Michael Issenberg and Mark Edleson, executives representing two distinctly different hotel companies, told attendees at a recent ISHC conference that the influence of Chinese hotel companies and travelers on the international hotel community is bigger than ever.
BANGKOK—The emergence of Chinese hotel companies as major global players continues to reshape the hotel industry as a whole, and hoteliers around the world should embrace the opportunities that come with it, according to industry leaders speaking at the recent International Society of Hospitality Consultants annual conference.
Plenty more changes are ahead as China’s hotel companies and consumers make themselves more prevalent and relevant in all regions, said the leaders participating in the “Bird’s eye view: Leaders discussion” at the InterContinental Bangkok.
“The biggest impact in my lifetime of anything I have seen is China,” said Michael Issenberg, CEO of HotelServices Asia-Pacific for AccorHotels, adding that he travels to China almost every month. “What China has done … the impact it has had on the whole region is extraordinary.”
“(Numbers) one through five (of the) most important trends are China,” said Mark Edleson, president of Two Roads Hospitality Asia. “The outbound story, the domestic travel within China that didn’t happen 10 years ago, the outbound investment from China—all of those stories are transforming the industry globally.”
Moderator Robert Hecker, managing director at Horwath HTL, said only 4% of China’s population currently has a passport, which means the country’s global influence is going to grow exponentially in the coming years as more Chinese travelers will be on the move.
“It’s already dwarfing every inbound market in Southeast Asia,” Hecker said.
Asian hoteliers should expect to greet more Chinese travelers than ever, Edleson said.
“This year, the Chinese will by far surpass Australia as the major (inbound) market,” he said. “As a small, boutique independent operator … it’s really changed the way we think about doing business in our markets.”
Issenberg said hoteliers in other regions would be wise to take note of the developing trend.
“In terms of the impact they will have on our business … it’s a market in the U.S. that you should be courting,” he said. “It’s only going to grow exponentially. That middle class is growing. If people have more time and money, what are they going to do? They’re going to travel.
“The speed of change … you have to see it and experience to believe it,” he added. “The growth of that China travel market is a runaway train that isn’t going to stop.”
AccorHotels is expanding its relationships while anticipating growth from China and other markets around the globe.
In December 2014, AccorHotels announced it was teaming with China Lodging (which is also known as Huazhu Hotels Group) to expand the AccorHotels portfolio throughout China. In January 2016, AccorHotels bought an 11% stake in China Lodging that was worth $190 million—a stake now worth more than $800 million, Issenberg said.
The reasoning was that it’s far easier to do business with local partners in any country, he said.
“We will be interlopers in the China market, there’s no question,” Issenberg said. “Think about any market in the world. Outside of North America … what we compete with are domestic players. I always view the domestic players as the most ferocious and the ones we have to worry about. That’s exponentially true in China.
“China is such a bespoke market—even the technology,” he said. “We’re focused on increasingly localizing our business. It remains a huge focus for us.” He added that one-third of AccorHotels’ development pipeline in China is leisure-focused.
“In China, the government still calls the shots. If you think otherwise, you’re kidding yourself,” Issenberg said. “You have be careful how you navigate what you’re trying to accomplish.”
Ownership makeup in China
Edleson, who fell in love with Asia 50 years ago when he was in the Peace Corps and has lived there most of his life, believes the shifting market in the region is attractive to all hotel companies.
As a smaller boutique hotel company, Two Roads attracts owners who want something different, which plays into the first-time owner trend, the executive said.
“In Asia, the first son usually takes over the father’s business, and the second son or daughter who wanted to do something different … they maybe take the family into hospitality,” Edleson said. “Some have a little more vision than other. We’ve had to deal with a lot of owners, and some are very inexperienced.”
Edleson joined Two Roads when it acquired Singapore-based Alila Hotels & Resorts in 2015. The combined portfolio allows the company to reduce OTA commissions by being able to negotiate as a much bigger group, he said.
“The distribution space is where the battle is in the hotel industry,” Edleson said. “To have even have meaningful global distribution … our market is global, and to reach that market, even through technology, requires fairly significant investment. Our dream of 30- to 40-room hotels is now 100- to 120-room hotels, trying to keep that personal touch and the experience element of the hotel but at the same time allowing that hotel as an individual business enterprise to be able to realize returns.”
That approach has been a slow process because of the mentality of Asian consumers and developers, the executive said.
“When I first went to China 15 years ago, nobody understood that at all—small was not beautiful,” said Edleson, who added that the company is opening the first Alila-branded resort in North America in Big Sur, California, on 4 October. “But that’s changing.”
The overall makeup of hotel owners in Asia is a reason for that, the speakers said.
In Asia, more and more high-net-worth individuals are getting into the hotel business, Issenberg said.
“We do have a lot of owners in this part of the world where it’s not their primary business,” he said. “By far and away, you are dealing with a group of people that are relatively new to the industry. Everything on the ownership front is different. It’s changing a little bit today slowly.”
It will continue to evolve as the world’s hotel industry becomes even more intertwined, he said.
“Operationally, your staffing issues are entirely different (in Asia),” Issenberg added. “That is also slowly changing because we’re becoming a mature industry. Today, Asia has more similarities to North America than ever.”