Spanish resorts eye business mix with urban markets
 
Spanish resorts eye business mix with urban markets
03 OCTOBER 2017 7:28 AM

The motivation for Spanish hotel companies to move from the resort segment into urban markets is two-fold: diversification and brand awareness. 

A new trend has recently emerged: Several major Spanish hotel companies, like Meliá Hotels International, the Barceló Hotel Group, Riu Hotels & Resorts, and Iberostar Hotels & Resorts, are moving from the resort segment into urban markets.

But why? What are the benefits of this expansion? What are some key operational differences between the resort and urban hotel sectors that they must know to find success?

Below is a deep dive into these areas as well as thoughts on the future of this trend.

Urban expansion benefits
Spanish hotel companies achieve two key benefits from expanding their brands into urban markets: diversification and increased brand awareness.

As a result of their leisure expertise and their strong reputation in the vacation holiday resort segment, many of these Spanish brands stand to benefit from greater urban “bleisure” tourism in markets like Dubai, Miami, New York City and Panama City, where there is a healthy mix between leisure and business travelers.

In fact, Spain’s BlueBay Hotels just recently announced it would enter Mexico City with six hotels (518 total rooms) under the Residence L’Heritage by BlueBay brand in different business and leisure locations.

By establishing prominent urban hotels in key locations, these companies benefit from not only capturing solid corporate and leisure demand and reducing cyclicality and seasonality in their portfolios, but also by attracting new customers to their resort properties, which generate the vast majority of their profit contribution.

By entering New York City and Miami, these Spanish companies such as Meliá, Riu and Iberostar added coveted locations for their current customers and also reached a new audience in the U.S. market.

Grupo Hotusa’s Eurostars Hotel Company, which is already present in the U.S., with a property in New York City, recently announced it has entered Miami by leasing and reflagging/managing the 50-room Vintro Hotel (formerly a Curio by Hilton) in South Beach. As mentioned in part one of this column, the lease model is uncommon in the U.S.

Specifically, New York City receives more than 60 million international and American tourists each year, many of which also travel to the Caribbean and Mexico for leisure purposes. As these travelers visit these Spanish-branded resorts while on vacation, the brands can capitalize on their customer loyalty and following to urban properties and vice-versa.

Companies that add well-located properties in other U.S. cities with Hispanic influences, such as Miami and Los Angeles, to their portfolios also build brand awareness and recognition through billboard opportunities and targeted marketing efforts. Today, the Hispanic market in the U.S. represents about 25% of the total population, and these Spanish brands are focused on attracting and engaging them as key customers.

Operational differences between resorts and urban hotels
As Spanish hotel companies enter these urban markets, they must consider the segment’s unique success factors. Resort and urban properties have different customers, distribution methods and operational keys to success.

Typically, Spanish resorts operate under all-inclusive formats with more of a volume and cost control approach; however, urban hotels operate under European plan models with more of a revenue maximization focus, especially during periods of market compression. As a result, specialized management teams are required for each operating model and asset type.

Additionally, each segment’s business drivers are distinct—demand for urban hotels is highly correlated with the city’s GDP, corporate profits and employment growth, while the demand for resorts is driven by visitation arrivals and the growth in disposable income in key source markets.

Leisure travelers typically book farther in advance and yield higher total spend from additional capture and ancillary revenues. From a cost perspective, resorts typically have higher occupancy densities per room, longer average lengths of stay, and higher staff-to-guest ratios than urban hotels. As a result, operations are mostly evaluated on a per guest basis as this provides tighter cost control and easier comparability.

Urban hotels, in many ways, operate in the opposite way, with narrower booking windows, less occupants per room, shorter lengths of stay, less time spent by guests on property, and fewer staff per room.

In regards to distribution, urban hotels tend to employ more dynamic methods and source customers through B2B channels such as corporate contracts, business travel agencies, direct sales and loyalty programs (as urban hotels are typically net earners of points while resorts are net redeemers). Conversely, resorts source guests through B2C channels, primarily involving intermediaries like tour operators, partnerships and vacation club models. Nevertheless, the distribution paradigm for resorts is now shifting to more direct methods following innovative practices.

Importantly, some of these Spanish hotel companies are part owned by leading European travel companies, such as Tui, which owns 50% of Riu, and these key relationships and their own vertically-integrated platforms could help generate captive demand for their urban locations.

What’s next?
Recently, the Barceló Hotel Group announced it is evaluating a possible takeover of NH Hotel Group, which would combine the resort-centric (Barceló) with the urban-focused (NH) to create the largest Spanish hotel company.

As these major Spanish hotel companies grow beyond their resort expertise into urban hotels, they will face an interesting learning curve, especially in new geographies like the Americas, where they face strong local competition and distribution.

Yet, since most of these Spanish players are privately-held and have solid balance sheets, they will withstand competitive pressures and focus on the long-term benefits of their diversification and brand value creation strategies.

Now, as large Spanish brands are focused on penetrating the U.S., European, and Chinese urban hotel markets in key locations, smaller-sized Spanish hotel companies and other global resort brands are likely to soon follow these big brands’ lead.

Jonathan Kracer is Managing Principal of Sion Capital LLC, a hospitality and real estate consulting and investment firm focused on the North American, Latin American, and Caribbean regions. He is a recognized expert on the hospitality sectors of South Florida, Latin America, and Mexico. His columns primarily cover hotel asset-related subjects, with a specific emphasis on cross-border topics related to the U.S. and Latin America. He has been a columnist with HNN since 2012 and can be reached via email at info@sioncapitalco.com. More information about Sion Capital LLC can be found at www.sioncapitalco.com.

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