Hotel CEOs take longer view on troubles facing industry
 
Hotel CEOs take longer view on troubles facing industry
06 JUNE 2019 8:32 AM

Speaking at the NYU hospitality conference, CEOs from some of the largest hotel brand companies focused more on what they have the power to change, and less on what they can’t.

NEW YORK—Worrying about the future won’t change it, and any potential trouble on the horizon is only temporary, hotel industry leaders said on stage at the NYU International Hospitality Industry Investment Conference.

The fundamentals of the industry remain strong, and as long as hoteliers concentrate on that, they will be able to weather any storm, said Elie Maalouf, CEO, Americas, at InterContinental Hotels Group, during a general session discussion titled “The leaders check in – part two: Consolidation, scale, and the structure of the hospitality industry.”

“If we go back 20 years and look at what’s really driven our industry, it’s been three factors. The first is the growth of the middle class around the world. The second factor is the growth of GDP and income. When people get more income, they do one thing predominately: They travel. When they travel, they do a couple of things; they eat, sleep and drink. All of us take care of those quite well,” he said.

Offering some perspective, he noted that “over the last 20 years, the middle class grew from 2 billion to 3 billion.”

“Over the next 20 years, it will grow from 3 billion to 5 billion. … On top of that, the upper class is going to grow another half a billion. That’s another 2.5 billion people looking to travel,” he said.

This puts the industry in an enviable position of not having to worry quite so much about the blips and disruptions of today.

“The tailwinds we’ve had over the last 20 years are still on pace for the next 20 years,” he said.

“I can’t tell you what exactly is going to happen in the next quarter, what (revenue per available room) is going to be in 2019 or 2020. I do know that three to four years ago, we sat around here and talked about the end of the cycle and a downturn, and if we at IHG and many of you had stopped back then and said, ‘OK, let’s batten down the hatches,’ we actually would have missed out on some of the best opportunities, the best brand launches, the best growth we’ve ever had.

“I’m not sure we’ll be able to time it again. I do know that the next 20 years are going to be as good as or maybe better than the previous 20 years based on fundamentals.”

Threats and factors putting pressure on the industry, at least in the short term, include economic trends (such as fears of an impending recession), geopolitical strife as seen in the trade conflict between the U.S. and China, and government policy that undermines tourism, hoteliers said.

From left: Accor’s Chris Cahill; Margaritaville Holdings’ John Cohlan; IHG’s Elie Maalouf; and RLH Corporation’s Greg Mount spoke on part two of “The leaders check in” panel at the NYU conference. (Photo: Robert McCune)

China
Speaking of China, hotel brand CEOs agreed a prolonged trade war wouldn’t be good for anyone. But, as Hyatt Hotels Corporation President and CEO Mark Hoplamazian said, “you have to look at this over a number of decades.”

“The key driver of global travel is going to be Chinese outbound; that will be the theme over the next 20 years, maybe longer,” he said during a session titled “The CEOs check in: A view from the top.”

“It’s in that frame of mind that we’re thinking about the commitments we’re making in growing our business there.”

Hoplamazian acknowledged that Chinese outbound travel to the U.S. declined by 5.7% in 2018, according to U.S. Customs data. “That’s notable,” he said, “but short-term … (and) it’s not sensible to think there could be backlash (from a trade war) that will have a lasting impact.”

Marriott International President and CEO Arne Sorenson said the greater threat, with potentially longer-term implications for the U.S. hotel industry, is a growing global perception, perpetuated by U.S. President Donald Trump, that the U.S. is less welcoming to foreign visitors than it has been in the past.

“Driving growth in inbound tourism to the U.S. is clearly not a priority for this administration,” he said, adding that the lack of a coordinating voice on the importance of international tourism to the U.S. leaves each government agency to try to “run their department in a way that creates the least risk for them.”

“Trump has clearly calculated that it is in his interest to be anti-immigration and, in effect, anti-foreigner. As it’s heard around the world that it’s harder to get into the U.S., less welcoming than it was before, we see the U.S. get less and less share (of international travel) than it deserves.”

Solutions
Sorenson said hoteliers can be an influence to change policy, if they frame the argument properly.

“One thing we shouldn’t forget, and we need to make a clear statement: Immigration and inbound travel are not the same issue,” he said. “We don’t have to have a head-on war with the administration about immigration policy. If we can collectively say it’s not about immigration, we have a better shot at influencing this policy.”

Keith Barr, CEO of InterContinental Hotels Group, said the U.S. remains “an amazing destination, which is still aspirational for so many around the world … (but) the easier we can make travel and the entry process, the better opportunity there will be for tourism to grow.”

IHG remains confident the growth of the Chinese economy, he said, and has a long-term strategy to capture its share of the country’s outbound tourists.

“We have long-term partnerships with strategic players (in China), and are tapping into outbound (travel) over time so that they associate us with brands they know and trust,” he said.

“We’re seeing Chinese travel pivot quite quickly. And it will pivot around. Hopefully, we get through these trade tensions in a way that will benefit both sides in the long term and drive tourism and investment to the U.S.”

Accor CEO Sébastien Bazin agreed partnerships will be particularly key with China, where he notes the Chinese government has immense control over hospitality.

“In 20 years, hospitality will be in the hands of the Chinese,” he said. “Just accept it, go along. If you want to penetrate the (Chinese) market, do it with them, not against them.”

Chris Cahill, deputy CEO at Accor, took the same long-term view of disruption in Europe on the “Leaders check in – part two” panel.

“We tend to think more about the geopolitical stuff that will impact regions. Anecdotally, the Yellow Jackets (protestors) in Paris, that’s had an impact primarily on luxury hotels in Paris, and relatively little impact on the rest of Accor’s portfolio,” he said.

It’s the same in the U.K. with Brexit, he said.

“Demand is going to continue. The question is where and when. We’re going to have issues affecting people staying away from the region, but maybe they go to the Middle East or South Africa. From our perspective, we’re going to see changes in demand … (from) so many macro and extraneous things,” he said.

“But we look long-term at fundamentals, where we need supply, where customers are going to go, and how we’re going to navigate challenges by market. If you add all the issues up, it can be frightening, but it doesn’t seem to affect travel on a macro level.”

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