While hotel owners worry about oversupply and whether there are too many brands, executives from the franchisor companies discussed their efforts to innovate and differentiate their offerings.
ATLANTA—U.S. hoteliers continue to ride the record demand wave, but once that demand growth reverses, years of supply growth will quickly come to a head in several markets, sources said.
Executives on the “A view from the top” panel at the Hunter Hotel Conference discussed the threats of oversupply, the misconceptions of brand saturation and the latest technology innovations and possible distribution changes that could transform their businesses.
John Murray, president and CEO of Hospitality Properties Trust, said he’s encouraged that the demand cycle could continue after the U.S. Federal Reserve recently announced it wouldn’t raise interest rates in 2019, but warned that supply growth will continue to be an issue and hurt overall performance. He added that oversupply is a bigger concern to him than disruptors to the industry.
“We’re not going to see the same kind of growth over the next couple of years that we’ve seen over the last several,” Murray said. “We’re very concerned about supply growth; I think supply growth to me as an owner is more important as an issue than Airbnb. In fact, I think more people would be focused on supply growth if maybe (the American Hotel & Lodging Association) wasn’t so vigorous in their fight to stop Airbnb. I think they’ve kind of taken some people’s eyes of the ball in some respects.
“I think it’s important that Airbnb should be on the same level playing field as hotels and paying insurance and paying taxes, but for the industry as a whole, Airbnb is shadow supply, and I try not to be afraid of shadows. Supply growth is real.”
The power of the brands
In addition to supply growth concerns, the panel discussed whether the growing number of hotel brands is an issue for owners and consumers. So far in 2019, Hilton has unveiled Signia Hilton, Accor launched Tribe and The House of Originals, and InterContinental Hotels Group plans to announce an all-suite brand by the end of the year.
Choice Hotels International President and CEO Pat Pacious said his company is more focused on specific market conditions that make sense for a new brand or brand acquisition.
“I think the right question to ask isn’t are there too many brands, but the question to ask is are there too many brands in a given market?” he said. “If you’re crowding a market with more rooms that are basically the same thing that’s in your other brand, then I think you’ve crossed the line there.”
Pacious pointed to Clarion Pointe—an extension of Choice’s upper-midscale Clarion brand into the midscale segment that the company launched in 2018—as an example of seeing a demand among guests and appetite from investors to offer a new type of experience.
“The rest of our midscale brands were more family-focused: larger breakfast, swimming pools, all of those types of things are more family-oriented,” he said. “But we saw a significant increase in travelers without children—they’re empty-nesters or millennials that haven’t yet started a family—but they want that midscale experience with some affordable premiums. … And there’s a lot of conversion opportunities in the midscale space; there’s hotels that can be repurposed for this. The market opportunity for us is about 1,000 hotels out there that fit that profile.
“So the way we looked at it was it wasn’t adding another brand, but it was really a question of in a given market if we have another brand that provides a different purpose for both the guest and developer, then that makes sense.”
Elie Maalouf, CEO for the Americas at IHG, said the hotel industry is a bit too obsessed with the possibility of having too many brands.
“This is the only industry I’ve been in where people ask are there too many brands, are there too many products, should people not keep launching new products?” he said. “And yet, in every other industry, and I’d say in this industry, it should be the consumers and in this business the owners that decide which brands are successful and which brands are not. And that’s what happens.
“We can launch brands all day long, but if owners don’t want to build them, and customers don’t stay there, then they go away, or they don’t propagate and they don’t become a problem. I think recently one brand family of a well-known name decided to terminate two brands that didn’t get traction.”
Tech innovation and distribution
As hotel owners continue to grapple with rising costs, brands are continually trying to innovate to help their franchisees. Pacious referenced Choice’s virtual pay program that has better streamlined corporate group bookings, and Maalouf pointed to IHG’s investment in in-room streaming, which has lowered the hardware expense for owners to give guests “the experience they want at home.”
Murray admitted that from an owner’s perspective, the constant stream of technology amenities introduced by the hotel brands can sometimes be a lot to process.
“It’s a constant battle year in and year out to evaluate what new initiatives seem like they’re nice-to-haves or they’re really creating value,” Murray said.
Robert Burg, president and COO of Aimbridge Hospitality, said he’s most excited by the advancements in artificial intelligence and the benefits it could have on the hotel business.
“It’s really coming down to how are you capitalizing on the platforms that each brand has, and everyone thinks they have their own key to the code and know exactly what it is,” Burg said. “The AI component is not going away, it is necessary, and we need to move even faster with it.”
As part of a management company, Burg said he’s especially looking for how technology will improve the operating model, noting that it can be “stifling sometimes in the training that goes into each brand’s system.”
He said it’d also be helpful to have more data transparency between owners, operators and the brands.
“At some point it’d be great to have the ability to aggregate that data on a common platform, not with customers’ names or anything like that, but just get the arrival and departure dates so that we can understand patterns in the industry,” he said. “That helps the industry as a whole. It really allows us to price effectively at the same time because we don’t want to be mired down. At the end of the day, if we’re really truly believing that it’s an NOI game, it doesn’t matter what the price is, let’s just use the same algorithm to get the data out so we can yield-manage more effectively.”
The panel also discussed the role online travel agencies play in the current distribution landscape. Pacious said it’s critical to have brands or hotels visible on platforms where consumers spend most of their time online.
“Consumers are also starting on a search engine, so if they’re starting at Google, we want to have them book directly at Google into our direct systems, because it reduces drop-off, increases conversions and lowers costs for owners,” Pacious said. “We introduced a Book on Google tech last year that’s really starting to show some promise as well. So you really have to meet the consumer where they are and not forget the fact that the consumer is going to continue to migrate to whatever is (easiest) for them to shop and find a hotel.”
A shift in brand-OTA commission negotiations could be coming as Marriott International and Expedia continue deliberating, and hoteliers are looking for more leverage against OTAs.
“I think when we talk about OTAs everyone says, ‘Let’s go dark, we’ll show ’em, we’ll go dark and take them out of the system,’” Burg said. “That is one aggressive method, and it can be effective if the right person goes first and everyone else is really going to follow. You have Google entering the space, Airbnb just bought HotelTonight, they’re entering the space—we need to act really quickly.”
But Burg suggested more than one deal could be negotiated that takes market size into consideration.
“I would recommend—and this is just one facet of it—is that you negotiate two different deals,” he said. “You negotiate a deal for your urban and transient markets, your suburban markets, and then in tertiary markets, it’s a separate deal. What really concerns me is some of these tertiary markets where you have a tremendous amount of economy hotels, the OTAs are the sales team.
“So if you’re going to get overly aggressive as a brand with the OTAs, let’s focus on that, and then have a separate platform for the leisure side as well. I have many hotels in south Texas that the OTA and government business, those are your two channels, I don’t have a salesperson.”