CEOs of top hotel companies talked about the issues facing the industry at the 2016 NYU International Hospitality Industry Investment Conference.
NEW YORK CITY—CEOs of some of the largest hotel companies took a look at issues facing the industry during the first day of the 2016 NYU International Hospitality Industry Investment Conference.
Here are some of the topics they discussed during the “Coffee talk” session Monday.
1. Sharing economy a misnomer
When pressed about potential threats from sharing-economy companies like Airbnb, the CEOs said they don’t present any greater danger to their businesses than they typically see.
Arne Sorenson, president and CEO of Marriott International, said Airbnb in particular is no longer accurately described as part of the sharing economy. He said Airbnb’s second phase is pivoting to offering units owned and operated by businesses.
“While that means (Airbnb) gets bigger, it also means they compete like we do with each other and have for decades,” Sorenson said.
Choice Hotels International President and CEO Steve Joyce said his company has taken a particular interest in the sharing economy and is seeking to get a piece of that pie by establishing its own platform.
“We like the space so much we joined them,” Joyce said.
But he said the difference is Choice won’t be working directly with home owners like Airbnb. Joyce said Choice prefers to work with vacation rental management companies.
2. The OTA debate
A question was asked about whether the recent wave of discount rates for loyalty members at various companies was meant as an attack on online travel agencies.
Chris Nassetta, CEO and president of Hilton Worldwide Holdings, said it is less about attacking OTAs as it is providing the best experience for guests.
“We want them to know where to get the best value and experience,” he said. “And we know factually they’ll get that by booking directly with us.”
Richard Solomons, CEO of InterContinental Hotels Group, said intermediaries like OTAs are nothing new, and they will likely remain a big part of the industry going forward even as hotel companies push for more direct bookings.
“OTAs will remain a meaningful part of the business, particularly with price-sensitive leisure travelers,” he said.
He said the challenges hoteliers face is “managing distribution channels effectively to drive revenues and returns.”
3. Cuban opportunities
Starwood Hotels & Resorts Worldwide and Marriott International were the two U.S. hotel companies quickest to receive approvals to start seeking development projects in Cuba under new governmental rules. Sorenson said he’s optimistic about that country’s prospects for travel.
But he also said the transition could be difficult in some ways, particularly because the Cuban government retains a high level of influence and control over business.
“There is still fundamentally government in the middle of hiring, logistics and the supplies needed to run a hotel,” he said. “The operating issues will be very, very interesting.”
Joyce said his company has not yet gained any approvals to do business in Cuba, but he is “in discussion on several deals we’re hoping to land fairly soon.”
Joyce said he expects it to take three or four years before development ramps up in Cuba, but after that it could be a sustained boom that lasts as long as 20 years. That is great news for most, he said, but it could have regional effects.
“If I’m on another island, I’d be concerned,” Joyce said.
4. M&A expectations
Joyce said he believes the distribution challenges will continue to spur consolidation in one form or another in the hotel industry. He said this is a big driver for soft branding.
“Those hoteliers don’t want to be told how to run their hotel, but they need the distribution and to be part of (a brand) who can have an app for every device,” Joyce said.
Sorenson, whose company is expected to close on a merger with Starwood this year, said he doesn’t see a lot of opportunity at the moment to another similar merger simply because there’s not another company in the position that Starwood was in 2015.
“Companies are purchased when they’re for sale, generally,” he said. “It’s a basic idea. But there’s no one else for sale in the industry of comparable size.”
5. Effect of Asian capital
Sorenson, who quickly noted his company had “our episodes with Chinese investors earlier in the year,” said he thinks the influx of outbound Chinese investment is less based around a desire to get money out of that country and more built around a change in investment rules that allowed for greater global investment.
“I think there was significant capital built up in China,” he said.
Nassetta said he expects to see more outbound Chinese investment going forward, but that doesn’t mean it’s going to be constant.
“You’re going to see ebbs and flows as different things are happening,” he said.