The hotel giant marked a remarkably profitable first half of the year thanks to an extended surge in travel. But it will need to implement a savvy strategy to keep the profits flowing after the rebound fades.
Accor reported on Thursday a profit surge in the first half of the year that it mainly credited to pricing its hotel rooms above inflationary operational costs. Demand swelled across regions and property types.
“This momentum should continue for the coming months, driven by robust demand in both leisure and business tourism,” said Sébastien Bazin, chairman and CEO.
But can the Paris-based hotel group sustain high-profit margins after pent-up travel demand has faded? To do that, it will need to focus its portfolio, organizational structure, and investments on the most profitable customer segments, revenue streams, and more than 40 brands — which include Ibis, Novotel, Pullman, Fairmont, and Raffles.
An Upswing in Accor Earnings
In the first half, Accor generated about $276 million (€248 million) in net profit, a 675% jump year-over-year. Revenue rose 35% to about $1.35 billion (€1.22 billion) after subtracting the revenue it must pass to its managed and franchised properties via services provided.
The company raised its full-year guidance for earnings less than a month after it last boosted it. Accor may be relatively undervalued compared to other hotels, according to Richard Clarke and his fellow analysts at AllianceBernstein in a report earlier this year. U.S. hotel groups are typically more aggressive in how they adjust EBITDA.
If all the companies made the same adjustments in the same way, Accor would see its adjusted EBITDA rise by 22 percentage points. In comparison, Hilton and Marriott would each see 5 percentage points lower margin, Bernstein estimated based on 2022’s figures.
Accor saw strong occupancy and pricing across most types of hotels and regions.
- Across its portfolio, its priciest brands performed the strongest. By property count, a majority of the company’s hotels span a price range from economy to premium. That group saw revenue up 34% year-over-year.
- The company’s luxury and lifestyle division, which drives about 60% of the company’s earnings, saw revenue up 40%.
All regions saw growth in revenue per available room, a key industry metric.
- Geographically, the Middle East and Asia Pacific was its strongest region, with revenue per available room up 51%. China, which represents about a fifth of that, was the main weak spot and hasn’t yet returned to pre-crisis performance.
- Europe and North Africa saw revenue per available room up 32% despite economic uncertainty.
- North and South America saw revenue per available room rise 35%, which mainly reflected strength in Brazil.
Accor is focusing on a few business strategies to keep profit levels high.
- It seeks to dispose of assets to become more asset-light. In the first half, it completed the sale of its headquarters for about $510 million (€460 million) to the Valesco Group, the largest office deal of the year in Continental Europe. By renting instead of owning, the company has made another step toward its broad goal of lightening its balance sheet. It also continued to shift toward high-margin fee-based managed and franchised hotels and away from owning hotels.
- The company is streamlining operations of its premium, midscale, and economy hotels.
- Accor seeks to drive higher growth and returns in its more profitable luxury and lifestyle division. In the first half, it took steps to extract more value from iconic brands like Fairmont, Sofitel, and Pullman by savvily and consistently applying brand standards known to drive higher margins. It also took steps to expand more profitable ancillary revenues like food and beverage in its lifestyle hotels through its joint venture with Ennismore.
- The group has been pruning underperforming hotels from the portfolio to improve network quality. At the end of June 2023, the group had a hotel inventory of 5,487 properties (or 805,436 rooms). For the year, it forecasts it will grow its network of rooms by 2% to 3% — below its target of 3% to 5% for the next few years that it set last month — partly by pushing out hotels that don’t meet its quality standards.
Hotel Conversions: Accor works with hotel owners to optimize costs with physical upgrades and refreshed design features. The company also offers professional expertise to boost sales, increase average room rates, and generate additional incremental revenue. They plug the hotel into the group’s extensive sales, distribution, loyalty, marketing, purchasing, technology, and ESG programs. This strategy not only increases the revenue but also aligns the hotel with Accor’s ESG programs and sustainable hospitality model, making the buildings more energy-efficient and reducing their carbon footprint.
Brand Building: Accor focuses on enhancing its brand viability through an intensified strategy around premium, luxury, and lifestyle brands. Each of the company’s over 40 brands provide unique meaning, purpose, and value to its loyal customer base.
Mergers and Acquisitions: Accor pursues an aggressive M&A strategy, making numerous acquisitions and investments in various sectors to become an all-in-one travel experience platform. This is part of Accor’s transformation into an asset-light company.
Loyalty Distribution: Accor’s commercial strategy also includes loyalty distribution as a key pillar, as demonstrated by the successful launch of its world-class loyalty program, ALL – Accor Live Limitless.
Expansion: Accor aims to expand its hotel portfolio and plans to open more than 1,200 hotels in the next five years, adding to the 5,400 it already has. This expansion is particularly focused on the lifestyle hotel sector, which Accor sees as a promising engine of future growth.
Reducing Carbon Emissions: Accor has also made efforts to reduce its carbon emissions as part of its commitment to responsible operations and eco-friendly guest experiences.
All these strategies are aimed at providing high-quality and diverse services for its clients, offering additional services and different experiences which enrich guests’ stays, and attracting hotel owners.
Have a confidential tip for Skift? Get in touch
Photo credit: A guest room at Hotel Les Capitouls Toulouse Centre, part of Accor's new Handwritten Collection. Source: Accor.