Accor Expects a Full Occupancy Rebound Early Next Year

Accor, the Paris-based hotel group, expects a recovery in occupancy rates to pre-pandemic levels will increasingly fuel its revenue growth over the next year. But it will take time to play out.

“I don’t see occupancy getting back to the level of 2019 before the end of this year or the beginning of next year,” said Group Deputy CEO Jean-Jacques Morin Thursday during a first quarter earnings call. “My hunch is the beginning of 2024.”

Accor’s hotels had an average occupancy of 60 percent in the first quarter. That was 4.5 percentage points below its 2019 level.

Accor produced systemwide revenue per available room, or RevPAR, of $70.50 (€64) — or 19 percent above the 2019 pre-pandemic period.

That performance was driven by having an average room rate 27 percent above the 2019 level.

The company — which runs brands such as Ibis, Sofitel, Novotel, Fairmont, and Pullman — forecasted it would generate more than 10 percent growth in revenue per available room growth this year. That represented a hike in guidance from a previously predicted range of between 5 percent and 9 percent.

“Over time, we’ll see pricing be less of a contributor to RevPAR,” Morin said.

From January to March, the Paris-based group generated revenue of about $1.25 billion (€1.139 billion). That represented a year-over-year revenue jump of 54 percent for the world’s sixth-largest hotel group (depending how you measure).

But the hospitality operator curiously didn’t report how much net income it produced or its earnings before interest, taxes, depreciation, and amortization. In February it reported significant profit margins for the fourth quarter.

At the end of March 2023, the group had a hotel inventory of 5,444 properties, or 800,321 rooms, and a pipeline of about 1,241 hotels, or 214,000 rooms. In the year through March 31, it grew its network of rooms by 2.9 percent — below its higher average of more than 4 percent in the years before the pandemic.

Morin partly explained the low net room growth rate by saying the company had been kicking out some properties that hadn’t been maintaining the company’s brand standards.

“It’s not a lot of hotels,” Morin said. “But what you see coming out of the crisis is that some hotels haven’t done the investment or aren’t doing the investment the way they should be in quality.”

But Accor still expects a return to its historical level of network growth over time, though executives didn’t predict the pace at which that returning growth would unfold.

“We will continue to grow in terms of net room growth, and we will grow it faster,” Morin said.

A couple of analysts asked on the call about the possible impact of tighter lending standards because of rising interest rates and banking upheaval, which might squeeze hotel development and cause hiccups in Accor’s hotel development pipeline.

Morin said he wasn’t worried, partly because a majority of the properties it adds involve conversions of existing properties. Conversions face lower hurdles for lenders to approve loans than new construction. In the first few months of the year, 59 percent of its additions were conversions.

“We are well-equipped,” Morin said. “Asia is recovering, and Asia was the engine for our development before the pandemic and will be again.”

No Acquisitions Expected for Now

Accor has more hotel brands than any other hotel group. Morin was asked if he was contemplating mergers and acquisitions to grow further.

“We’ve got 43 brands,” Morin said. “We’ve got everything we need today. What we need to do is to make the best of them.”

The company is present in 110 countries, with some 230,000 employees, 5,445 hotels — including 299 opened last year — about 10,000 restaurants, bars, and coworking spaces, and the hotel tech company D-Edge.

Executives promised in June to detail its new organizational reporting structure, with a unit for its “premium, midscale, and economy” brands, and another unit for its “lifestyle and luxury” brands.

No other large hotel group has two set-ups and a geographical footprint like Accor’s.

“Having two types of reporting, two thematics, and two very different ways to develop, manage and distribute is a real issue, in our view,” said Deutsche Bank research analyst Andre Juillard last month. “Accor’s specificities can be seen as strengths but also as weaknesses.”

“We see this new organization/reporting as a potential first step before the company eventually considers a second step, which could be a spin-off or the disposal of one of the two entities — more likely Lifestyle & Luxury,” Juillard wrote.

But when Morin was asked about a possible split on March 29 at the Skift Future of Lodging Forum in London, he said the re-organization’s purpose was to prepare for a group split (see transcript).

“No,” Morin said. “I cannot say it more clearly. I think is it an optionality that you create when you create two divisions that you make it something which is more capable of being split? Obviously, but this is not at all the intent.”

Might Accor be relatively undervalued in typical investment analyst comparisons with its peer companies? Yes, according to Richard Clarke, managing director at AllianceBernstein.

U.S. hotel groups tend to be more aggressive in their adjustments of earnings before interest, taxation, depreciation, and amortization, or EBITDA — a measure of profit.

“If all hotel groups in our coverage made the same EBITDA adjustments, then U.S. groups would see adjusted EBITDA fall by a high single-digit percentage, while Accor would see a material 17 percent uplift,” Clarke wrote in a report before this earnings season began. “Similarly, both IHG and Accor would see margins improve by 6 percent and 22 percent, respectively, while Hilton and Marriott would report about a 5 percent lower margin.”

Too bad Accor chose not to provide such figures for analysis for the first quarter.