NH Hotels turnaround on track, CEO says
23 FEBRUARY 2015 8:40 AM
Once suffocating under €1 billion in debt, NH Hotel Group is on the turnaround track, thanks to an ambitious five-year plan driven by CEO Federico Gonzalez Tejera.
MADRID—One year into NH Hotel Group’s five-year strategic plan aimed at a thorough shake-up of the company, CEO Federico Gonzalez Tejera said there are no disappointments or unpleasant surprises yet. And, fingers crossed, everything’s on course for the foreseeable future.
“We identified 24 elements we needed to address, and they are all coming along—some more quickly than others, which is to be expected, but all the initiatives are happening,” he said. “When you mix it all together, it’s above our expectations.”
Ranging from a new pricing strategy and increased investment in marketing, to asset repositioning and strengthening its presence in Europe, Latin America and China, the initiatives were launched at a fortuitous moment as economies picked up in the group’s domestic market and internationally.
“(Revenue per available room) was up more than 3% last year, and so for the first time since 2008 we’ve been able to raise our room rates,” Gonzalez said. “‘Room revenue, room revenue, room revenue’ has been our mantra.
“And RevPAR growth domestically was around 5%, with Madrid and Barcelona doing well as business travel improves. And with the economy showing signs of growth, we’re seeing more Spanish weekend visitors to these cities,” he said.
RevPAR in Spain, NH’s home market, increased 10.4% to €63.21 ($83.44) during 2014, according to data from STR Global, sister company of Hotel News Now.
One of the key goals in the five-year plan was to reposition NH’s offering through a branding overhaul by dividing the name into three flags: NH Hotels, NH Collection and Nhow in urban properties, complementing the group’s vacation resort Hesperia properties.
NH Group has 371 hotels with almost 60,000 rooms in 28 countries in Europe, Africa and the Americas and ranks among the top 25 hotel chains globally and Europe’s third-ranked business hotels chain.
Gonzalez earmarked €220 million ($248.6 million) to overhaul and refurbish many of its most promising sites to offer the highest potential for average-daily-rate growth; 73% of the capital expenditure will reposition them for conversion into NH Collection-branded hotels, which Gonzalez described as “upper upscale.”
Sixty percent of this investment is in owned properties with the remainder for the group’s leased hotels.
“We now have 29 NH Collection hotels, and we’ll have a total of 45 by the end of this year,” he said.
At the same time, the group is spending around €30 million ($33.9 million) on what the CEO called the “brilliant basics” to purchase 27,000 new showers, 16,500 blow dryers, 105,000 pillows and 24,000 LED, flat-screen televisions for its NH and NH Collection hotels. New gyms and lobby snack bars also are being installed.
“Our idea is to improve the guests’ experience so they are content to pay more,” Gonzalez said. “And it appears to be working as the number of our NH Rewards loyalty program members increased by 25% in 2014 to 4 million members, and our TripAdvisor approvals are also up at the refurbished properties.”
According to the group, TripAdvisor’s ranking for the NH Collection Palazzo Barocci in Venice went from No. 164 to No. 26, while its flagship Madrid hotel, NH Collection Eurobuilding, jumped from No. 153 to No. 14.
“Another sector we’re targeting is the meetings industry. I’d say that while our lobbies and rooms were great, the meeting facilities looked dated and needed totally new technology.
“So we decided to install sector-pioneering technology solutions like 3D holographic projection systems, what we call ‘telepresence,’ and we’re the first hotel group in the world to have this,” he said. “This sector, we feel, has huge potential.”
Gonzalez, a former Disney executive, stepped into the CEO post just more than two years ago with the task of overhauling the chain, which at the time was burdened with €1 billion ($1.1 billion) in debt and was being hammered by a steep decline in business due to Europe’s economic woes.
Since he took over, estimated gross debt has been reduced to €839 million ($948.1 million) and net debt is €634 million ($716.4 million).
Solid expansion in Europe, where the chain has the lion’s share of its hotels, was a major element in the five-year plan. Italy, where it operates 51 hotels, was the NH’s best performing country in 2014, while Amsterdam alone accounted for 23% of the group’s earnings before interest, taxes, depreciation and amortization.
Executives also are targeting Latin America. NH boosted its presence in the continent’s two fastest-growing markets in one fell swoop with the planned purchase of Colombia-based Hoteles Royal for €65.6 million ($74.2 million).
“Our opportunity came when four key things merged: We had a new team in Latin America; the family which owns Hoteles Royal decided they wanted to sell; we had sold a property in Sotogrande, Spain, which gave us some extra cash; and we unloaded our NH Bogota Parque 93 in the Colombian capital, which gave us another €21.5 million ($24.3 million),” Gonzalez said.
Under the terms of the agreement, the group will first take an 80.8% ownership interest and will later acquire the remaining stake, with the purchase adding 20 hotels of 2,257 rooms to NH’s operations in Latin America, divided between Colombia with 15 properties, Chile with four and one in Ecuador.
“With 15 hotels in Colombia, we will become the chain of reference there and the forecast for the country is good. (Gross-domestic-product) growth is around 4%, even with low oil prices, and if the government works out a peace deal with the leftist rebels, it is estimated that GDP could grow another two points.
“Also in its favor is the government ministries that we have dealt with are very professional, and as far as Chile is concerned; the economy there is doing very well so prospects there are looking good,” the CEO said.
NH took its first step into Asia under Gonzalez when it signed a deal to set up a joint venture with China’s HNA Group. The partners are putting plans into place to open six hotels under the Spanish company’s management by this summer.
“China today doesn’t have the huge growth momentum it did, but it is still a good time to enter the market. We’ve identified the team for China, and they will be carrying out the first phase on how to operate and add profitability, and create brands,” Gonzalez said.