Jim Abrahamson (right) of Interstate Hotels & Resorts, makes a point as Wyndham Hotel Group’s Eric Danziger listens during Wednesday’s opening session of the Lodging Conference.
PHOENIX—Using a rapid-fire approach, moderator Don Landry covered plenty of ground during Wednesday’s opening general session at the 18th annual Lodging Conference.
Along the way, Landry, owner Top Ten Hospitality Advisors, poked and prodded panelists into addressing key issues ranging from the future of full-service, suburban hotels to merger-and-acquisition activity in the industry to the so-called “electile dysfunction” buzzword that’s sweeping the country.
“The only thing we are missing is logic, certainty, a clear direction and a strategy to move forward,” said Landry.
The panelists said having the basics covered is a good place to start when measuring any kind of recovery.
“At the end of the day, we need strong fundamentals,” said Jim Abrahamson, CEO of Interstate Hotels & Resorts. “We need strong (revenue-per-available-room) growth, and we have to have liquidity in the marketplace.”
The tight supply pipeline of the last few years will change soon enough, according to Tom Corcoran, chairman of FelCor Lodging Trust.
“We’ll see a building boom in the next 10 years that’s phenomenal,” he said. “Real estate is going to do great. … The smart guys that got out in ’07 and bragged about it and are getting back in.”
When asked about the future of suburban, full-service hotels with 200 rooms to 300 rooms, Joe Berger, area president of the Americas for Hilton Worldwide, said he’s looked at them, especially with the success of select-service hotels in urban markets.
“We need to shrink them, make them much more efficient. They really need to become very, very upscale limited-service (hotels) with highly efficient lobby space … These hotels must become much more efficient in our future.”
A valuable lesson in value
A question about dual-branding philosophies being adopted by companies such as Hilton and InterContinental Hotels Group—Corcoran called it “a natural evolution”—turned into a testimonial for the Embassy Suites brand.
Abrahamson pointed to the way Embassy Suites changed the industry when the two-room suite concept was launched in the 1970s.
“It opened the eyes of the customer in terms of giving more value,” he said. “We, as an industry, had gotten pretty stale at the time, delivering a pretty common product.”
The value proposition is that customers will look for hard to build, a little more expensive products where the return on investment is superb.
Eric Danziger, president and CEO of Wyndham Hotel Group, said the evolution of the Embassy Suites brand teaches a lesson the industry should take to heart.
“The reason this industry churns product is because we all try to tweak a current product. In the case of Embassy, it invented one,” he said. “That is the greatest lesson: Stop with the little tweaks and try to create the product that is a new and different one.”
David Kong, Best Western International; Joe Berger, Hilton Worldwide; Tom Corcoran, FelCor Lodging Trust; Eric Danziger, Wyndham Hotel Group; and Jim Abrahamson, Interstate Hotels & Resorts.
The lack of debt and quality assets on the market at a reasonable price “has to resolve itself at some point,” Abrahamson said. “We can’t sit in endless extend-and-pretend (scenario).”
He said it’s more important that debt and liquidity return to the market first; then assets will find their way to market.
“If we don’t have good fundamentals next year, we’re not going to see trading of assets, plain and simple,” Abrahamson said.
Corcoran said it’s not fair to paint the current scenario as “pretend and extend”—an environment in which banks proceed with existing terms rather than forcing an owner to act when a loan is in default.
“I don’t think it’s fair to what the lenders have done,” he said. “It assumes that they’re stupid in pretending that they’re not doing the inevitable.”
He recalled the crisis of the late 1980s and early 1990s when the Resolution Trust Corporation was formed following the savings-and-loan meltdown. Hotels were placed in pools and in many cases sold for pennies on the dollar.
“(People) made a lot of money,” Corcoran said. “What the lenders learned from that experience is if they had just waited until ’92-93, work with the existing borrowers and operators, they would have gotten two to three times (the money) than they got.”
“This time the lenders are doing a far better fiduciary duty on behalf of their investors in saying as long as the guy is doing the best they can, they’re not pretending … They’re trying to work with people who are trying to make money, and they’re trying to get more proceeds to the lenders. The lenders have made a lot more money for their investors than if they would have said, ‘Let’s cram all this (stuff) down the road as fast as we can.’”
The lack of financing also has made the landscape tough for mergers and acquisitions at the corporate level, although Blackstone’s acquisition of Motel 6 was briefly mentioned.
“There’s a lot of liquidity chasing not a lot of deals,” Berger said “What you are seeing with all this liquidity is a lot of distressed debt is being bought and trading.”
For the record, Berger said he didn’t know when or if Hilton Worldwide was going to go public.
Danziger said he is surprised the increased use of apps hasn’t decreased the number of calls to the toll-free reservations lines.
“They want the information, but they will still click and call,” he said.
Berger said the movement to a self-service environment is becoming evident.
“(Guests can) interact with staff at the hotel when they want to,” Berger said. “I think the industry is going to move toward self check-in. In the airline business, you can choose your seat; in the hotel business, you get assigned your room.”
He said that once that issue is resolved across the board, along with being able to use a mobile device as a room key, self check-in will become the norm for the industry.
The panelists lamented that the self-inflicted situation with the online travel agencies is leaving money on the table.
“The OTAs have to be a channel to fill hotels, but it doesn’t have to be the channel,” Danziger said. “The relationship has to be one-to-one with the consumer and not have a relationship with a third party. It’s the brand’s responsibility to reinvigorate the one-on-one relationship.”
“Third parties involved in our business, that’s the real danger to our business,” Abrahamson said. “We, as an industry, need to get control of our inventory.”
Corcoran said there has to be a reconsideration of what advertising and marketing outlets are being used because the costs are continuing to rise.
“Our cost of distribution and the cost to get customers to our hotels are skyrocketing,” Corcoran said. “We haven’t figured out where to cut other costs. We haven’t quite figured out how to use all the tools and what tools you have today you didn’t have two years ago.
“An absolute challenge is how we connect with our customers—where is he or she at and how do we hit their hot buttons?” he said.
Best Western International’s David Kong.
David Kong, president and CEO of Best Western International, agreed distribution costs are increasing.
“It is impossible for a hotel operator to get his hands around social/mobile media … The brands will have to step up in that regard,” he said.
The Best Western leader also said the industry needs to make the mobile reservation process easier.
“A one-click buy is where we need to get,” he said. “We have to get to that stage to make it really easy.”
The advent of online customer review sites, most notably TripAdvisor, also was discussed. The panelists agreed they are good for the industry because ultimately online reviews will lead to better hotel products.
“Hotels are not hearing it from the big bad brand but the consumer,” Danziger said. “It’s a terrific tool for consumers as well as brands and owners.”
Corcoran said the review sites are going to force property GMs to be better.
Politics and hotels
When asked about contingency plans depending on the outcome of the election, Danziger said: “The company has a responsibility to always have contingency plans and to also have a contingency plan if things are better. We have plans across the brands the way we would spend, the way we would market, to accelerate fast or slow the motion.”
Kong said that for all of the work that went into qualitative easing programs, they have fallen short of the mark.
“It’s really about the federal reserve trying to inject liquidity into the market,” Kong said. “There’s no evidence its working. … Banks have huge reserves, but we’re not seeing it.”
Berger said he’s surprised there’s not more talk about the “significant pressure” the Affordable Care Act will put on businesses.