Big, global hotel companies weren’t exactly pandemic success stories. However, they still want to market the notion there is more value in a global network than going it alone as an independent operator. Getting left out of the expected summer travel boom is what it will take for smaller operators to accept that logic.
An economic crisis is a terrible thing to waste, investors cavalierly say when it comes to snapping up bargains amid financial turmoil like the Great Recession of 2008.
That ideology was expected to ring true during the pandemic, but there hasn’t been the crashing wave of distress and bargain pricing many hotel investors eagerly anticipated. Investment funds targeting hotels announce deals almost on a weekly basis, and major investment firms like Blackstone and Starwood Capital have circled the hospitality sector for deals.
Keep waiting, some of the CEOs of the world’s largest hotel companies argue. Opportunities are still likely in the months ahead.
“At the end of the day, we know a lot of the small guys … are probably suffering,” Accor CEO Sebastien Bazin said this week on a chief executive virtual roundtable at the NYU International Hospitality Investment Conference. “They are not out of the woods yet. You’re going to see how fragile they are.”
Bazin, like most hotel executives and industry analysts, points to various forms of government relief and lender flexibility during the pandemic as what kept most properties from changing hands during the worst of the health crisis.
The expected surge of summer travel around the world is likely to put an end to various forms of government relief that kept struggling hotels in business. It becomes a tougher sell to get central governments to pump more capital into an industry expected to surpass 2019 occupancy rates in coming months. In China, companies like Marriott and Huazhu already saw higher rates of business travel in certain months this year than in 2019.
But not every hotel is going to snap back as quickly. Major cities around the world continue to lag leisure destinations. Bazin estimated it could be between six to nine months for these potential growth opportunities to emerge.
The hotel industry expects most growth to trend toward bigger, global companies along the lines of an Accor — which has brands like Pullman and Novotel — Hyatt, or IHG Hotels & Resorts.
“I think you will continue to see some level of consolidation over time of the smaller companies because the industry is consolidating to the biggest players,” IHG CEO Keith Barr said.
The top three global brands of Marriott, Hilton, and IHG account for nearly 70 percent of the U.S. construction pipeline, Lodging Econometrics reported last month. That trend is likely to continue into other parts of the world, as these brands and others look to tap into markets with less of an emphasis on branding as the U.S.
A lot of growth stems from conversions, a deal where an owner of an existing hotel switches brand affiliation or takes on a brand agreement for the first time. All the major hotel company CEOs during the pandemic cited conversions as a key source of growth while construction financing for new-build hotels is significantly tighter than normal.
One might think there’s a limit to how much success can be had with conversions, given how many hotel companies plan to focus on them. Some may think conversions inevitably become a zero-sum game, but Hyatt sees plenty of runway ahead.
“Pay attention to the fact that a lot of the conversions are from either much smaller brand organizations, not across the major companies, as well as independent hotels that had a really tough time of this past year making ends meet,” Hyatt CEO Mark Hoplamazian said Tuesday at the Goldman Sachs Travel and Leisure Conference. “That is partly the reason for so much conversion activity.”
A quarter of Hyatt’s net rooms growth last year came from conversions, and that pace continued into this year, Hoplamazian added. A quarter of IHG’s 360 hotel deal signings last year were also conversions while 40 percent of Accor’s openings last year were conversions.
Keep in mind: the bigger-is-better logic many of these companies are spewing isn’t entirely bulletproof. Accor lost $2.4 billion last year because of its significant exposure to Europe in its portfolio. Hyatt lost $703 million, and IHG lost $153 million.
But each of these companies and many others expect conversion rates to potentially swell this year as struggling operators look to tap into some of the benefits of a bigger brand like global distribution platforms, customer awareness, and loyalty programs.
“We have all seen the increase in conversions from other brands as smaller and independent hotels are struggling,” Barr said. “Scale does matter.”
Subscribe to Skift Pro
Subscribe to Skift Pro to get unlimited access to stories like these ($30/month)Subscribe Now
Photo Credit: Companies like IHG, Hyatt, and Accor still expect pandemic-related growth opportunities to emerge in coming months. Pictured is Accor CEO Sebastian Bazin at Skift Forum Europe. Skift
Pressure Mounts on White House to Reopen the Border with Canada
Border state senators say the restrictions have led to "economic and emotional strain in our communities" — a fair point considering they've been in place since March 2020.
David Shepardson, Reuters | 24 hours ago
Dubai Expo Tells Unvaccinated or Untested to Stay Away
The presence of "2020" in the name should tell you what you need to know about why Dubai is not screwing around. And really, what destination other than Florida or Texas is excited about being a super-spreader hotspot?
Reuters | 2 days ago
UK Travel Restrictions May Ease for Vaccinated Arrivals
The removal of the much-hated and frequently sleazy testing regimen for vaccinated travelers will give a boost for airlines, holiday and tourism companies not just in the UK, but across Europe. It's time to catch up.
Costas Pitas, Guy Faulconbridge and Sarah Young, Reuters | 2 days ago