key trends and issues in hotel operations...industry insight 55 a deeper relationship 60 industry...
TRANSCRIPT
KEY TRENDS AND ISSUES IN HOTEL OPERATIONS May2018
www.hotelanalyst.co.uk
Contents
INTRODUCTION 1
THEMARKETTODAY ERROR!BOOKMARKNOTDEFINED.
Introduction 2
Transactions 2
Performance 4
THEMODELS7
Leases7
Managementcontracts7
Franchising8
Manchising9
Softbrands 10
Thirdpartymanagers12
THERESURGENCEOFLEASES14
Industryinsights17
DUAL-BRANDEDSITES20
Casestudy:CycasHospitality23
Industryinsights 24
THERISEOFTHESUPERBUDGET25
Casestudy:EasyHotel 33
Industryinsight35
YOUCAN'TGETTHESTAFFTHESEDAYS 42
Industryinsight 50
REVIEWINGTHEREVIEWS 52
Industryinsight 55
ADEEPERRELATIONSHIP 60
Industryinsight 62
WILLBLOCKCHAINSAVETHETRAVELSECTOR? 66
www.hotelanalyst.co.uk 1
Introduction
Thehoteloperationsenvironmenthasexpandedoverthepasttwodecades,drivenbytheincreaseinoptionsforinvestmentintothesector.Whereasoncehotelswererunbythosewhoownedthem,thereisnownoneedforaninvestortohaveanythingbutthelightestcontactwiththoseinoperations,ifatall.
Ashotelsbecomeamainstreamasset class, the institutionshavebeen showingagreater interest,with theconsequencethatleases,onceontheirwayout,arenowbackinvogue,notjustinGermanybutincreasinglyintheUKandotherpartsofEurope.
Whileownersmaywellbehandsoff, the focuson returns isever sharperandall those involved inbrands,whethertheyarethird-partyoperatorsorthebrandsthemselves,mustjustifyeverylineitem.Puttingadditionalpressureonthebottomline,particularlyintheUK,istheimpactofthedecisiontoleavetheEU,whichisraisingcostsandmakingthealreadyparlousstateofstaffingadifficultone.Controllingthosecostsandissueswillbethemarkbywhichmanyoperatorsstandorfallinthecomingyear.
Theroleoftechnology,solongdeniedorignoredbythesector,isnowatthecoreofeverybusinessandthisreport will look not only at the evolving debates around distribution and whether review sites such asTripAdvisorstillhavearoletoplay,butalsothepotentialroleofblockchaintechnology.
Thisstudywillalsoinvestigatethechangingdemandforbrandsandwhattheycanofferownersandconsumers.Thesuper-budgetbrands,includingEasyHotel,havestrippedbackoperationstonotmuchmorethanacleanbedandafunctioningshower,appreciatingthattheirguestsdolittlemorethansleepattheirproperties.Atthesametime,theglobaloperatorsarecreatingvastbrandstablesandpushingonwithmulti-brandsitestocutdowncostsandalsotryandkeepthecustomeronthepremises.
Thebigbrandsfamiliesarebeingconstantlychallengedtoinnovateandprovetheirworth.TheIHIFinBerlin2018sawSébastienBazin,chairman&CEO,AccorHotelslookintohiscrystalball,tellingdelegates:“WhatIamlookingforwardtoismobility.Whyshouldyoupushacustomertoahotel,whycan’tyoubringbedstopeople’svenuesasopposedtobringingthemtohotels?”
Staytuned.
www.hotelanalyst.co.uk 2
Themarkettoday
INTRODUCTION
The global hotel sector has found itself under pressure from external sources again this year, as politicscontinuedtomakeitspresencefelt.Themarkethasnowturnedtothematterofwhetherthesectorisnearingthepeakofperformanceandwhatthismeansintermsofprofitsandtransactions.
JustastheUSwasthoughttobereachingapeak,theTrumpadministration’sdecisiontoenactaseriesoftaxcutsgavenewimpetus,whileintheUKtheshockofBrexitworeoff,bringingenthusiasmtothetransactionsmarket,althoughcautionremainedintheairasMarch2019approaches.
TRANSACTIONS
Lookingtotheglobalmarket in2018, JLLdescribedanabundanceofdebtandequitycapital targetinghotelinvestments;aleveloffundraisingactivitiesatitshighestseeninanycycle;privateequityinvestorslikelytosellpropertiesthatwerereachingtheendoftheirintendedholdperiod,providingarobustflowofinventoryforsale; hotel owner/operators with high-quality assets likely to extend their hold period and look for assetmanagementorrefinancingopportunitiesthroughout2018and,withoutboundcapitalfromMainlandChinaslowing,Asian investorswereexpected toaccount for the largestproportionof cross-borderacquisitions in20181.
Hotelinvestmentmarketliquidityin2018wasexpectedtoholdlargelysteadyon2017levels.Europewasslatedtoseesomegrowthintransactionsactivity,whileAsiawouldlikelyseeasofteningduetoareductioninsingularportfoliotransactionsseenin2017.
InEurope,Francewasexpectedtoseeanincreaseintransactions,withmarketconditionsreboundingfromtheeffectsofterrorism.Anumberofkeytransactionswereexpectedtoclosein2018.
1 JLL Hotel Investment Outlook 2018
www.hotelanalyst.co.uk 3
InvestorinterestintheUKremainedhigh,althoughvolumeswereexpectedtobeslightlydownfromlastyearasanumberoflargeportfoliosweretradedin2017.GermanyandSpaincontinuedtoattractinvestorsduetosoundeconomicfundamentalsandpromisinghotelmarkets.
Meanwhile,theEurozoneeconomysawrobusteconomicgrowthin2017,despitepoliticalchallengesincludingmultipleelectionsandBrexittalks.In2018,theEurozonewasexpectedtodelivera2%upliftinGDP.Forthefirsttimeinrecentmemory,theUSandWesternEuropewereconcurrentlypostingsolidGDPgrowth.
Europe’ssought-aftermarketswereexpectedtoincludeMunich,Berlin,andBudapest,whileDublin,London,Barcelona,Milan,Madrid,Prague,Rome,Vienna,Athens,Moscow,Zurichwillalsoseesteadygrowth.ParisandBrussels,impactedbyterroristactsin2016,werepoisedforameaningfulreturntogrowthin2018.
Thepositiveoutlookwassharedbyglobalinvestors.AccordingtofindingsfromJLL’sHotelInvestorSentimentSurvey,compiledinJanuary2018,investorsexpressedamorebullishviewonhotelperformancethanlastyear,bothforthenextsixmonthsandtwo-yearperiod.
Privateequityfirmswereforecasttobethedrivingforcebehindhoteldealsin2018,havingraisedasubstantialamountofcapitalreadytobedeployedtotherealestatemarket.Thislargeinflowofprivatecapitalcamefrominvestorslikehigh-net-worthindividualsandfamilyofficesmovingmoneyfromhedgefundstoprivateequity,insearchofahigherreturn.
Overthepastfewyears,institutionalinvestorshavebeenincreasinglyactiveinacquiringhotelproperties,morethandoublingmarketsharesince2014.
In2018,theywillcontinuetogrowasakeybuyergroup,drivenbytwokeyfactors:
• Aneedforincomediversification.• Increasingfamiliarityandcomfortwithhotelrealestate.
InEurope,traditionalbanksstillcapturedalargeshareofhotelfinancing,buttherewasanexpansioninlendingbydebtfunds,withmorenewlendersenteringthemarket.BrookfieldandGreenOakclosedtheirfirstEuropeanpropertydebtfund,whileFrenchfundmanagerAmundiwasslatedtolaunchitsfirstEuropeanrealestatedebtfundinthesummer.
Lookingbackat2017,HVSreportedthattotalEuropeanhoteltransactionvolumereachedEUR21.7bnin20172,anincreaseof22%onthepreviousyearandthesecond-largesttoberecordedafter2015’srecordofEUR23.7bn,aswellassurpassingpre-crisislevelsofEUR20.3bnin2006.
Singleassetscontinuedtotransactstrongly,withavolumeofEUR12.4bn(57%ofalltransactions) increasing17%year-on-year.Portfoliovolumealsoincreasedby29%toEUR9.3bn(43%ofalltransactions)withthesplitbetweensingleassetsandportfoliosbeingnearthelong-termaverageratioof60:40.
NorthAmericancapitalwasthemainsourceoftheincreaseintransactionvolumesin2017asprivateequityinvestorsaccelerated their totalpurchasesbyEUR3.4bn.This resulted inamorebalanced shareof investororiginswithEuropeaninvestors’sharefallingfrom83%in2016to70%.Asianinvestmentsalsoincreasedby59%inspiteofChinesecapitalcontrolsbeingenforcedin2017.
2 HVS 2017 European Hotel Transactions, March 2018
www.hotelanalyst.co.uk 7
Themodels
Therearefivemainbusinessmodelswithinthehotelindustry,withanumberofoptionswithineachofthesemodels,theyareasfollows:
• Propertyfullyownedandoperatedbythehotelbrand;
• Propertyleasedbyahotelbrand,whichpaysrentforthe“walls”;
• Propertyownedbyathirdpartyandmanagedbyahotelchain;
• Propertyownedbyathirdpartyandmanagedbya“non-branded”specialistmanagementcompany;
• Propertyownedbyathirdparty,withafranchiseagreementwithahotelchain.
LEASE
Aleaseisaninterestinthelandandthetenanttakesoverthepropertyforacertainterm.Assuch,underaleasestructure,thehotelcompanyholdstheentirefinancialburden.Thehotelcompanyinthiscaseisatenantandassumesalloperatingresponsibilitiestogetherwithallthefinancialobligations;therefore,itenjoysthebenefitsifthepropertyissuccessfulbutsuffersallofthelossesifthepropertydoesnotperformadequately.Thehotelcompanyreceivesalloftheprofits,afterrentshavebeenpaid.Rentalstructurescanvarydependingontheamountofriskthattheinvestorisreadytotake.
Someofthepossibleoptionsare:
• Fixedfee:thisisafixedrentwithindexedgrowth.Thisformofleasestructurehasaguaranteedreturn,whichbearstheleastrisksforthepropertyowner;
• Share of Revenue: in this variable lease scenario, the rent is calculated on the amount of salesgenerated.Inthiscase,thepropertyownersharessomeoftheriskslinkedtothelevelofperformanceofthehotel.Theydo,however,havetheopportunitytoassesstheperformanceofthehotelagainstmarketdata;
• ShareofNetOperatingIncome(NOI):inthisvariableleasescenario,therentislinkedtotheNOIafteralltheoperatingexpenseshavebeendeducted.Thisscenariocarriesthehighestrisktotheowner,asitalsoincludetheoperatingriskofrunningthehotelandofferslittletransparencyastolikelyincome.
Boththerevenue-basedandNOI-basedrentscanincludeabaserent,whichisaguaranteedreturntotheowner(hybridlease).Ahybridleasemightalsoincludesomeclausesthatcanbefoundinmanagementagreements,suchasanobligationtomaintainbrandstandards.
Source:HVS,HotelContracts-ToLeaseOrNotToLease
MANAGEMENT
Managementagreementswerecreatedtoprovideabufferagainsttheoperatingrisksassociatedwithunknownuncertainties in foreign countries. The owner retains limited control over the operation of the asset oftenthroughmeasurableperformancestandardsalbeitthattheownerretainsmoreriskthanifthehotelwereleasedtotheoperator.
Theinitialtermofamanagementcontractisthelengthoftimethattheagreementistoremainineffect.Initialtermsusuallylast10,15or20years,dependingonthebrandandpositioningoftheoperatorselected,butaregettingshorterallthetime*
Thisshiftcanbeattributedtothefollowingfactors:
www.hotelanalyst.co.uk 8
•Anincreaseinhotelinvestmentinemergingmarkets,suchasthoseinCentralandEasternEurope,andtheassociatedrisks,have ledbothownersandoperatorstonegotiatecontractswithshorter initialtermsinordertoprovidetheopportunitytoexitintheeventofdisappointingmarketconditions;
•Theproliferationofprivateequityvehiclesinthehotelinvestmentarenainrecentyearshasplacedpressuresonoperatorstooffermorecompetitive,shorterinitialtermsbutmorerenewaloptions;
•Increasingcompetitionamonghoteloperatorsseekingtobroadentheirdistributionnetwork.
*Source:https://www.hvs.com/StaticContent/Library/EuropeanHotelMgmtContracts/EuropeanHotelManagementContracts.pdf
Underamanagementcontract,thehotelcontractsupervises:
• Theoveralloperationofthehotelaccordingtothecompanyandbrandstandards.
• Theday-to-dayrunningofthebusiness.
• Hoteladministration.
• Theperformanceofmanagersandemployeesincludingtrainingandemployment.
Thecompany’srevenuefromamanagementcontractconsistsof:
• Abasefee,usuallyapercentageofgrossrevenues.
• Management/Incentivefeebasedonapercentageof(adjusted)grossoperatingprofit.
• Marketingfeebasedonroomsrevenue.
• Reservationfeebasedonthenumberofreservationsmade.
Thehotelownerisresponsibleforallinvestments,costsofthehotelincludingmaintenanceandrepairaswellasinsurance.HotelsundermanagementcontractstypicallyyieldEBITDAmarginsaround70-80%.
Source:GlobalHotelPerspectives2014
FRANCHISING
Underafranchise,thefranchiseehastherighttousethebrand,thedistributionchannelsandotherproprietaryknowledgeofafranchisor.Theownerretainsalltherisksofthebusiness,but,unlikeamanagementcontract,they also retain control of the property. A franchisee can operate the property direct, or hire a third-partyoperatortorunitontheirbehalf.
Abrand,orflag,givesahotelanidentityandthesupportofachain.Itprovides:
• Recognisablebrandingandstandardswhichreassureguests.
• Itgivesyouaccesstoacentralreservationssystemandrelateddistribution,includingawebsite
• ListingsintheGDSandonlinetravelagencydatabases
• Marketing
• Assistancewithstafftrainingandmanagement
Thefranchiseagreementrunsfor20years,lessforaconversion,withaterminationclauseataroundfiveyears.
Source:MichaelForrestJones,BeechmontHotelsCorporation
www.hotelanalyst.co.uk 11
“Furthermore, these ‘brands that aren’t’ allow the groups to continue to appeal to an increasingly
fragmentingconsumerbase,eagertoseekoutnewanddifferentexperiences.Astheboutiquebrands
growinsize,thechallengewillbecontinuingtohaveone’scakeandeatit;theappealofscarcityand
uniquenesswouldbesomewhatdiminishedwerehundredsandthousandsofthesetopopupoverthe
comingdecade,yetacertaincriticalmassisrequiredtojustifysignificantinvestmentinthebrandand
ensurethatareasonablesliceofthemarketcanbecaptured.”
Source:HAPerspective2017,Issue4:3rdFebruary2017
Differencesbetweenfranchiseagreementsandmanagementagreements
Theme FranchiseAgreements ManagementAgreements
Whatisgranted?
HotelownerislicensedapackageofIPRs,essentiallyrelatingtothebrandoftheoperator.TheseIPRsaretobeusedinthemanagementandoperationofthehotel.Centralisedmarketing,advertisingandreservationservicesareprovidedforafurtherfee.Managementandoperationofthehotelremainstheobligationoftheowner
Operatorwill:• Manageandoperatethehotelonbehalfof
theowner;• Providetechnicalservices(e.g.in• relationtothedesignanddevelopmentof
thehotel);• Licenceitsbrand• Providecentralisedadvertising,Marketingandreservationservices.Clearlyunderthisstructurethehotelbenefitsfromthe“handson”experienceoftheoperator.
Whataretheowner’sobligations?
Whilsttheoverallmanagementofthehotelremainswiththeowner,theownerisrequiredto:• adheretotheoperator’sbrandstandards
manual• participateingroupmarketingand
advertising• participateinthegroup’sreservationsystem• openthehotelonaspecifieddate• prepareandmaintainrecordsandaccounts
tobesharedwiththeoperator• complywithalllegalrequirementsand
providetheoperator/franchisorwithprotectionagainstanyclaims
Althoughmanagementandoperationofthehotelisprovidedbytheoperator;theownerwillremainresponsiblefor:• complianceofthehotelswiththeoperator’s
brandstandards(andthecostofrenovationsassociatedwiththem)
• Costofmaintenanceandrepairs• Insurances• Employmentofnon-managementemployees• Insomecasesobtainlicences• Realestateissues• Someownerswillseektherighttoapprove
annualbudgets,capitalandFF&Ebudgets,approvekeypersonnelpositions,reviewaccountsetc.
Whatisprovidedbytheoperator?
Trainingontheoperationofthehotelaccordingtothe‘system’(sometrainingmaybeincorporatedinfees,somemayinvolveadditionalcharges;Providingandupdatingthebrandstandardsmanual;Occasionalpre-openingservices;Accesstotheoperator’smarketing,advertisingandreservationssystem;Technicalservicesmaybeprovidedforotherareasalbeitthisislikelytobeforadditionalfees
Theoperatorwilltypically:OperatethehoteltobrandstandardsIncludethehotelintheoperator’smarketing,advertisingandreservationssystems;Havetheauthoritytoconductday-to-dayoperationofthehotelincludingpurchasinggoodsandservices,conductinglitigation,managingstaffetc.;Providetechnicalservicesrelatingtothedesignanddevelopmentofthehotel(thisisoftensubjecttoaseparatefee.
www.hotelanalyst.co.uk 14
Theresurgenceofleases
Thehotelleasehadratherfallenoutoffavourwithinvestorsandoperatorsalike,sweptawayinthemovetoassetlight.Butaswiththerisingpopularityofhotelsasanassetclass,sotheincreasedinterestfrominstitutionalinvestorsforleases,manyofthemdrivingbylegalrequirement.
Thereweresomewhohavealwaysbeenadvocatedforleasesandwelcomethetrend,includingPandoxCEOAndersNissen,whotoldHotelAnalystinMarch2018:“WeseealeaserenaissanceeverywhereinEurope”.InthesamemonthRadissonHotelGroupannouncedplanstotakeonuptoEUR400mofleaseriskoverthenextfiveyearsasitlookstoexpandinEurope.
LastyearwasarecordyearfortransactionsinEurope,recordinga16%increaseontheyearinvolumes,toreachEUR21.6bn,according toCBRE,with theadvisorcommenting thatyields for leasedassetscompressedbyasmuchas50bpsinGermanyandIreland,buttoldusthatthiswasunlikelytoactasadampenertoinvestors.
KristenKozlowski, headof hotel investment properties, EMEA, told us: “As strong revenue andprofitabilitygrowthacrossEuropehasdrivenhotelvaluesupwards,thelackofyieldinotherassetclasseshasralliedinvestorsaroundthesector.This,whencombinedwiththe increasingtransparencyofhotelmarketdata,thegrowingnumberoftrustedthird-partyhoteloperators,andtheincreasingavailabilityofleases,hasbroughtnewglobalinstitutional investors to themarket. This is besides traditional Europeanhotel investors,who continued toincreasetheirinvestmentsinthehotelsectorin2017,atrendthatislikelytocontinuein2018.
“Lookingatthepositionofthemarketinthecycle,Kozlowskitoldus:“Onefactorthatwearewatchingisbondyields.Thereissomuchdemandinthefixed-incomespaceandasUSbondyieldsincrease,withananticipationofthesameintheEurozone,wearelookingtoseewherethingshavetogettoforinvestorstoswitchbacktobonds.We’renotexpectingadramatic shift - youcan still getattractive returns fromthehotel sector. TheinterestingthingaboutEuropeisthatallthemarketshavebeenmovingatdifferentspeeds,sopeoplewhoforinstancenowcan’tplayinGermanyhavebeeninvestinginothermarkets.Thereareanumberofdifferenttypesofcapitalinthemarketatthemoment,withdifferentneeds.”6
Thesedifferingspeedsanddifferingdemandshavedriventhepopularityofleases.
PeterSzabo,associate,HVSHodgesWardElliottwrote:“Thenewfoundpopularityofleaseswithinthiseconomiccyclestemsfromthefactthattheymakealotofcommercialsense,forbothdevelopersandlong-termowners.Fromadeveloper’spointofview,signingaleasecontractisarelativelyeasyprocess(comparedtonegotiatingmanagementcontracts)and,owingtothereducedriskassociatedwiththeoperatingbusiness,providesastablepoolofforward-fundingbuyers.
“Leasecontractscreateasimilarlyviableexitsolutionforowner-operatorsofexistinghotelsthatwishtofreeupcapital,asinstitutionalrealestateinvestorsacrossEuropehaveagreatappetiteforlong-term,secureincomethattheycanusetomatchfunds’liabilitieswithinflation-linkedleases.”
Szabo concluded: “Operators’ willingness to commit to long-term indexed lease agreements and investors’readinesstobuyaswellasforward-fundhotelprojectshasenabledthefixed-incomehotelmarkettobecomefarmorecommoditisedinthiscyclethaneverbefore.Whilehotelsbeingacceptedasanassetclassoftheirownhas benefited the hotel industry, investors and developers should be conscious of the fact that hotels are
6 InvestmentintoEuropeanhotelsreachedEUR21.6bnin2017,CBRE
www.hotelanalyst.co.uk 20
Dual-brandedsites
Propertieswithmultiple flags have been building in popularity over the past three decades in, since AccorlaunchedahotelwithbothIbisandNovotelpresentinParis.
The concept has gained traction as operators look to expand their pipelines, keep costs low but also offerdifferentconceptstoattractdifferentguests-witnessMarriottInternationalsharingsitesbetweenitsMoxyandResidence Inn flags.Accor,Marriott,Hilton and IHGall now featuredual-brandedhotels in their portfolios,rangingthegamutfrombudgettoluxury.
Intheory,dual-brandedhotels-alsoknownasatwopack-notonlyallowthedevelopertobenefitfromthemarketingadvantageoftwobrands,butfinancialbenefitsaswell.Bycombiningback-of-the-houseandguestamenityspaces,constructioncostscanbelowered.Inaddition,bysharingpersonnelandoverheadexpenses,operatingefficienciesshouldbeachieved.
INDUSTRYINSIGHT:IanCarter,presidentglobaldevelopment,HiltonWorldwide:“Dual-brandedhotels
aredesignedtomaximiseresourceswhileminimisingcostsforownersanddevelopers.Themostnotable
benefitstohoteliersaretheoperationalefficienciesandcostsavingsgainedbycombiningcertainareas
ofthehotel,suchaslaundry,storage,andemployeefacilities,andcombiningtherolesofvariousteam
members.Ownerscanalsosavemoneyonthelandcosts,sincethemodelhasasmallerfootprint.”
Source:CNNTravel,June2014
AccordingtoastudybyHVS_,therewasamixedbagofchallengesandbenefitstoboththeoperatorandtheowner/investor.9
Operatorbenefits
Marketing:Guestsstayinginonebrandmaynothavebeenawareoftheotherandbudgetsmayalsobeshared.
Diversification:Differenttargetmarketsmayswelloccupancyaswellasallowingfordiversificationofriskduringthecycle.
Flexibility:Overbookinginonehotelcanberemediedbytheother
Operatingefficiencies:Sharedbackofficeandfacilities.Featuressuchasspasmayalsobecomeeasiertojustifyifthecostissplit.
Marketpresence:Aninstantdoublehitfortheoperator.
Operatorchallenges
Brandconfusion:Maintainingbrandintegrityisthatbitmorecomplexwithfeaturessuchasasharedentrance.
Staffing:Sharedstaffmeanslearningdoubletheservicepromise.
Sharedservices:Wherethere isdisparity inservices,butallguestscanaccessthem,thecorrectpaidservicemustbeattributedtothecorrecthotel.
Performancetests:Thereispotentialforonehoteltodisguisethefailingsoftheother.
9 HVS:Adualtothedeathoradualinthecrown,2016
www.hotelanalyst.co.uk 27
TheriseofSuperBudget
Atthetopendofthemarket,‘whatmakesluxury?’isseeminglywithoutlimit,withhelicoptertransfers,butlersandprivateswimmingpoolsinanarmsraceofamenities.Attheotherendofthespectrum,whatmakesahotelhasbeendistilledintobed,showerandfreesuperfastwifi.
Therearebenefitsforbothguestsandowners.Theformerisreassuredthattheyareonlypayingforwhattheyneedandthelatterfeelthesame.AsEasyHotelCEOGuyParsonstolddelegatesattheHotelAlternativesEvent2018,themajorityoftheirguestscheckedinandwerebackoutofthebuilding20minuteslater,todowhateveractivitytheyhadplannedtodo.Theseareguestsforwhomastayisameanstoanend,notanendinitself.Bythesamemeasure,whiletheguestshavenoneedforelaborateF&B,thereisnoneedforinvestorstospendonlavishofferings.These,ParsonstoldHotelAnalyst,wereinvestorswhicharelookingforreturns,notahoteltobragtotheirfriendsabout.
TheriseofthesuperbudgetscomesasthebudgetsectorcontinuedtodominateintheUKandwiderEurope.TheUK’ssupplypipelinecontinuestobeledbybudgetpropertieswithPremierInnandTravelodgesettoexpandfurther. Together, these twobrands accounted for some68%of budget bedroomsopenedduring the yearleadinguptoBDO’sHotelBritainstudy2017.12
ThebudgetsegmentcontinuedtohaveastrongprevalencenotjustintheUKhotelmarketbutinthecapitalaswell.PremierInnrankedfirstwith65propertiesinLondonand9,467rooms,followedbyTravelodge(63hotelsand8,164rooms)andHilton(18hotelsand5,755rooms).Budgethotelsnowaccountfornearlytwo-thirdsoftheUK’stop10brandsasglobalhotelcompaniescontinuetodiversifyfromtheirtraditionallymoreupmarketofferingstotheever-popularbudgetsector.
According to Hotel Bulletin Q1 2017, by HVS, AlixPartners, STR and AM:PM13, Premier Inn and Travelodgebetweenthemaccountedfor52%ofallbrandedroomsintheUK’stop10andarealsothemostactiveintermsoffuturegrowth.
TheBulletincomparedthelistoftheUK’stop10hotelbrandsintermsofroomnumberswiththetop10intermsofnewroomspipeline.ItfoundsthatPremierInn,thelargestintermsofroomnumberswith67,515,andTravelodge,numbertwowith39,531,alsorepresentedalmosthalfoftheUK’sactivehotelpipelinewith5,086and2,660roomsplannedrespectively.
InthirdplaceintermsofsupplywasHolidayInn,with20,707roomsbutapipelineofonly430,whilefifth-placedHilton(14,793)hasonly200roomsinitsdevelopmentpipeline.
Overall,itwastheemergingbrandsthathadamongstthemostaggressiveopeningplanssuchasHamptonbyHilton(activepipelineof1,881rooms),HubbyPremierInn(1,396)andHolidayInnExpress(1,244).
“Onlysixbrandshaveanactivepipelineofmorethan1,000roomsandallareatthebudgetendofthemarketasthesmallerbudgetbrandscontinuetheirrelentlessdriveforgreaterdistributionwhilstthetwogiantsslugitouttomaintaintheirgrowthtrajectories,“commentedHVSchairmanRussellKett.
12 HotelBritain2017,BDO 13 HotelBulletinQ12017,AM:PM,AlixPartners,HVS,STR
www.hotelanalyst.co.uk 28
“Whilst attention is clearly focused on developing other IHG and Hilton brands, and growth by rebrandingexistinghotelsisnotincludedinthisanalysis,itbegsthequestionastowhetherthe‘corebrands’areindangerofstagnatingifnothingisdonetoaddressthis,”headded.
“However,asmanyroomsasarebeingactivelydevelopedremainingcurrentlyonthedrawingboard,thereispotentially healthy future growth in supply as time progresses and planned projects become firmer,” heconcluded.”
Itwas the requirement fornewbrands toofferownerswhichhas, inpart,drivenmanyof theoperators toexpand,aswithHubbyPremierInnand,withdemandforvaluegrowing,thelikesofWhitbreadhavestartedtolookatthesuperbudgetsector.
Speakingat theHotelAlternatives2018Event,hostedbyHotelAnalyst,MarkAnderson,managingdirector,propertyandinternational,Whitbread,said:“TheP&Lhasabitofstressinit,whichisputtingpressureonourgrowthplans,pluscompetitionfromotherhotelsandpeoplelikeAirbnbareadisruptivethreat.WearealittletooUKfocusedandalittletooexposed.
“We’vestartedtolookintheUKatothertiers–therearesomegreathostelmarkets,thereisabudgetlevelbelowPremierInn.We’vegotanumberofotherideasinthepipeline.Whenwe’vebeenrollingoutPremierInnsasfastaswehaveyougettoapointwhereyoucan’tbuildanymorePremierInnsintheUK.Hubisabitsmall,youmightget25,30hotels.”
HelpingtodrivethesearchforvaluewastheparlousstateofthepoundfollowingtheEUReferendum.TheWTTCreportedthatthesustainedweaknessofsterlingpostEUreferendumin2016wasaboostfortheUK’sprice competitiveness, and provided both an increase in visitors from overseasmarkets and an increase indomestictravelspending.
IntheUK,afterverystronggrowthin2017,directTravel&TourismGDPgrowthisexpectedtoslowto2.1%,from6.2%lastyear.Thisistobedrivenbyaslowdowninbothvisitorexportsto4.2%anddomesticTravel&Tourismspendingto1.5%,from7.9%and5.8%lastyearrespectively.14
TheWTTCstudysaidthatthegrowthtranslatedintoaGBP214bncontributiontoGDP,fourmillionjobs,andGBP29bninexports.ThisshowstheroleoftravelandtourismindrivingeconomicgrowthandcreatingjobsinBritain,andemphasisesthe“vitalimportance”ofsafeguardingtheinterestsofthesectorpost-Brexit,accordingtotheWTTC.
Thestudyhighlighteda5.8%riseindomestictripslastyear,whiletravelabroadgrewbyjust2.5%.SpendingbyinternationaltouriststotheUKroseby7.9%over2016.
WTTC research director Rochelle Turner said: “Behind this growth lies a double benefit of the sustainedweaknessofsterlingaftertheEUreferendumin2016.
“Asaresult,wehaveseenanincreaseof6.7%inarrivals,thestrongestgrowthinoveradecade,boostedbyincreasedpricecompetitivenessanda7.9%increaseofspendingbyinternationaltouristvisitors.”
In addition,Britishholidaymakerswere increasinglyopting to stay athomeon ‘staycations’,withoutboundtouristdeparturesfromtheUKgrowingbyonly2.5%–comparedto7.8%in2016and9.9%in2015.
14 GlobalEconomicImpact&Issues2018,WTTC
www.hotelanalyst.co.uk 33
•AdjustedEBITDA£1.0m(2016:£0.6m)
•Revenue£8.4m(2016:£6.0m)
•AdjustedEBITDA£2.3m(2016:£1.6m)
Estateandpipeline
Source:EasyHotelinvestorpresentation,February2018
Thecompanyestimates
•Owned&leasedpotentialforc.12,000roomsinUKandEurope
•Franchisedpotentialforc.15,000roomsinUK&Europe
•Over2,500owned&leasedroomsundernegotiationwithover1,000roomsapprovedbytheBoard
•Furtherc.1,300franchisedroomsundernegotiation.
www.hotelanalyst.co.uk 42
Youcan’tgetthestaffthesedays
Attitudestowardsworkinginthehospitalitysectoraremixedaroundtheworldbutonefactcannotbedenied:thesectoremploysagreatmanypeople.AccordingtotheWTTC,travelandtourismaccountedfor313millionjobs,oronein10jobsaroundtheworld,in2017.17
The share of world employment in travel and tourism was greater than that for auto manufacturing andchemicalsmanufacturingindustriescombined,acrosseveryregionoftheworld.In2017,morethan2millionnetadditionaljobsweregenerateddirectlybythesector,andatotalofaround7millionnewjobswerecreatedasaresultoftotaldirect,indirectandinducedactivity-around18%oftotalnetglobaljobcreation.Indeed,in2017travelandtourismemploymentgrowthoutpacedthatofthewidereconomyin109ofthe185countriescoveredintheWTTC’sresearch.
GloriaGuevaraManzo,president&CEO,WTTC,said:“Inclusivegrowthandensuringafuturewithqualityjobsaretheconcernsofgovernmentseverywhere.Travelandtourism,whichalreadysupportsoneineverytenjobsontheplanet,isadynamicengineofemploymentopportunity.Overthepast10years,oneinfiveofalljobscreated across theworld has been in the sector and,with the right regulatory conditions and governmentsupport,nearly100millionnewjobscouldbecreatedoverthedecadeahead.”
Whileajobintravelandtourismisoftenprizedintheemergingeconomies,withemploymentwiththeglobalhoteloperatorsofferingtrainingandpotentialforrelocation,inmaturemarketsthesector’sstandingismixed.InFranceworkinginthesectorisrespected,buttheUKhasnotbeenknownforitsserviceculture,withjobswaitressingreservedforstudentsmakingmoneyontheirwaytoothercareers.
Soentrenched is this attitude that recent elections in theUKhavebeen foughtnotonhow to support thegrowingservicessector,butthemanufacturingsector.Thisservicessector,ofwhichthehospitalityindustryisaverysignificantpart,nowaccountsforthreequartersofthetotalUKeconomyandcontributes79%oftheGDP.Thoseworkersdeemedtobeintheservicesector,whichincludesfinancialservices,distributionandbusinessservices,nowexceeds80%ofthetotalofthoseinemployment.
TheservicesectordominatestheUKeconomy,inLondon91%ofthecommercialactivityisintheservicesector,whilstthelowestcontributionistobefoundintheEastMidlandsat71%.Therehasbeenconsistentgrowthacrossthehospitalityindustrysince2014andnowtheindustryaccountsforthesecondlargestcomponentoftheservicesectorafterfinanceandbusinessservices,excludingthepublicsector.18
ThelackofinterestfromUKworkersiscompensatedforbytheEU.AccordingtoKPMG’sLabourMigrationintheHospitalitySectorstudy,theUKhospitalitysectorishighlyreliantonEUnationals,withbetween12.3%and23.7%ofthesector’sworkforcemadeupofEUmigrants.KPMGestimatesthatthehospitalitysectorcurrentlyrequires62,000EUmigrantsperannumtobeabletomaintaincurrentactivitiesandtogrow.
TheobviousissuefacingtheUKistheexitfromtheEUandthesupplyoflabour,whichstartedtodeclineaheadofthecessationinmembership,asthefallingvalueofSterlingmadeitlessattractiveforEUnationalstoworkinthecountry.
17 WTTC,TravelandTourismEconomicImpact2018 18 Staffing,TheIssueofOurTime,eHotelierandProfessorPeterJones,August2017
www.hotelanalyst.co.uk 43
KPMGsaid:“EvenwiththecurrentopenaccesstotheEUlabourmarket,thehospitalitysectorfacesachallengeinrecruitingenoughworkerstomeetitsneeds.Thesectorhasahigherproportionofhard-to-fillvacancies,andgreatergrowthinthenumberofmonthlyjobpostings,thananyothersector.”
Thereportconcluded:
•InascenarioinwhichthereisnonewmigrationintotheUKhospitalitysectorfrom2019;existingEUnationalsarenotrequiredtoleave;andtherecruitmentofUKandrestofworldworkersremainsconstant,weestimatethatthehospitalitysectorfacesarecruitmentshortfallofupwardsof60kperannumworkersfrom2019.
•Basedonthisscenario,by2029,thehospitalitysectorcouldfaceatotalrecruitmentgapofover1millionworkers(overaquarterofitsexpectedtotal~3.5memployment)duetolackofaccesstoEUworkersunlessitisabletoreplaceEUworkerswithothertypesofemployees–fromothersectors,theunemployedandthosenotcurrentlyintheworkforce.
• However, it will be hard to fill the potential recruitment gap with the current unemployed and inactivepopulation–existingvacanciesinthehospitalitysectorarealreadyprovinghardtofilldespiteexistinginitiativesinplacetoattracttheseworkers.
• There may be some scope to reduce the sector’s labour force requirements through productivityimprovements andautomation,howeverextensiveproductivity gains areunlikely tobepossibledue to themanualnatureofmanyoftherolesandthedemandfromcustomersforthehumaninteractionthattypifiesthesector.
•Longterm,itmaybepossibletorecruitsomemoreunemployedorinactiveworkersintothehospitalitysector,and to reduceheadcount requirement throughproductivitygainsand increased retention.However, in theshorttomediumterm,therecruitmentgapisunlikelytobemetthroughtheseroutes.
Regions such as London (with 25.7% - 38.0% EU nationals), service lines such as hotels (22.1% - 34.1% EUmigrants)andrestaurants(13.8%-26.1%EUnationals)andwithinthesebusinesses,rolesincludingwaitersandwaitresses(75.3%EUnationals),chefs(24.6%EUnationals)andhousekeepingstaff(37.1%EUnationals)aremorehighlyreliantonEUworkers.19
Theresearchforthereportfocusesonhospitalitywherecurrently3millionpeopleareemployed.TheBritishHospitalitySectorestimatedthattherewere4.5millionworkersemployedacrosshospitalityandtourismasawhole,thefourthlargestindustryintheUKcontributing10%ofGDP.
Ufi Ibrahim, then-BHACEO, said: “It is clear from the KPMG report that hospitality and tourism facemajorproblemsinrecruitmentifthereisanymajorcutinthenumberofworkersallowedtoenterfromtheEU.WewanttoavoidtherebeinganycliffedgebuttheGovernmentmustbeawarethatinthemediumtolongtermwewillstillneedconsiderablenumbersofEUworkers,whohavecontributedsomuchtoourindustryandtheUKeconomyingeneral.
“WehavesubmittedourstrategytoNumber10DowningStreetbecauseweareawareofourresponsibilitytoencouragemoreUKnationalstoseethecareeropportunitiesavailableinhospitalityandtourism.Wedoneedthegovernmenttoplaytheirparttoo,byrecognisingouremploymentneedsandrecognisinghowimportantthis industry,thefourthlargest, istothecountry.WealsolookforwardtoworkingwiththeDepartmentfor
19 LabourMigrationintheHospitalityIndustry,KPMG,2017
www.hotelanalyst.co.uk 52
Reviewingthereviews
AtthestartofthisdecadethetrendwastowardstheglobalhoteloperatorsaddingTripAdvisorreviewstotheirwebsites,acknowledgingthepowerthatthebrandhadindrivingbookings.Thechancetomakeyouropinionknowntootherguests-andheardbythehotel-wasarevolutionincustomerserviceandsomethingwhichforever changed the relationship between guest and hotel, a relationship which hotels are still trying tounderstand.
In2010,Jean-LucChrétien,EVPmarketing&distribution,Accor,justifiedthegroup’sdecisiontoincludealoveTripAdvisorfeedonitsportal,saying:“Accorhasalwaysbeenverykeenonqualityandguestsatisfaction.Wehaveimplementedaninternalweb-basedsystemtomeasureguestsatisfactionthroughoutournetworkanduseitextensivelytocontrolandmanageourpropertiesandtheirteams.
“Asyouknow,moreandmoretravellersaresearchingthewebforadviceandtocompareproperties.Itwasanaturalmovetoextendourowninternalmeasurementsystemtoonewecouldsharewithourguests,aswewanttobeverytransparentandtoprovideourwebvisitorswithalltheinformationtheyneedtomaketheirdecision.
“Wehad twochoices:anunknownsolutionora ‘reference’ site.TripAdvisor is theworldwide reference fortravelerreviews.Wedecidedtoleanonatrustedworldwidepartner.Furthermore,TripAdvisorwasoneofthemain sites visited by our web users after visiting our site, as well as one of the main sources of visitors.TripAdvisorisalsowidelyusedworldwideandthereforeisausefultooltoattractandconvinceforeigntravellerswhoarelessfamiliarwithourbrands.”
Sincethen,TripAdvisorhassoughttomonetiseitspositionbyaddingbookingsandtheoperatorshavehadtodecidewhethertotakepartinthevarietyofofferingsavailable,notablyInstantBooking.Themovetothenewproductwasgradualratherthaninstant,withHiltonWorldwidesigninglastyear,joiningMarriottInternational,AccorHotelsandChoiceHotelsInternational,aswellasOTAsincludingThePricelineGroupontheplatform.
DannyHughes,SVP&commercialdirector,HiltonWorldwide,said:“AtHilton,we’realwaysreimaginingtheexperienceforourguestsandlookingfornewwaystomaketraveleasier.Wearecommittedtoworkingwithbooking partners, like TripAdvisor, who respect our desire to develop direct relationships with our guests,presentourhotelsinafairandequitablemanner,andincreasethevalueofbothourbrands.”
The attraction for the operators has been lower cost of booking – the product is commission-based – thecredibility of TripAdvisor’s user-generated reviews and the ownership of the consumer, with the operatorhandlingthetransaction.
CharlieOsmond,chieftease,Triptease,HotelAnalystinJanuary2017:“TherearemanywaystointerprettheHiltonInstantBooknews.Mostnotableisthatthetieuphasbeenalongtimecoming.Hiltonwasnotconvincedby TripAdvisor’s initial offer. Many in the industry felt that Instant Booking missed a trick on launch bydemandingafeecomparabletoafullOTAcommission.Alothashappenedsince.TheunvarnishedrealityofTripadvisor’svolumethroughInstantBookisnowcleartoallparties.Thisshiftfrompotentialtosubstancewillhavehelpedlubricatethefaucetofnegotiation.”
TripAdvisor,thecompanysaidthattheroll-outoftheInstantBookprogrammewouldpay-offfinancially,butitwouldtaketime.CEOSteveKaufersaidinJanuary2017:“It’stakenlongerthanwethought,butitisamulti,multi,billiondollaropportunity,aswecanclosethegapbetweenusandwhatatypicalonlinetravelagencygeneratesintermsofrevenuefromthesetravellers.It’sahugewinforus,butthenthat’sclearlybeenharder,oritistakinglongerthanwethoughthasbeenthechangingoftheconsumerperception.”
www.hotelanalyst.co.uk 60
Adeeperrelationship
TheoperatingpracticesoftheglobaloperatorshaveshiftedoverthepastfewyearsasthebrandstrytoprovetheirworthtoownersandshowthattheycanbringsguestsinasefficientlyastheOTAs.Themaindriveristhisistheloyaltyprogramme-anditsall-importantdiscount-alongwithaproliferationofbrands,ever-expandingnotonlytosatisfyownersbuttocompetewithdemandfromplatformssuchasAirbnb.
Thebrandedoperatorshavebeenforcedtoacknowledgethatitisnolongerthecasethat‘ifyoubuildittheywillcome’.Theconsumerhasbecomemoredemandingandwantstobetreatedasanindividual,notjustaheadinabed.
Partoftheefforttoforgeloyaltyandmeetmoreoftheconsumer’sdemandshasseenAccorHotels leadtheway,seekingtoengagewithguestsoutsidethetraditionalstay.In2017thecompanylaunchedAccorLocal,anapplication allowing residentswho live near anAccor property to access “the services of local artisans andcompanies”.
AccorLocalallowshotelstooffertheservicesoflocalbusinessesandservices,whilealsoallowinglocalresidentstoaccessthehotel’samenities.Otherservicesareprovidedthroughlargerpartnershipsandinclude:bouquetsdeliveredtothehotel’sreceptionwithAccorLocal’sspecialbouquetsincollaborationwithPampa,Bergamotteandothers;yoga,pilatesandrelaxationclassesprovidedbyOlyBeina room letby thehotel;qualitybreaddeliveredbyPoilâne,Nespressocapsulespick-upanddepositpointsaccessible24/7,apayby-the-hourcarrentalservicewithAccorLocalofferedbyHertz24/7.
ThegroupsaidthattheAccorLocalapphadabout3,000activeusersandnowoffershundredsofservices inmorethan250hotelsinFrance.AccorLocalwillberolledoutin2018and2019inmajorcitiesandcapitalsaroundtheworld.
Scott Gordon, AccorLocal CEO, told Hotel Analyst_: “It’s totally free and totally optional for everyoneparticipating,it’sanopenplatform.Wehavesomepartnershipsandwheneverahotelisinterestedtheycanpickahandfultotryandthenaddtheirownservices–pool,F&B,whatevertheywanttopropose.
“Thereisnocosttothemerchants,weaskthatthereispriceparitybetweentheychargelocallyandwhattheychargeus.Thecustomerpaysdirectthroughtheapp.Withthehotelserviceswetake10%fortheplatformand90%goestothehotel.”
Theapplicationisnotyetlinkedtothegroup’s32million-memberloyaltyprogramme,butGordonadded:“It’sgoingtobeabigpart,it’sgoingtobeagamechanger–memberswillbeabletoearnandburnontheirdailylifehabits.Todaytheproblemwehaveisthatweonlyseeourcustomersacoupleoftimesayear.Ourambitionistoberecognisedasyourdailylifecompanion,notjustyourtravelcompanion.
“We’vebeenfocusingforthepast50yearsonthetravellersoftheworldandhadforgottenaboutthe localcommunity,whichisfiveorsixtimesthesize.Afterall,whoelseisopen24/7otherthanthepolice,hospitalsandhotels?”
Launchingtheprojectearlierintheyear,SébastienBazin,chairman&CEO,AccorHotels,said:“Forthepast50years,millionsofcustomersaroundtheworldhavetrustedAccorHotels’hospitalityexpertise.Whentheygothroughthedoorofoneofourhotels,theycanbecertainoffinding,atanytimeofday,acustomisedserviceofferedbymorethan250,000peoplewhoarepassionateaboutouruniquesavoir-faireinthefieldofhospitalityand service.We have now chosen tomake this unparalleledwealth available to benefit community life bydeveloping an unprecedented model, creating social connections and value for small businesses, localcommunitiesandstaffmembersatourhotels.”
www.hotelanalyst.co.uk 66
Willblockchainsavethetravelsector?
Thetravelmarketisfondofacatchynewtechnologyandthisseason’sisblockchain.Duettodescribesitas“anincorruptible,decentralised ledgerofeconomic transactions that canbeprogrammed to recordanythingofvalue,notjustfinancialtransactions”.SoalockedExcel,whichcanbeusedtotradeinformationwithoutsecretsbeingtold.Whereinformationispower,powerishere.
Investorscertainlythinkso.ByOctober2017,approximatelyUSD1.8bnhadbeeninvestedinblockchainstartupsthatyear,accordingtoSmith&Crown,aspecialistblockchainanalyst.
The goal of blockchain technology in the hospitality/hotel industry is eliminating third-party costs, andencouraging direct provider to consumer interaction. One significant advantage in deploying blockchaintechnology is cost savings. All parties can access the blockchain, which updates at specific intervals. Usingdistributed-ledger technology, blockchain technology removes themiddlemen in transactions, such ashotelbookings.Theresultsarelowertransactionfeesandamoreefficientroutebetweensupplier(hotel)andenduser(guest).
Thetimewhenblockchainbecomesrelevanttothehotelindustryisnotfaraway,andexecutivesintheindustryneedtopayattentiontoit,saidPatrickDunphy,CEOofHospitalityTechnologyNextGeneration.
Headded:“We’rebeyondthepointwhereblockchainiscuttingedge,andit’sgoingtopassusbyifwedon’tpayattention.Althoughwe’renot thereyet fromadistributionperspective,weshouldn’t ignore theunderlyingtechnology.”
InApril2018Lufthansacommentedonitsaspirationstowardsblockchaintechnologies,whichithopestousetoremove intermediariesfromitsmodel.Attheendof lastyearthecompanyannouncedapartnershipwithacontentpartnershipwithstartupWindingTreeto,itsaid,bringblockchaintechnologytothetravelindustry.
WindingTreeisbuildingthefirstpublicblockchain-basedmarketplacefortravelcontentto,itsaid:“Maketravelcheaperfortravellersandmoreprofitableforproviders”.
MarkusBinkert,SVP,distribution&revenuemanagement,LufthansaGroupAirlines,said:“LufthansaGrouphasengagedinthedevelopmentofAPIs,forinstancesupportingIATANDCstandard,toofferadirectaccesstoitsofferstocustomersanddistributionpartners.
“ByintegratingtheseAPIswithWindingTree’spublicblockchainLufthansaGroupenablesallinnovativepartnerswhodevelopcutting-edgetravelapplicationstoaccesstheseoffersviaadecentralisedandintermediate-freetravelmarketplace.”
“ThepartnershipwiththeLufthansaGroupwillallowustobuildblockchain-basedtravelappswhichnotonlyadheretotherequirementsofairlinesbutwewillbeabletotestthesewithEurope’s largestairline,furthervalidatingtheefficiencyandscalabilityof theplatform.LufthansaGroup issettinganexample for thetravelindustry,”saidMaksimIzmaylov,founder&CEOofWindingTree.
CitizenMtoldHotelAnalystthatitwasalsoworkingwithWindingTree.Chiefcommercialofficer,LennertDeJong,said:“CitizenMisalwaysonthelookoutfornewinnovationsthatcanhaveanimpacttochangeindustriesand/orbusinessmodels.
www.hotelanalyst.co.uk 67
“Blockchainistechnologythathasbeeninventedtocircumventcentralpoweronagreementsmadebetweenindividuals,whetheritisthatpersonAagreestobuyservicefromcompanyB,personAagreessomethingwithpersonB,orcompanyAagreestodobusinesswithcompanyB.
“Inthehospitalityindustryit isridiculouslyexpensivetogetpaidforhotelsbytheirguests,verydifficultandfragmentedtoauthenticateanindividual,andthepowerofdistributioniswithahandfuloftechcompanies,thatarechargingheavilyforthisdisintermediation.
“WithintheWindingTreepartnershipcitizenMplaysafacilitatingrolewithindustryknowledgeandhelpingtoexplore possible solutions for issues in the fragmentation of distribution technology, payment andauthentication.”
TUIhasbeenoneofthefirsttoembracethepossibilitiestocontrollingitsinventory.Chairman&CEOFriedrichJoussen said: “If you want to address 20 million customers individually, you need the most modern ITtechnology.Intheblockchain,youavoidhierarchicalstructure,theworldisflat,it’sopen,everybodycanknoweverything.So,theblockchainisnotintheinternet,theblockchainisthenextinternet.It’sthedisintermediatingtechnologyforinternetplatforms.
“It’sinterestingtoseewhatyourcustomersdo,equallyisinterestingwhenyoucannotofferwhatthecustomerhasaskedfor.Andinthelongtail,youseeexactlythat,youseedemandbuildingsomewhere.”
JoussendescribedhowTUI’ssystemcurrentlyworked:“AssumeyouhaveahotelthatcustomersbookfromtheUKandfromGermany.Let’sassumethehotelhas100roomsandyouallocate50homestotheUKand50homestoGermanyandtheyare,asaninventory,carriedandadministratedinthebookingsystem.
“Whatwehavedone,wehaveflexedtheinventoryoutofthebookingsystemandhaveputontotheblockchain.Nowwhathappensis…Cyruscommunicatestotheblockchaininventoryandsuggeststhatforexample,intheUK,thebookingsintothathotelarerunningverywellsothepricesareveryhealthy,andwearerunninginfrontofthetraditionalbookingcurve,andmaybeinGermany,exactlytheopposite.Maybethepricesarelow.
“Cyrus starts to suggest thatmaybewe should reallocate some of the risk inventory fromGermany to UKbecausewecouldmakemoremoney.Thisisthebedswapfeature,andthat’sexactlywhatthesystemisdoingtoday.”
Lookingahead,Joussensaid:“Youcouldopenitup–wecouldopenitupforourChinesemarkets.Likeahotelbedbank,withoutintermediaryfeesbecauseit’sallflat,wedon’twantmanual,thisisjustavailableinventory.
“Digital isnot,Isellmyproductsonthewebsite.Digitisingabusinessisdigitisingthefullsupply-chaininthebusinessandthat’swhatwearedoing.”
The software industryhasbeenpayingattention,with the latest to launcha solutionOwlTing,withahotelmanagement product which it said would “allow flexible inventory management and efficient bookingtransactions,withenhancedcustomerprivacyandtransactionsecurity,thankstoblockchain”.
The company said: “With the riseof variousonline travel agencies, hotelsmust be able to strike a balancebetweenpricingforvisibilityonmajorOTAchannelsandpricingforprofitabilityontheirownwebsites.Hotelsalsoneedtobetterunderstandtheirreturningcustomersandadjustmarketingstrategymoreproactively,whichincumbenttechnologysolutionscannotfulfil.”