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Contents

Chapter one: Introduction 9 Objectives 9

Structure 9

Chapter two: Overview of the global hotel industry 10 Definition 10

Size 10

Global Tourism 11

Branded hotel supply 13

Global hotel performance 15

Long term drivers of demand 19

Structure of the industry 21

Chapter three: Current ownership trends 27 The rise of the asset manager 27

Chapter four: Hotel ownership 33 Background 33

Key trends in investment 34

Investment outlook for 2017 39

Main types of hotel investors 42

Chapter five: Loyalty 46 Background 46

Chapter six: Development strategies 53 Company pipelines 53

Regional development 54

Europe 60

Asia Pacific 67

Middle East & Africa 76

Chapter seven: People, places, politics 84 Politics, Politics 84

Employer 86

Employees 87

Consumers 90

Chapter eight: Airbnb - the elephant selling rooms 96 Introduction 96

Chapter nine: Going direct 104 Introduction 104

Hilton 109 Background 109

Timeline 109

Strategy 110

Approach to Assets 110

Growth strategy 116

Geography 116


Operating System 118

People 121

Corporate Responsibility 121

Industry Insight 121

Marriott International 125 Background 125

Timeline 125

Strategy 126


Brands 128

Growth Strategy 130

Geography 130


People 143



InterContinental Hotels Group 150 Background 150

Timeline 150

Strategy 150

Approach to assets 154

Brands 158

Growth strategy 160

Geography 161

Operating system 173

People 183



Wyndham Hotel Group 190 Background 190

Timeline 190

Strategy 190


Brands 194

Growth Strategy 195

Geography 197


People 206



Choice Hotels International 211 Background 211

Timeline 211

Strategy 211



Brands 213

Growth Strategy 214

Geography 216


People 222



AccorHotels 225 Background 225

Timeline 225

Strategy 226


Brands 231

Growth Strategy 232

Geography 233

People 241



Jin Jiang Hotels Group 248 Background 248

Timeline 248

Strategy 250


Brands 253

Growth Strategy 254

Geography 255


People 264



Best Western Hotels & Resorts 269 Background 269

Timeline 269

Strategy 269


Brands 270

Growth Strategy 272


People 278



Homeinns Hotel Group 281 Background 281

Timeline 281

Strategy 281



Brands 282

Growth Strategy 282

Geography 283


People 284



China Lodging Group (Huazhu Hotels Group) 288 Background 288

Timeline 288

Strategy 288

Brands 290

Growth Strategy 291

People 293



Carlson Rezidor Hotel Group 296 Background 296

Timeline 296

Strategy 299


Brands 302

Growth Strategy 303

Geography 304


People 308



Hyatt Hotels Corporation 316 Background 316

Timeline 316

Strategy 316

Approach to assets 320

Brands 320

Growth Strategy 322

Geography 322


People 326



Greentree Inns 330 Background 330

Timeline 330

Strategy 330


Brands 330

Growth Strategy 331


People 331


G6 Hospitality 332 Background 332

Timeline 332

Strategy 332


Brands 332

Growth Strategy 333


People 335


Melia Hotels International 337 Background 337

Timeline 337

Strategy 337


Brands 339

Growth Strategy 339

Geography 340


People 346



Magnuson Hotels 350 Background 350

Timeline 350

An Explanation 350

Strategy 351

Brands 351


Growth Strategy 352

Geography 352


People 356


Westmont Hospitality 358 Background 358

Strategy 358


Brands 359

Growth Strategy 359


People 359


NH Hotel Group 360 Background 360

Timeline 360

Strategy 360


Brands 363

Growth Strategy 363

Geography 364


People 368




Chapter one: Introduction

Objectives

The purpose of this report is to provide the reader with an insight into the global hotel industry in terms of company strategies and key trends that are emerging. The report investigates the leading hotel companies and analyses their strategies. It then uses this information to identify the key trends in the industry and how they will impact the industry moving forwards. This report is not concerned with measures of financial or operating performance except in circum-stances where it explains a point. This report concentrates on the strategies being used and trends occurring in the hotel industry at present. The Global Hotel Report is updating the Global Hotel Perspectives report published in 2012, 2014, 2015 and 2016.

This issue does, however, mark one significant leap from the previous, as the round of consolidation in the sector means that a new global leader has been born, in the wake of Marriott International’s takeover of Starwood Hotels & Resorts. The change has been noted in the specific coverage of Marriott International’s enlarged size and is also discussed as part of the wider M&A trend later in the report.

Structure

The report is split into two sections: firstly, an overview of the key trends in the global hotel industry and secondly, a section which provides detailed profiles on leading industry players. The Hotel Giant’s listings were used to choose these key players, with additional research providing more timely room counts.

The decision was taken not to split the major players by geographic region as in the original edition of Global Hotel Perspectives 2012, as many of them no longer perceive themselves as regional companies.

Each of the profiles of the companies looks briefly at: the company’s history; its strategies; its stance on the ownership of its assets; its brands; development pipelines in terms of ownership model and geography; operating models in terms of marketing/distribution and online strategies; people – leadership and employee initiatives and, finally, corporate responsibility. By investigating each of these areas, it has been possible to draw out some interesting trends with a significant impact on the hotel industry. These trends are discussed in more detail in the front section of the report.


Chapter two: Overview of the global hotel industry

Definition

There is no official standard definition of what a hotel consists of. In simple terms, the Oxford English Dictionary online defines a hotel as:

‘An establishment providing accommodation, meals and other services for travellers and tourists, by the night’.

In general, to be called a hotel, an establishment must have a minimum of six letting bedrooms, at least three of which must have attached (en suite) private bathroom facilities.

Although hotels are classified into 'Star' categories (one-star to five-star), there is no standard method of assigning these ratings, and compliance with customary requirements is voluntary. A US hotel with a certain rating, for example, may look very different from a European or Asian hotel with the same rating, and would provide a different level of ameni-ties, range of facilities, and quality of service.

Whereas hotel chains assure uniform standards throughout, non-chain hotels (even within the same country) may not agree on the same standards. In Germany, for example, only about 30% of the hotels choose to comply with the provi-sions of the rules established by the German Hotels & Restaurants association. Although both UN World Tourism Or-ganisation (UNWTO) and International Organisation for Standardisation (ISO) have been trying to persuade hotels to agree on some minimum requirements as worldwide norms, the entire membership of the International Hotel & Res-taurant Association (IH&RA) opposes any such move.

According to IH&RA, to harmonise hotel classification based on a single grading (which is uniform across national bound-aries) would be an undesirable and impossible task. As a rough guide:

• One-star hotel provides a limited range of amenities and services, but adheres to a high standard of facility-wide cleanliness.

• A two-star hotel provides good accommodation and better equipped bedrooms, each with a telephone and attached private bathroom.

• A three-star hotel has more spacious rooms and adds high-class decorations and furnishings and colour TV. It also offers one or more bars or lounges.

• A four-star hotel is much more comfortable and larger, and provides excellent cuisine (table d'hote and a la carte), room service, and other amenities.

• A five-star hotel offers luxurious premises, widest range of guest services, as well as a swimming pool and sport and exercise facilities1.

Size

The global size of the hotel industry is not as easy to quantify as one might imagine. Data on the size of the global hotel market is scarce, subjective (with regard to what constitutes a hotel) and is only published with relative infrequency outside the US. There are also a range of factors that cloud the issue:

• The hotel industry ranges from very small privately owned family businesses to major international groups with over 600,000 rooms.

1 http://www.businessdictionary.com/definition/hotel.html#ixzz2lesn14iN


• The industry covers the whole of the globe from the US to the smallest of islands.

• There is no official definition of ‘hotel’ nor is there an internationally recognised grading system.

• Countries each have their own systems of quantifying the industry and grading it.

The ‘International Hotel Industry’ report (2009), Mintel, UNWTO data, estimated that in 2008, the number of rooms in hotels and similar establishments was 20.1 million and that it had been growing at an estimated rate of 2.2% over the previous five years. This estimate, however, was based upon previous estimates.

It is important to note, however, that UNWTO statistics include not just hotels but also inns, bed & breakfasts and other ‘similar establishments’, thus overestimating the size of the actual hotel industry.

In 2012, STR Global estimated that the global hotel industry was more likely in the area of 13.4 million rooms, but this only included hotels, as opposed to ‘hotels and similar establishments’2. By 2015 STR estimated it had risen to 15.7 million rooms, an increase of 16% over two years.

Once again, hotel groups acted as the main growth engine. On the period, the 3.2% growth of the branded hotel supply made up for the contraction of the independent supply on some mature markets. With some 240,000 additional rooms, the chain supply thus reached 7.85 million rooms on January 1, 2014.

Growth in the branded supply was supported by the dynamism of leading hotel groups on the international scene, where they are diversifying geographically to balance risk. Given the maturity of most developed countries, emerging markets continue to be the key growth feeders, with Asia Pacific in the forefront (+11.5% growth in its chain supply). This year, the Middle East & Africa region (+7.2%) was also a focus of international attention, alongside Latin America (+3.8%) with Brazil as a focal point. While together they still account for close to 70% of the chain supply, North Ameri-can and European continents continue to lose market shares from one year to the next.

The global pipeline continues to build, with Lodging Econometrics reporting at the end of 2016 that there were 11,547 projects spread across 196 countries, representing 1,953,784 rooms, up 6% on the year in terms of projects and 4% by rooms.

For hotels under construction, there were the global pipeline has 5,417 projects/1,008,948 rooms, both within 1% of the previous year’s total. However, there are 3,514 projects/504,938 rooms scheduled to start construction in the next 12 months, up 22 percent by projects and 19% by rooms. Projects in early planning, 2,616 projects/439,898 rooms, were down 1% by projects and 34% by rooms.

Global Tourism

Demand for international tourism remained robust in 2016 despite challenges. International tourist arrivals grew by 3.9% to reach a total of 1,235 million, according to the latest UNWTO World Tourism Barometer.

Some 46 million more tourists (overnight visitors) travelled internationally last year compared to 2015.

2016 was the seventh consecutive year of sustained growth following the 2009 global economic and financial crisis. A comparable sequence of uninterrupted solid growth has not been recorded since the 1960s. As a result, 300 million more international tourists travelled the world in 2016 as compared to the pre-crisis record in 2008. International tour-ism receipts grew at a similar pace in this period (complete 2016 receipts results will be reported in May).

2 http://www.worldpropertychannel.com/asia-pacific-vacation-news/global-hotel-inventory-reaches-134-million-rooms-asia-leading-growth-region-5554.php


“Tourism has shown extraordinary strength and resilience in recent years, despite many challenges, particularly those related to safety and security. Yet, international travel continues to grow strongly and contribute to job creation and the wellbeing of communities around the world”, said UNWTO Secretary-General Taleb Rifai.

By region, Asia and the Pacific (+8%) led growth in international tourist arrivals in 2016, fuelled by strong demand from both intra- and interregional source markets. Africa (+8%) enjoyed a strong rebound after two weaker years. In the Americas (+4%) the positive momentum continued. Europe (+2%) showed rather mixed results, with double-digit growth in some destinations offset by decreases in others. Demand in the Middle East (-4%) was also uneven, with positive results in some destinations, but declines in others.

Recalling that 2017 has been designated by the United Nations the International Year of Sustainable Tourism for Devel-opment, Rifai said “we need to work closer together to harness the contribution of tourism to economic growth, social inclusion, cultural and environmental preservation and mutual understanding, particularly when we live in times with such a deficit of respect and tolerance”.

Experts remain optimistic about 2017

The latest survey of UNWTO’s Panel of Experts shows continued confidence in 2017, with the large majority (63%) of the some 300 respondents expecting ‘better’ or ‘much better’ results than in 2016. The Panel score for 2017 virtually equals that of 2016, so growth is expected to be maintained at a similar level.

Based on current trends, the outlook of the UNWTO Panel of Experts and economic prospects, UNWTO projects inter-national tourist arrivals worldwide to grow at a rate of 3% to 4% in 2017. Europe is expected to grow at 2% to 3%, Asia and the Pacific and Africa both at 5% to 6%, the Americas at 4% to 5% and the Middle East at 2% to 5%, given the higher volatility in the region.

2016 Regional Results

Results in Europe were rather mixed with a number of destinations affected by safety and security challenges. Interna-tional arrivals reached 620 million in 2016, or 12 million (+2%) more than in 2015. Northern Europe (+6%) and Central Europe (+4%) both recorded sound results, while in Southern Mediterranean Europe arrivals grew by 1% and in Western Europe results were flat.

Asia and the Pacific (+8%) led growth across regions in both relative and absolute terms, recording 24 million more international tourist arrivals in 2016 to total 303 million. Growth was strong in all four subregions, with Oceania receiv-ing 10% more arrivals, South Asia 9% more and North-East Asia and South-East Asia both 8% more.

International tourist arrivals in the Americas (+4%) increased by 8 million to reach 201 million, consolidating the solid results recorded in the last two years. Growth was somewhat stronger in South America and Central America (both +6%), while the Caribbean and North America recorded around 4% more arrivals.

Available data for Africa points to an 8% rebound in international arrivals in 2016 after two troubled years, adding 4 million arrivals to reach 58 million. Sub-Saharan Africa (+11%) led growth, while a gradual recovery started in North Africa (+3%).

The Middle East received 54 million international tourist arrivals in 2016. Arrivals decreased an estimated 4% with mixed results among the region’s destinations. Results for both Africa and the Middle East should be read with caution as they are based on limited available data.


Chapter three: Current ownership trends

The rise of the asset manager

The third-party managers have become a mainstay of the sector, with a concept launched in the US finding its way to Europe and growing in popularity. They are viewed as a buffer between the brand and the owner, with their priority being the property and not the wider brand.

Benefits include:

• Owing to their close relationships with franchisors, third party management companies are often able to help owners negotiate more competitive franchise fees.

• Cash flows are typically run at tighter level with marketing costs (which are covered by the franchise agreement) usually lower.

• The term of management agreement is characteristically much shorter (starting at a minimum lock in of five to 10 years) and exit options are typically more flexible.

Source: HVS: Hotel Franchising in Europe 2014

The Henry Stewart Hotel Operating Agreements conference, held in London in 2015, found that, while the sector has become used to franchises in the budget market there is now “franchise creep” in the luxury end. Guests, after all, don’t walk into a hotel and ask whether it’s a management or franchise contract.

Increased brands have intensified competition. With the acquisition of Starwood Hotels & Resorts, Marriott International now has 30 brands, looking to be able to provide flags across the market for all consumers - both owners and guests.

If the brands want to continue growing their management platforms they need to be more competitive. If a brand is desperate to get their flag they will be flexible on exit – they will allow terms to switch to a franchise on sale of the property.

INDUSTRY INSIGHT: Rob Stapleton, director, hotel investments, at Savills, said: “The power of the brand is grow-ing everywhere and will only continue. Brands and hotel companies want pins in maps but hotels want to retain control. Brands such as Doubletree allow hotels to be plugged into distribution and standards without having to be brand compliant. The brands have moved away from being operators to being marketing companies.

“Almost everything is third-party managed these days (apart from the luxury space). We’re going to see more global players. The bigger they get, the better they can negotiate – third-parties are here to stay. The brands will continue to grow too, we’re going to see new entrants to the market – are the likes of CitizenM going to start doing sale-and-managebacks?”

Source: Henry Stewart Hotel Operating Agreements conference, 2015

INDUSTRY INSIGHT by Andrew Sangster: “The hotel industry is splitting into three pillars of value: the property, the management and the brand. Hotel Analyst has dubbed this the bricks, brawn and brain which rather flatters the brand companies at the expense of the operations specialists where much of the critical work is being done.

“Hotels are operational assets and as such, owners who are prepared to engage with this aspect of the business expect a higher return than those who are passive. Leaving aside the increasingly controversial area of whether


to favour leases or management contracts, active owners should always be able to drive better returns than those who simply sign a contract and walk away, expecting to collect regular rent payments.

“The role of the owner is pretty clear. So too is the role of a third party manager – drive revenue and control costs being the central tenets. But it is increasingly challenging to define what the role of the hotel brand is.

“One important, and often overlooked, point in the context of consumer-focused marketing debate, is the in the procurement of finance for owners and the provision of advice for development purposes, whether new build or repositioning.

“But this helps justify only part of the fees. The biggest areas which brands put forward are focused on customer acquisition, particularly the system delivery thanks to the central reservation system and loyalty programme.

“These are undeniably effective but are being weakened by the increasing strength of online intermediaries. Hotel brand companies argue that OTAs and similar distribution channels are no more than the offline travel agents of the past. But the evidence suggests that the online players are grabbing a bigger and bigger share which is undermining the level of fees being charged by the brand companies.

“According to research conducted by Associated Press for an article focused on the US hotel industry, the top 10 hotel companies have 113 brands between them. This number is expected to grow and this expansion calls into question just how effective each individual brand actually is. What they appear not to be are an effective tool for creating consumer recognition and demand. Hotel companies seem to be leaving that to the OTAs and other online players.

“So if hotel brand companies have second rate brand recognition and a poor ability to generate demand, what is the purpose of their brands? As the conference discussed in our report showed, even the ability of brands to help secure finance is coming under question.

“There is an increasing need for hotel brand companies to evolve into a new business model which clarifies their role. The hotel brand is far from dead but it is in need of redefinition.”

Source: HA Perspective 2016, Issue 13: 15 April 2015

The Issues

As ownership of hotels moved away from the brands, owners demanded much from their news assets and a rift started to grow between owner and flag which has grown over the years amidst accusations that all parties were not working together.

INDUSTRY INSIGHT: Desmond Taljaard, managing director, hotels, London & Regional, who told the Interna-tional Hotels Investment Forum 2017: “What would a brand have to be able to do to put a brand on a hotel? They need to drive business above and beyond what the hotel could do itself. Take the Atlas Hotel portfolio, we do ponder whether there was any need to brand those, so far we are leaning on the green box rather than the red, but when I’m charged for the brand, loyalty programme, booking.com and I get 12% back at the end of that, I begin to wonder.

“The economics are going to come under lots of scrutiny when the contracts come up for renewal. Every time a brand hires a new brand leader it adds new costs for me, they add bacon at breakfast, green carpet, blue carpet. It’s wonderful for that persons’ CV and I hope they do well, but it adds cost for me. Brands need to keep the cost of value added in balance.


“The OTAs are the fundamental crisis in the hotel sector in the past 20 years. You compare the arithmetic of the OTA and the limited service brand – are we facing a cataclysmic change? People need a lot a lot more weaponry if they are going to win the war.”

Source: HA Perspective 2017, Issue 10: 14th March 2017

The brands, have, in turn, become more flexible.

INDUSTRY INSIGHT: Robert Shepherd, chief development officer, Europe, IHG: “The old days of a 25, 30-year management agreement that you couldn’t get out of, they’re gone. The point now is around aligning interests. Unless we align interests, there is no point in a 20-year relationship. By structuring – whether there are perfor-mance tests, whether there is a hurdle for incentive management, so you don’t earn meaningfully until you get a certain level of GOP. Our fee structures are a base and an incentive fee, the base is low and competitive. We will talk to owners at the outset and start to make an agreement based on their interests.

“We don’t have to have capital in the game, we don’t have to own it, but we can make sure that our perfor-mance is tied to the hotel performance. There may be guarantees for the first five or six years, at which point the owner will refinance a stabilised asset.”

Source: HA Perspective 2017, Issue 10: 14th March 2017

Table 4: Leading third party management companies in the US (2015)

Rank Company Third-party managed

rooms at end 2015 Third-party managed

hotels at end 2015

1 Interstate Hotels & Resorts 76,361 427

2 Aimbridge Hospitality 63,919 449

3 Highgate 24,860 88

4 Crescent Hotels & Resorts 23,258 97

5 White Lodging Services 21,540 144

6 Remington 18,112 94

7 TPG Hotels & Resorts 17,652 63

8 Pillar Hotels & Resorts 16,829 178

9 HHM 16,500 120

10 Pyramid Hotel Group 16,214 62

Source: 2016 Hotel Management Survey

As franchising gains traction in Europe, so the owners looks to the third parties to add the expertise which will allow them to run their properties. The need for flags in the map is ever-pressing to please owners and shareholders and even brands at the luxury end of the market, once an anathema to franchising, are now being offered to trusted owners. The primary role of the brands is increasingly seen as providing a route to


Chapter five: Loyalty

Background

According to HVS, throughout the travel and retail industries, consumers have been bombarded with countless loyalty programmes, the aim of which is to retain customers and increase their loyalty to a specific brand or company. In the hotel industry, hotel loyalty programs or frequent guest programmes have been around since the early 1980s, starting with the inception of InterContinental Hotel Group's Priority Club Rewards programme. Since then, all the major hotel companies have created their own version of the hotel loyalty programme and are constantly striving to present their programme as offering the best value. (https://www.hvs.com/Content/2933.pdf)

The purpose of loyalty programs is to provide guests with incentives to return to that particular brand or company, creating brand loyalty and the programmes have seen their profile rise in recent years as the hotel operators sought to drive direct bookings by leveraging their loyalty programmes - offering discounts to member who booked direct.

A ruling by the OFT in the UK in 2014 gave hotels a way around rate parity agreements, allowing them to offer reduced rates to members of closed groups, something which the global operators have embraced over the past year, granting members of their loyalty programmes cheaper rooms if they booked direct.

The theory was that owners would benefit from not paying the OTA commission, which can be as high as 25%. Hilton Worldwide has been at the forefront of the direct booking drive, with a high-profile media campaign under the tagline Stop Clicking Around. At the company’s third-quarter results, president & CEO Chris Nassetta proclaimed it “better for customers and better for our owners” describing over 200 basis points of channel shift to its direct channels and a 60% increase in HHonors enrolment. He conceded: “It’s hard to debate that it’s not having a little bit of impact given de-ranking and dimming that’s going on within the OTA world.

“There’s probably some modest amount of impact built into the last couple of quarters and the next couple quarters of revpar growth, on the headline revpar, but on a net rate basis we’re better off because we’re shifting to our lowest cost channels. Our job is to drive better results for our owners who are investing all the capital to help us continue to drive net unit growth. Our owners are incredibly supportive of what we’re doing because they’re benefiting from what’s going on.”

Nassetta’s comments were echoed by Arne Sorenson, president & CEO at Marriott International, who described a “mod-est” impact, but reiterated the message heard across the operators, that they are playing the long game.

There was some comfort for owners. A study by Kalibri Labs found that direct bookings were 9% more profitable than bookings which came via the OTAs when factoring in ancillary spend and falling costs for direct bookings over time, when, as the loyalty roster grows, marketing costs are reduced, against the cost of an OTA booking, which remains constant no matter how often it is repeated.

Not to be beaten, the OTAs have been working on ways to access the discounted rates themselves, with Expedia, Inc signing up Red Lion Hotels and reportedly working with a number of chains behind the scenes.

(http://www.blplaw.com/expert-legal-insights/articles/hotels-survey-2017)

INDUSTRY INSIGHT [by Peter O’Connor]: Loyalty Wars – Ultimately bad for all concerned.

One of the most prominent issues facing the hotel sector today is hotel chains’ efforts to drive a larger propor-tion of their transient business through direct online channels. Currently a commonly used approach is to try to entice visitors to their brand.com websites to complete their book directly by offering them a discount on their


Chapter six: Development strategies

Company pipelines

With respect to pipeline growth, US brands are now very much focussed abroad. Europe is one of the main choices as it is the second most mature after the US, as well as being the most culturally similar and therefore better suited to the products.

Asia-Pacific, in particular China, India and Indonesia, and the Middle East are hot development markets.

Table 6: Development pipelines of profiled companies

Company Pipeline Comments

Marriott International 430,000 rooms (31 March 2017) Approximately 166,000 rooms under construction, with roughly 36,000 rooms approved for development, but not yet subject to signed contracts

Hilton 325,000 rooms (31 March 2017) All in the management and franchise segment. Some 168,000 rooms, representing over half of the pipe-line, were under construction.

InterContinental Hotel Group 232,000 rooms (31 March 2017) 45% under construction and ~90% in 10 priority markets.

Jin Jiang 190,000 rooms (Dec 2016)

AccorHotels 171,000 rooms 92% of expansion was through franchise and manage-ment contracts

Wyndham Hotel Group 143,100 rooms (31 March 2017) 59% were international and 68% were new construction

Choice Hotels International 745 hotels (30 September 2016)

Plateno By 2018, Plateno aims to have 4,500 economy properties, 1,000 midscale, 300 high-end and 200 hotels outside of China.

China Lodging Group 632 hotels (March 2016) At May 2017 approximately, 50% of pipeline in the mid and upscale segments.

Best Western International 463 hotels (March 2017) 60% new builds

Homeinns 171 hotels (March 2016) 333 of which were for franchised-and-managed hotels.

Carlson Rezidor Hotel Group 50,000 rooms (March 2017) Driven by asset-light model

Hyatt Hotels Corp 66,000 rooms 42% rooms in Asia-Pacific

Meliá Hotels International 17,000 rooms (31 March 2017)

NH Hotels Group 78 hotels


Source: Individual company profiles

It is well known in the industry that hotel companies can be accused of playground antics such as “mine is bigger than yours” with regards to pipelines, but the difficulty is that it is very hard to make comparisons as companies report their pipelines differently. Some may only count those that are signed, others that are under development, others can be quite vague. The figures should be treated with caution as not all may actually come to fruition.

STR has attempted to standardise the pipeline data from hotel companies, and many of the major players are now reporting their pipelines in similar format, which will allow for comparisons.

Regional development

North America

The North America market has seen performance buoyed by limited supply, as the sector finds that development funding is limited. That is now shifting, although the big brands have commented that having a global flag on a prop-erty remains a must-have for lenders. STR’s 2017 Pipeline Report shows 575,907 rooms in 4,763 hotel projects Under Contract in the United States. The to-tal represents a 16.1% increase in the number of rooms Under Contract compared with January 2016. Under Contract data includes projects in the In Construction, Final Planning and Planning stages, but does not include projects in the Unconfirmed stage. In the In Construction stage, the U.S. reported 190,301 rooms in 1,449 projects. Based on the number of rooms, that is a 27.3% increase in year-over-year comparisons. “A little more than 31% of all U.S. hotel construction is occurring in 10 major markets,” said Bobby Bowers, STR’s sen-ior VP of operations. “Consistent demand generators no doubt make these markets attractive for new development, but at the same time, several are seeing occupancy levels and pricing power pressured by the influx of new supply.” Among the Top 26 Markets, New York, New York, reported the most rooms Under Contract (29,132 rooms) and most rooms In Construction (15,607 rooms). “New York’s construction amount accounts for 8% of all U.S. construction activity and almost 14% of that market’s existing supply,” Bowers said. Three additional markets each reported more than 15,000 rooms Under Contract for the month: Dallas, Texas (18,463 rooms); Houston, Texas (17,693 rooms); and Los Angeles/Long Beach, California (16,338 rooms). “The Super Bowl provided a nice performance boost, but Houston faces continued supply-based headwinds in the bat-tle for improved operating performance,” Bowers said. Two markets in addition to New York each reported more than 5,000 rooms In Construction: Dallas (7,228 rooms) and Los Angeles/Long Beach (6,070 rooms). Three markets each reported fewer than 1,000 rooms In Construction: Minneapolis/St. Paul, Minnesota, Wisconsin (887 rooms); Norfolk/Virginia Beach, Virginia (456 rooms); and Oahu Island, Hawaii (180 rooms).


and the overall economy. We urge the Trump Administration to consider the important lasting impact of business travel and enact policies going forward that preserve both our national security AND our economy for the future.”

Earlier this year the WTTC said that it expected the contribution of travel & tourism to US GDP to predominantly be stimulated by strong outbound expenditure, which is expected to grow by 5.4% in 2017.

As the dollar strength is expected to persist, US based travel companies and tour operators selling outbound holidays will benefit from travel abroad becoming cheaper for US citizens. The most likely beneficiaries of this strong growth were expected to be Canada and Mexico, as well as the Caribbean and Mediterranean destinations.

Visitor exports, which is money spent by foreign visitors in a country, is expected to fall by 0.6%, primarily because continued dollar strength will make the US less attractive from a pricing perspective.

According to the WTTC, travel & tourism contributed USD1.5 trillion, or 8.1%, to the country’s GDP in 2016 and sup-ported over 14 million jobs, which is 9.4% of total employment. For 2017, growth is expected to be 2.3%, slower than the rate of 2.8% seen in 2016.

David Scowsill, president & CEO, WTTC, said: “The US is a beautiful and strong tourism destination. It currently ranks number one in the world in terms of the sector’s contribution to GDP, twice the size of the nearest competitor, China.

“Stimulated by the marketing approach of Brand USA established in 2011 and the visa facilitation efforts undertaken, international arrivals have shown very strong growth over the last few years. For the US to continue on this growth path, it is important to address the current forecast drop in inbound travel, and to reverse the negative perceptions created by the travel ban.

“We urge the administration to recognise the importance of our sector, both to the economy and to American jobs.”

INDUSTRY INSIGHT by Katherine Doggrell: Here at Hotel Analyst we are avid consumers of Donald Trump’s tweets, a primary source the like of which we couldn’t have hoped for until mind-reading becomes cheap and available to all. One of the repeated themes, other than the evil that journalists do, is JOBS! JOBS! JOBS!

And JOBS! JOBS! JOBS! is something which Trump has, so far, delivered. April saw the unemployment rate falling from 4.5% to 4.4%, its lowest since May 2007. And of those jobs created, the vast majority were in leisure and hospitality, rather than the manufacturing heartlands which Trump appeals to.

And really, a USD1.6bn hit on a total GDP which was USD17.95tn in 2015? Not too great a concern. And yet concern there is, and not just from the liberal media which likes to laugh at the funny orange president with the big handshake. The JOBS! JOBS! JOBS! which have been created are low-paid and low-skilled, which was why, although there were JOBS! JOBS! JOBS!, GDP rose by only 0.7% in March.

With the unemployment rate reflecting full employment, there is thought to be a feeling amongst the workforce that it can ask for more money. The threat of wage-driven inflation is likely to lead to the cooling application of interest rate growth which, with hotel owners reporting tightening lending conditions, is unlikely to see more hotels coming out of the ground.

Driving the enthusiasm, or lack of impeaching, for Trump, is the hope that he will bring in tax cuts, which are expected to give the economy a proper surge. The president, in his recent trip outside the US, made it very clear that the rest of the world, Europe in particular, has been taking the mick in its dealings with the US for too long and must be made to pay. He has been seeking to raise the borders physically and in trade terms since hitting the campaign trail and now lines at customs are getting shorter too. The US’s self-sufficiency is about to be tested.

Source: Hotel Analyst issue 22, June 2017


Employer

As the role politics plays in the fortunes of the hospitality sector grows, so the sector tries to convince politicians of its worth and carve for itself a voice which must be heard.

According to a report in June 2017 by the World Travel & Tourism Council, the global Travel & Tourism sector directly sustains twice as many jobs as the financial sector, and five times as many jobs as the chemicals manufacturing sector.

The WTTC Benchmarking Report 2017 compares Travel & Tourism to eight other sectors, which are considered to have similar breadth and global presence, across 27 countries and six regions. In 2016, Travel & Tourism supported 108 mil-lion jobs directly, and 292 million in total, taking the direct, indirect, and induced impact into account.

The report shows that both on direct and total level, Travel & Tourism employs more people than the automotive man-ufacturing, banking, mining, chemicals manufacturing, and financial services sectors.

It also shows that the power of Travel & Tourism to create jobs is significantly higher than that of financial services when you compare their contribution to GDP. Financial services generates 19.4% of the world’s GDP compared to 10.2% by Travel & Tourism, but the latter supports twice as many jobs worldwide. Travel & Tourism generated a total of USD7.6 trillion in GDP in 2016, which makes the sector’s GDP contribution larger than that of banking (USD4.8 trillion), mining (USD$5.0 trillion), agriculture (USD5.8 trillion), automotive manufacturing (USD6.1 trillion), and chemicals manufactur-ing (USD6.5 trillion).

Global Travel & Tourism is forecast to grow by 4.0% per year over the next decade, which is significantly faster than the global economy at 2.7% and all other sectors covered in the study apart from the financial sector and banking. On regional level when we look at total Travel & Tourism GDP and employment generated in 2016 benchmarks as following to the other eight sectors researched in this report:

• Africa: USD$166 billion in GDP and 20.7 million jobs in 2016, making the sector larger than chemicals manufacturing, automotive manufacturing and banking in terms of GDP contribution, and all of these sectors as well as financial services in terms of jobs.

• Americas: USD$2.2 trillion in GDP exceeds that of every sector included in this study except for the construction, financial services, and retail sectors in the Americas. The 42.7 million jobs makes the sector larger than banking, chem-icals manufacturing, automotive manufacturing and mining in terms of job creation.

• Asia Pacific: USD$2.3 trillion in GDP makes the sector larger than that of Asia’s mining sector. The 159.2 million sup-ported jobs exceeds the impacts of banking, mining, automotive manufacturing and financial services.

• Europe: USD$2.0 trillion in GDP makes the sector larger than mining, agriculture, banking, chemicals manufacturing, and automotive manufacturing in Europe. The 36 million jobs exceeds that of automotive manufacturing, mining, chemicals manufacturing, banking and financial services.

• Middle East: USD$227 billion in GDP exceeds that of the Middle East’s automotive manufacturing, agriculture, bank-ing, and chemicals manufacturing sectors. The 5.7 million supported jobs are larger than that of the automotive man-ufacturing, banking, financial services, chemicals manufacturing and mining.

David Scowsill, President & CEO, WTTC, said: “It is easy to applaud the efforts or even to criticise the failings of Travel & Tourism in isolation without looking at the picture of our industry separate from the overall industrial context. Our sector contributes 10.2% of global GDP and supports one in 10 jobs when you look at the total impact and this research helps to put these achievements in context, and gives a clear picture as to the strength of Travel & Tourism. Business


“This is not about ‘home sharing,’ a practice that has existed for decades as a way for individuals to make a little extra cash by renting out the occasional room or home. But this data tells a very different story than the one told by Airbnb, who wants the face of Main Street but the wallet of Wall Street. As a corporation valued at more than USD25bn, they have a responsibility to protect their guests and communities; they should not be enabling the corporate landlords who are clearly using their platform to run illegal hotels.” The organisation has also proposed an amendment to the The Multistate Tax Commission to its model law on lodging taxes, adding dwelling, bed, room and “multiple rooms in a dwelling” to the MTC’s 2012 model uniform statute for collection and remittance of lodging taxes by online marketplace-style, short-term rental intermediaries such as Airbnb. While the reports were being published, Airbnb CEO Brian Chesky told a lunch hosted by the Economic Club of New York at the New York Stock Exchange: “We are halfway through the two-year process of getting ready to go public”.

INDUSTRY INSIGHT by Katherine Doggrell: The AH&LA do not like Airbnb. This has been made amply clear as they generate reports about in the same volume that most people generate Facebook posts. And there is an angry face under all of them.

What makes this latest set different is that the criticism has extended to those who have done the deals with the sharing platform and their ilk, accusing them, at best, of having the wool pulled over their eyes. It also bears noting that the AH&LA acknowledges that “there is no evidence of tax abuses”.

Neil Baylis, competition partner, K&L Gates, told us: “From the consumer perspective, Airbnb is a huge success - and its proposed IPO will show just how successful. The deals have been done, and there will be more deals to do, but it seems to me that there is less concern now than there was a year ago about the effect of Airbnb on local property use, pricing and availability.

“AH&LA is trying to protect its members from market forces. That is their job but it won’t wash politically if the majority view is that Airbnb provides a useful service.”

Source: Hotel Analyst issue 11, March 2017

The impact

Airbnb is pulling down rates in London, according to a joint report by Colliers International, Hotelschool The Hague and AirDNA.

The study was the latest to illustrate that the sharing platform “presents a threat” with the report’s authors questioning whether increased legislation would curtail its growth.

The report found that five areas of London – Westminster, Tower Hamlets, Camden, Kensington & Chelsea and Hackney – were responsible for over one million Airbnb overnight stays in 2015. These boroughs also accounted for the majority of the city’s Airbnb supply at almost four million listings.

The report found that Airbnb recorded two million overnight stays in London throughout 2015 and has seen ADR rise to USD142 per night, compared to USD220 for hotels in London. Whilst Airbnb hosts’ recorded a total revenue of USD286m, hotels realised a total revenue of USD8.1bn in 2015.

A snapshot of January 2016 indicated that hotels saw year-on-year declines of 2% in demand, 9% in revenues and 5% in occupancy. Over the same period, Airbnb saw 182% growth in revenues, 126%growth in occupancy and a 206% increase in demand. The study said that: “In the future, supply growth in Airbnb’s in London is expected to be more limited than


demand growth, in part driven by increased pressure from local governments and complaining neighbours for regula-tion and residents experiencing negativity upon offering their property on the platform.”

Jeroen Oskam at Hotelschool The Hague, told us: “London is the first place where we have detected an influence on hotels, whereas in Amsterdam both hotels and Airbnb have grown. In Amsterdam we have warned people that the current boom in the hotel market may be concealing the influence of Airbnb.

“Most consultants up to now have been claiming that Airbnb is incremental, but this is not true. It is a low cost option, with two and three stars most affected. I don’t see the big hotel chains noticing that much impact, but it will affect the small, independent hotels.”

The view was shared by HSBC, which also used AirDNA data and said in a note that, the operators it covered – AccorHo-tels, InterContinental Hotels Group and Whitbread – were less impacted than previously thought, down to their expo-sure to budget accommodation and corporate business. “That said, we think the sheer volume of Airbnb supply in France puts Accor most at risk, with IHG next and Whitbread most insulated given penetration in the UK is heavily skewed to London, where Premier Inn is competitively priced”.

As for the effects of legislation, Oskam said that, following the ban on renting out whole apartments in Berlin on 1 May, “we didn’t see a decrease in supply after legislation, but a price increase to compensate for the fine”.

Marc Finney, head of hotels & resorts consulting at Colliers International, said: “Airbnb has been regarded as a ‘dis-rupter’ in the hotel industry for a number of years now and is said to have a major impact on the performance of traditional hotels, but until now there has been no publicly available data to support these claims.”

“The hotels sector is strong in London, yet there’s no doubt that the continued growth of Airbnb presents a threat. An interesting finding of the report is Airbnb’s ability to perform even in the notoriously slow ‘off season’. Our research showed that demand steadily increased throughout the year, and although we see a much faster increase in the summer months, this demand continues to increase outside of peak season. This demonstrates that Airbnb does not seem to be impacted by seasonality in the market place, which gives it a distinct advantage as this is not something that we are seeing as much in the hotels sector.”

Marieke added: “Airbnb is still growing, you see higher growth in the summer months, but because it is still growing in general, it is not affected seasonally. The more it matures, the most seasonality you will see.”

Oskam said that the impact was still largely on the leisure side, commenting: “20 years ago you didn’t see families going on city breaks, but now you do”, adding: “We have not seen any success yet in the business market, which might have to do with the centralised booking process. If I have a bad experience with Airbnb I blame myself rather than in a hotel, when I blame the hotel. I say that I must have chosen a bad Airbnb. But this means that I might be reluctant to book Airbnb for someone else.”

The report came as London Mayor Sadiq Khan suggested that the city may see a tightening of its sharing laws. Khan expressed concerns over the impact on London’s housing stock and, in a letter to MPs, said: “If boroughs are finding that the legislation needs to be revisited to make sure that we find a better way of balancing the benefits of the sharing economy with the protection of local residents and the retention of housing for long-term use, then I will be happy to work with them and discuss with government whether any changes may be needed.”

Khan’s comments were in reply to a letter from Iain Wright, chair of the Business, Innovations and Skills Committee, in which he said that he had heard evidence that: “While companies such as Airbnb can enable homeowners to unlock economic value by temporarily letting spare rooms, extensive use of Airbnb by professional landlords, contrary to the current law, can help drive up property prices, compounding issues of affordability in the capital.”


Strategy

In Marriott’s Now and Next Presentation (March 2015), it states its strategy as:

• Accelerate Unit Growth by adding new platforms and expanding internationally

• Appeal to Next Generation Travellers by reinventing brands, enhancing above-property systems and embracing social media

• Provide Operational Excellence

• Execute Capital Allocation Strategy

Approach to Assets

Franchised properties account for over half of Marriott’s portfolio, some 39% of hotels operate on long-term manage-ment agreements and only 1% under long-term lease agreements, less than 1% owned44.

Marriott, along with many of its competitors, operates an asset-light strategy. This primarily came about in 1993 when Marriott International split from Host Marriott. Host, now known as Host Hotels & Resorts, took the hotel assets and Marriott International was left to concentrate on the management contracts. It later spun off its Services division, fol-lowed in 2011 by the timeshare business, enabling it to concentrate solely on hotel operations.

Marriott’s emphasis on long-term management contracts and franchising provides more stable earnings in periods of economic downturn, while the addition of new hotels to its system generates growth. The strategy has allowed sub-stantial growth while reducing financial leverage and risk in a cyclical industry. Marriott also increases its financial flex-ibility by reducing capital investments and recycling the investment it makes45. Marriott’s decision to spin off its timeshare business in 2011 was in line with the trend towards asset-light operations in the sector and within the com-pany itself. The transaction allowed Marriott to further advance the strategy of separating real estate from management and franchise operations.

Marriott operates a number of hotels under long-term management agreements that are owned or leased by Host Hotels & Resorts. In addition, Host is a partner in several partnerships that own properties operated by Marriott46. Marriott had a joined history with Host Hotels, as they were both originally part of Marriott Corporation, which split the two in 1993.

Marriott is not afraid of investing its own capital where necessary to promote growth. In 2012, Marriott acquired the Gaylord brand and hotel management company from Gaylord Entertainment Company (now called Ryman Hospitality Properties, Inc. ("Ryman Hospitality") for USD 210m. Ryman Hospitality continues to own the Gaylord hotels, which Marriott manages under the Gaylord brand under long-term management agreements. The transaction added four hotels and approximately 7,800 rooms to its North American Full-Service segment,

44 Marriott International Investor Factbook March 2016

45 Marriott Form 10-K, 2010

46 Marriott Form 10-K, 2010


In 2014, Marriott acquired the brands and hotel management business of African hotel group, Protea Hospitality Hold-ings for circa USD 200m47. Then in 2015, it acquired Canadian hotel group, Delta Hotels & Resorts. Still on the acquisi-tions route, Marriott then went on to acquire Starwood Hotels & Resorts in 2016.

In May 2017 Marriott International saw its share price rise by 6.4% after announcing that it was making “tremendous progress” on the integration of Starwood Hotels & Resorts.

The company raised its full-year Ebitda guidance and said that hotels were seeing the benefits of better agreements with the online travel agents.

President & CEO Arne Sorenson told analysts: “Demand for our brands remains high and we are on track to deliver 6% net unit growth in 2017. Throughout the company our teams are making tremendous progress on the Starwood inte-gration”.

Sorenson said that the group had converted Starwood owned and managed hotels in North America to the Marriott International procurement system and was reviewing and renegotiating vendor contracts to leverage purchasing power. It had also already migrated all US Starwood Hotels to Marriott's OTA contracts, with hotels in other continents to follow soon.

Sorenson said: “We have spent a lot of time analysing our relationship with intermediaries. We are interested in having those relationships work for us. That is about of negotiating our relationships with them regularly and it's about making sure we’ve got a loyalty programme that gives us the power to have a relationship with a huge percentage of our tran-sient guests.”

The group is on track to unify its financial reporting infrastructure in early 2018, and to realise a common technology platform for reservations and loyalty programmes in late 2018.

Sorenson said that the combined company would continue to use the loyalty programme to drive bookings, comment-ing: “I think member discounts are here to stay. And that is because we are encouraged by what we've seen. We want to make sure that through the loyalty programme, we have the relationship with customers that doesn't require them to sit down and do a spreadsheet calculation to figure out whether it's in their interest to be members of our loyalty programme”.

When asked about the impact of Airbnb, Sorenson said that the impact of the sharing platform had been “less impactful to the revpar numbers that we've posted the last number of years than folks might have imagined.

“They are serving a different customer than what we serve at Marriott. They are skewed much more towards leisure. They are skewed much more towards a value-centric customer in the bulk of their business, and if their business is under pressure because of a regulatory environment, I'm not sure necessarily that that customer immediately pops up and shows up in our hotel suites.”

On the potential of Airbnb as a distributor, he added: “None of our hotels has a single room on Airbnb. They certainly should not have a room on Airbnb so we are not today looking at that company as an intermediary in a way that's anything similar to the relationships we have with other OTAs around the world.”

The company added more than 17,000 rooms during the first quarter, including around 3,300 rooms converted from competitor brands and 6,400 rooms in international markets. At the end of the quarter Marriott’s worldwide develop-ment pipeline reached more than 430,000 rooms, including roughly 36,000 rooms approved, but not yet subject to signed contracts.

47 http://online.wsj.com/news/articles/SB10001424052702304672404579184091755989088


Sorenson said that, when splitting the pipeline along Marriott International and Starwood lines, it was 65%/35%, “which would suggest the Marriott pipeline is a little bit bigger, which is not really that surprising. Marriott had many more brands playing in this select service place in the US than Starwood did”.

The CEO said that the company was currently in discussions with 80% to 85% of the owners of the bottom-performing Sheraton hotels, a brand the group is seeking to overhaul. At nearly half of those 50, he said, renovations are already underway.

The group reiterated the intention of selling over USD1.5bn of real estate by the end of 2018, with CFO Leeny Oberg commenting that she was confident of further asset sales in 2017. The balance of owned hotels in the Starwood port-folio was around 5,200 rooms in North America.

The comments came as the company reported adjusted Ebitda up 10% and raised the full-year guidance to an increase of 4% to 7%, up from 3% to 6% in February, “to reflect higher fees, lower general and administrative expenses and stronger profitability of owned and leased hotels”.

The first quarter saw revpar growth of 3.1% and the company said that it expected to see full-year growth between 1% and 3%.

HA Perspective [by Katherine Doggrell]: When Marriott International agreed its takeover of Starwood Hotels & Resorts, the price handily pushed higher by some Chinese intervention, there were sharp intakes of breath at the USD13bn paid, the immense brand stable and whether there weren’t, in fact, cheaper ways out there to achieve scale, but enthusiasm is currently running high. Morgan Stanley was even prepared to increase its price target and support 2% to 3% revpar growth, warmer than Marriott’s own.

Driving all this is the scale-begets-scale argument, which has, as the company pointed out, seen a flock of con-versions and a healthy boost to the pipeline. Probably best not to point out that hailing select service and then saying Airbnb was no concern because it was a value position is a bit of an eyebrow-raiser.

Sorenson maintained that the company would be keeping its 30 brands, although did not repeat past com-ments that he wouldn’t turn down his nose at adding more. The group has instead invested elsewhere, invest-ing an undisclosed amount of money in the in-destination, metasearch service known as PlacePass.

The move means that guests will soon be able to choose from an additional 100,000-plus “authentic local ex-periences” in 800 destinations worldwide when they book direct on Marriott.com or SPG.com or their respec-tive apps. These include a tour of the real Downton Abbey and wrestling with a retired sumo wrestler in Tokyo.

The company is not leaning back on its laurels when it comes to building the weight of its loyalty programme.

Source: Hotel Analyst, May 2017

Brands

Marriott’s brand portfolio reached 30 brands (including extensions) with the acquisition of Starwood Hotels & Resorts. The Marriott and Courtyard by Marriott brands were launched in 1957 and 1983 respectively. Other brands created by Marriott are Fairfield, SpringHill, TownePlace and the three most recent additions, Edition, the Autograph Collection and Moxy. Acquisitions include Residence Inns, Ritz Carlton Renaissance and AC Hotels by Marriott brands. It also now owns both Protea and Delta brands.


After the acquisition the group remains under-represented in the midscale and economy sectors. Despite the enlarged portfolio, president & CEO Arne Sorenson has maintained that he will not be disposing of any brands.

STR Global ratings Brands

Luxury JW Marriott; Ritz Carlton; Edition; Bulgari; Luxury Collection; St Regis; W

Upper upscale Marriott; Renaissance; Delta; Gaylord; African Pride; Autograph Collection; le Me-ridien; Sheraton; Tribute Portfolio; Westin

Upscale Courtyard by Marriott; Residence Inn; AC by Marriott; aloft; element; Four Points by Sheraton

Upper midscale TownePlace Suites; SpringHill Suites;Fairfield Inn, Moxy; Protea;

Midscale

Economy

Unclassifed by STR

Source: STR Global

Sorenson told in May 2017: “We are thrilled by the number of brands we have and the range of choice that we can give to our customers, as we've spent obviously time talking about this at the Analyst Conference. There's no different think-ing today than we laid out then.

“And we can all look at our 30 brands and our 1.2 million hotel rooms and say that's a lot, but it's nothing compared to the range of choice that's offered by the third-party intermediaries. And offering more choice to our customers is a great thing. And as a consequence, you should presume that we will continue with these brands and that our effort will not be about getting to fewer brands, but instead getting to emphasise the distinctions between brands and make sure we are driving the compliance, if you will, or the consistency of product quality and service quality so that the customers are experiencing something which is consistent with what each of those brands stand for.

Brand innovations

Brand refresh

The company has been working to refresh the Sheraton brand, which it acquired with Starwood Hotels & Resorts. Arne Sorenson said in May 2017 that he was “encouraged by the progress we've made so far”

He added: “We’re well underway in conversations with our owners and franchisees to make sure that we are getting the input we need to have from them to publish good, detailed brand standards for the Sheraton brand. At the same time, we have looked at both the bottom 25 and then the next bottom 25, so the bottom 50 Sheraton Hotels, and that's by and large relying on guest survey data and what the guests tell us about the way the hotels are being received.

“We are in discussions probably with 80% – 80% to 85% of those owners of those 50 hotels. Nearly half of those 50, renovations are already underway. And we've got another handful or so where we've got plans that are fairly specific that are evolving. And so that gets us to close to 60% or so of those bottom 50 that we've already got good movement on. By the way, of those 60%, there will be two or three which we already think pretty clearly will leave the system,


because it doesn't make sense for us to keep them and for them to get the kind of capital that would be necessary for them to meet brand standards. But all of that gives us encouragement, though this will be a multi-year effort.”

Growth Strategy

In the first quarter 2017, the group’s development pipeline increased to over 430,000 rooms, including 166,000 rooms already under construction. Today according to Smith Travel Research, one hotel in three hotels under construction in the US and one hotel in four hotels under construction worldwide is associated with one of the group’s brands.

Marriott continues to grow through franchise and management contracts, and although the company does not rule out the possibility of acquiring assets for particular brand growth, it does not plan to hold onto assets for too long. For example, the company owned three Edition development projects – London, Miami Beach and Manhattan. In January 2014, it sold the London Edition and signed binding agreements for the other two hotels to companies owned by Abu Dhabi Investment Authority for USD 815m.

At the company’s Investor Day in March 2017 it unveiled its three-year growth plan, which includes opening approximately one hotel every 14 hours around the world.

In its presentation, Marriott outlined plans to accelerate its growth, adding 285,000 to 300,000 rooms world-wide by 2019, which could yield a record USD675m in annual stabilised fees from these rooms. The expansion would also allow the company to further capitalise on its industry leading loyalty programmes – Marriott Rewards.

“We are more optimistic than ever about our future,” said Sorenson. “Marriott has made a significant leap forward in distribution and scale with its once-in-a-generation acquisition of Starwood. With global travel estimated to increase at a 7% compounded rate over the next 10 years and international trips expected to top 1.8 billion by 2030, Marriott is well positioned to benefit given its strong global footprint now in 122 countries and territories and an unmatched portfolio of 30 lodging brands.”

The Starwood acquisition had a transformative impact on Marriott’s global footprint. Marriott went from operating in 87 countries and territories at the end of 2015 to 122 by the end of 2016, taking a significant lead in market share over its next largest competitor. Marriott now has over 8% of worldwide hotel rooms when including existing hotels and the signed new construction pipeline, with leading market share in North America, Asia Pacific, and the Middle East and Africa. Over the next three years, the company expects net room growth to accelerate to an annual compound rate of 6.5%, compared to a 5% annual compound rate over the last three years (including the legacy Starwood brands).

Geography

Marriott has a large North American presence with over three quarters of its portfolio located there, while Europe and Asia Pacific account for just 7% of rooms each48.

North America

Looking ahead, Marriott said that, in North America, it was entering new secondary and tertiary markets as well as adding to its estate in the largest cities. The end of 2013 also saw the group announce the first hotel in the US under its AC Hotels brand, which originated in Spain49. The group said it expected to add between 200,000 and 235,000 rooms

48 Marriott International Fact Book March 2016

49 Hotel Analyst Perspective, issue 4, February 2015


money to come back to shareholders are now expecting to be disappointed, with the appointment of Sarkozy pointing instead to more M&A in those hard-to-reach places. Bazin admitted to us that the company looked at emerging markets specialist Rezidor Hotel Group and continues to have aspirations in the US which, despite trepidation from many over President Trump, Bazin said would never go out of fashion.

The appearance of Sarkozy, running at speed from a political landscape which has rejected him just as French politics looks likely to reject the rest of Europe, if not the world, added a level of intrigue which has been at the fringes of AccorHotels since the appointment of Bazin. Add in the appointment of Bailly from the PM’s office and the AccorHotels’ debating team looks to have added some strong members.

Absent from the earnings call was any mention of 14.98% shareholder Jin Jiang. This correspondent asked Bazin whether the appointment of Sarkozy was part of a plan to shield the company from Chinese takeover (hospital-ity is not a protected sector, as yet, in France). No no, Sarkozy’s contacts in high places will be used for devel-opment, and Jin Jiang are playing nicely at the moment, voting alongside executive’s wishes, rather than against, I was assured.

So we look forward to AccorHotels’ global growth. And, really, does it ever really hurt to have too many friends?

Additional comment [by Andrew Sangster]: AccorHotels’ deal with Rixos, announced on the first day of IHIF, shows that Accor is very much in M&A mode still, wanting to build on its acquisition of Fairmont Raffles. The 50% stake in the management of 15 hotels situated in countries including Rixos’ home patch of Turkey, plus UAE, Egypt and Russia looks a smart add-on to FRH.

The bigger picture piece is of course what is the future of the brand and management company. Bazin suggests that management is a defensive moat for companies like AccorHotels as the big technology players are unlikely to want to get their hands dirty running hotels. He’s probably right.

There remains the risk of becoming commoditised by Accor is fighting hard against this by investing heavily to differentiate their brands. These investments are not just on the physical property side either: Accor under-stands the importance of the overall booking process and having exposure across the travel decision chain.

The big scary leap of faith would be to admit that you’re no longer competitive in the distribution space and fully embrace the digital giants as partners. Bazin told Hotel Analyst that this is a one way street and there is no turning back. He’s right again but the longer he leaves the decision to head down the street the more Accor is missing out on the potential of being the preferred supplier to the best retailers.

Source: Hotel Analyst, issue 9, March 2017

HotelServices is pure, fee-oriented hotel operator & brand franchisor that has strong brands, strong distribution, and robust development. It comprises the Management & Franchise, Sales & Marketing, distribution and IT departments.

It operates 3,873 hotels worldwide under 14 brands worldwide, across all segments. Its room portfolio consists of 46% in the economy segment (ibis, ibis Styles, ibis budget, Adagio Access, HotelF1), 40% in the midscale segment (Novotel, Mercure, Adagio), and 14% on the luxury/upscale segment (Sofitel, Pullman, MGallery, Grand Mercure, The Sebel).

This high margin and cash-generative business will be driven by three business priorities:

• Maximise fee generation, by adjusting its service offer to better meet partner’s expectations, focussing on fee generation rather than contract wins, and managing costs to optimise results for both its partners and Accor.

• Accelerate in CRM, loyalty and digital services. Resources will be allocated in priority to programme & system development, to increase Le Club Accorhotels loyalty members’ contribution to hotel revenues


and to foster Revenue Management agility, in order to maximise the top-line, with a better use of OTAs as additional revenue growth partners.

• Implement a segmented strategy to strengthen brands - Luxury / Upscale: a service excellence and flagship strategy in key gateways to increase brand equity; Midscale: a focus on innovation to enhance brand offer and differentiation; Economy / Budget: capitalise on ibis megabrand success to secure lead-ership & scale.

HotelInvest is a hotel owner and investor, and will comprise the Owned & Leased and shared service activities. It has a portfolio of c.1,288 hotels. More than 85% of this portfolio is located in Europe and more than 95% is in the econ-omy/budget and midscale segments.

HotelInvest’s strategy will be value-oriented and based on four pillars:

• Strengthen its position as the leading hotel investor in the Economy and Midscale segments in Europe, with strategic positions in emerging markets;

• Optimise cash flow generation and reduce earnings volatility, particularly by reducing the number of lease contracts. As part of this process, lease contracts on certain hotels earmarked for restructuring will not be systematically renewed when they expire. In addition, hotel development will no longer take place via lease contracts, except for contracts on which AccorHotels has already made a commitment;

• Manage and rationalise the asset portfolio, with a focus on creating value through the strategic alloca-tion of capital expenditure;

• Support the Group’s growth strategy, by holding a selective portfolio of profitable hotel property assets

Key to the future of AccorHotels is the sale of the majority of HotelInvest, due in the summer of 2017. It was valued at EUR6.6bn at the end of 2016.

In the first quarter of 2017 AccorHotels described “a favourable environment for the hotel industry” as it reported performance “perfectly in line with our 2017 objectives”.

The company said that consolidation, in particular its acquisitions of Raffles, Fairmont, Swissotel, Onefinestay and John Paul had made a positive contribution or EUR82m to a total Q1 revenue of EUR425m, a 7.4% like-for-like rise on the year.

The acquisition of TravelKeys, which, the company said: “Fits seamlessly with Onefinestay’s offer in the luxury segment”, is expected to be finalised by the end of April. The deal will give AccorHotels worldwide leadership in this segment, with more than 10,000 addresses worldwide.

The group drew attention to concierge service John Paul, which posted quarterly revenue of EUR6m. AccorHotels said that its integration into the group was continuing at a fast pace and it has taken charge of customer care, and was managing the AccorLocal project, currently being tested in Paris.

AccorLocal is the community pillar of the company’s new three verticals strategy: the core hotel business; the travel business outside traditional hotels and community services. The shift will be triggered by the group turning HotelInvest into a subsidiary in which the company will remain the largest shareholder, due later this year.

The group used the results to confirm that the transition of HotelInvest into a subsidiary under AccorInvest was on target for the summer, with non-binding offers received from a “select group of well known investors”, and buyers are now conducting due diligence. The date for completion is now likely to be September, rather than the originally-mooted July. No further details on the use of the disposals or proportion the company will retain were given.


Sébastien Bazin, chairman & CEO, AccorHotels, said: “The trends observed in the first quarter in the vast majority of regions reflect a favourable environment for the hotel industry. This is particularly the case in our three main markets, France, Europe and the Asia-Pacific region.

“The group further entrenched its growth, its move into new businesses and its leadership in the luxury segment through numerous value-creating acquisitions, namely Rixos and BHG in hotels, and Availpro, Potel & Chabot and VeryChic in new businesses. AccorHotels is therefore perfectly in line with our 2017 objectives.”

The results were welcomed by Morgan Stanley, which estimated revenues of EUR2.6bn, Ebit of EUR477m and EPS of EUR1.03, assuming a 70% disposal of Booster for a net EUR5bn and a EUR2bn cash return, with a partial year impact.

The first quarter saw former French president Nicolas Sarkozy join AccorHotels’ board to help “support its international position”. Talking to Hotel Analyst, Bazin denied that the move was triggered by a desire to neutralise a potential take-over by Accor shareholder Jin Jiang International, using Sarkozy’s political connections.

INDUSTRY INSIGHT by Katherine Doggrell: Politics has encroached into the hotel sector just as hotels are ex-tending their scope out of their four walls and a revolving door, as AccorHotels seeks to take ‘service’ into the wider community.

While Macron – who would very much like to be seen as the next Justin Trudeau, but may just have been practising his smile – looks likely to beat LePen (which is all we really want him for at this point), it may well be the case that France holds Europe together. A Europe which gets a vote of confidence through a Macron win will be even less inclined to cow-tow to the UK in negotiations – not that any of us were under the impression that it would.

The election in the UK has made its presence felt already in falling April bookings. Alan Bowden, legal advisor to the Association of Atol Companies, said: “Historically people don’t spend money when there is an election coming up”. As we see elsewhere this week at Whitbread, this has led to them targeting overseas consumers. With politics unlikely to give up its claim on the public’s attention any time soon, the sector needs to up its lobbying stance and be a lot more effective at fighting its corner than it has been in the past.

Additional comment [by Andrew Sangster]: Accor describes its hotel business as having a pivoting business model. Some might question whether it is pivoting out of the hotel business altogether, given the leftfield nature of some deals.

To be fair, last year’s acquisition of Fairmont Raffles is bigger than all the other deals put together (and then some), so it would be wrong to characterise Accor as moving entirely out of the hotel business. On top of FRHI, Accor swooped on Huazhu, the 3,000-plus property Chinese chain, and Banyan Tree, the Singapore listed luxury resort operator.

But the biggest news is the switch into a fee earning business once the sale of the “Booster project” is com-pleted. Morgan Stanley is modelling EUR5bn of proceeds from the sale of Accor’s owned property business with just EUR2bn handed back to shareholders via a share buy-back.

I say “just” EUR2bn as with most of Accor’s peers, notably IHG, it would have been expected for all of the proceeds to be given back.

And here again is Accor doing it differently. Rather than simply shedding assets and sharing out the money it is reinvesting in growing the business. That re investment is going into some interesting non-hotel areas too, notably luxury serviced private homes and concierge services.

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