Hotel CEOs feeling good about fundamentals
13 FEBRUARY 2015 10:17 AM
Executives at the ALIS were uniform in their bullish take on the global hotel industry. Yes, a downturn is inevitable, but it’s also a few years away.
LOS ANGELES—Ask a CEO for his or her outlook on the hotel sector, and the responses range from encouraged to exuberant.
At least that was the message broadcast during four “View from the boardroom” panels at the Americas Lodging Investment Summit last month.
- “We enjoy life. Our stock price is booming,” said Sébastien Bazin, chairman and CEO of Accor, whose stock (EPA: AC) is up 22.2% year to date, as of press time. (The Baird/STR Hotel Stock Index, by comparison, is up 2.8%.) The Paris-based company is benefitting from increasing tourism in Northern Europe, the Asia/Pacific and Latin America, he added.
- “We also feel great about where we are,” said Alex Cabañas, president and CEO of Benchmark Hospitality International, which manages nearly 30 hotels in the United States, Japan and the Caribbean.
- “All in all, it’s as bullish as it’s been in quite some time,” said Richard Smith, president and CEO of FelCor Lodging Trust, which owns approximately 50 hotels in the U.S.
- “We’re not seeing anything on our horizon that gives us pause,” said Geoff Ballotti, president and CEO of Wyndham Hotel Group.
Discussing the “D” word
As to whether the next downturn will be as severe, executives generally maintained their optimism.
“Are we actually going to be smarter this cycle? Can we all decide to be smarter?” Cabañas asked. “There’s so much more information available today than any other cycle. … There certainly will be a cycle, but maybe it will be shallower.”
He added: “The financial landscape is much more disciplined, so I think that is very helpful.”
Jim Amorosia, CEO of G6 Hospitality, which franchises the Motel 6 and Studio 6 brands in the U.S. and Canada and the Hotel 6 and Estudio 6 brands in Latin America, said hoteliers might or might not be more intelligent. What they are is more cautious.
“I don’t think anyone will necessarily be less smart or necessarily more smart, but hopefully a little bit more cautious in terms of where we are going,” he said.
Tools and metrics play a role, Bazin said. “This industry is becoming more and more sophisticated,” he said.
While he thinks a downturn is a few years away, Doug Kessler, president of Ashford Hospitality Trust, is still getting his ducks in a row. The real estate investment trust is diversifying risk through the spinoff of Ashford Hospitality Prime, which invests in high-performing hotels, and Ashford Hospitality Select, which will invest in select-service hotels when it launches during the first half of 2015.
The company also bought back half of its outstanding shares, he said. “That accelerated the growth that we had in the upturn so that over most periods of time we’ve been the best performing lodging REIT.”
Predicting the next downturn is a fool’s errand, said Simon Turner, president of global development for Starwood Hotels & Resorts Worldwide.
“The crystal ball gets pretty fuzzy beyond three years,” he said.
That’s why he has developed a flexible approach to expansion, pursuing management and franchise contracts as well as executing on both new builds and conversions.
“We’ll be flexible in terms of adapting our approach. … The world’s going to throw stuff at you. You need to be able to adapt quickly to get out in front of it,” he said.
New brands and dead cats
The buoyant hotel environment has served as a veritable breeding ground for new brands, the executives noted.
“You can’t seem to swing a dead cat at this conference without hitting someone announcing a new lifestyle or boutique concept,” said Mike Depatie, former president and CEO of Kimpton Hotels & Restaurants.
When asked if the flood of new brands would lead to cannibalization, Jay Shah, CEO of Hersha Hospitality Trust, which owns 41 hotels, downplayed the idea.
“I don’t know necessarily if they’re going to be cannibalizing existing brands,” he said. “The idea of brands today in America is more significant than it’s ever been. It’s one of the ways to differentiate in an environment where everyone is just over-informed.”
Shah said he was especially “bullish” on soft brands.
“That can really be leveraged, particularly in high-demand markets where you’re looking for some form of differentiation,” he said.
Accor has 14 brands in its portfolio—a number criticized by other major hotel chains during the mid-aughts, Bazin said. Now all these critics have the same number, if not more, of brands, he added.
“Do we have too many brands? The answer is no,” Bazin said, adding that a brand arises as a response to a customer need.
Minding the millennials
One notable need comes from the millennial traveler, the experience-focused, tech-savvy demographic that served as the impetus for brands such as Moxy from Marriott International.
Shah said the cohort’s tastes are evolving.
“We might be slightly behind the curve in all of that conversation,” he said. Technology might be important, but it’s become table stakes. Now millennials are seeking “analog” experiences that are authentic—“a little more real and a little more simple,” Shah explained.
And the demographic’s preferences will continue to change as its members make more money and start families, added Dave Johnson, president and CEO of Aimbridge Hospitality.