of 5.3% and capital growth of 7.9%.

He said: “Hotels are the global accepted next real estate market. Hotels comprise approx 2% of professionally managed real estate in mature markets. Hotels are seeing global interest from institutional investors and mature real estate asset class in many markets. The office sector is by far more volatile with more downside than when we look at hotel returns.”

The threat - or opportunity - posed by Airbnb was a feature of the day’s debates. Worker, who signed a deal with Airbnb to distribute properties, said: “We offer choice to our customers through our relationship with Airbnb. We’re agnostic,” while Walsh added: “We would happily sell through Airbnb. They charge lower rates, they can level the OTA playing field”.

The room heard some cautionary data from Tim Sander, director, on the move division, BDRC Continental, who reported that, according to the group’s research, 56% of business travellers know the Airbnb brand and 43% of leisure travellers, commenting: “I’ve never seen an individual hotel brand making such progress in such a short time frame”.

He also reported that, bucking conventional wisdom, 17% of British business travellers claimed to have used Airbnb in the past 12 months, against 9% of leisure market. A concern for both the hotel and the serviced apartment sectors was his comment that “business travellers choose Airbnb for longer stays - where it is competing with serviced apartments”.

While serviced apartments and hotels vie for investor money, Airbnb was recently valued at USD25.5bn. The elephant in the room has become a giant.

HA Perspective [by Chris Bown]: This is the year when hotels start being talked about as a fourth main real estate asset class, alongside industrial, retail and office properties. That means the alternatives will start moving onto the radar of those who have been active for some time in hotels. Invesco, for example, has already moved into hostels with its stake in Generator - and pronounces itself very happy with what it sees. As DLA’s Barker noted, the mainstream banks in the UK are still catching up, but US financiers are stepping into the gap.

The alternative niches still have very low brand awareness - indeed, Hostelworld CEO Feargal Mooney said hostels as a segment still have negative connotations. He is spending substantial amounts of marketing funds on helping to change that, with inspirational campaigns focusing on the social side of hostels.

Looking further ahead, Meininger’s Bali expects to be able to grow his hybrid business to the point where an IPO is a possible exit for its early supporters. It is some way off, however, he admitted.

10

25.0% of investment allocation is now attached to the alternative bucket, up from 5% 20 years agosaid Mark Clacy-Jones, VP, research, MSCI

News


James Chappell, Global Business Director, Horwath HTL

Sharing impact growing and disruptingGrowing sharing economy platforms were celebrated, criticised and declared the next big thing by participants at the Hotel Alternatives conference.

The fast accelerating brands such as Airbnb and 9flats could potentially grab 10% of the accommodation market, delegates were warned. The British Hospitality Association insists regulators need to button down a new entrant that is circumventing business regulation; while some serviced apartment operators expressed the view that Airbnb is opening the eyes of consumers to alternative ways to stay away, in the process helping them.

Ian Rennardson, managing director of travel and leisure equity research at Jeffries, was fresh back from a US lodging summit, where he saw the industry beginning to wake up to the disruptive power of the alternatives. Sentiment has turned against hotel stocks in recent months, and today “investor interest is as low as I’ve seen it”.

The rate of growth of revpar has been tailing off in recent months in the US, and could turn negative this year; though he expects 2016 to deliver an average 3% revpar lift. “When the stock market gets nervous, things happen very quickly,” he warned, noting that the price at which the Starwood acquisition was struck was modest, while most US REITs are trading at a discount to net asset value.

“We think the industry is fragmented, with no real pricing power,” he warned, added to which there is now too much new supply. London has

seen an average 4% stock added a year in recent years; while in the US several cities have strong pipelines, topped by New York with 11.6%. “New supply is coming, and it is coming to areas where it will hurt.”

Rennardson thinks too many in the hotel sector are failing to grasp how significant Airbnb could be, and drew comparisons with the impact of low cost airlines on the global airline business, and Uber on the taxi trade. While the airline industry has continued to grow over the last decade, the incoming operators have stolen most of that growth from the traditional players.

As an indication of how fast the disruptors can move, Rennardson said the Jeffries team was not allowed to use Uber a year ago, but it is now an approved supplier.

Airbnb, he warned, is currently 1% of the accommodation market. That could rise to 10% by 2020, depressing revpar by 1% to 3% a year. “Unarguably there is already a measurable effect in cities such as New York.” And it is not just a leisure market phenomenon, with business customers migrating too, encouraged by initiatives such as Airbnb now accepting Amex reward points: “This is effectively a loyalty programme.”

“We think London could go the same way as New York.”

Delegates questioned some of Rennardson’s presentation, which covered purely hotels

rather than the serviced apartment sector. One suggested that much Airbnb stock was not new to the market, rather it was existing apartment stock that was merely being marketed via a new platform.

Rennardson agreed to an extent, noting: “If I was a bed and breakfast owner, I would use Airbnb as a distribution channel.”

Taking a more combative stance towards the disruptors was Ufi Ibrahim, CEO, British Hospitality Association. “Our industry is not averse to the sharing economy,” she declared, before setting out a range of objections to the current situation. Having recently appeared before a government select committee to robustly raise her association’s concerns, she was armed with information.

“It seems that 50% of those listing on Airbnb are illegal, they are pseudo-hotels. They are acting within a completely laissez-faire bubble.” In contrast with her members, who need to meet a raft of regulations, collect VAT and pay corporate taxes, these new rivals escape such costly complications. Her association is lobbying for lawmakers to catch up, and to regulate Airbnb listings. “The regulator is listening, we will help to bring about a level playing field.”

Roman Bach, CEO of apartment listing site 9flats.com, said the new online platforms “are not about sharing and caring,” but rather a fully commercial operation: “There are new players in the market building these things.” He believed the reaction of those such as the BHA was too late: “We have the hotel industry trying to defend itself against something that has already happened. The politicians cannot take something away from the voters, that they want.”

Frank Reeves, CEO of Avvio and a provider that helps hotels improve conversions from website visits, had views both from inside the industry, and as a consumer. The new sites are filling a need, he noted: “I don’t think the OTAs have done a great job for the serviced apartment sector.”

And, as a recent visitor to a hotel where he went hungry because room service closed early, he added: “Service levels in a lot of hotels have fallen off.” Airbnb hosts will typically provide local information and support that hotels no longer do. He also warned of further disruptors down the tracks, including a new hotel room sharing site, Winston Club, due to launch shortly in the US.


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HAE conference panel: Ufi Ibrahim, Roman Bach and Frank Reeves.

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12 HA Perspective [by Chris Bown]: A year ago, Rennardson was being shown quickly out of meeting rooms, for daring to suggest investors sold hotel shares. So his views are clearly worth taking seriously.

The problem for the hotel industry is that new development - long delayed by a finance indus-try scared to lend - is now ramping up. And that is happening just as the disruptive force of the sharing platforms starts to impact the market. The impact could well be more consolidation, as weaker players struggle once room rates and occupancy start to come under pressure.

As some in the room pointed out, not all Airbnb listings are consumers’ spare rooms, new to the accommodation market; there is a lot of existing stock simply promoted in a new way. Savvy unbranded operators have jumped on to the platform, exploiting the brand’s high profile; while seasoned sellers using OTAs also like the

look of Airbnb’s lower commission rates.Of course, in any individual market there

will be winners and losers, with the weakest - traditionally the non-branded, single privately owned and run property - pushed from the market as the brands win over. Rennardson paints a picture where there may be more falling by the wayside in coming years, perhaps even the weaker brands.

Of course, hotel operators could always revisit the concept of service, re-empowering staff. Mike DeNoma of GLH famously remarked on the massive waste of human capital he saw, when he arrived in his first job in the sector. But in a business where brand, landlord and management company all need to agree who does what, plenty falls through the cracks.

The BHA’s combative stance is perhaps necessary, to gird the government into taking an interest. Previous demands for lower VAT

rates and air passenger duty - also effectively ways to level the playing field in international tourism - have fallen on deaf ears. However, suggesting Airbnb is somehow condoning illegal activities was perhaps a step too far.

But it is to be hoped that, behind the scenes, the BHA is also talking constructively to Airbnb. While Uber has almost appeared to take pleasure from the angst its arrival has caused, Airbnb’s public face is much more emollient. The company has met with lawmakers in several US and European cities, agreeing to collect local taxes and help police its listings more carefully.

Reeves has a point about service, and it is something your correspondent has already personally experienced. Having used Airbnb, the experience is typically one of enjoying a level of personal service, with supporting information on a local neighbourhood, of the sort that concierges and hotel front desk staff no longer supply.

It seems that 50% of those listing on Airbnb are illegal, they are pseudo-hotels. They are acting within a completely laissez-faire bubble.” Ufi Ibrahim, CEO, British Hospitality Association

News


Currently the hotel online distribution space is going through a period of rapid evolution. Both OTAs and hotel companies are consolidating in an attempt to gain scale; new companies are entering the online distribution space and the rules of the game seem to be changing on almost a daily basis. Keeping track of what’s happening, and identifying what should be a priority, has become a struggle for most companies working in the area.

The one thing that practically everyone acknowledges is the growing importance of meta-search. Having failed to capture consumers attention until quite recently, the pending demise of rate parity in the key European online hotel distribution space means that the meta-search concept is receiving renewed attention, both from the forward-thinking OTAs themselves (The Priceline Group owns Kayak while Expedia Inc. owns Trivago), but also from companies that were traditionally more peripheral to the hotel distribution process (such as Google and TripAdvisor) but who recognise the potential of the concept in an environment here prices vary across alternative channels.

Consumer adoption aside, one of the big challenges for meta-search is its risky business model. Whilst in the past most meta-search systems worked on a cost-per-click basis, most quickly learned that this was difficult to sell to hotels with highly-limited, must-be-budgeted- far-in-advance, marketing budgets. As a result the majority of meta-search business was, and to a large extent still is, delivered through one of the all-too-many more minor online distributors, not because of their superior presence but because of the abstinence of the hotels themselves from the major meta-search systems and the former’s willingness to compromise on price to close the sale.

To encourage more hotel participation meta-search systems are gradually moving away from cost-per-click towards a cost-per- acquisition based approach. As they are already familiar with paying commissions for bookings delivered, this revenue model should be more acceptable to hotels, especially since it is totally performance related and does not require pre-committed budget.

Unfortunately for meta-search sites the fly in the ointment is hotel brand.com websites’ abysmal conversion rate. This negatively affects the former’s ability to monetise traffic but, since they hand the prospective customer off to the hotel website to close the deal, is unfortunately totally outside their control or influence.

For this reason, many leading meta-search sites (initially TripAdvisor and Google, but now also Trivago with a similar product rumoured to be on the way from Kayak) are increasingly launching what they have named “Instant Booking” products. Here instead of taking the risk of handing the prospect off to a third party web site of dubious quality, they are instead keep them within the controlled environment of their own ecosystem, expertly guiding them through the booking (and increasingly the

payment) process, with only the final confirmation for this ‘direct’ booking being sent from the hotel brand.com site.

The advantages for hotels of such an approach are multiple. Not only do they not have to invest capital, time and other resources ensuring that their brand direct website works well, with no guarantees of an return on investment as prospective customers may never see it due to the dominance of the OTAs in the general search environment, but conversion rates are much higher that they could achieve on their own because of the carefully designed and controlled

booking path that has been put in place by the meta-search providers. And as usage of meta-search grows when hotels begin to vary their prices by channel and OTAs begin to accelerate their use of price as a competitive method, this trend can only continue. It’s no wonder therefore that the Instant Booking type products being provided by TripAdvisor and Google have been identified as the distribution channels with the most potential to challenge the status quo in the recent Independent Lodging Study from industry analysts PhoCusWright.

Unfortunately some challenges still remain with the Instant Booking concept. Firstly hotels must have access to certain nominated Central Reservation Systems to be able to serve dynamically up rates and availability on demand. Although not a problem for hotel chains, who typically own or outsource such systems, this effectively puts the potential of Instant Booking outside the reach of the vast majority of independent hotels unless they are willing to sign up with some form of voluntary chain to get access to this distribution technology.

Secondly the pricing model has not as yet stabilised. While TripAdvisor seems to be consistently charging a fixed commission a few points lower than that charged by Booking.com’s in a specific market, Google has instead adopted an auction-for-position based approach which few hotels seem to really understand and even fewer can use effectively. But the biggest challenge is that, despite their potential to reduce dependency on the major OTAs, right now Instant Booking is being treated with suspicion by many hotels, fearful of replacing one all-too-dominant intermediary with another.

With the competitive environment evolving rapidly and even mega-brands such as Stariott and AccorHotels finding it difficult to compete with the pan-global OTAs, hotels need to use ever possible tool at their disposal to drive potential business and fill their rooms. Only by strategically adopting a portfolio based approach to distribution, and using the right channel to target the right customer at the right time, can they hope to be successful. With its superior conversion and (to date at least) acceptable cost, Instant Booking is an important new tool in their distribution armoury - one that should be passionately embraced rather than rejected because of an unwarranted fear of the unknown.

An instant solution to direct booking challenges? Currently the hotel online distribution space is going through a period of rapid evolution.

by Peter O’Connor In addition to his role as Editor-at-large of Hotel Analyst, Peter O’Connor is Professor of Information Systems at Essec Business School, France.

One of the big challenges for meta-search is its risky business model.

14

hotelanalyst | distribution&technology


The company was acquired at the end of last year by Marriott International, which was one of the first of the global chains to sign up to Instant Booking, in June.

On the day of the news that Marriott International had joined Instant Booking, TripAdvisor’s share price rose by 14%, with the chain the largest operator to join what, at that time, could only boast AccorHotels and Choice. The response to Starwood Hotels & Resorts joining was more mooted, but, between them, the pair post-merger will account for potentially more than one million rooms of Instant Booking’s inventory.

Even alone, Starwood Hotels & Resorts represents a significant prize to TripAdvisor, with more than 1,270 hotels. January saw it announce a record global year of signings in 2015, with 220 new signed hotel management and franchise agreements, a 26% increase over the prior year, The company also opened a record of 105 hotels in 2015, representing approximately 22,500 rooms in 30 countries, also the highest number of openings in its history.

Julie Atkinson, SVP, global digital, Starwood Hotels & Resorts, said: “We are excited about an enhanced relationship with TripAdvisor as it allows us to deepen our touch-points with TripAdvisor’s global community of travellers while maintaining a consistent connection with guests

before, during, and after their stay at a Starwood hotel. We appreciate the work TripAdvisor has done to expand upon the existing distribution models and the partnership will provide a clear benefit to our global hotel portfolio.”

Robin Ingle, SVP, global sales, TripAdvisor, added: “Adding Starwood’s robust brand offerings and acclaimed properties to our fast-growing Instant Booking platform provides the TripAdvisor community with even more choice and flexibility when booking travel.”

Steve Kaufer, TripAdvisor’s president & CEO, told analysts at the company’s second-quarter earnings: “We now have more than 60 chains, hotel groups and OTA partners and have grown Instant Booking supplied to 235,000 properties or roughly a third of the e-commerce-enabled properties on our site. I don’t want to set expectations that we’ll get all of the rest of the 10 global hotel groups in the next quarter, because some move faster than others.

“This is amazing progress since our beta launch last year. We’re also adding more independent hotels under the TripConnect platform through our Instant Booking beta.”

Since then the company has also made inroads into the OTA market, with The Priceline Group joining and, it is estimated by Piper Jaffray, bolstering the total inventory by 20%.

Once Starwood Hotels & Resorts is a part of Marriott International, it will be joining a group

that, although famed for its conservatism, has been pushing digital innovation over recent years. This has seen it not only join Instant Booking, but was also the first global operator to sign to Alitrip, having previously signed up to Alipay. The company has also been using its loyalty programme, which offers the incentive of free Wi-Fi for direct bookings, to bring in customers direct and last year delivered over 72 million room nights through marriott.com.

The company came under attack last year from traditional travel agents,once the mainstay of its distribution strategy, after running an advertising campaign on YouTube under the tagline It Pays to Book Direct. The group issued a statement commenting that it highly valued its relationship with “travel agents and recognise the service they offer to customers. We believe they provide a valuable service to customers who prefer personal assistance in their travel planning.”

Marriott International has been pushing its direct bookings from all angles and now, with the soon-to-be-added Starwood Hotels & Resorts, it has drawn another global operator into TripAdvisor’s Instant Booking, the platform the operators hope will help give it back control over customers and break the power of the pan-global OTAs.

HA DT Perspective [by Peter O’Connor]: For hotel chains with the right technology, there is no doubt that TripAdvisor’s Instant Booking is a sweet deal. Not only does TripAdvisor naturally appear high in search, thus helping to keep traffic acquisition costs down, but its user-generated review origins means that the site is regarded as highly credible by consumers, helping to better drive bookings.

Although TripAdvisor had been migrating towards a cost-per-click based meta-search revenue model, now with Instant Booking it is delivering increasing volumes of commission-based business to its hotel partners, all at a cost marginally but still significantly lower than that of the major OTAs. Even more importantly as the merchant of record is the hotel brand itself, these bookings count as direct, rather than intermediary driven, bookings, positively...

Starwood Hotels & Resorts has become the latest global operator to join TripAdvisor’s Instant Booking platform.

Starwood joins Instant Booking

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News


Prior to this move, the car-sharing platform had limited its forays into the hotel sector to partnering with a number of hotel operators’ loyalty programmes.

According to the application, the product will create a number of recommended itineraries for the user, including hotel locations and flight times, based on the customer’s requirements, much as a traditional online travel agent would.

The group said that the reservation system could communicate “with at least one traditional hotel system as well as at least one shared- economy lodging system to access a variety of different types of lodging options for the user’s trip when determining a lodging recommendation. By communicating with a combination of both traditional hotel systems and shared-economy systems, the reservation system can have a larger selection of lodging options to choose from in order to make a lodging recommendation for the user’s specified trip.”

The system would also store consumer preferences for hotel operator and type of hotel when considering its recommendations.

For Uber, including the flight and hotel details makes it easier for the platform to suggest the

best time to book a taxi and then facilitate it.The company will have a number of partners

to choose from should it develop the offering further, having signed a series of partnerships in the hotel sector. Hyatt was the first brand to integrate its mobile app with Uber, with an Uber button appearing under the My Reservations section of the Hyatt app from the day of check-in to the end of the stay.

It was followed by Starwood Hotels & Resorts, which was the first operator to offer members of its SPG rewards programme the chance to earn points. Hilton Worldwide they joined the fray, offering rewards programme member not points, but the chance to set up reminders and learn local information.

Most recently InterContinental Hotels Group signed up with Uber, offering members of its rewards club points money off their first ride and reminders.

The move by Uber illustrates a growing belief that being an OTA need not be limited to the experts, after TUI Group sold LateRooms for GBP8.5m to luxury travel group Cox & Kings Group, which said that it expected the deal would bolster its technology capabilities,

particularly in the mobile sector.Should Uber decide to pursue this model,

it will be hoping to take its local Uber users with it, users which the hotel operators had hoped to claim for their own.

HA DT Perspective [by Peter O’Connor]: These days it seems that everyone thinks they can sell travel. From Amazon to Airbnb, and now Uber, more and more e-commerce companies are trying to capture an increased share of the customer wallet by digging deeper into the customer journey. And although details are sketchy at present, depending on how it is implemented Uber’s service could have a lot of potential.

For most OTAs the two biggest costs are customer acquisition and contracting supply. Assuming that Uber sticks with its plans to pull...

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Uber has applied for a patent for ‘Uber Travel’, which will see the product move deeper into the travel funnel.

Uber looks to travel

...affecting the brand’s controlled distribution metrics and helping demonstrate to owners that the brand is delivering value in return for its brand fees.

And even though TripAdvisor has signed up The Priceline Group, it undoubtedly would prefer to distribute hotels directly, hence its emphasis on signing up additional hotel chains as quickly as possible. Not only does its deal with Priceline hand over revenues to what many regard as one of its core competitors, the latter has also no doubt negotiated significant volume discounts that make selling its inventory much less attractive for TripAdvisor that passing the booking through to the hotel directly.

In effect TripAdvisor seems to be using Priceline’s inventory as a stopgap measure, filling in the blanks where no other option is available. If it is successful at signing up the other major hotel chains then Priceline’s role will decrease, although it will still remain significant (and thus interesting for Priceline to continue the relationship) given the very large proportion of independent hotels currently conceptually or physically unable to participate in the system.

Thus Instant Booking seems like a rare four way symbiotic relationship, with everyone who participates winning. Hotel chains increase their ‘direct’ bookings, Priceline services those unable to service themselves, TripAdvisor collects its

commissions and the customer gains an additional low pain method of booking their desired hotel.

The only potential fly in the ointment is whether, once they have lured the remaining big brands into their lair, TripAdvisor will remains so supplier friendly? Once everyone is on board and driving steady amounts of business through this new channel, there will always be the temptation to increase the (what are now considered very reasonable) costs. And once hotel chains are addicted, will they be able to walk away from what looks right now like very easy business?

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hotelanalyst | distribution&technology


...in the latter from traditional and peer-economy virtual partners, presumably on some sort of a white label or commission-sharing basis, it will save itself the cost and hassle of having to contract directly with hotels for itself. And presumably the proposed service will be offered (initially at least) to its existing network of users, meaning that customer acquisition costs will be minimal.

However, although such an approach minimises costs, it is also not likely to be able

to generate substantial revenues. In effect these would be limited to a relatively minor percentage of what other OTAs earn from selling a room. Thus while such a service would allow Uber to more intensively leverage its customer base and generate a small amount of incremental revenues to set against its fixed costs, the revenues from selling to this limited audience would not be earth shattering.

However the psychological effect on old-world competitors, who most would admit

have had it too easy now for far too long, would be devastating. Having disrupted the taxi sector, any move by Uber to more broadly enter the travel distribution sector would send shock waves throughout the sector and be seen as a significant threat.

Perhaps this is finally the move that will shake up the cosy oligopoly of Priceline, Expedia and TripAdvisor?

TUI Group used its full-year results announcement to confirm that it was conducting a strategic review of its B2B wholesaler, Hotelbeds.

TUI ponders Hotelbeds sale 14.8% Ebita increase reported for Hotelbeds for the year to 30 September (Ebita of EUR116.8m)

The company has been rationalising its holdings since last year’s merger of TUI Travel and TUI AG and in October sold B2C brand LateRooms for GBP8.5m to luxury travel company Cox & Kings Group.

Peter Long, joint CEO, told analysts that the brand was the subject of a strategic review, commenting: “Whilst we haven’t made a final decision at this point the likely outcome is that we will enter a sale process.” Speculation has suggested that the brand could be sold for up to EUR1bn.

Hotelbeds reported Ebita of EUR116.8m for the year to 30 September, up 14.8% on the year. The group described Hotelbeds as “the global number one in the B2B wholesale space, with operations in over 100 countries. This market position has been achieved predominantly by growing the business organically and we continue to outperform the market, delivering over 20% pa TTV growth in recent years.”

In the 2014/15 year, the bedbank delivered 26% TTV growth and 18% growth in room nights. Turnover was up 22.7% to EUR1.22bn.

The group said that, across TUI, it continued to grow online distribution, with “all source markets focused on delivering more direct, more online sales”. In 2014/15 controlled distribution grew by two percentage points to 70%, while online distribution grew by three percentage points to 41%. The company said: “Control over distribution continues to be central to our sales

and marketing strategy”.Looking forward, the wider group said that it

was on track to “sustain its profitable growth in the long term, based on the integrated business model and the successful, faster-than-expected implementation of post-merger integration”. In the current financial year 2015/16, the TUI Group expect underlying Ebita to grow by at least 10%, with turnover expected to climb by at least 3%.

This year saw TUI Group launch its international ‘One Brand’ campaign, which will see all its major European tour operator brands rebranded with the TUI master brand by 2017. That is now unlikely to include Hotelbeds.

HA DT Perspective [by Peter O’Connor]: Quite why TUI Group would want to dispose of an outstanding asset such as Hotelbeds is a mystery. Not only is the division performing strongly financially, but also having access to flexible hotel supply of this nature must surely be key to TUI Group’s publicly-stated integrated business model.

Hotelbeds performance is in direct contrast to that of sister division LateRooms, already disposed of for peanuts in October. The latter however operated in the highly competitive B2C sector, which on a global scale has become increasingly dominated by PET (Priceline, Expedia and TripAdvisor) in recent years, leaving little room for smaller generalist players.

But Hotelbeds is the acknowledged market leader in the B2B accommodation segment, where there is not only less competition but also demand is growing as more and more tour operators abandon their previous vertically integrated approach in favour of non-exclusive virtual alliances.

Access to hotel supply is the acknowledged success factor in travel e-commerce. Having direct (and presumably preferred) access to hotel supply of this type is essential for TUI Group’s own tour operating division, particularly as it moves closer to a more flexible OTA like business model.

TUI’s high valuation of the division itself clearly demonstrates the potential of Hotelbeds. Perhaps, like many of their competitors, foreseeing more intense competition in the future they wish to move towards a more flexible dematerialised business model? Or perhaps they intend to use the proceedings of the sale to pay down debt, although the latter does not seem excessive for a company of its size?

Strategically at least Hotelbeds seems to be a key asset, one that could potentially (and should already) be allowing TUI Group to compete more effectively. Although the recently-formed group is currently in a period of self-reflection, reorganisation and renewal, perhaps it needs to think a little more deeply to avoid throwing the baby out with the bathwater.

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The company’s rate of expansion also fell, while concerns over the country’s performance continued to build.

The group’s preliminary results for the quarter saw revpar fall by 2.9% on the year, with occupancy fall by three percentage points to 85%. Rate was flat. The company continued to expand, with expansion adding 175 hotels in the quarter, lower than the 204 properties added in the third quarter, with growth focused on manachised and franchised brands and away from leases. At the end of the quarter the company had 2,763 hotels open.

The occupancy drop was confined to economy brands, with the midscale and upscale properties improving.

No comment is expected from China Lodging until the results are finalised. The end of last year saw the company outline a 10 to 15 year plan which leant on the midscale and upscale brands “because of the economic capabilities of the Chinese citizens”.

CEO Jenny Zhang told analysts: “We don’t want to be over-optimistic, but we feel going into 2016 we will not continue to see dramatic same hotel revpar decline as we have seen at the beginning of this year. The general demand growth I think is already there. And we feel there is a clear trend. The customers start to segment and people who have deeper pockets are demanding a better product. So we have seen a very favourable same hotel revpar trend for our midscale products.”

The “economic capabilities of the Chinese

citizens” are, however, in some doubt. The IMF has forecast that GDP growth will slow to 6.3% this year, from 6.8% last year. IMF data shows that China has been the source of 35% of global growth over the past five years, and is forecast to form 30% of growth until 2020.

China Lodging has been participating in the enthused spate of M&A activity which has dipped into the operator side from the country’s online travel agents, which have been eagerly creating a duopoly. The company is currently part of a consortium planning to take rival Homeinns - one of the leading economy brands - private.

After some initial optimism, the slowing expansion of the Chinese economy has now been accepted, the debate is now around a gradual decline or a plummet. UBS’s base case forecasts see GDP grinding lower from around 6.9% in 2015 to 6.2% in 2016 and 5.8% in 2017. The bank said: “We see the government ramping up monetary and fiscal policy support and accelerating growth supportive reforms, which is why our base case continues to see a grind-down rather than sharp plummet in Chinese GDP growth through 2017”.

Looking at the sector, UBS warned that “hotel companies have small businesses in Asia, but could be negatively impacted by less Chinese outbound tourism”.

McKinsey & Company pointed to an increasingly diverse economy, where “how you feel about China depends more than ever on the parts of the economy where you compete”. The service economy’s expansion was, the consultancy said,

likely to be one of the most prominent trends this year.

Gordon Orr, director emeritus of McKinsey, said: “Don’t get distracted by talk of Chinese economic growth moving a percentage point here or there. The country’s economy is still massive - as are its potential opportunities.”

A study from RBS raised concerns about rising credit to the private sector, which it said had risen from 20% of the level of the US to 80% in just six years. The bank said that the corporate sector had driven the debt increases, with the banking sector likely to be sitting on non-performing loans in excess of official figures. While RBS said that the country was able to afford a cleanup, it was still likely to impact on growth.

The report concluded: “China’s policy response to its debt problems will be a crucial influence on the fortunes of the global economy in the coming years. Either it cleans up its banks and rebalances growth toward services and consumption (of which there is so far little or no evidence) or it doesn’t and risks heading into financial stress.”

While the long term view of the country’s economy continues to be hopeful, those already operating within it are finding the road bumpy.

HA Perspective [by Chris Bown]: In a recent Bloomberg interview, IHG chief executive Richard Solomons declared himself very much in Orr’s camp, pointing to the continuing massive opportunity in a large, growing market. The absolute numbers may have slipped back but, he noted, the Chinese economy is still growing at an enviable rate. IHG, which like the other major international hotel groups, has not concerned itself with the economy end of the Chinese market, is still preparing the ground for the small but growing mid and upper tiers of the market.

The question now must be whether the massive race to grab the economy end of the market has been worthwhile for the local protagonists. Their higher end brands now appear to be performing better, perhaps a sign that the Chinese consumer and business traveller is starting to feel they can afford something a little more than the absolute basics. At least, having the properties on the ground, they are in a position to rebrand if the market really is moving upward.

China operators hit by wider uncertaintyChina Lodging saw revpar continue to fall in the fourth quarter, pulled down by performance at its economy hotels.

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hotelanalyst | emergingmarkets


Investors ‘anticipate upturn’ in India

The country’s hotel sector is seeing a resurgence of investment interest from overseas, with Oyo Rooms, the India-based budget hotels market-place, raising USD100m in funding at the end of last year.

Samhi Hotels was established in 2011 and specialises in development, acquisition and ownership of branded hotels which are located in prime markets and locations throughout India. The company owns 16 hotels operating under brands including Courtyard by Marriott, Hyatt Place, Fairfield by Marriott, Four Points by Sheraton and Formule 1. The group has a pipeline of 10 hotels due to open in the next 12 to 18 months.

Ashish Jakhanwala, founder & CEO of Samhi Hotels, said: “This investment from Goldman Sachs, an experienced investor in India, will accelerate our firm’s platform across the country and catalyse further acquisition-led growth.”

Sonjoy Chatterjee, chairman, Goldman Sachs India, added: “On the back of reform momen-tum, India is witnessing a steady recovery in economic activity driven by domestic demand. We anticipate this to lead to an upturn in the hotel sector. This investment is consistent with our strategy to invest in sectors and infrastructure that assist in the continued growth and development of India.”

Goldman Sachs has deployed more than USD2.5bn in India since 2006.

At Oyo Rooms, the company plans to use the investment to expand and develop new technology, is eager to become “the world’s largest branded network of hotels”.

The funding round was led by SoftBank Group, with participation by Greenoaks Capital, Sequoia Capital, and Lightspeed India. It followed an earlier round of USD25m, in March last year, from Greenoaks Capital.

Oyo Rooms, which was launched in January 2013, describes itself as India’s largest branded network of hotels, with over 3,000 rooms, operating in 140 cities, having “created a new paradigm in the hospitality sector through an asset-light managed marketplace model”.

The app-based business gives access to an

approved list of hotels which the company has selected based on certain minimum standards of service, cleanliness, and safety. The brand charges varying rates to hotels for its services, unconfirmed to this title but thought to be between 10% and 30%.

Ritesh Agarwal, founder & CEO, Oyo Rooms, said: “We are at the forefront of solving a problem of lack of predictability of experience across hotels in the country. Our vision is to provide a standardised experience - the Oyo experience - to anyone, anywhere looking for a place to stay when not at home. We are excited to have global investors like SoftBank partner with us in this vision. Their experience in building innovative companies globally will bolster our efforts to grow into one of the world’s most trusted hotel businesses.”

The company’s model has echoes of Airbnb, but also shares its curated element with brands such as Mr & Mrs Smith. The two also share a varied per-booking cost.

The election of Narendra Modi in May 2014 saw many in the hotel sector hopeful that the country would realise its potential after being mired in red tape under previous administrations. Modi, seen as more business-friendly, promised to ease the way for overseas investment and lift regulations. So far, reforms have included clearing the creation of Alternative Investment Funds which allow foreign investment and planning to create a national goods and services tax to simply taxation, with the bill due this year.

A study from HVS at the end of last year found that, on a nationwide basis, branded and/or organised supply grew at a CAGR of 15.3% over the past five years. Demand for these rooms grew at 15.5% over the same period. Resultantly, India-wide occupancy moved from 57.8% in 2012/13 to 58.4% in 2013/14 and has closed two percentage points higher (60.3%) in 2014/15.

The report concluded: “HVS continues to emphasise the shift towards the mid-market and budget segments across markets, and the opportunities this brings. Hotel companies

with established brands in these segments can harness this trend to create a presence in the emerging business and leisure destinations in the country. However, it continues to be difficult to differentiate between brands in these segments and hotels must prioritise on executing consistent, value driven propositions to attract consumers.”

Messages which Samhi and Oyo have heard and acted upon.

HA Perspective [by Chris Bown]: While Samhi and Oyo are working at different levels in the Indian hotel market, both are working towards the same goal - delivering branded product for consumers.

While a few hotel groups are making headway in India, it is as ever the challenge for the asset-light companies to find reliable local partners who can deliver new properties. Samhi looks to be one such vehicle, and no doubt Goldman Sachs sees plenty of demand from IHG, Marriott et al as its new local partner spots sites and builds hotel properties.

Oyo is an altogether different vehicle, taking existing poorly-executed hotel businesses, and helping them to smarten up and come under a brand umbrella - a sort of Best Western for the 21st century in this emerging market.

A further sign that the Indian market is starting to move into an early stage of maturity, is the news that investors backing local company Lemon Tree Hotels are planning an IPO within the next 18 months. The promised float will allow its early stage investors, Dutch pension fund APG and private equity funder Warburg Pincus to get a return from their investment, though both are expected to continue to hold a stake. It will also test the appetite of investors for holdings in the Indian hotel sector, and provide another opportunity to see the open market value of a growing hotel company in that market.

Goldman Sachs has invested USD66m in Samhi Hotels, the India-based hotel investment and development company.

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Homeinns will be delisted following the merger, which will help BTG towards its target of becoming “the most influential and ethnically rich international hotel group in China”.

BTG Hotels is a tourism and hotel management company, which is currently listed in Shanghai, operating over 100 hotels, ranging from five-star lodgings to budget accommodation. The acquisition is being made through a wholly-owned subsidiary of BTG Hotels.

State-owned BTG will pay USD35.80 in cash for each American depository share of the company, a 19% premium to the last ADS closing price on 10 June, prior to the initial take-private offer being made. The group said the purchase would be supported by a loan facility of as much as USD1.2bn from the Industrial and Commercial Bank of China.

As of 30 September Homeinns operated 2,787 hotels across 346 cities in China, with a net addition of 37 hotels during the third quarter of 2015.

At Homeinns most recent results, for the third quarter, CEO David Sun said: “Looking to the balance of the year, while we do expect the external market conditions to stay difficult, we remain a strong believer in China’s travel industry and leisure market, which have demonstrated great resilience despite the economic slowdown in China. With accelerated development of our mid-scale hotels and stringent cost control, we are confident that we will be able to continue weathering a choppy economic environment, further solidifying our leading position in the market, seizing new growth opportunities, and creating value for our shareholders.”

Rate, occupancy and revpar continued to fall across the group, with Sun commenting: “Overall external conditions remain difficult, and we expect this to continue. This will inevitably still have a dampening effort to our financial results.

“However, I would also like to add that we remain a strong belief in China’s travel industry and the leisure market, which have demonstrated a great resilience, despite the economic slowdown in China.”

As at China Lodging, the company is focusing on the franchised and managed hotels business. As of the end of the quarter, franchised and managed hotels represented 67.1% of total hotels in operation, up from 33.5% in the same period of last year. At the end of the quarter the group had 369 hotels projects in the pipeline, which including 235 hotels contracted under construction and another 134 hotels under due diligence. 90.2% of these projects were franchised and managed hotels.

Sun told analysts that “prudent, ongoing expansion is underway, with a focus on the midscale segment”. During the first nine months of this year, the company opened 37 midscale hotels, “with robust pipelines building up”. The group, which ended the quarter with 2,787 hotels, expects to open a total of 400 hotels this year, 25% of which will be in the midscale.

The group making the move, which held 35% of Homeinns shares prior to the initial proposal being made in June, also includes Ctrip, Poly Victory Investments and Homeinns current CEO, David Sun, co-founder and co-chairman Neil Shen and Ctrip CEO James Liang.

HA Perspective [by Chris Bown]: We may have endured several quarters of declining revpar news, but the budget hotel players in China seem more attractive than ever to potential suitors. Most have had a good run, but have continued to expand in a land grab that now starts to look less and less worthwhile. The lowest end of the market now looks well provided for, and those groups that have launched marginally more upmarket brands, are seeing these providing better returns.

A series of deals now links key players in ways that are distinctly different from Western corporate structures - we would not expect OTAs such as Expedia to buy hotel brands, at least not at the moment. But the consolidation and shuffling of ownerships is likely to abate immediately, as new groups work through their portfolios and evolve new strategies.

Additional comment [by Andrew Sangster]: Economy hotels in China are seeing the same trends as elsewhere. But the interesting story with Home Inns is the involvement of Ctrip. China’s biggest online travel agent is investing in China’s biggest economy hotel brand. It is as yet unclear whether there is a strategy to make a direct link between the two businesses or whether Ctrip is content to remain a passive investor. One to watch.

Also to watch is what happens to Super 8. As the investor in the Chinese chain that operates the brand sells out, can Wyndham hang on with its branding? The master franchiser is the Tian Rui Hotel Corporation and potential new investors in this outfit may well decide that the best fit is to continue the marked consolidation in Chinese economy hotels.

BTG Hotels in China is to acquire Homeinns, the largest operator of economy hotels in China, for USD1.7bn.

Homeinns merges with BTG

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hotelanalyst | emergingmarkets


Fifteen years of growth in Europe

IntroductionAs the dust settles on our annual update of the Otus Hotel Brand Database (“OHBD”), we extract ourselves from the hotel-by-hotel detail, begin the top-down analysis of the numbers that emerge and search for patterns in the changes that we see in hotel supply whether in terms of country markets, city markets, brands or companies.

This year has a little extra significance, as we now have fifteen years of consistently recorded supply data and can look back over a period equivalent to the typical length of a management contract - or what might be regarded as the half-life of many of the century’s new-build properties - and see what has happened in the market.

One change that we have recently introduced to our taxonomy is the way in which we look at non-rooms facilities. The simple sliding scale of hotel configuration, in which we classified hotels in five bands from “rooms-only” to “extended feature”, is something of a blunt instrument. What matters in evaluating hotel supply - and its implications for both capital requirements and revenue generation - is the detailed composition of the non-rooms facilities. So we have invested considerable effort in counting F&B outlets and meeting rooms, and noting the presence of fitness rooms, indoor pools and spas, outdoor leisure facilities, retail outlets and casinos.

The headline numbersAt the end of 2015, OHBD recorded 16,700 chain hotels in Europe, with a total of 2.1 million rooms, a net increase of 6,300 hotels and 900 thousand rooms over end-2000. Rooms growth over the fifteen years was almost 75% - or nearly 4% CAGR.

The segmentation of these rooms by market level is shown in Chart 1.

The largest absolute growth has been in the mid-market, but what stands out from the chart is the growth of the economy segment which has more than doubled in size and now forms 23% of the total, up from 18% in 2000.

Chart 1: Chain rooms in Europe by market level, 2000-2015 (Otus Analytics)

Luxury

Up-market

Mid-market

Economy

Budget

0.0m

0.5m

1.0m

1.5m

2.0m

2.5m

Rooms 2000 Rooms 2015


Analysis

Otus & Co look back over 15 years of brand growth in Europe

BrandsOne of the most striking features of Europe’s hotel markets is the proliferation of brands. In 2000, there were about 550 of them - an average of nineteen hotels and 2,200 rooms per brand. By 2015, the number of brands had almost doubled; and we still have 2,200 rooms per brand, though now in an average of seventeen slightly larger hotels.

Chief among these of course are those brands owned by the global majors. In 2000, the nine global companies had 375,000 rooms in Europe, operating under 43 brands. By 2015, they had 74 brands between them, and had almost doubled in size to 725,000 rooms. So as a group they had outperformed the market, increasing their share of chain rooms from 31% to 34%,

and they had also become more efficient, with the average brand size growing from 9,000 to 10,000 rooms.

Their individual stories are of course all very different, as shown in table 3:

Accor was dominant in 2000 and still leads the pack - but its growth has slightly lagged the market, never mind its peers. IHG has fared even worse. The biggest success stories over the period have been Carlson, with Rezidor and Park Plaza driving its organic growth, and Marriott, whose growth was accelerated by the acquisition

of the AC brands in 2011 - and whose acquisition of Starwood will propel into second place when it completes this year.

By contrast, Starwood itself performed miserably over the period, as did Choice. And Hyatt, which has less than 5% of its rooms in Europe, continues to be a mystery.

The relative lack of dominance by the global majors is in part due to the strong Europe-based chains. In particular, Louvre (now of course Chinese-owned) with around 70,000 rooms and Whitbread with around 60,000 rooms owe their strength to major presence in their local market in the economy and budget segments.

Country markets In 2000, there were chain hotels in 40 European countries; by 2015, a further ten countries had chain hotels, including most recently Kyrgyzstan and Uzbekistan. Unsurprisingly, Spain had the largest number of chain rooms in both 2000 and 2015 - but its growth was slower than the average at only 63%. France, which had been in second place in 2000, was overtaken by the United Kingdom. But the most rapid growth was in Turkey and, of course, Russia - where the chain market grew almost ten-fold in fifteen years.

Net growth in Europe’s ten largest markets is shown in Table 2. Notably, absolute growth in the United Kingdom was almost the same as in Spain. And the big four markets, which had 66% of Europe’s chain rooms in 2000, still had 63% fifteen years later - and they remain three or four times the size of their nearest competitors.

Table 2: Net rooms growth, 2000-2015 Source: Otus Analytics

Country Rooms 2000 Rooms 2015Absolute growth % growth

Spain 246 k 401 k 155 k 63%

United Kingdom 201 k 353 k 152 k 75%

France 216 k 307 k 91 k 42%

Germany 145 k 253 k 108 k 75%

Italy 59 k 96 k 37 k 64%

Turkey 26 k 83 k 57 k 220%

Netherlands 31 k 59 k 27 k 88%

Greece 30 k 54 k 24 k 80%

Sweden 28 k 51 k 23 k 80%

Russia 5 k 49 k 44 k 931%

Table 3: Global majors net rooms growth, 2000-2015 Source: Otus Analytics

Global majors 2000 rooms 2015 rooms Absolute growth % growth

Accor 170 k 292 k 121 k 71%IHG 62 k 99 k 37 k 60%Carlson 27 k 72 k 45 k 165%Hilton 31 k 62 k 31 k 100%Marriott 23 k 61 k 39 k 168%Choice 33 k 50 k 16 k 49%Cendant / Wyndham 1 k 43 k 42 k 5267%Starwood 25 k 39 k 14 k 57%Hyatt 3 k 8 k 5 k 164%

Total 375 k 725 k 350 k 93%

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hotelanalyst

22Non-rooms facilities The information that we have gathered on non-rooms facilities is flawed and to some extent subjective - but no one else is doing it at all, and we had to make a start. So we present our methodology, offer its results, and analyse these results in full awareness of their limitations.

What we have done in assessing both the extent of F&B outlets and that of meeting space is to count rooms. Ideally, we would obtain data on the actual size of these rooms, but that is

impossible. So we count the numbers of restaurants and bars, and the number of conference and meeting rooms, knowing that some hold half a dozen people, at a pinch, while the largest hold many hundreds.

The reasons for wanting to assess the extent of these facilities are twofold. First, there is a capital cost in building or acquiring this space, the extent of which is often neglected in simple “price per room” comparisons. Second, there is

an operational cost in marketing and servicing these facilities - and there should, one hopes, be an identifiable income stream as well.

The numbers are huge. In a little under 17,000 European chain hotels there are nearly 29,000 F&B outlets and 56,000 meeting and conference rooms. We can begin to see what this means in detail by looking again at the global majors in table 4:

1 We don’t count rooms used exclusively for breakfast for a number of reasons: first, breakfast provision is ubiquitous and almost certainly unavoidable. Second, take-up rates are high and the operation is usually efficient and should be profitable.

Alongside their 34% share of rooms, the global majors have 44% of M&E space. In most cases, there are less than 25 bedrooms for each meeting or conference room. If we assume that the average meeting room, including storage space and so on, is around five times the size of the average bedroom - not unreasonable given the range of event spaces under consideration - this would mean first that room count could be increased by up to 20% by converting this existing space from low-margin M&E to high-margin rooms business; and second, that the target which owners should be setting hotel managers is to generate profit from each meeting room equivalent to five times the achieved profit per bedroom.

Of course, this is a picture that requires more depth - we need to know where these facilities are, and what markets they are serving. It’s noticeable, for example, that Accor, with its spread of market levels, has far more bedrooms per M&E space than its global major peers.

In conclusionThis brief article presents a few highlights from the Otus Hotel Brand Database. There are many questions to be asked of the fifteen years worth of data that we can now interrogate, and no doubt many insights to be gained. We look forward to sharing those with clients and colleagues, whether in print or in person.

Ian Gamse, Otus & Co Ltd [email protected] Paul Slattery, Otus & Co Ltd

[email protected]

Table 4: Global majors F&B and M&E provision, 2015 Source: Otus Analytics

Global majors F&B outletsMeeting and conference rooms

Bedrooms per F&B outlet

Bedrooms per M&E space

Accor 3,289 7,715 89 38IHG 1,001 3,278 99 30Carlson 817 3,178 88 23Hilton 736 2,790 84 22Marriott 699 2,550 88 24Choice 588 2,004 84 25Wyndham 530 1,263 81 34Starwood 517 1,595 75 24Hyatt 111 267 69 28Total 8,288 24,640 87 29

Whole market 28,847 56,325 74 38

Global majors’ share 29% 44%


Analysis

Transaction volumes in the London hotel market doubled to GBP3.6bn in 2015 from GBP1.8bn the previous year, led by a number of high profile deals including the GBP1.37bn sale of a share in the Maybourne portfolio which included Claridge’s.

In Q4 prominent transactions included Queensgate Investments acquisition of the Holiday Inn Kensington Forum, the capital’s fifth-largest hotel with 906 rooms, for GBP345m from Apollo Global Management.

Also in Kensington, Crimson Hotels bought the Regency Hotel for more than GBP100m with plans to convert it to a DoubleTree by Hilton, Crimson’s fourth under the DoubleTree brand after signing a franchise deal last year. The privately-owned group, which also owns hotels in Dubai and Portugal, said it would spend GBP10m on refurbishing the property.

The regional hotel market remained strong last year, accounting for 55.6% of transaction volumes although this was down on its 71% share in 2014. Notable regional transactions of 2015 include the sale of the Hilton Newcastle Gateshead for approximately GBP37m and the sale of the Cambridge City Hotel for GBP61.5m.

In the final quarter of the year, the Prima Hotels administration continued to shake out, with the sale of four sites to Aston Hall Hotel, Galadari Brothers, The Mere Golf Resort & Spa and Highwater Estates. Instructed by administrators AlixPartners, Savills brought the four Prima Hotels in England to market, inviting offers in excess of GBP18m for the portfolio, with Martin Rogers, Head of UK Hotel Transactions, describing them as a “portfolio of regional country house hotels…each is well established within its market.”

Portfolio transactions dominated for the second consecutive year, accounting for 59.3% of volumes in 2015 and 52.9% in 2014. Major portfolio transactions last year included Lone Star Funds’ acquisition of a portfolio of 22 Mercure branded hotels as part of their GBP1bn

acquisition from Moorfield and Fraser Hospitality’s purchase of the Malmaison portfolio for around GBP363m.

Robert Stapleton, Hotels Director, said: “With the operating landscape in the UK’s regional markets continuing to improve and such a significant amount of equity looking to deploy into the sector, we expect 2016 to be another strong year for investment into the UK hotel market. We are still experiencing growth in demand for regional assets from investors seeking higher return profiles. We equally expect London to continue to show impressive capital growth, albeit at a slower rate, as well as increased transaction volume as overseas investors in particular seek capital preservation opportunities to shield money from the volatile equities market.”

Outside the UK AccorHotels continued to scoop up assets in Europe, buying four hotels in Spain from Deutsche AWM - Germany for EUR76m. This portfolio comprised four Novotel hotels representing a total of 818 rooms, with two located in Madrid and one each in Barcelona and Seville, which were operated under fixed leases prior to the acquisition.

In Germany, Brookfield Property Partners rode the now-booming Berlin hotel market up, with the sale of the Grand Hyatt Berlin for over EUR92m and the Mandala Hotel for over EUR42m. Both hotels were bought by Savills IM. With the Grand Hyatt a popular venue for events at this year’s IHIF, delegates may find themselves able to assess the bricks and mortar for themselves.

Transactions close 2015 on a highThe year closed on another outstanding year for the UK hotel market, with our research reporting that total transaction volumes in the UK hotel market reached GBP8.1bn in 2015, the highest level since the GBP8.3bn record in 2006. The figure also marked an increase of 31.6% on the GBP6.1bn full-year total in 2014.

©This is copyright material. Strictly no photocopying or scanning - including sharing within your organisation www.hotelanalyst.co.uk Volume 12 Issue 2 ©This is copyright material. Strictly no photocopying or scanning - including sharing within your organisation www.hotelanalyst.co.uk Volume 12 Issue 2 2524

hotelanalyst

Date Property name City Country Keys Price Price per key Seller Buyer

Dec-15 Barcelo Spain Hotel Portfolio 2015 Portfolio Spain 2,151 € 219,389,675 € 101,994 Barcelo Hotels & Resorts Hispania

Dec-15 Hilton Zurich Airport Opfikon Switzerland 323 CHF 81,624,262 CHF 252,707 Westmont JV Baupost Capital Oman Investment Fund (OIF)

Dec-15 Hotel Waldhaus Flims Switzerland 150 CHF 40,000,000 CHF 266,667 Waldhaus-Flims AG Z Capital

Dec-15 Hotel Rex Madrid Spain 147 € 42,000,000 € 285,714 Equity Inmuebles SL AXA Real Estate

Dec-15 Quality Hotel Friends Solna Sweden 399 1,000,000,000 kr 2,506,266 kr Home Properties AB Nordic Choice Hotels AKA Home Capital AB

Dec-15 Hotel Palace Luzern Lucerne Switzerland 136 CHF 50,000,000 CHF 367,647 CS REF Hospitality Yunfeng Gao

Dec-15 Clarion Collection Hotel Grand Olav Trondheim Norway 106 kr 98,100,000 kr 925,472 ANS Hartmann Midstar AB

Dec-15 Caterham House Hotel Stratford-Upon-Avon United Kingdom 10 Confidential Confidential Private Eden Hotels Collection

Dec-15 Chapter Portfolio (4 hotels) South West United Kingdom 265 £36,100,000 £136,226 Chapter Hotels Frasers Hospitality

Dec-15 Hilton Portfolio (8 Pan-European Hotels) Europe Europe 2,713 € 399,826,075 € 147,374 Westmont Oman Investment Fund (OIF)

Dec-15 Holiday Inn Kensington London United Kingdom 906 £345,000,000 £380,795 Apollo Global Queensgate Investments LLP

Dec-15 Hoxton Southbank London United Kingdom 192 £33,500,000 £174,479 Derwent London Ennismore Capital

Dec-15 Leonardo Hotel, Heathrow London United Kingdom 230 £25,500,000 £110,870 Standard Life Aprirose

Dec-15 Novotel Madrid Campo de las Naciones Madrid Spain 246 € 25,391,256 € 103,216 Deutsche AWM - Germany Accor

Dec-15 Novotel Madrid Puente de La Paz Madrid Spain 240 € 24,771,957 € 103,216 Deutsche AWM - Germany Accor

Dec-15 Park Inn Stockholm Waterfront Hotel Stockholm Sweden 418 1,750,000,000 kr 4,186,603 kr JARL Asset Management & NIAM Vital Forsikring

Dec-15 Sirius 24 Skelleftea Sweden 131 114,137,249 kr 871,277 kr Skelleftea kommun Dios Fastigheter AB

Nov-15 Dunas Mirador Maspalomas San Bartolome de Tirajana Spain 436 € 27,641,586 € 63,398 Dunas Grupo Hispania

Nov-15 Dunas Suites & Villas Maspalomas Spain 301 € 19,082,838 € 63,398 Dunas Grupo Hispania

Nov-15 Radisson Blu Airport Hotel Gardermoen Norway 500 kr 1,604,534,785 kr 3,209,070 Avinor AS O.G. Ottersland

Nov-15 Ship Hotel Chichester United Kingdom 37 Confidential Confidential Chichester Hotel Company Harbour Hotels

Nov-15 Club Med de Sant'Ambroggio Lumio France 291 € 26,000,000 € 89,347 GE Capital Corsea Promotion & Inovalis Caisse D'Epargne

Nov-15 Empire House London United Kingdom 111 £20,650,000 £186,036 Helical Bar Plc & Crosstree Standard Life

Nov-15 Leipzig Marriott Hotel Leipzig Germany 231 € 24,798,988 € 107,355 DG Anlage TLG Immobilien

Nov-15 Steigenberger Alpenhotel and Spa Saanen Switzerland 130 CHF 26,260,000 CHF 202,000 Acron Holding AG Huus Gstaad AG

Nov-15 Holiday Inn Rome - Eur Parco Dei Medici Rome Italy 317 € 32,000,000 € 100,946 Intercontinental Hotels Group CPI Property Group

Nov-15 Park Inn Stuttgart Stuttgart Germany 181 € 34,415,075 € 190,139 TAG Immobilien AG Patrizia

Nov-15 Radisson Blu-Hotel Hamburg Hamburg Germany 556 € 155,000,000 € 278,777 Invesco RE Azure Property Group

Nov-15 Mercure Hotel Hannover Mitte Hanover Germany 171 € 20,200,000 € 118,129 Ebertz & Partner Internos Global Investors

Nov-15 NHow Hotel London United Kingdom 190 £90,000,000 £473,684 Berkeley Group AXA IM

Nov-15 Mardan Palace Hotel Antalya Turkey 546 375,328,696 687,415 AST Construction Tourism Trade & Industry Co. Halk Bank

Nov-15 Cameron House Hotel Alexandria United Kingdom 129 £60,000,000 £465,116 Sankaty Advisors KSl Captial Partners

Nov-15 Hawkwell House Oxford United Kingdom 77 Confidential Confidential Obbligato Hotels Compass Hospitality Company Ltd

Nov-15 Jurys Inn Brighton Brighton United Kingdom 234 £28,230,000 £120,641 McAleer & Rushe Savills IM

Nov-15 Malmasion Oxford Oxford United Kingdom 95 £35,000,000 £368,421 Osbourne Group Land Securities

Nov-15 Z Hotel Shoreditch London United Kingdom 111 £20,700,000 £186,486 Crosstree Real Estate Partners Standard Life Investments

Oct-15 Host Hotel Portfolio (8 Hotels) Pan-European Europe 2,308 € 400,000,000 € 173,310 Host Hotels & GIC Benson Elliot & Algonquin

Oct-15 Calas de Mallorca Complex Mallorca Spain 875 € 23,600,000 € 26,971 Melia Hotels International

Oct-15 Godsvagnen 9 Stockholm Sweden 150 438,314,178 kr 2,922,095 kr Estancia Fastigheter Kungsleden AB

Oct-15 Stettin 5 Stockholm Sweden 170 496,756,068 kr 2,922,095 kr Estancia Fastigheter Kungsleden AB

Oct-15 NH Hotel Santo Stefano Turin Italy 125 € 23,500,000 € 188,000 De Giuli Family Internos Global Investors

Oct-15 Holiday Inn Madrid Madrid Spain 313 € 48,100,000 € 153,674 Cesar Losada Hispania

Oct-15 Clarion Hotel Cork Cork Ireland 191 € 35,100,000 € 183,770 Kilquane Ltd and The Clarion Consortium Dalata Hotel Group

Oct-15 Grand Hyatt Berlin Berlin Germany 342 € 92,408,585 € 270,201 Savills IM Brookfield Property Partners

Oct-15 Hermitage Plaza - Hotel Courbevoie France 201 € 252,756,386 € 1,257,000 Hermitage Construction & Management Co Bouygues

Oct-15 Mandala Hotel Berlin Germany 158 € 42,691,686 € 270,201 Savills IM Brookfield Property Partners

Oct-15 25hours Munich Germany 170 € 85,000,000 € 500,000 ECE Patrizia

Oct-15 DoubleTree by Hilton London - Kensington London United Kingdom 203 £110,000,000 £541,872 Harish Patel Crimson Hotels

Oct-15 Sofitel Munich Bayerpost Munich Germany 396 € 180,000,000 € 454,545 Ebertz & Partner Deka Immobilien

Oct-15 Novotel Erlangen Erlangen Germany 170 € 20,000,000 € 117,647 Ebertz & Partner Art Invest

Oct-15 Tivoli Oriente Lisboa Portugal 279 € 38,500,000 € 137,993 Selecta - SGFII SA Minor Int'l

Oct-15 250 City Road London United Kingdom 190 £85,000,000 £447,368 The Berkeley Group AXA

Oct-15 Sheraton Roma Hotel Rome Italy 640 € 229,100,000 € 357,969 Host Hotels & Resorts Benson Elliot & Algonquin

Source: Savills Research Analysis

15-16 MARCH 2016PAN PACIFIC SINGAPORE

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PatronsJLL (Founder Patron)Pan Pacific Hotels GroupPark Hotel Group Wyndham Vacation Resorts Asia Pacific

Platinum SponsorsCarlson Rezidor Hotel GroupDLA PiperInterContinental Hotels GroupQUO

MediaHotel AnalystHotelier Indonesia / Hoticom Media International HOTELS MagazineServiced Apartment NewsTTG Asia Media

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Spotlight on Southeast AsiaSpotlight on Southeast Asia

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Advertisement


The homestay market in Britain - the consumer perspectiveHomestay is on the march. In a nutshell, homestay is an alternative accommodation offering for travellers wanting an authentic experience of a place by staying in the homes of local hosts rather than hotels. Homestay brands such as Airbnb, HomeAway and Onefinestay are becoming increasingly popular.

How do other homestay brands perform?

Prom

pted

aw

aren

ess

56% 43%

36% 18%

29% 14%

28% 11%

Business travellers

Leisure travellers


hotelanalyst

From 2014 to 2016, Airbnb’s brand recognition has climbed from 2.2 million to 11.9 million adults (prompted awareness). This meteoric growth is unique, at least compared with conventional brands in the sector.

When I presented this and other findings at the Hotel Alternatives conference recently, the audience was quite divided in their reaction. Some were amazed by the leap, while others, mindful of Airbnb’s press coverage, were not at all surprised.

What has driven this progress?Brand recognition of Airbnb amongst leisure travellers is considerably less than for business travellers, who are generally better informed about hotel brands. Furthermore, Airbnb recently started to target business travellers with the inclusion of a filter to view listings that are particularly suitable for them.

The primary driver of these recognition figures is Generation Y, where two thirds are familiar with the brand. In this, Airbnb is onto a winner - Generation Y is the only age cohort forecasting considerable growth over the next few years. Very few hotel brands have their awareness skewed to this audience to the same extent.

Outside Britain, global awareness of Airbnb is similarly high. Germany and Russia show similar prompted awareness to Great Britain. The French are most aware of Airbnb, with staggering figures for a rather mature hotel market. Out of 25 countries tracked by the BDRC Hotel Guest Survey, Japan scores lowest at just 21%.

High awareness will help Airbnb with its objective to move into the online travel agent (OTA) market, eventually listing branded properties on the Airbnb website. At the

Hotel Alternatives conference, some serviced apartment providers were very open about offering their inventory on Airbnb.

How do other homestay brands compare?Other homestay brands such as Onefinestay, HomeAway and VRBO are less well known in Great Britain, but still have fairly respectable prompted awareness levels for such young brands.

Conversion from awareness to usage is respectable across all homestay brands: around a third of business travellers and 21-27% of leisure travellers, where the competitor homestay brands actually outperform Airbnb.

Comparing homestay brands to the 100+ hotel brands in the BDRC Hotel Guest Survey, Airbnb would sit in 12th position on the awareness league table (56%, next to Ramada at 11th with 57%). Whilst the other homestay brands are a bit lower (HomeAway at 25th, Onefinestay at 29th and VRBO at 28th place), they are next to some very established hotel brands such as Comfort Inn and Hyatt Regency. This shows that the rather young homestay brands are already giving well-established hotel brands a run for their money.

Usage penetration findings demonstrate more prominently how homestay is a disruptor for hotels. Whilst the same cannot be said for volume of usage, homestay brands have clearly penetrated the market very strongly in a relatively short time.

So far, hotel brand owners maintain that homestay has not taken any market share but simply generated additional demand - much as budget airlines did. But I am not sure that’s true. I suspect that hotels are sticking their heads in the sand. Delegates I spoke to at the Hotel Alternatives Conference also thought that Airbnb and others have begun to take share. This is something we will be investigating further in BDRC’s Hotel Guest Survey.

What type of homestay is booked by what type of hotel guest?Unsurprisingly, those who usually stay in luxury hotels are most likely to book the upper end of homestay e.g. an entire house (40%) or an entire flat (38%).

It is apparent that the capacity to accommodate a large group has wide appeal. It is cited as a key reason amongst leisure travellers and Generation Y, as well as over a fifth of business users. It seems that homestay has a clear advantage over hotels in accommodating groups. Budget brand users are most likely to book an entire flat when using a homestay brand, possibly because they often travel in groups, making it good value for money (per head).

by Tim Sander, Director of Hotels & Hospitality, BDRC Continental

Total travel market

Business travellers

Leisure travellers Gen Y Gen X Baby Boomers

Location

48 43 55 47 43 66

Costs

46 38 59 52 42 32

The comfort of a home

41 41 40 36 42 58

To accommodate a large group

26 22 31 28 26 11

Long stay

22 4312

19 24 29

Key reasons for choosing a homestayLocation, cost, the comfort of a home, accommodating large groups and long stay are all important factors when deciding to use a homestay brand.

Contrary to my expectations, location was more important to leisure travellers than business travellers. It is also very important to Baby Boomers.

This implies that even if hotels are already in prime locations, homestay can sometimes compete with them on location.

Cost is particularly important for Generation Y, who are always looking for a deal, and also for leisure travellers - they are spending their own money, after all.

Business travellers, more than any other group, mentioned long stays for selecting a homestay brand. Here, homestay impinges on the market share of serviced apartments (also with comfort of home and accommodating larger groups).

What does the future hold?Amongst users of a homestay brand only a very small proportion (4%-9% across generation cohorts) say they either would ‘have no interest’ or ‘are not sure’ about using a homestay brand again. This is similar or even lower than what we see for hotel brands amongst recent users who would prefer to avoid the brand in the future. So that is a rather positive outlook for homestay brands.

We expect further developments in this area, with Airbnb keen to move into the OTA space and Choice (a big US hotel group) considering creating a competitor platform to Airbnb. I am fairly sure that homestay brands will eventually take market share from hotels (I believe they do already), even though performance statistics (like average rate and occupancy) do not show any declines in areas where homestay stock has increased. But the signs are there. www.bdrc-continental.com

28


Key reasons for choosing a homestay

Analysis

Timeshare &

Fractional Ownership

Private Residence Clubs

Branded Residences

Condo Hotels

www.AOCAP.org

PatronsAbsolute World Group (Founder Patron)Interval InternationalMarriott Vacation Club International, Asia PacificPan Pacific Hotels GroupPark Hotel Group RCI Wyndham Vacation Resorts Asia Pacific

Platinum SponsorsAnantara Vacation ClubDean & Associates First National Trustee Company (FNTC)Hilton Grand VacationsQUO

MediaFractional LifeHotel Analyst

SupportersARDAATHOCHAMA APISHCITPPATA

Patrons, Sponsors, and Supporters as of 10 December 2015

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No Easy money EasyGroup founder Sir Stelios Haji-Ioannou is known for telling his employees there’s no such thing as a free lunch and that proved the case again at EasyHotel’s AGM, where he voted down plans to increase executive pay.

In a statement EasyGroup said: “EasyGroup supports easyHotel’s strategy to grow the business through the opening of a combination of owned and franchised hotels - it strongly believes this should be pursued by continued focus on delivering profitable growth - based on a lean overhead and low unit cost philosophy.”

It added: “Shareholders will be faced with a situation in FY2017 whereby revenue will have grown 3x since FY2013 (the last full year the company was privately held) BUT costs will have increased almost 4x. Net profit before tax will have been nearly halved as a

direct consequence.”CEO Guy Parsons told this publication: “The

important thing is he is totally supportive of the strategy, he wants the business to be growing, what he’s urging us to do is do that as cost-effectively as possible and we’re not in disagreement with that. The only area we are in disagreement is the level of overhead that’s required to implement the strategy.

“It was a very small organisation and we needed to increase that to achieve the strategy. It’s not a big falling out and of course we respect the opinion of shareholders. We have to respect all the shareholders.”

Following the vote, easyHotel said: “Whilst it seeks consensus, the board of easyHotel recognises that from time to time there may be differences over the approach to the implementation of the agreed strategy.”

Towering informer The Insider was, as ever, thrilled to be invited to Christie & Co’s Business Outlook launch, an annual event where the attendees’ thoughts about the year ahead mingle with unsuccessful attempts to stick to Dry January, and chat turns to which flight everyone is getting to Berlin.

The event was held for many years in one of The City’s guild halls, but last year saw the company decamp to the Royal Institution, centre of science and education and the venue for the annual Reith lectures. Clients and freeloading hacks were duly lectured to about the effervescent state of the hotel transactions market and a general air of higher minds abounded.

This year the venue changed again, to the BFI IMAX, where a summary of the economic and political state of the world was given by journalist Andrew Neill, who scared attendees witless with his warnings about the Chinese dumping massive supplies of solar panels on an

unwitting Europe and pretty much ruining manufacturing for everyone.

The venue is home of the biggest cinema screen in the UK: over 20 metres high and 26 metres wide - almost as high as five double-decker buses. Talk once again was about the effervescent state of the hotel transactions market, although the company’s data showed that the fizz was coming off slightly, with growth in prices coming down by eight percentage points on the year for 2015.

As the figures were projected as high as five double-decker buses behind managing director Chris Day, should the downward trend continue this year, one wonders whether attendees wouldn’t rather see them slightly smaller in 2017. Address suggestions of stunted AV to The Insider, who adds the request that next year marital status not be added to the name badges. The Insider isn’t just a funny name, after all.

Food for thoughtFood and beverage is the new differentiator in today’s hotel marketplace, apparently. Not so at the Adelphi in Liverpool, where owner Britannia Hotels has just been awarded zero stars in a local authority hygiene rating. A top score of five is the normal aspiration.

The Liverpool Echo reported that environmental health inspectors not only ranked standards as poor, and the kitchens in need of urgent improvement, they also expressed no confidence in the hotel’s management.

The Adelphi’s two restaurants, Jenny’s Carvery and Crompton’s, have become the subject of mixed reviews on TripAdvisor. Jenny’s was described as “a place to avoid”, with some diners warning “chaos!” and “don’t go there”. One, however, damned with faint praise, describing it as “better than it looked”.

Britannia chief Alex Langsam will doubtless add the latest award to his recent gongs from UK consumer

magazine Which?, whose 2015 survey of the UK’s hotel groups again ranked Britannia worst.

To make the New Year an even happier one for the Britannia team, a guest at their Manchester hotel on 2 January also complained that part of the ceiling fell on him, injuring his hand and neck. A pipe leak is blamed - and a refund was refused.

Back when The Adelphi was as good as it looked - when it was the Grand Old Lady of Lime Street - it was frequented by the likes of Franklin Roosevelt, Winston Churchill, Frank Sinatra, Laurel and Hardy, Judy Garland, Roy Rogers and his horse Trigger.

The hotel is now a centre for ghost hunters, with Hauntedrooms.com reporting that the third floor of the hotel in particular is haunted. “Some have reported falling violently ill during their stay.” Poltergeist in the kitchen?

Featured BusinessesApollo Global Management

24

9flats.com 12AccorHotels 3,4,9,10,20,24AHV Associates 11Airbnb 2,11,12,13,14,28,29Algonquin 6,7Alibaba 12Alila 8AMC Entertainment Holdings

4

Aviva France 6Avvio 12AXA-IM Real 7,9BDRC Continental 28,29Benson Elliot 6Britannia Hotels 32Brookfield Property Partners

24

BTG Hotels 20Cannacord Genuity 3Carlson 1,3CBRE Hotels 10China Lodging 9,10,16,18Christie & Co 6,7,32Colony Capital 9Comfort Inn 28Commune Hotels 7Ctrip 18,19Dalata 10Destination Hotels 7Deutsche AWM - Germany

24

DLA 11EasyGroup 32EasyHotel 20,32Eurazeo 9Expedia 2,15Extended Stay America 4Fairmont Raffles 3,4,7,8Fraser Hospitality 24Geolo Capital 8Goldman Sachs 19Google 12Greenoaks Capital 19Hilton Worldwide 2,7,8,9HomeAway 28,29Homeinns 20Horwarth HTL 10HVS 7Hyatt Hotels Corporation 13Hyatt Regency 28InterContinental Hotels Group

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Interstate Hotels & Resorts

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Jeffries 12Jiangsu Golden Land Group

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Jin Jiang 10Keystone Lodging Holdings

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KKR 7Lightspeed India 19Louvre Hotels 10Marriott International 1,2,3,4,8,13McKinsey & Company 16Meininger Hotels 11Moorfield 24Morgan Stanley 1MSCI 11Onefinestay 28,29Ormes 3Otus & Co 21,22,23Oyo Rooms 19Plateno Group 20Premier Inn 5Prima Hotels 24Ramada 28RBS 16Rezidor Hotel Group 1,3Samhi 19Savills 24,25SEB Immovest 24Sequoia Capital 19SoftBank Group 19Starwood Capital 10Starwood Hotels & Resorts

1,3,4,14,15,16

Staycity 11The Priceline Group 2,14,18TripAdvisor 14,15,16TUI Group 17Uber 16VRBO 28Walton Street Capital 6

The Insider


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carlson’s hotels mooted for sale - hotel analyst | the ...€¦ · carlson’s hotels mooted for...

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