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ALIS: Leaders debate success of Room Key
January 25 2012

Not every hotel executive on stage during a general session at ALIS said Room Key would be a success. One claimed it wouldn’t work at all.

Highlights
  • “I don’t think it will work,” said KSL Capital Partner’s Michael Shannon, in reference to Room Key.
  • Hotel companies must stay ahead of the distribution curve, said Choice’s Steve Joyce.
  • Recovery in the U.S. hotel industry is not widespread.

 

LOS ANGELES—Not every hotel executive thinks Room Key will be a success. Michael Shannon, for one, didn’t hesitate to express that opinion.

“This is a really interesting but really late attempt by the hotel business to try to get control of their customer … and I don’t think it will work,” said the managing director of KSL Capital Partners.

Shannon was the odd man out Tuesday morning during a general session at the Americas Lodging Investment Summit at L.A. LIVE. Sitting on either side were brand executives who had championed the launch of the new brand-direct distribution platform.

Richard Solomons, CEO and executive director of InterContinental Hotels Group, said Room Key represents a successful attempt to deliver to the guest what it is they want—namely, a transparent platform that gives consumers the confidence of booking direct and the ability to comparison shop.

Steve Joyce, president and CEO of Choice Hotels International, said the platform is at once guest friendly and owner friendly; it’s easy for guests to use and provides a low-cost distribution channel to owners. He predicted other brands and independent hotels will quickly hop aboard.

But Shannon wasn’t convinced.

“I don’t think there’s anyone who woke up this morning and said, ‘I really need a new website that’s designed for owner profitability,’” he said. The major brands are too far behind, Shannon added. Whereas the Room Key’s founding chains are finally working together, rowing in unison, the more advanced online travel agencies and other third-party intermediaries are zipping by on speed boats.

“Customers are smart. They realize if someone is owned by the other side, there’s probably bias against them. It really is the brands attempt to try to regain against those (intermediaries) that aren’t playing as the brands would like,” he said. “I think the consumer is going to demand independent, fair value as judged by others.”

IHG’s Solomons was quick to offer a retort. He said Room Key is consumer friendly enough to gain back lost share. In addition, third-party websites comprise a very small piece of the chains’ overall business, so they still have the power to take it back.

“My money’s on Google,” Shannon replied, referring to Google’s Hotel Finder.

The issue goes beyond a single distribution platform, Joyce said. Brands exist to create value for owners, and that value primarily is around revenue generation.

“And that has never been a bigger issue in terms of the distribution game, disruptive technology and where that goes long term,” he said. “It’s never been easier and more possible for independents or collections of hotels to access technology to distribute their inventory in ways that we never considered 15 years ago. I really think it’s about the ability to continue to grow your channeling of revenue toward those hotels … in a system where they feel represented and respected.”

All of that is irrelevant if rooms are distributed by another force, Joyce added. Brands must stay ahead of the distribution curve across all platforms, whether that includes notebooks, smartphones or computers.

“If we’re not out in front and channeling those revenues, I think somebody else is going to do that for us,” he said.

Don’t call it a comeback
The panelists were split over how to label the U.S. hotel industry’s slow and steady climb out of recession. Solomons called it a “rebound,” while Joyce called it a “rehab.”

Finding the perfect terminology, however, is impossible given the bifurcation in the market, Shannon said.

He used grocery store spending as an example: In grocery stores surrounded by homes with an average household income of US$150,000 or above, customers are spending more on the essentials as well as on “luxury” items, such as alcohol. However, grocery stores surrounded by homes with an average household income of US$50,000 or below are seeing smaller receipts on only the essentials.

That’s the U.S. hotel industry, Shannon said. Some markets are performing well, while others are still suffering. “I think you see that reflected in the political discourse of the ‘haves’ and the ‘have nots.’ The recovery is very selective and upscale.”

But at least the U.S. economy is on the right track, said Hubert Joly, president and CEO of Carlson. The U.S. is one of only a handful of countries that has delivered since 2008, he said, citing a report from consulting firm McKinsey & Company. Most countries in Europe, however, have increased total indebtedness.

“The issue that we have to think about over here and in Europe is what actions the government is taking to sort out the fiscal problems that we’ve got,” Solomons said. “Over here they’ve kicked the can down the road. In Europe, they’ve obviously gone down the austerity route.” 

The outlook for travel, in general, is good, the executives agreed.

Solomons cited findings from a proprietary survey that asked guests about their travel intentions in the year ahead; more than half of guests said they plan to travel more during the next 12 months than they did during the previous 12 months.
 
“We have some economic headwinds, but it seems that travel has some legs here,” Joly said.

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