There may be optimism for the recovery, but Accor can’t ignore the multibillion-dollar financial drag the pandemic had on performance last year and how it reshaped the company for years to come.
A second round of travel restrictions across Europe and even parts of fast-recovering China late last year sealed Accor’s grim 2020 financial fate.
The Paris-based hotel company, Europe’s largest and owner of brands like Novotel and Fairmont, reported Wednesday a roughly $2.4 billion annual loss as a result of the catastrophic impact of the global pandemic.
That figure is significantly higher than some of its competitors. London-based IHG reported a $153 million annual loss Tuesday. Hilton and Hyatt each posted a more than $700 million 2020 loss last week. Marriott reported a $267 million loss.
Accor leaders, while spending most of a two-hour investor call Wednesday on their optimistic outlook for the recovery, chalked up the extraordinary loss to travel restrictions and ongoing initiatives to better position the company for the future.
“This company is fighting,” Accor CEO Sebastien Bazin said to one analyst on the call. “In November, I did not expect confinement to be reinstalled in more than half of the countries [where Accor operates] between December, January, and February.”
Many European countries instated a second wave of lockdown measures in the fourth quarter to combat a surge of new cases. The restrictions hindered the ongoing recovery and meant Europe was Accor’s only geographic region to not see sequential revenue improvement at the end of last year.
Accor’s European revenue per available room, the hotel industry’s key performance metric, was down more than 73 percent in the fourth quarter after posting a nearly 57 percent decline in the third quarter.
China faced a similar, albeit significantly less dire, setback due to its own surge in cases in areas around Beijing beginning late last year.
Accor’s room revenue in Mainland China was “basically back to normal” in October, said the company’s chief financial officer and deputy CEO, Jean-Jacques Morin.
But the surge in cases meant the China portfolio ended the quarter with an 18 percent decline in RevPAR. The greater Asia Pacific region still saw sequential improvement from the third to fourth quarter.
Bazin noted only 2 percent of the countries Accor operates in have no travel restrictions.
“(Last year) is probably the worst year we’ve navigated through since [the company] was founded in the 1960s,” he said before later adding: “Eighty-five percent of our hotels today are open. Some have 5 or 10 percent occupancy, but, yes, the light is on, and we are open.”
Paring Back for Survival
Bazin and Morin generally focused more on what Accor was doing to better position itself for the other side of the crisis. The company enacted a $235 million cost-savings plan last year that shed 1,000 corporate jobs, moved focus away from the Parisian headquarters, and removed two regional headquarters in Europe and Asia.
The severance packages included in the cost-savings plan also contributed to the annual loss.
The company is currently renegotiating contractor agreements and is in the process of decommissioning 20 percent of its information technology systems, Morin said. This is on top of Accor’s ongoing shift to an asset-light model where there is significantly less exposure to real estate ownership and volatility in that market.
The cost-savings plan and restructuring of the company are expected to be long-term fixes.
“It has been a lot of work for the organization and a rethinking of how we do things,” Morin said.
A New Kind of Portfolio
No hospitality company has been as upfront as Accor about expanding into the so-called lifestyle hotel sector.
Accor leaders previously described these hotels as properties that generate as much as half their revenue from food and beverage offerings and focus more on a local connection than a traditional brand like Novotel.
Bazin gave a revised lifestyle data point Wednesday, saying these hotels generate more than 70 percent of their revenues from being “social and local hubs” with “foodie content” and culture.
“It’s meant to be for the local,” he said. “Business and leisure travelers will pop in because they know [the hotel is] famous and liked by the locals.”
The company spun out its lifestyle brands like Mondrian and SLS last year into a separate entity with Ennismore, owner of the Hoxton and Gleneagles brands. Accor has since entered into a partnership with Faena, a brand known for its lifestyle hotels that include arts districts in Miami and Buenos Aires.
The combined lifestyle entity, operating under the Ennismore name, has 13 of these brands.
The lifestyle hotel sector currently accounts for only 2 percent of the branded hotel supply in the world and 10 percent of the entire industry’s development pipeline, Bazin said. But at Accor, lifestyle hotels account for a quarter of projected franchise fees to be generated from the company’s 212,000-room development pipeline.
“I’m a big, big believer the lifestyle segment will account for probably more than 20 percent of all the hotel offerings on this planet in the next 20 years,” Bazin said. “It’s a major acceleration and a statement in where Accor should be positioning ourselves but also not forgetting our legacy brands.”
Photo credit: Late 2020 lockdowns across Europe and into China severely impacted Accor's ability to recover from the pandemic. Christoph Weiss / AccorHotels Germany / Wikimedia