Hyatt Hotels Corporation is not the biggest hotel chain.
At 611 hotel properties and 162,336 rooms, Hyatt is no Marriott (with Starwood: 1.1 million rooms, 5,500 hotel properties, and 30 brands), InterContinental Hotels Group (750,000 rooms, 4,500 properties, and 10 brands), Wyndham Worldwide (678,000 rooms, 7,800 properties, and 16 brands), or even Hilton Worldwide (750,000 rooms, 4,500 properties, and 11 brands).
It’s a mini-major, a big boutique, or something in between. Or as CEO Mark Hoplamazian told attendees of last fall’s Skift Global Forum, it’s a bit of humanity mixed with empathy, that happens to sell some high-end hotel rooms. It also doesn’t do bad financially. Along with quarterly reports that reveal solid earnings, if you divide Hyatt’s market cap by number of rooms, it beats out every competitor by more than $10,000 a room, including Airbnb and HomeAway, too.
That’s not to say it likely wouldn’t mind getting bigger. Beyond ambitious projects like its new New York City flagship Park Hyatt property, and its latest brand the Unbound Collection, Hyatt is experimenting with size. Although in October reports had Hyatt as a leader in the Starwood acquisition game, that failed to materialize. On one hand Starwood was the right buy: It shared the same class of higher-end travelers, as well as a similar weakness in the budget and select-service categories, which investors keep saying they want a hotel brand to have.
Nevertheless, Hyatt continues on with its 12 brands (all eponymous, except for Andaz) and singular focus on its own brand of service and loyalty.
Skift spoke with Hyatt CEO Hoplamazian at the WTTC Global Summit in Dallas last week, the day before the Marriott and Starwood shareholders’ votes. We started with the obvious elephant in the room: Size.
Skift: The focus for a lot of people in hospitality lately has been size: What’s IHG going to buy to get bigger, what’s Accor going to buy to get bigger, what’s Marriott going to buy to get bigger? Why the focus now on size?
Mark Hoplamazian: It’s a good question. You know, frankly, I’m a bit perplexed by what feels like a very automatic response right now, which is the knee-jerk reaction that bigger’s better. Therefore, what’s getting reported is a hyperfocus on size being the be-all to end all. There are certain elements of our industry that benefit from increased size, and there are others which are detrimented by it, where there are dis-economies of scale. I think it’s basically been a dumbed-down kind of approach to covering this topic.
For us, I look at what’s the necessity of size and scale, and can you be a smaller company and still be successful. I think we’ve already proven that. We, Hyatt, have already proven that, because we’ve been smaller, much smaller, than Marriott or Hilton or IHG.
Skift: You’re not small, but you’re smaller?
Hoplamazian: Right, much smaller. We’ve got 630 properties, not 4,000, 5,000, or Wyndham at 8,000 properties. Or from a room count perspective, we’re at 160,000 versus 750,000. I guess we’ve been competing at a much smaller scale for years, and very successfully, though. I think the proof’s in the results, and our performance from a top-line perspective, from a RevPar perspective, from a margin perspective, from a pipeline perspective, is all very, very strong.
One of the sell-side analysts asked at our last earnings call how would we explain the fact that we were outperforming the industry so consistently. It makes me laugh, because I think it is this autonomic thing that says instantaneously size is the be-all to end all, and we don’t believe that. The question is how do you actually go to market to be effective, and in our case it’s about focus.
Assuming that the Marriott/Starwood merger closes, we will soon be the only multibrand, multinational company in the industry that is clearly hyperfocused on the high-end traveler. Every one of our brands in the different segments that we operate in are positioned in the top end of that particular segment. So that focus on the high-end traveler, a second focus on experiences, and third, how we enlist our own colleagues to bring those experiences to life and how we operate on that dimension. Those are all critical to our success.
Another example — one of the key benefits of this bigger size and scale — is increased negotiating leverage with online travel agencies [OTAs]. That’s what the sell-side analysts are writing, and this is what the press is writing.
OK, let’s actually talk about that.
Let’s assume for a moment that there’s some significant advantage, and you could even make up how you could size that potential advantage if you stipulated to it. The totality of room nights that are being sold through OTAs for either Marriott or Starwood — you can ask them yourselves — I’m guessing it’s in the low double-digit range of the total room sales base that they have.
OK, so if that’s the case, and they’re going to pick up 100 basis points or 200 basis points (I don’t know what the number is) of advantage over reduction of cost for 10 percent of their business. That’s really the rationale to do a $14 billion transaction? I think the level of rigor that’s being applied to the kinds of statements that are being made is a little surprising.
SKift: Well, [Hilton CEO] Chris Nassetta rolled back some of the more aggressive comments about OTAs. He said basically, they’re our friends. They’re great.
Hoplamazian: Let’s talk about scale. The combined Marriott and Starwood will have maybe 5,500 to 6,000 hotels, and I don’t know, 1,100,000 rooms. Expedia by itself has 250,000 hotels that they represent, not to mention the Priceline universe. If you want to talk about size and scale, let’s talk about size and scale. When you talk about the totality of how travelers at large are being approached, those platforms are vastly larger than what the combined Marriott/Starwood will have.
Again, it depends on what dimension you want to talk about, and frankly, I didn’t hear Chris’s comments. But the OTAs play a role in the industry that is hard to replicate because they’ve got big reach, and they have big reach in terms of customers and travelers that may not have a lot of experience with our brands or other brands. They may be on the fringe of travel because they’re infrequent travelers. They just make it easy for people to actually come into the industry or come into travel and access it, and I think that’s actually a good thing.
There’s no question that our focus and everyone’s focus seems to be to further enhance and develop the relationships that we have with our own customers, and that’s going to be a continued absolute focus for us because that’s actually what matters. That’s what will drive brand loyalty over time, so you have to enhance those relationships. From time to time that may create friction with OTAs who are trying to do the same thing, but there’s no question that their platform, which looks really different to what we do and what other branded companies do, is a value to travel at large. There’s no question about that.
Skift: Every time we’ve talked about mergers, it’s focused on loyalty and loyalty programs. On the flip side, you look at a brand like Four Seasons which has a great relationship with its customers, and doesn’t have a loyalty program with points or things like that. Does it seem like points-based loyalty for scale is a very simplistic?
Hoplamazian: It’s a great question and not something that’s been talked about that much, and we haven’t really discussed our rethink on this. We’ve recognized that if you conceive of loyalty through the lens of a transactional interaction, then you’re destined to a commoditized future.
If all it is is an organized discounting system: There’s no emotional-based relationship that you can develop out of that. That’s just price.
Increasingly we are rethinking loyalty in a very, very broad way. Not just the program but also what it means to actually extend the sense of our brand and our purpose to those interactions with our guests, and having that be the center of our focus and attention.
Yes, we will maintain a points program as well, because I think it does actually create some recognition that is giving something of innate value or inherent value to someone who’s a big customer of yours. But that’s going to be the end of the effort. There’s going to be other things that we will focus on, and most of that is going to be around creating experiences for people so that they can experience our brand in more diverse ways. That’s actually the rewrite that we’re in the process of doing right now. I think we can do it, given our scale.
One of the things that could be a problem from a scale and size perspective is once you get to a vast system, being able to actually spend time with and get to know the individual customers or your individual meeting planners in a more intimate way, and then taking some action around that, is harder to do.
We have an internal equation that I use at Hyatt which is empathy plus action equals care, so you have to first engage in empathy and understand what’s going on with the person and understand what they’re looking for. You have to take some action around it, which increasingly means creating some interesting experiences for them. And engage emotionally with them. That is the demonstration of care for them, and care is really the center of our purpose. It informs how we’re doing everything, including how we’re growing.
Skift: Another question, a thing that you guys are doing a little differently is you’re not going all out on the asset light strategy. You bought the Thompson Miami, which you’re turning into something else. Why? Why do something that supposedly all the smart people aren’t doing right now?
Hoplamazian: There are two different ways to think about this. The first is that in our business, in our industry, branded hotel companies, without exception — I mean that categorically, without exception — have used capital to help grow their brands. I don’t care who you point to. Every single company, big ones, small ones, medium ones, you name it, they have used their own capital to get their business going.
When Marriott was our size, even larger than we are today, they owned vastly more real estate than we do today. They were forced to spin off their real estate because they were close to bankruptcy in the early ’90s, so it was a necessity for survival. Hilton, to this day, owns a huge base of real estate, although they’ve now announced that they’re going to spin it off. At different points in time, having the ability to deploy capital means a lot in establishing brand presence in different places. For us, because we are under-penetrated or not penetrated or not present in a number of markets, we recognize that we would want to utilize capital to go and secure a position in a given market.
An example is Mexico City, where we were absent for 25 years. The Nikko Hotel became available for sale, and it was a clear opportunity for us to re-establish presence there. Therefore, we purchased the hotel and converted it to the Hyatt Regency Mexico City. Orlando, a market which we had focused on for years to have a very proper, big convention hotel, the Peabody Hotel became for sale, and we purchased that and it is now the Hyatt Regency Orlando. Wailea, a market that we had been out of for 30 years, or 25 years at least, in Maui, had an opportunity to joint venture with Starwood Capital and create the Andaz Wailea, but that required capital.
I don’t think we’re doing anything that’s unusual for the industry, but the way in which we’re thinking about it is first to recycle the capital that’s invested in our assets. To fund those acquisitions, we are selling other assets that we already own, so we’re not trying to grow our asset base for the sake of growing it. We look at our asset base as a means to an end, and for us, given our size and scale and how we’re going about it deliberately, in a very focused way, in a very intentional way, growing, utilizing capital can be really beneficial.
I would say that, over time, we will continue to recycle assets. It’s been very valuable for us from a market penetration. I just gave you three of many examples, but it’s also been valuable because, over time, the asset base that we now own has evolved over time and the quality of the asset base has continued to increase, because we’ve sold out of some maybe markets where you don’t have as much compression or as much reliability in the downturn, into markets where you’ve got more stable stores of value in these assets. The quality of the portfolio has improved at the same time that we’ve entered a bunch of new markets.
Skift: Can you speak to Hyatt’s plans in terms of tech and mobile and messaging?
Hoplamazian: It’s interesting because I think we were the very first company, probably seven years ago — I think it was 2009 — to launch a Twitter-based concierge, @HyattConcierge, and it’s been magnificent. I love it. I am on the platform, and I tweet and also follow a lot of what’s happening, so I’m on Twitter several times a day sort of seeing what the flow looks like and so forth, and the level of engagement and interaction with our guests is really great.
There’s been a recent hyperfocus on chatbots, and we made some very deliberate decisions to actually keep it human. I’m not saying that there’s not a role for chatbots in some dimension of guest engagement, but it’s probably going to be narrow applications. The core communication platform for us has to be human. It has to be a real person on the other side of that equation, otherwise it doesn’t really fulfill sort of our representation of who we are and what our brand stands for.
The other thing is chatbots may increase efficiency and effectiveness for deployment of a product or a service at some level, but it doesn’t really satisfy having, you know, the sentiment of a brand communicated as you go through that. Increasingly, we’re focused on experiences. You cannot script experiences, and you can’t take a transaction and pretend it’s an experience. We have to be very cautious about what we do and how we do it, so we’ve been very thoughtful about that.
We’ve also been using Facebook Messenger as a new vehicle for guest engagement, and it’s been really successful in terms of expanding the number of people who are, through that social platform or any social platform, interacting with us. It’s been really very valuable, so we’re going to continue to proliferate and design different things and test and refine things, and probably kill some along the way as well.
Skift: You’ve talked about experience a couple times, and the new brand that you rolled out …
Hoplamazian: The Unbound Collection.
Skift: You talked a little bit about, “Hey, it starts with properties, but it could be more.”
Hoplamazian: It will be more.
Skift: It reminds me of Design Hotels, which is smaller, but with their Originals product they’ve rolled out an outside of the hotel type of experience. How do you go from taking it from a nebulous thing every hotel talks about to being something real and people can identify as part of your brand?
Hoplamazian: If you think about the spectrum of possibilities, at one end of the spectrum you’ve got the traditional hotel experience and at the other end of the spectrum you have experiences that are outside of accommodations, but travel-related or maybe life experience-related, so that’s a very wide spectrum. In between, you’ve got all kinds of different flavors of different things that you can imagine, so we’ve been actively engaged in both making some investments but also experimenting with different ideas, different types of accommodation models. We’ve got a few things in the hopper at the moment that we’re experimenting with.
Skift: Which would be what?
Hoplamazian: Stay tuned. I would say that maybe the first thing that you might see is some additional alternate accommodation models that are not traditional hotels, so that’s one dimension. As you go further out and really focus on experiences, it’ll include other things as well, and those will show up in a way and derive from a lot of the work that we’re doing around how we’re rethinking loyalty. How do we understand what people are really looking for from an experiential perspective, from an emotional perspective, and how can we design things that would actually fulfill that for them?
It’s really very much derived from your guest base. We’re thinking about our guest base and the segments that we’re really focusing on as the people around whom we will design these kinds of experiences. That’s really a lot of the work that we’re doing right now, which is to drive more and more of what we are learning into and synthesizing that into something that we can actually deliver on that would be unique, and really enlist them and engage them in a big way.
It’s going to be, initially, alternative accommodation levels, then it would include additional kinds of experiences during travel, and then it’ll probably extend to also include things that would be unique experiences that would be appealing to a big slice of our core segments. That could be in music, it could be in art. We already have some hooks in …
Skift: Not necessarily where they’re traveling?
Hoplamazian: Correct. We already have some hooks in those areas. We’ve got the Andaz Salon series, and we’ve enlisted great engagement from a lot of different artists of different types, different kinds, around the world. We’ve got a number of initiatives under way under the Park Hyatt brand which is around Masters of Food & Wine, which is at the high end of the culinary scale of both food and wine, but we also have other tastemaker relationships that we’ve developed that really relate to art and other pursuits that our core Park Hyatt guest base would look for. Those are some examples of things that are already sort of embedded in each of our brands, but we’re talking about extending that further.
Skift: Right. Do you think your size gives you advantages to actually be able to deliver on that? You’re big enough that it matters, and you’re small enough that it can actually happen?
Hoplamazian: Yeah. I think there’s a big return to focus. If you stay focused on a core base of customers that you want to get to know better and better, and you figure out ways to do that that are appropriate and authentic, what you can derive from that is significant. How you take that and translate that into something that would be of great value to them, both maybe as financially measured but also experientially measured, is really powerful.
I would say that we have the benefit of focus, because that is what we’re doing. These are the core customer segments that we are focused on and that we’re going to continue to focus on. I think that it is one of the advantages of our size.