Owners: Distribution, tech key to maximizing profit
Owners: Distribution, tech key to maximizing profit
23 MARCH 2017 8:54 AM

Successfully managing online travel agencies and the evolving technology platforms in the hotel industry are essential to making profits that can lead to executing exit strategies.

BERLIN—Maximizing profits becomes easier if hoteliers can better manage online travel agencies and technology, according to top executives who spoke at the 20th annual International Hotel Investment Forum.

The owners, operators and investors participating in the “Re-thinking strategies for maximum profitability” general session discussion agreed there are pros and cons to the rise of OTAs.

“It is the ‘frenemy’ situation—it purely is both positive and negative,” said John Brennan, CEO of Dublin-based Amaris Hospitality. “The distribution landscape has fundamentally changed. What we just need to do is optimize the performance of our brands and our assets. There is still an element of conflict (between hotels and OTAs), and that element of conflict is appropriate, but there is also a significant amount of working together that ultimately generates huge amounts of revenue.”

Andreas Löcher, head of division investment management hotel for Union Investment Real Estate, said there are positive effects on the revenue side from OTAs.

“If the rules are set, they can be definitely helpful for everybody and can be a win-win situation for OTAs as well as for the operators,” said Löcher, whose company owns 16 hotels.

Jean-Philippe Chomette, founder and chief investment officer of Algonquin SA, said OTAs are now entrenched in the hotel industry and are a necessary component of the revenue structure.

“It’s the battle of life now,” he said. “I don’t think we talk about the threat anymore … We learned how to live with the OTAs.”

Chomette, whose company also owns 16 hotels, reminded attendees that there was competition for hotel revenue in the form of tour operators long before OTAs entered the picture.

The OTA equation can even be a key indicator in whether a hotel acquisition was a success, according to Brennan.

“If a hotel is hostage to OTAs, then it’s probably a property that you shouldn’t have purchased,” he said. “And if a hotel can do amazing without booking on OTAs, that property is going to be too expensive.”

Camil Yazbeck, partner and investment director-hospitality for Patron Capital, said the distribution mix is an important consideration during the acquisition process as well as after the deal is completed.

“It depends on the location of the hotel; it depends on the brand,” he said. “Do you really need to use the OTA or not? … It’s all about management on distribution channels. A good exercise is to see what is the real cost of acquisition per (customer)—then you’ll see exactly that we are actually giving a little bit too much.”

It’s important for hoteliers to make sure all of their technology systems are top-notch if they want to successfully compete for guests, Yazbeck added.

“You need to make sure that your internal means, if you can afford them, especially when you have a large operation, that it integrates and works everywhere,” he said.

There are multiple facets of technology for hotels to be successful—including easy ones such as making sure the technology installed actually works, said Brennan, whose Amaris Hospitality, which was formed in 2015 by Lone Star and operates approximately 70 hotels under the Jurys Inn brand and the Hilton and AccorHotels families of brands.

“We were shocked at some of the hotels that we took over just behind the times on basic things like bandwidth and connectivity and accessibility,” he said.

Other important facets include ensuring that the brand has a strategy for distribution and loyalty that you can buy into it and ensuring that all levels of technology can be integrated so comprehensive quality reports can be obtained, Brennan added.

Managing successful exit strategies
The tech talk was a backdrop to an investment-centric conversation that included exit strategies.

Patron looks for shorter-term investments than most other companies, Yazbeck said. It likes to acquire something, hold it for 3 to 5 years and flip it after adding value to it.

“We look at hotels where there’s opportunity for a growth bubble, like we did for example with Generator (Hostels),” Yazbeck said. “We bought it. We liked the concept. We proved it. And now we have 12 hostels running, many more in the pipeline, eight and a half thousand beds.”

One week after the conference ended, Patron sold Generator to Queensgate Investments for €450 million ($486 million). The deal is expected to close in May.

Patron has a €1-billion fund that it raised at the end of 2016, so it is “very, very heavily involved to find deals in Europe, Western Europe and still in the UK,” Yazbeck said.

All of Patron’s acquisitions will have similar recipes, the executive said.

“It’s very important that we get the timing right,” Yazbeck said. “From the first day where we start the investment, we have to think about ‘who is this targeted for? In three or five years, who are we going to sell it to?’”

The current economic landscape presents some challenges in acquiring or selling assets, speakers said.

“It’s much harder (to buy assets) in these times for institutional investors than even three years ago,” Löcher said. “Therefore, we have been evolving our strategy.”

That strategy includes embarking on new markets—including the U.S., where it is entering three deals that involve leasing assets, he said.

The overall approach to ownership has shifted as the search for revenue maximization intensifies, Chomette said.

“When this industry decided 15 years ago that owning assets was a bad thing … it was great for us because that’s how independent owners came into existence,” he said. “Then, asset management became a totally different thing. Now, it’s engaging on just about anything, on revenue management. It can be F&B; it can be absolutely everything.”

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