There’s nothing like being with 100 hotel consultants in a 3,000-year-old city on the Europe-Asia border to find out the real scoop about what’s going on in the global hotel industry. Members of the International Society of Hospitality Consultants and guest speakers discussed a wide variety of topics in a matter-of-fact style that provided plenty of insight and opinion during last week’s ISHC conference at the Ceylan InterContinental Istanbul.
The biggest takeaway was simple to deduce: The hotel industry is a strong contributor to the world’s overall health, but at the moment it’s in murky waters. There are high spots and low spots, but the reality is that no matter where you look, there are concerns.
Speed bumps in emerging markets
World Travel & Tourism Council vice chairman Jean-Claude Baumgarten painted a picture of China that has problems despite the global love affair the country enjoys with hotel companies:
• China’s domestic lending has increased five-fold, which could lead to a financial bubble.
• Approximately 140 million farmers had their land seized by the Chinese government during the past 17 years. “Could you imagine what would happen if that occurred in the U.S. or Europe?” Baumgarten asked.
• A total 493 mass protests take place each day in China, yet in general the world doesn’t hear about them.
He said China, which by 2025 will have enough skyscrapers to build 10 New York-sized cities and is protected by 3.5 million active and reserve military, will create global chaos if its economy somehow crashes.
Jean-Claude Baumgarten of the World Travel & Tourism Council said international travel increased 5% during the first half of 2011.
“If China crashes, which nobody expects, some (U.S.) states will crash in as well,” he said, citing Ohio and Georgia among the states that have made heavy investments in the country. “The links are so strong that if something bad happens, it could be catastrophic.”
But he also said hotel companies, among others, are rightly attracted to the travel-and-tourism market in China, which saw 2.3 billion domestic travelers in 2010.
Gerald Lawless, executive chairman of Dubai-based Jumeirah Group, said there is some concern the Chinese government is trying to slow the country’s economy to curb rising inflation.
India, another country viewed as a golden goose by the hotel industry, has its own problems.
Governmental corruption there is no secret, nor is the lengthy process it takes to get permits to build a hotel. What I heard for the first time in Istanbul is the India hotel market is facing hurdles in the shape of high interest rates. Vijay Thacker, the well-respected director of Horwath HTL’s hotel, tourism and leisure practice in India, said interest rates there are in the 14% to 15% range, which is beginning to take its toll on hotel development. It’s not totally stopped, but developers are little more hesitant to jump in with those interest rates in play.
The global economy and social unrest in the Middle East were understandably topics that weaved their way throughout the conference, whether it be over cocktails at the hotel, during panel discussions or over dinner while cruising the Bosphorus Strait.
“I would certainly be concerned about the overall economy,” Lawless said. “The situation in Europe is critical because of an apparent lack of leadership.”
Civil unrest is something with which hotel companies are reluctantly becoming good at dealing. Panelists talked of close calls at their hotels, including staff using kitchen knives, brooms and shovels to stave off a riotous crowd in Egypt, and a hotel GM gaining border access in Libya only because armed forces recognized her as a positive force in the community.
Tony Potter, CEO of Malta-based Corinthia Hotels, said the company never closed its hotel in Tripoli despite the bloody battles that have plagued Libya throughout 2011.
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“We had 350 guests, most of them journalists, and we could hardly put them in the desert,” he said.
The uprising has created a social revolution that is providing the country’s residents with a pulpit to make demands such as higher minimum wage, better working conditions and no expatriates running Libya’s hotels, Potter said.
“It’s going to be a challenge for hotels,” he said, adding the situation in nearby Egypt is similar to Libya’s. “We’re going to need the higher (revenue) numbers to be able to deal with a completely different cost structure in some of these countries.”
He said the real issue is training people in these countries to be hotel employees. “We’ve been trying for years to get Libyans to get into hotels,” Potter said.
Ed Fuller, president and managing director of international lodging for Marriott International, hadn’t seen so such civil unrest at any one time in his 40-plus-year-career in the hotel industry.
“It will take a longer time than normal to get through,” Fuller said. “Social revolution will be going on forever. It’s when, where and how it will be dealt with.”
Lawless said the uprisings in the Middle East—the so-called Arab Spring—were unique because they weren’t driven by religion.
“It’s of the people, by the people,” he said.
Risks and returns
At the end of the day, hotel companies will continue to operate and look for more opportunities in high-risk countries for one main reason: “Some of the environments that look scary can be quite lucrative,” Potter said.
There were positive discussions as well. WTTC’s (http://www.wttc.org/) Baumgarten said travel-and-tourism experienced a solid first half of 2011, as the 5% increase in international arrivals would indicate. That equates to 414 million people going to a foreign destination.
The biggest drop was in the Middle East at -11%.
• Europe: +6%.
• Mediterranean Europe: +7-9%
• Americas: +5%
• Brazil +17%
• Asia/Pacific: +5%
The fastest-growing travel-and-tourism economies have some expected countries on the list—China and India—as well as some surprises—Montenegro, Namibia and Chad.
“(Sub-Saharan) Africa is enjoying a tremendous revival,” Baumgarten said. “There’s political stability in most countries. Groups are very eager to invest, and the governments are very eager to get partners.”
He said the WTTC expects worldwide travel-and-tourism growth to be approximately 4% in 2012.
“It will continue to grow, but there will be a redistribution of the flow,” Baumgarten said. “There will be more domestic travel in the future than there ever has been.”
So, yes, there are big hurdles for the global hotel industry to clear. As the world becomes more in touch and easier to navigate, hotels will continue to be focal points on a street corner-by-street corner basis. But after talking with consultants, who tend to be optimistic by nature, it’s clear the hotel industry is becoming a larger force in the world for political and economic reasons.
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