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March April 2017
For Business, Corporate Travel & Meeting Buyers & Arrangers

Analysis: hotel sector changes could mean bargain year for buyers

WHEN DONALD TRUMP TOOK THE OATH OF OFFICE LAST MONTH to become Amer­ica’s 45th president, he celebrateD at least part of his inauguration evening at the recently-opened Trump International Hotel Washington DC, a luxury property created from the capital’s former Old Post Office, just a few blocks from the White House.

But perhaps lost among all the post-election hype and hysteria, was a low-key announcement that Trump the hotelier – rather than the nation’s chief executive – was adding to his brash (some would say gaudy) collection of 15 Trump Hotels worldwide with the launch of a new, separate brand called Scion.

Unlike the luxury Trump Hotels brand, Scion will be firmly aimed at the ‘affordable lifestyle’ segment of the market, heavily influenced by the Millennial generation. Although Trump Hotels CEO Eric Danziger likens Scion to Starwood’s W brand, industry analysts believe it likely it will be more in line with Intercontinental Hotels Group’s (IHG) Even Hotels or Hilton International’s Curio brand. Early design reports suggest an emphasis on stylish décor and communal spaces for work or socialising, with local artists’ work on display. Some nine Scion hotels are said to be in the pipeline, the first due to open within the next few months.

THIRST FOR INNOVATION

Perhaps the real significance of Scion is it emphasises that the hotel world’s thirst at all levels for change and innovation shows no sign of abating. Everything from mega-takeovers such as Marriott’s grab for Starwood, to the emergence of alterna­tive accommodation providers typified by Airbnb, is challenging the hospitality industry in 2017 as never before. And that is before advances in mobile and other technologies offer hoteliers unprecedented scope to shape and develop the way they innovate their product and market the end result. Never has it been more vital for corporate buyers to become aware of how the hospitality world is shaping up to changing circumstances.

What is already certain for 2017 is that there will be no let-up in the brand prolif­eration which has characterised the global hotels market in recent years. According to US hotel data provider STR, there were nearly 1,000 separate hotel brands world­wide at the start of last year – with 30 of those alone now accounted for by Marriott following its Starwood merger. Marriott has decided to keep all 30 brands, but in an effort to help travellers understand them better has reclassified them into two main categories – either ‘Classic’ or ‘Distinctive’ – and then into three further groups: Luxury, Premium and Select. Thus while the main Marriott and Sheraton chains are classed as Classic Premium brands, Moxy and Aloft brands are Distinctive Select.

Targeting ever more niche markets is the name of the game for hospitality provid­ers. Serviced apartment group Ascott, for example, is launching a new brand this year called Lyf – meaning ‘Live your freedom’ – aimed at Millennials who, as a cohort, already account for a quarter of Ascott’s customer base.

And Ennismore, which owns the Hoxton hotel brand that started in trendy Shoreditch a decade ago and has spread to central London and Amsterdam (with Paris and New York to follow this year), is now launching a budget version of the Hoxton called No Co – embracing stylish design and technology but at a sub-£100 a night room rate.

But the big hotel chains are still the main drivers of the branding game. While Mar­riott will probably use 2017 to bed down the Starwood acquisition – as well as accelerat­ing the roll-out of physical properties under the Moxy and other labels – Choice Hotels International, for example, is keen to add to its brand portfolio this year.

It has targeted a move into the ‘upper upscale segment’ and is looking for brands to either acquire or develop. Choice CEO Stephen Joyce recently told investors that a “full-service upper upscale brand adapted for today’s environment would really complete our portfolio”. Understandably, he is keeping potential targets or concepts under wraps for the moment, but Europe is understood to be a particular focus.

MORE COMPETITION

For managed travel, does the surge in new brands help or hinder travel buyers? “Corporates we speak to see these changes as beneficial,” says Corporate Travel Man­agement (CTM) director Stuart Birkin. “As hotels offer more choice and services, it makes the market more competitive for the buyer as hotels compete against each other in key business cities.”

Yet the impact of these new brands is also shaping the way hotels will look and operate in 2017 and beyond. Room design and facilities, influenced by Millen­nial travellers, will emphasise that they are increasingly a place to sleep or relax rather than work or socialise – these activities are more focused on the communal areas.

Hence the new generation of hotels in the already crowded mid-market – such as Hilton’s new Tru brand, due to debut in Okla­homa City this spring and next year in the UK – will eschew such traditional features as wardrobes, baths and desks (replacing them with open hanging space, showers and a chair with mini-table attached).

But while developing new brands is a key strategy for hotel groups, they still have to fill up the rooms created. Last January was the ‘calm before the storm’ for hotel distribution, as the following month Hilton Worldwide decided to take on the powerful online travel agents (OTAs) by launching its biggest-ever marketing campaign ‘Stop Clicking Around’. This was aimed at per­suading potential guests that the best room deals could be found by booking direct with the hotel chain rather than an OTA, such as hotels.com (Expedia owned) or booking. com (Priceline).

To sweeten the deal, it offered members of its loyalty scheme HHonors discounts of up to 10 per cent if they booked through the chain’s own distribution system. Hilton’s strategy was soon followed by its rivals including Marriott, Hyatt and IHG. This proved a smart move and, according to the hoteliers’ latest financial results, appears to have worked with a shift from OTA book­ings towards the hotel’s own channels. But the OTAs have not suffered as much as might have been expected, with more bookings through smaller chains and independent hotels to compensate.

But this year the battle for a slice of the hotel distribution ‘cake’ may pivot towards the metasearch hotel comparison sites, says Paul East, chief operating officer at Wings Travel Management. He points out that “many of our clients are working on best-rate-for-the-day using comparison sites to validate who has the best rates”.

He adds: “What will be interesting to monitor in 2017 is how this affects the ongoing battle between OTAs versus com­parison sites versus hotels’ direct bookings.”

Given that metasearch comparison site Trivago is owned by Expedia, while rival Kayak is under Priceline’s ownership, the OTAs clearly have a foot in both camps – although the main challenge this year will likely come from Google and its growing ambitions in the travel sphere with Google Hotels and Flights.

ACCESS TO CONTENT

Yet the online bookings scenario is changing, suggests CTM’s Birkin, who does not see the hotels’ direct booking strategy “gathering much more traction”. He argues that travel management companies (TMCs) now have more access to content and understand the need to search outside the global distribu­tion systems and even book direct if need be to get the best deals. “Corporates spend a lot of time and, in some cases, money tracking their travellers for safety and security reasons, so they wouldn’t take kindly to travellers going ‘off piste’ and booking direct, as long as the TMC offers the best rates.”

But having invested so much in their booking-direct strategy, hotels are unlikely to give up their approach too easily this year. And already there are indications they are sharpening their key weapon: loyalty schemes. Hyatt, for example, is revamping its long-established Gold Passport loyalty programme on March 1 – re-naming it World of Hyatt – to emphasise both its focus on high-end travellers and the ‘best rates’ available when booking direct.

While hotels in 2017 will – like all sectors of the economy – face some uncertainty from Brexit and the new US administra­tion, the hotel world is not yet cutting back on development. Latest figures from STR show that, in Europe, there are 442 hotels with 66,787 rooms under construction for opening this year – a near-15 per cent increase on 2016. London, Europe’s largest hotel market, expects to add 6,217 rooms this year from 36 hotels, mainly in the budget and mid-market sectors.

The potential good news for corporate travel buyers is clear: more rooms, com­bined with economic uncertainty, could put hotels under renewed pressure to keep rates in check this year.

Chinese takeaway

WHEN CHINESE INVESTOR ANBANG WAS FINALLY OUTBID by Marriott International for Starwood Hotels last spring, it turned its attention instead to a collection of 16 luxury hotels under the Strategic Hotels banner owned by US investment company Blackstone. Perhaps the most high-profile hotel of the portfolio being sold was the iconic Hotel del Coronado near San Diego, the background to Billy Wilder’s 1959 comedy Some Like It Hot.

All seemed to be going well until a little-known US government oversight body, the Committee on Foreign Investment in the US, last autumn blocked the sale of the Del Coronado on national security grounds. It reportedly had concerns about the fact that the hotel is straddled on either side by a US naval base.

The lesson from this episode is that even if the US and European countries are keen to attract foreign investment in hospitality, there remain some limits. But these are probably not enough to prevent Chinese investors in 2017 again becoming one of the key catalysts for ownership change and consolidation in the global market.

Among the targets could be Hilton Worldwide, following the acquisition last autumn of a 25 per cent stake for US$6.5 billion in the hotelier by HNA Group, which owns China’s fourth largest carrier, Hainan Airlines.

Meanwhile, Jin Jiang International, a state-owned Chinese tourism conglomerate which claims to be the world’s fifth biggest hotel group following its 2015 takeover of European chain Group du Louvre, could make a move this year for Accorhotels.

Yet it is not just hotels that are attracting Chinese interest. Ctrip, a leading Chinese travel group and major OTA, late last year bought Edinburgh-based metasearch engine Skyscanner for £1.4 billion.

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Comments

Innovation always stands out from the crowd and do the miracle. The hotels that are experimenting extensively and coming up with new things always get their due. Another factor for the unprecedented growth in the hotel industry is the competition. Stiff competition always brings out the best and fulfills the end-user demand. When the customers are satisfied with the service and something in the hotel that reduces their pain, is the one that thrives in their business.
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