Having more brands when cheap money is chasing real estate is good for Accor, but may not be for its hotel owners. This is especially true in Asia where owners are hoping that in time it won’t be a case of too many Accor hotels chasing too few hotel guests.
Here’s a quick test: Which global hotel chain has the most number of brands?
Most people would probably say Marriott International after it acquired Starwood Hotels & Resorts. But Accor actually has more brands than Marriott today, thanks to its acquisitive CEO Sébastien Bazin, who has also encouraged the birth of new Accor brands, the latest being Greet and Tribe.
Marriott has 30 brands and Accor, 39, excluding non-hotel acquisitions such as John Paul, D-edge, and Wojo.
And in current uncertain macroeconomics and geopolitical conditions, Accor says it’s in a sweet spot to expand as cheap money chases real estate assets that need brands plastered across buildings.
At end-September, the chain had 4,946 hotels with 726,345 rooms, and a record pipeline of 1,181 hotels with 205,000 rooms. It’s on track to operate 5,000 hotels by end-2019, which means more management and franchise fees even if revenue per available room (RevPAR) continues to shrink in the fourth quarter in its key Asia-Pacific markets such as Hong Kong, China, and Australia.
Europe and Asia-Pacific comprise the bulk of Accor’s business (80 percent), and while the chain cannot double down on expansion in a mature region such as Europe, it certainly can and is doing so in Asia-Pacific despite headwinds.
Asia-Pacific is now 31 percent of Accor’s portfolio and 50 percent of its pipeline as of end-September, the chain’s third-quarter earnings presentation last week revealed.
But Asia-Pacific is a bummer, worrying analysts who honed in on a drop of 1.1 percent in RevPAR (revenue per available room) of Accor hotels in the region in third quarter over the same period last year — the only region that posted a decline.
Though an overall drop of 1.1 percent may seem small, Hong Kong’s RevPAR tumbled 32 percent, China, 3 percent, and Australia, 1.6 percent.
Management/franchise revenue in Asia-Pacific, however, rose a healthy 9.1 percent, which indicates more hotels joining the system in the quarter. Therein lies a potential problem.
For Accor, being asset-light and brand-loaded might be great, but it comes at a time when Asian owners have not stopped questioning global hotel chains’ capability to produce, especially when times are tough. Some are even suing. Thailand’s Minor International is taking Marriott to court for an alleged non-performance of the JW Marriott Phuket, which it owns. The Hongkong and Shanghai Hotels, which operates the venerable brand, Peninsula, is in a legal suit with its 50:50 owner of The Peninsula Hotel, Bangkok, the Phataraprasit family, also over alleged non-performance.
Some owners see chains consolidation and brands proliferation as an issue because of market cannibalization. But Accor’s Bazin in an interview with Skift said no owner globally has left Accor because of it.
“We have owners of Ibis, Novotel, Fairmont joining us again because of our new brands, be it Raffles, Banyan Tree, Greet or Jo&Joe, et cetera. Sixty percent of new hotels are in the hands of existing owners, and they are super happy we launched Greet because it’s eco-friendly, and Jo&Joe because it targets a market Accor was not present in before,” said Bazin, who was in Singapore on October 19 for the grand reopening of Raffles Hotel after a restoration.
An asset-light strategy also does not mean Accor is benefiting more than owners, he said. “Owners know well that 90 percent of what we receive from them is reinvested in loyalty, social media, IT infrastructure, human capital training…for the benefit of the brand, owners and guests. Owners have better returns on investment than us, and I respect this.”
Asked about the dire situation in Hong Kong, where Accor operates seven hotels, he said that’s “very little for a wonderful place such as Hong Kong.”
“Hong Kong will become Hong Kong again, I can guarantee this, I am an optimist,” Bazin said. “In a downturn, some people want to exit, but it’s the right time to buy [assets]. There has never been a better investment.”
He said Accor’s mantra is always to be “the best loyal partner” in a downturn.
“Accor operates in 110 countries. In every quarter, I have a bad surprise in one country and a good surprise in another. In most cases, I don’t control those events, they are geopolitical or macroeconomics. That’s been the case in the last 50 years and will be the case in the next 50.
“But the one thing we’ve done and will continue to do is to be the best loyal partner in a downturn — keep the hotel open, preserve the employees; we may suffer two or three years but we’re there when they need us the most. We’ve done that in Africa, South America, and I’m not worried about Asia-Pacific. They will resolve one day the trade war, and you’re going to see Australia, Thailand (and other most affected countries) coming back. Until then take advantage of uncertainties by scaling up; the best opportunities are in downturns.”
A “deteriorating” U.S.-China trade war and the summer of discontent in Hong Kong affected Chinese outbound travel and the business across Asia-Pacific, especially in places such as Thailand and Indonesia, where the outbound flow of Chinese is significant, Accor Deputy CEO and Chief Financial Officer Jean-Jacques Morin said during third quarter earnings call last week. Moreover, the trade war tension has a spillover effect on Australia, China’s number one trading partner. Sydney’s occupancy is at its lowest level since 2009, he said.
Given the conditions, has Accor seen perhaps more difficulties in signing new openings going forward? Morin, answering the question from an analyst, said, “What’s happening here, which is really helpful for the industry, is that with money being so cheap, you see that a lot of people [i.e., owners and developers] pursuing a lot of real estate opportunities. And this has not fundamentally changed at this juncture.”
Morin said having brands “are really helping.” He gave Movenpick as an example, saying there are 14 more in the pipeline in less than a year since Accor acquired the chain.
He said Accor’s third-quarter performance, where overall revenue rose 4.1 percent to $1.17 billion (1,049 million euros) despite a mixed international environment, validates the company’s asset-light business model, as it is low capital but generates high cash.
“Even if economic conditions weigh on RevPAR, as we saw this quarter, the fee growth is supported by a strong development pipeline. And that reflects, in fact, the powerful brand equity of the company,” said Morin.
Accor expects to make a gross profit of $915 million (820 million euros) to $938 million (840 million euros) this year.
ALL or Nothing
Meanwhile, apart from small acquisitions such as backing chatbot maker Mindsay in a $10 million Series A funding, Bazin has kept to his goal of channeling his energies on building teams, brands and loyalty this year.
“What we’re spending most of our time on is the launch of a new mobile app, new loyalty program ALL [Accor Live Limitless] with a new set of partnerships…and the integration of a common reservation/customer loyalty system applicable to all the  brands of Accor, while continuing to develop gross returns and cashflow profits to our shareholders,” Bazin said in the Skift interview.
Owners can expect incremental revenue from ALL from early 2020, when guests are able to earn and burn the loyalty program’s points. Bazin won’t say who new partners are in the loyalty plan, apart from the three big names it announced in February, Paris Saint-Germain, the world’s fastest-growing football club; AEG, a sports and live entertainment company; and IMG which organizes chef masterclasses and Taste Festivals.
But he said Accor is “well on track” to achieve a partnership revenue of 100 million euros in the next three to four years through ALL, from “a ridiculous $6 million euros” without ALL, and a three percentage point increase in room revenue.
On building a stronger team, Accor has launched a new international employee share ownership plan in 12 countries; stepped up employee training; and embarked on a new corporate culture journey, “We are all Heartists,” a combination of two words, heart and artistry.
“Everyone in the field has a heart. They may not have 20 years of expertise, but they mean well and in front of the guest should be deciding with their heart. Most of the time, they will be right,” said Bazin.
Accor is also allowing employees to spend more time on pro bono work and has pegged their bonus to corporate social responsibility.
“Sustainability has been very critical for Accor in the last 25 years but more so on saving the earth — climate change and the like. That won’t stop but I’m re-shifting and reinforcing the focus on human capital — what are you doing for the handicap, gender parity, pro bono work — because that is as critical as saving water and energy,” said Bazin.
As for being acquisitive again, Bazin said it’s not a priority, but “a means to continue to have density and market leadership.” Asked if he was ever interested in taking a stake in Oyo, Bazin said of the budget hotel chain founder Ritesh Agarwal, “He is entering an interesting field, the below 30 rooms, which is vastly inoperable, with agility and a blank sheet. He’s different. I love to spend time with him as what he’s building is intriguing.”
But they are just friends.
A less-acquisitive Accor CEO who is enhancing teams, brands and loyalty may provide limitless optimism to Accor hotel owners, especially in Asia-Pacific, that all will be well.
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Photo credit: Grand reopening of Raffles Hotel Singapore last Friday: Accor has much to celebrate as Asia-Pacific pipeline grows. Accor