HA Perspective (by Katherine Doggrell): The combined Marriott and Starwood has 1.6 million rooms open or in the pipeline and no matter how you cut it, that’s a fair few. Although Booking lays claim to over 1 million hotels, you can bet they’re not going to give Marriott a raw deal, particularly when you consider how many of Marriott’s rooms are in the corporate market and how interested Booking is in accessing that market. Tim Ramskill, managing director, pan-European travel & leisure equity research, Credit Suisse, told us that consolidation in the sector has been the expected response to the growth of entities such as the OTAs, adding: “Whether you’re Google Travel, Airbnb or Marriott International, ultimately you are being paid by someone who owns a piece of real estate to fill rooms. If there is competition in your universe, gaining scale is important. “How much is it going to make a difference? Being bigger has got to be a helpful starting point and so has having more brands to sell.” The cost to those owners of filling those rooms through a loyalty discount is something those owners are starting to raise their hackles about. Marriott will have to ensure that, when it is cutting staff to make the promised cost savings, it doesn’t leave those owners feeling neglected and considering a more direct route to market via the OTAs themselves. HA Perspective (by Andrew Sangster): There are at least two pieces to these numbers that are worth a closer look: the short-term trading and the longer-
term strategy. On trading, it looks like good news on leisure but bad news on corporate bookings. While overall revpar was up an impressive 7% in the quarter in North America, room revenue from legacy-Marriott’s top 300 customers in North America was flat. There has been a steady decline in the rate of growth from 4% in Q4 last year, to 2% in Q1, to less than 1% in Q2 and no level in Q3. The increase in group business fell from 7% to 2%, a much sharper drop than anticipated. The good news in terms of strategy is the strength of the pipeline. Marriott has 14% of rooms in the US but its brands have 36% of rooms under construction. Globally, Marriott has a 23% share of rooms under construction. Less good is the book direct strategy. Sorenson admitted that in Q3 it has shaved “probably” 30 basis points off from revpar. Book direct has increased loyalty programme members but this is hardly going to thrill owners if they think it has been achieved at a significant cost of revenue and profit. But Marriott has stressed that this is a long game. Sorenson said: “There was a perception that rates at our hotels were cheaper on channels other than our own, which has not been true for well over a decade.” Those other channels are, of course, OTAs. There has also been a significant issue with wholesaler rates. Marriott now seems on top of the wholesaler issue but the problem with OTAs is not so easily fixed. The issue is who is the best retail channel? Unfortunately for Marriott and other hoteliers there is a clear
answer: the OTAs. The OTAs have better marketing, they have better technology and they have a better overall consumer proposition as they offer a far broader selection of properties. If the book direct campaigns undermine the more effective retail channels, these retailers will sell inventory from elsewhere. While the economic environment remains strong, Marriott can still fill its properties, even if it sells the rooms for a bit less to do so. What will it be like in a weaker market though? Sorenson suggested, in off-thecuff remarks, that the peak of supply growth in the US market will probably occur in 2018. This usually follows a turn in the business cycle which is probably due imminently in the US. A tougher economic environment is going to test the book direct theories. Already, the mood music is a lot less warlike than it was a year ago. I suspect a truce with the OTAs will be called soon. Owners will be asking what has been achieved and whether it was worth it. We answered no to the latter question a year ago and we think we’re still right.
Accor bolsters boutique AccorHotels has bought a 30% stake in 25hours Hotels for EUR35m as the company looks to expand around the world. The deal is the latest in a series of efforts by AccorHotels to strengthen its position in the boutique sector,
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which has also seen it take a stake in Mama Shelter and launch Jo&Joe. 25hours Hotels currently operates seven individual hotels in Hamburg, Frankfurt, Berlin, Vienna and Zurich. A further five hotels will open in Zurich, Munich, Cologne, Düsseldorf and Paris in the next two years. The company has been looking to expand into other European countries for some time, and is now also targeting long haul destinations. 25hours Hotels is planning to add around three hotels per year to its estate. The group will continue to be run by its CEO Christoph Hoffmann and his long-time management team. He said: “We feel very much at home within AccorHotels’ recent lifestyle strategy and are delighted to be an important partner of one of the world’s leading hotel operators.” Hoffmann told Hotel Analyst: “We founded this company around 10 years ago and we did it for the fun of it, without any real strategy to become a bigger player. We believe that if you want a special hotel you have to have a love for it and we want to create hotels with a lot of soul and a lot of individuality – we believe that ‘you know one, you know none’”. “Once we had expanded into the main German-speaking cities we had to consider global expansion and it’s not easy to do that in foreign countries. So far we have only done lease agreements and it is not as simple in Bangkok or Miami. We realised that we had to partner with someone. We didn’t want to work with private equity, or partners who would want to milk the cow, so we