Several CEOs from leading brand and management companies alike seem to agree that despite forecasts of a softening economy and declining hotel fundamentals in 2020 there is still plenty to be bullish about in the lodging industry for this year and beyond.
In addition to their respective performance outlooks, the panelists discussed the sizable shift that’s taken place in recent years as it pertains to both management and franchising strategies during a panel entitled “Boardroom Outlook: Branding Experiences” at last month's ALIS Conference.
The participants overwhelmingly agreed with moderator Scott Berman, principal, PwC, who suggested that while there may be some economic headwinds overall consumer confidence remains relatively high.
Dave Johnson, CEO, Aimbridge Hospitality, offered his perspective. “We see it in our assets, people are freely spending money…I don’t think its euphoric out there, but I think leisure travel is a really good bellwether of how people feel about spending money and our resorts are having a record year,” he said.
Mark Hoplamazian, president/CEO, Hyatt Hotels Corporation, has observed similar results and also pointed out that overall leisure “has been the leader” in terms of driving business to the company’s portfolio of higher end hotels.
“The consumer is alive and well. What we see is very sustained demand and good growth and that’s on a global basis. So people are not just of the mindset to spend the money but they are also continuing to be gainfully employed and spending money on vacations with their families and taking some leisure time. So it’s been very, very strong consistently,” he noted.
Hoplamazian did, however, acknowledge “on the group side we did see some weakness over the past year but it wasn’t on the corporate side.”
Elie Maalouf, CEO, The Americas, IHG, cited some reasons for optimism for this year and beyond. “You still have GDP growth in the U.S. and even globally. You have low interest rates, high consumer confidence, record low unemployment and pretty resilient financial markets. That’s a scorecard people will take to start 2020,” he commented.
In terms of longer term prospects, Maalouf emphasized that global travel grew 4 percent in 2019, which is in line with 60-year average, noting “that’s a tailwind for our industry.”
The CEO further added, “What’s powered our industry over the last 20 years has been the growth of the middle class globally. The middle class over the last 20 years has grown by 1 billion people and over the next 20 years the projection is 2 billion people. I can’t tell you what’s going to happen in the 3rd quarter of this year with [regards to] one particular statistic, but I can tell you I believe that we have an opportunity to continue to grow our industries and our businesses globally and in the U.S. as much or better than we did over the last 20 years,” he said.
Meanwhile, John Cohlan, CEO, Margaritaville Holdings, expressed less concern about macro-economic factors.
“What we notice is that when you deliver an experience for people they are more than happy to pay for it. What’s surprising at a lot of properties to me is how high a rate we achieve in those markets and how much spend there is. People don’t stay in hotels 365 days a year so by definition it’s a special occasion. They are surprisingly willing to pay for an experience and I think you’ll see that even as the economy turns, which obviously at some point it will,” he stated, later adding, “one of the last things people give up is their opportunity to take a break.”
Meanwhile, the third-party management landscape has continued to evolve, particularly in light of Aimbridge’s merger with Interstate Hotels & Resorts in 2019 creating an operating giant with more than 1,400 properties.
“We’re in a great position because we’re everybody’s largest franchisee. We get to partner and see the best of the best out there. The reality is we’re the best consultant money can buy with brands. I think scale matters and I think it’s going to continue to matter even more. We have to have a value proposition for the owners,” said Johnson.
From a branding perspective, Johnson further discussed the ongoing shift within the industry from primarily brand managed properties to more independently operated and how it dovetails with the company’s growth.
“As we grew the company we spent a lot of time understanding why is there this shift? The choice of third-party versus brand [management] is typically driven by capital. The reality today is more and more people, and I think it started with private equity, have said ‘there’s some inherent conflict with the brand.’ The brand they’ve got to be a good steward of the brand first. I have to be a good steward of the owner,” he said.
Many of the brand leaders acknowledge that shift but also still see management as being critical in maintaining their brand integrity going forward.
Hoplamazian, for example, noted the company still manages some 70 percent of its portfolio. “The key from my perspective is the quality of the management team that’s in place whether it’s the person who works for Hyatt Hotel Corporation or Aimbridge. Continuity is really critical and one of the realities that we see is that
turnover is killer. So one of the things we have to really pay attention to and make sure we can ensure is that we’ve got to continuity and someone who is going to be there longer than a few months at a time,” he emphasized.
Maalouf offered a similar viewpoint noting that IHG’s iconic Holiday Inn brand was something of a pioneer in terms of franchising in the U.S.
“Both management and franchising are really at the core of our company and our legacy. We kind of grew up with both and they’re really essential to our business and our culture. The decision for us isn’t one or the other it’s what’s right for market, what’s right for the owner and the region,” he said.
Maalouf further added, “if we don’t manage our brand and if we don’t have some presence in that I think we lose something in the soul of our business. Franchising will be for the scale, but the managed business will be for our soul.”
Cohlan also strongly emphasizes the brand experience, particularly as it relates to third-party management. “We really are a lifestyle brand, which means we’re in a lot of different businesses. People often ask me what business are you in and the answer is actually very simple; we’re in the training business. We are a training company and we exist to train the Aimbridge’s and Davidson’s of the world and we exist to develop long-term relationships with them. Because it’s much simpler when Aimbridge is managing their fourth Margaritaville and Davidson is managing their fifth, for example. It’s all about training,” he noted.
Hoplamazian reinforced the point as the company has increased its full-service and luxury offering. “Our time and attention is being paid on how do we engage with Aimbridge to ensure that the guest experience actually can be delivered,” he said.
As the largest independent operator, Johnson was asked his view of the brands and described the company as something of a “Switzerland of the brands.” He noted, “we’re a good advisor to an owner because we’re brand agnostic. We’re trying to push you to the model that’s going to generate the highest returns.”
Johnson did, however, take issue with the number of new brands being launched and the public pressure the brand companies face as c-corps to grow units.
“The brands continue to launch new brands. Hilton just launched two more in the last 90 days. The reality is if you’re customer growth is going up at a rate of 3 percent a year, but you’re growth in units is going up 6 percent a year at some point something’s got to give and that’s going to have a big effect on the owners,” he noted.