Interview: Virgin Hotels CEO on Why He’s in the Entertainment Business

About 40 percent of guests at the year-old Virgin Chicago are Millennials, and 60 percent of this group are female travelers.

Like the parent Virgin brand, the hotel group focuses on creating a spirit of inclusivity and and incorporating evolving consumer trends among these Gen Yers, but not to the point where that disenfranchises older generations.

Finding that balance is tricky, but having Richard Branson’s lifestyle brand on the front of the hotel helps. At least that’s what the hotel company is banking on, in part.

Raul Leal, CEO of Virgin Hotels, says the key to success in hospitality today is about developing a loyal and like-minded audience across all age groups, who share values about who they are and how they want to live their lives.

Meaning, for the lifestyle hotel sector to avoid becoming a commodity like the big legacy brands, hospitality professionals need to find a way to engage their customers on a more nuanced and personal level that speaks to their identity.

Making hotels that answer equally well to the needs of business and leisure travelers is one way, both in the guest rooms and a variety of activated social spaces. Designing hotels that take into consideration the needs of solo female business travelers is another.

Since the Virgin Hotels brand was announced in 2010, the company has faced a lot of challenges actually getting hotels off the ground, which we discussed with Leal last year. However, 2018 and 2019 should be pivotal years for scaling the brand.

Presently, the Virgin New York is under construction in Manhattan’s Garment District, and is scheduled to open in 2018. Looking ahead, Virgin Hotels properties in Nashville, Dallas, and New Orleans are expected to break ground later this year and early next. Palm Springs, Miami, and London are potentially next.

Following is a slightly edited version of our one-on-one interview with Leal in New York.

Skift: A lot of legacy hotel brands have launched their own lifestyle flags because there’s obviously huge demand for more independently spirited hotels with a unique voice. At what point does the whole lifestyle hospitality segment become a commodity?

Raul Leal: I think, and people will say, “Well, how can that be? It’s a small percentage of the pie.” The way the bigger brands are treating it, they’re making it a commodity. The moment that you open a product that you’re saying is going to be different, it’s going to appeal to a newer generation, but then you encumber it with the same loyalty and legacy traditions of the past, it loses that uniqueness. An example brand today that is one of the better brands out there is Ace Hotels. It’s a very specific brand with a very specific following and a very specific demographic that I think will grow them. It’s really not about points. It’s about the experience the Ace Hotel provides.

The moment you roll out something and call it “lifestyle” because it’s a different design than what you’ve been doing for 50 years, you’re making lifestyle a commodity.

Skift: Since you brought up Ace Hotel, their development philosophy is this idea that every hotel is a one-off, unique to its location from the ground up. But that’s a very expensive way to build hotels. Does Virgin Hotels have the same development vision?

Leal: To some degree. We think that to make a successful hotel, it totally has to be involved in that community, and it does have to be unique and have attributes that people will gravitate to, so we agree with them on that.

In our case, our vision is a little unique because of the broader Virgin brand that Richard Branson has created, which is not a generational-specific thing. In Chicago, you’ll notice that in the coffee bar, for example, it’s mostly the Millennial population. If you go to the diner, you’ll see a lot of Gen X couples and kids. And if you go to the Commons Club, it’s a little more sophisticated than anything on the second level, so you’ll probably see 60-year-old world travelers having martinis.

The Virgin brand is more about a group of people that do have a certain opinion about things, about how they want to live their life, how they want to experience their life. It’s definitely not about age, we don’t believe, but we think the hotels do have to be unique as you go from place to place.

Skift: Does all of the consolidation in the hotel industry influence how you might position Virgin Hotels moving forward?

Leal: It helps us. I believe it helps us in the growth cycle. We’re never going to have 100 hotels. That’s just not what Virgin does. We’re just never the biggest. We’re going to have a group of 20 to 25 hotels, at least in my lifetime, that will be unique and special. There are lots of brands out there today that don’t really provide an experience, so I think from that perspective, there will be opportunities for us to step in and say to owners, “Look, we will rebrand you as a Virgin Hotel” and give them an upside.

You’re going to see lots of that happening in the next few years because there’s so much consolidation between two global brands. And from an area of protection perspective, all of the sudden, you’re seeing one hotel brand next door to another brand that is part of the same loyalty point program. So what does that do? How does that help you? It doesn’t, right? I think we’ll see a lot of fallout from the brand consolidation activity in the next five to 10 years, in my opinion.

Skift: The Virgin New York broke ground a few months ago. What is the overall development and design vision for that property?

Leal: I go back to these guys, Ace and Nomad, who did an incredible job here in the Garment District, re-establishing this area strongly over the last 10 years. For us, with the group we’re developing, it seemed like a natural location for us to be. What will make this hotel special is that even though it’s a big glass tower, it will have a very garden-like feel on several levels. The outside areas of the hotel will be spectacular. I think it will be something that consumers here in New York and people that live here in New York will gravitate to because there will be lots and lots of outside areas with lush vegetation. It will have a very different point of view from the rooftops and terraces throughout the hotel.

Skift: Where are you opening the next Virgin properties?

Leal: We have Nashville under contract. The Virgin brand purchased the project so we now own it 100 percent. There are 240 rooms and the address is 1 Music Row right next to all the music studios. We’re going to put a recording studio inside the hotel with one of the people that once ran one of the big recording studios. I think it will be a unique destination with an incredible rooftop, something the area hasn’t seen yet. That’s scheduled to open in a couple of years.

Our Dallas project breaks ground in September, so 2018 and ’19 will be big years for us. We have signed deals to do New Orleans, which should break ground at the end of the year a block from the Ace. We’re following these guys. We intend to break ground in Palm Springs at the end of the year. We’re very close on some transactions in California in some of the major cities. I think in the next six months, you’ll see some announcements from us in that market that could move relatively quickly, and we’re very close to Miami as well. We’re also looking at doing something in London hopefully fairly soon.

Skift: When Virgin Chicago opened, there was a lot of discussion about how the guest rooms were positioned as two-room “chambers” with the sliding door, specifically for the solo female business traveler in mind. Is that still part of the brand’s positioning?

Leal: Great question, I’m glad you asked. In essence, what we wanted to do is create a better room through the eyes of the female business traveler, but then also a room that you and I would love. It’s just a better room with a bigger shower and a better bed. Basically, we wanted to be able to deliver service where someone can be naked behind closed doors if they wanted to be, who could see the in-room service person, but they don’t see you.

At the end of the day, it was never really about the female traveler, but it was about seeing it through the eyes of the female traveler. It’s an evolution of the old Marriott Courtyard message, “For business travelers designed by business travelers.” That goes back to the ’80s and ’90s, but in the ’80s and ’90s, 90 percent of business travelers were men.

So far, in our first year, 40 percent of our guests are Millennials, and 60 percent of those are female travelers.

Skift: What keeps you up at night in terms of the future of hospitality? How do you keep innovating?

Leal: From our perspective, as this company innovates, we’re always going to be looking to improve the product as much as we can without it being kitschy, without trying too hard. The heart of it is consumers have to be comfortable. We have to execute and deliver our service, and we have to provide culinary experiences that are creative. And in every hotel that we do, we’re surely going to try to do something unique that gives travelers a few more choices about entertainment experiences, so I want to articulate that.

In every hotel, we’ll have a live music venue inside the property. Chicago has a hidden room on the 25th floor that we don’t advertise. We have a head of entertainment and music at each hotel, and in Chicago in the first year, we had 253 live acts. We go out to the community and bring local bands in to play and bring their crowd. My opinion is that we’re in the entertainment business. If we don’t want to be a commodity like everybody else, we have to adapt from market to market.

Besides the great product, we have to provide experiences where people want to go because they know they have choices. So say you’re going to be there for business. It’s going to be great for business. We’re going to have everything you need from a business perspective, but also, you can entertain clients there and you can have a great experience if you want to bring your family or friends over to extend the business piece of it.

Skift: Does that mean you’re thinking about activating the public spaces with live programming and special events at the start of the design phase?

Leal: Yes, exactly. You can’t design and build a hotel and then say, “I want to activate the space,” which is what happens in most hotel companies. If you’re thinking about activation from the product perspective from day one, then you understand how to activate it the day that you open, not the other way around.

So the music venues are there because we said, “We need to make sure that we extend the music legacy of Virgin.” We have the ability to do that because of the brand. We said, “Here is a space that could be unique. It’s not open to the public, generally. It’s for events, and if you’re a hotel guest, you may or may not know that it’s there, depending on the event. It’s often by special invitation, it’s curated.”

Same thing with the Commons Club. The Commons Club was designed to some degree to be able to curate events, whether it’s business, fashion, food, or film. So in the end, you’re able to tie in the cultural pieces and the programming piece, instead of saying, “You got the space, now go program it.”

Skift: What is your take on driving direct bookings and working with the online travel agencies (OTAs)?

Leal: I don’t think the OTAs are the enemy. I don’t. I ran a company before this that had 20 different hotels, and we had to make each hotel work on its own basis because they were each their own brand. We used the OTAs to build the base of business, but then we revenue-managed properly to make sure that our direct website results were strong. We never considered them the enemy. We thought they were terrific for our business.

I think in today’s hotel world from the digital side of it, we’re focusing on the wrong thing. We’re focusing on not making things work. The OTAs are not going to go away. They’re big companies with tremendous advertising budgets. I think there is a way where we’re able to live in the world together, but our industry needs to do a better job of management.

Also, If we did a better job of creating websites that we can definitely drive direct results through, then we’re stronger from that perspective.

Skift: What does a better hotel website look like?

Leal: The key to the website is the back end and content development. It’s totally not just the flashy pictures. Sure, the website has to be enticing enough on the front end that people will go there, but also it has to have the ability to drive customers in deeper and book direct. That’s the key to the industry.

Skift: What does that mean, exactly?

Leal: The website has got to have strong content because content will drive business through your website. If it’s relevant content, if it’s content that guests want to see about the hotel, the area, the real experiences that are happening, and real reviews, that’s all content to the website that will draw strong results. If you look at most brand websites, they’re fairly innocuous. They’re about the brand, they’re not about the individual asset. That’s where they struggle.