Hotel industry CEOs are prepared for a downturn, though they expressed optimism about the next 12 to 18 months during a candid conversation at the Hotel Data Conference.
NASHVILLE, Tennessee—As the hotel industry navigates through a landscape of growing but muted revenue-per-available-room numbers, hoteliers must seek ways to extend their companies’ reach and bottom-line profits, executives said.
At a panel titled “Beers with the bosses,” which concluded the first day of the Hotel Data Conference, Mit Shah, senior managing principal and CEO of Noble Investment Group, was most vocal in saying hoteliers need to make changes to counter threats from online travel agencies and other disruptors.
All it takes, he said, is one major hotel company to step to the forefront to change the entire playing field. As an example of that kind of game-changer, he said hotels should require guests to pay for a room at the same time that they reserve it.
“Absolutely it is coming. It needs one major brand, and all the others will follow,” Shah said. “Then we will own our own inventory. … It will be transformational.”
Hilton might not be that hotel company, according to Bill Duncan, global head of all suites brands at Hilton. The company did, however, follow Marriott International’s lead by changing its cancellation policy in July to require guests to cancel bookings at least 48 hours prior to arrival to avoid fees.
“Our focus is to embrace OTAs at a base level while driving direct,” Duncan said. “We will not get hung up on (OTAs).”
During the panel, Duncan also encouraged hoteliers to get involved in the political process.
“The battle is not being fought on Capitol Hill but in your own state legislatures,” he said. “We need everybody’s help.”
Suril Shah, managing director of acquisitions and asset management at Starwood Capital Group, called for action to combat disruptors, which he said are continuing to make inroads.
“Every conference I go to, I hear that Airbnb is not impacting us. That’s baloney,” he said. “It is not regulated, and when it is, it will continue to impact us.”
Mike Marshall, president and CEO of Marshall Hotels & Resorts, which has 55 assets under management, said hoteliers also need to consider disruptors’ success in forging a link with customers.
“I think we are leaving money on the table, as there is not enough local knowledge by the people doing the revenue management,” he said.
Suril Shah countered that hotel industry revenue managers, as well as sales-and-marketing managers, are the most diligent and productive they’ve ever been. He added that Starwood Capital has approximately $11 billion of assets under management in the U.S.
Mit Shah said private-equity fund Noble manages approximately $3 billion worth of assets.
“It is about market share and margin,” he said. “There are going to be winners and losers.”
The four panelists offered mixed predictions as to what the hotel industry can expect the next 12 to 18 months.
“I just wish for better results in the third quarter than in the second,” Mit Shah said, adding that he would put “even money” on STR’s new RevPAR projection.
Duncan, meanwhile, sat on the fence and said Hilton currently is undergoing internal forecasting processes.
“We’re cautiously optimistic on seeing growth,” he said.
Looking ahead, things look bright from Noble’s perspective, Mit Shah said.
“October advanced bookings appear to be very strong … (and) the forecast for next year is good,” he said, adding that choppy performance in July and August was caused in part by calendar shifts, including the timing of the Fourth of July holiday.
Suril Shah said Starwood Capital’s “acquisition strategy is still as net buyers over the next 18 months, but in the next six months, we’ll be cautious.”
Marshall said his company was buoyed by good performance from assets in secondary and tertiary markets.
“Most of the country is doing well. The (markets) that are overbuilt are suffering,” he said.
Hoteliers might be “cautiously optimistic,” but the sensible ones are already planning for darker days, whether they come or not, the panelists said.
Suril Shah said one key aspect of preparing for a downturn is to make sure debt requirements are fixed over the long term.
Marshall said the biggest challenge is getting owners to reinvest.
“For a long time, they got no returns, and now they are,” he said.
Duncan said a downturn strategy should be in place at all times, especially during growth years.
“Companies fail when they do not have the policies in place to be at the front end when a recovery comes,” he said.
One difference between a possible new downturn and the last is the sheer mountain of information now available to hoteliers.
“We’ve never been in a downturn with (this) amount of data. … We’ve got a whole infantry in the field that has been trained in special ops,” Mit Shah said.
Demand boosts, brand surpluses
Travel demand is as strong as or stronger than it has ever been, panelists agreed.
Low gas prices, consumer confidence, a steady economy and the strength of the U.S. dollar all add to the desire to travel, they said.
“Every plane is full. People are looking at travel as less of an expense and more as an investment,” Mit Shah said. Continued favorable corporate profits, he added, will be the biggest engine behind growth.
But the push by some hotel companies and shareholders for scale could be ultimately detrimental to profits.
“Consumers are confused. I’m confused, and I am in the business,” Marshall said of the number of soft brands.
Duncan said to expect more brand change.
“Soft brands are a result of owner wants and desires and guests’ desires to have independent, differentiated experiences but to be still part of branding standards and provision,” he said. “We have done huge research, and this is long-tail so we can own guests as their mind sets change. This is all so dynamic, and it is getting faster.”
Mit Shah said the large number of brands flies in the face of attempts to nurture brand loyalty.
“Nashville or Neighborville, there’s a need to be unique,” he said.
“Since we started this panel 15 minutes ago, Marriott has introduced two new brands,” Suril Shah joked.
The current U.S. and global political arena generated less mirth among the panelists.
“Geopolitical events are clearly rattling the market,” Mit Shah said, adding that he believes two of President Donald Trump’s key initiatives—infrastructure improvement and tax reform—would, if enacted, be net benefits for the economy.
Marshall said the key economic force propelling travel is not policy, but currency.
“Brexit is making the (United Kingdom) pound (sterling) more attractive,” Duncan said.
Suril Shah added markets such as Barcelona and Paris are enjoying double-digit RevPAR.