Sessions entitled ‘Fifth Gear’, ‘Overdrive’, ‘Precision Driving’ and ‘Cruise Control’, and Tracy Chapman’s Fast Car, The Beatles’ Drive My Car and Gary Numan’s Cars played on a seemingly endless loop – it’s fair to say that Deloitte’s 27th European Hotel Investment Conference – ‘Changing Gears: A New Era?’ – was a little heavy-handed with the powerful automobile analogies.
But inside London’s Dorchester Hotel on 4 November, among the throng of hotel leaders, analysts, consultants, investors and developers, there was one oft-repeated question more commonly associated with a family outing: "Are we there yet?".
As our master of ceremonies, Deloitte global head of hospitality Nick van Marken pointed out that when the event was held in 2014, the IMF had just declared a serious risk of a return to recession for the eurozone and said that economic recovery remained "brittle, uneven and full of risk".
Fast-forward 12 months and the US is in a period of sustained growth, and some semblance of stability has returned to Europe following the third Greek bail out in five years. The UK is the fastest-growing member of the G7, and we may well be witnessing a record year for hotel transactions, globally and in Europe.
STR Global managing director Elizabeth Winkle was certainly confident, citing Europe leading regional year-on-year RevPAR growth and demand outpacing supply in almost all markets. She predicted that growth would continue well into 2016.
Even some of those events that continue to cause serious fears were given short shrift. "I haven’t been able to get over how economists got their trousers in a flat spin about the Chinese stock market," declared Roger Bootle, whose economic overview is a firmly established, often outspoken, highlight of this conference. "It’s still 49% up on a year earlier."
While not dismissing "massive structural problems in the Chinese economy", he declared that a slowdown was inevitable as the country moves up the development ladder and signs of stabilisation were already present, with the authorities "still having plenty of scope to undertake stimulatory policy action".
Closer to home, Bootle predicted modest but sustained growth. "The eurozone is looking better," he declared, "but not spectacularly so". Ireland, he continued, was the only one of the five "basket case" European economies to have passed where it was in 2008 in terms of GDP. Greece, meanwhile, was down 75%, while China being up 70% over that period helped put the current situation into greater context.
And what impact would a potential British exit from the EU have? "Short answer: no one knows," Bootle proffered to audible chuckles. "But I suspect it won’t make much difference either way."
High hopes for Hilton
Next on stage was Chris Nassetta, in conversation with Van Marken. The early part of their discussion took in a virtual road trip, from Blackstone’s $26-billion acquisition of Hilton Hotels Corp in 2007, and Nassetta’s appointment as president and chief executive officer, to Hilton Worldwide’s record-breaking IPO in December 2013.
"The headlines in 2008 were not nice to me or Blackstone," he acknowledged. "There were certainly a few sleepless nights. We came in at the peak of the market, and people thought it was a big price to pay, even before the downturn." The focus quickly turned to "a transformation and alignment of the culture within Hilton. We had the number-one brand awareness around the world, but nothing was really being done with it," Nassetta said. "In many ways, the crisis assisted us by allowing the acceleration of change. Keeping your chin up, and motivating and inspiring those around you [to believe] that there is a brighter, better future ahead, that was the toughest part."
Of course, so successful were his efforts that Blackstone created what Nassetta called "the largest private equity profit in history".
The CEO spoke of the future as well as the past. Perhaps the most interesting titbits surrounded the launch of as-yet-unnamed mid-scale brand. "It will be a franchise model almost entirely and, when we launch it, people might be surprised at the number of launch deals we would have signed," he said. "We see that brand as giving returns to owners at the same levels we’ve done for Hampton [Inn]."
In terms of where we are in the cycle, Nassetta foresaw another two to three years of positive conditions and did not believe disruptor brands such as Airbnb posed too much of a challenge to ongoing strategy. "We don’t view them as the enemy," he revealed. "If we do what we do well, we’ll be very difficult to disrupt." In fact, so relaxed was the CEO’s demeanour, it was difficult to imagine him feeling too worried about anything. "There’s plenty to feel good about," he concluded. "But you can’t get greedy."
The pervading sense of positivity carried on throughout the day. A luxury round table included contributions from Aman CEO Olivier Jolivet; Reignwood Investments’ vice-president, Grace Leo; Oetker Collection CEO Frank Marrenbach; and Trump Hotel Collection senior vice-president Dan Wakeling, with Jolivet and Marrenback politely disagreeing on how luxury operators could make themselves distinct in a crowded marketplace.
"We are not in the hospitality business; we’re in the brand business," the Aman CEO declared. "We don’t do things differently – we do different things. Anything that brings us back to the mainstream, we do not do."
But the Oetker Collection CEO did not think this applied to his group. "We are solely in the hospitality business," he countered, while acknowledging that one needed to be able to move with the times.
"Our customers pay a four-digit sum per night," Marrenbach continued. "Why would someone pay that amount? It comes down to how you treat that person, and it’s difficult to get the calibre of person who can serve them. In addition to that, there also is an intangible part of what makes you a four-digit-per-night hotel. We need to understand what that is and how it changes over time."
A highlight from a panel of emerging brands, ‘the innovators’ – including citizenM chief operating officer Michael Levie, Virgin Hotels head of development Allie Hope and The Hoxton chief operating officer Sharan Pasricha – was Levie telling a packed room that "the hotel industry is not good at innovation; it fails to change underlying business practices". There was an impression that not all of the audience was in full agreement.
One major change we have seen in recent years is the growing influence of third-party operators – although don’t use that terminology around Jim Abrahamson, CEO of Interstate. "If anything, we’re first party," he countered. The panel, which also included EVENT Hotels managing director Anders Braks, Dalata deputy chief executive Dermot Crowle and Redefine BDL chairman Helder Pereira, all agreed that the European franchising model had grown in terms of pure numbers and nuance, a trend that would only continue as these layers expanded their portfolios. "Scale means you can take best practice from all brands," Perreira argued.
Strength in good brands
Franchising was a subject that carried over into the final session of the day, with a discussion surrounding brand development with Starwood Hotels’ senior vice-president global development, Matthew Fry; Marriott International’s chief development officer, Europe, Carlton C Ervin; Hilton’s senior vice-president development, Europe and Africa, Patrick Fitzgibbon; and IHG’s chief development officer, Europe, Rob Shepherd.
"We do not want the customer to know if the hotel is owned, managed or franchised," Fitzgibbon explained. "It’s about consistency of service and expectation across our brands."
"Management teams have to manage in a complex environment, and we need to provide the tools for that," he concluded. He went on to say that you wouldn’t see Hilton backing away from the management side of the business anytime soon.
All delegates agreed that the growth of franchising in Europe was inevitable, with Ervin revealing that 40 of Marriott’s 50 most recent European signings were under franchise agreements, but they also insisted that all options must remain open. "We think of our table as being round, between us, owners and third-party operators, and while we’ve always had a focus on franchise hotels, it does feel odd to say that we have probably signed more management contracts this year than in any other," Shepherd said.
But will Fry’s claim that Starwood would never franchise its W or St Regis brands survive the Marriott takeover?
That announcement was still a fortnight in the future but, interestingly, Ervin reminded the audience that Bulgari London operates under a franchise agreement. It’s further evidence of how much can change and just how quickly in the hotel game. The journey to 2016’s event is bound to be eventful.
