How hotel brands are dealing with disruption
How hotel brands are dealing with disruption
16 JUNE 2016 8:21 AM

Executives from Hilton, IHG, Best Western, Four Seasons and Wyndham laid out their road maps for coping with the hotel industry’s disruptors.

NEW YORK CITY—There are a lot of disruptive forces swirling around the hotel industry these days, and a group of high-ranking brand executives discussed what they’re doing to cope with them at the recent NYU International Hospitality Industry Investment Conference.

Speaking during the “Leaders’ forum” panel, J. Allen Smith, president and CEO of Four Seasons Hotels & Resorts, said it’s a good sign the industry has enjoyed such strong fundamentals and the appetite for travel continues to grow even during a time of so many localized issues.

“Recently, it’s been a great example of all the things in our industry that we don’t control,” Smith said. “The overall economy, currency, Brexit, terrorism, Zika. I expect one to dissipate and another one emerges. I think you have to really focus on what are the things in that sort of environment that you can control.”

Finding a distribution strategy
As Marriott International closes in on a merger with Starwood Hotels & Resorts Worldwide and AccorHotels works to complete the acquisition of FRHI Holdings, a lot of the talk about distribution has centered on the importance of scale to combat consumer perceptions and negotiating power of online travel agencies.

But Elie Maalouf, CEO of the Americas for InterContinental Hotels Group, said there isn’t a one-size-fits-all solution to distribution.

“There are multiple strategies that can be successful,” Maalouf said. “And there are multiple (strategies) that are wrong and you want to avoid those.”

Smith said he works in a different environment than IHG, Marriott, Starwood and other big branding companies.

“I think that there’s a distribution strategy taking place at the multibrand level that is compelling, and I understand why they’re doing it, and we can’t play that game,” Smith said. “We are singularly focused, fortunately in the one segment of the market where you can be singularly focused I think. The challenge for us is if we can’t play the same distribution game, what can we play?”

He said instead of leveraging scale, Four Seasons must key in on its “relentless focus on personalized service” and “dispassionately helping (owners) make money.”

“We’ve got to get (personalized service) right because … I think we can do that better than large multibrand corporate conglomerates,” Smith said.

The importance of loyalty
Geoff Ballotti, president and CEO of Wyndham Hotel Group, described loyalty as “the best tool we all have in our toolbox.”

“For the extent that we can make the promise of a free night attainable, there is nothing in any of our toolboxes more powerful from a distribution standpoint in terms of making our brands more relevant to consumers,” Ballotti said.

Best Western Hotels & Resorts President and CEO David Kong said loyalty is key in combating OTAs, and that has been particularly true with the recent rise of loyalty-based discount rates.

“We have to think about what we can offer that the OTAs cannot,” Kong said. “If we can offer them free nights with points, that’s something OTAs cannot do. And the only way to get around rate parity is to offer the discounts to closed user groups. And loyalty is a closed user group.”

Maalouf said he believes hotel loyalty needs to move in the direction seen with technology companies like Amazon and Netflix, where people will spend hours a day interacting with those brands.

“We look at our IHG Rewards Club as a brand that really ties all of our brands together,” Maalouf said. “Why that’s important is because beyond your stay at our hotel brands, we want your time. We want your share of time while you’re doing your booking and planning and after that sharing and sending pictures and having conversations.”

A brand’s value
Ballotti said the necessity of brands is heightened during trying times.

“More than anything what we’re providing is growing market share and helping our owners grow margin,” Ballotti said. “Those two metrics are what we focus on.”

When asked how brands quantify their value during trying times, Kong made an analogy to soft drinks.

“You ask yourself, ‘If there are all sorts of soft drinks you can buy, why do people like Coca-Cola?’” Kong said. “Coca-Cola is able to charge a higher price, and people are willing to go out of their way for it. … Likewise, I think you can measure the value of our brands on how they enable the success of our owners.”

He said that boils down to a simple concept.

“The value of the brand is how we can enable owners to make even more money,” Kong said.

Kevin Jacobs, EVP and CFO for Hilton Worldwide Holdings, said it all boils down to revenue-per-available-room index.

“We all like to think owners choose to work with us because we’re nice guys or girls or because we’re good looking or whatever reason you might like to think they choose us, but that’s not the case,” Jacobs said. “They choose us because they think they’re going to make more money.”

Opportunities amid M&A
Many observers are wondering what the industry will look like in roughly 18 months when the dust settles on big mergers like Marriott/Starwood.

Asked if there might be opportunities that emerge from that megadeal, which is a disruption in its own right, the brand executives said there could be, but they don’t expect a mass exodus.

“Will there be some deals where the owner has to make a decision and they say, ‘Wow, this particularly street corner is looking a little bit crowded’ for any of the distribution systems, not just Marriott/Starwood, sure,” Jacobs said.

But he said many will be drawn to the scale of that combined company.

“We believe that scale matters. We believe the network effect matters,” Jacobs said. “We believe all these things matter, so how are we going to say we don’t believe that system is going to be incredibly powerful at some point?”

Smith said he’s skeptical about there being huge opportunities to win over owners.

“Theoretically there could be, but I think people look at that equation and assume there’s going to be this massive sort of falling out from these things,” he said. “For one thing, they do have existing contracts.”

He said these opportunities will likely be driven by geography.

“I think you’ve got to go market by market,” Smith said. “This is hand-to-hand combat. It’s not a macroplay.”

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