Five hotel industry leaders from around the world shared lessons learned a decade after the Great Recession.
*UPDATED 8 a.m. ET 19 September 2018: This article has been updated to include comments from InterContinental Hotels Group CEO Keith Barr.
GLOBAL REPORT—While consolidation has reduced the number of players in the hotel industry and some companies look a bit different today than 10 years ago, most hoteliers asked to share their memories of the Great Recession say the industry has not only survived, but thrived.
Hotel News Now asked a number of hoteliers what their biggest lessons learned were in their recounting of those dark days, which, historians agree, began 10 years ago today on 17 September 2008, when the New York Stock Exchange suspended trade in shares in U.S. investment bank Lehman Brothers.
The hoteliers surveyed have enjoyed long careers in the industry—before during and after the recession. They were each asked: “10 years after its start, what is the biggest lesson the industry learned following the 2008 recession?”
Keith Barr, CEO, InterContinental Hotels Group
“The financial events of late 2008 were unprecedented, and the impact on the industry was like nothing we’d seen before, or have since. At IHG, we were in the midst of a $1 billion relaunch of our Holiday Inn brand family. We learned a lot about the resilience of our business and the importance of great owner relationships. It was the strength of those relationships that allowed us to drive the business forward even in the most challenging times.
“The biggest lesson from the recession was the wake-up call it gave companies on how crucial it is for them to act responsibly—and that debate is still alive 10 years on. It brought home the importance of being transparent, credible and trustworthy and reinforced our commitment to appropriate governance and doing the right things in the right way. Certain sectors had ignored that for a long time, which had such hugely negative consequences for millions of people around the world.”
Patrick Fitzgibbon, SVP of development, Europe, Middle East and Africa, Hilton
“The brands which have dominated over the past decade share a common thread. Customers have more and more choice in their buying decisions, and providing a frictionless, personalized booking experience with seamless technology has been key to driving loyalty.
“Individual economies have ebbed and flowed, but nurturing long-term partnerships with owners who share our vision has been critical, and something we continue to place great importance on.
“New types of investors have realized the potential of hotels as an asset class, and that pool will continue to diversify. Brands have been proven to add significant value to real estate, and harnessing the core value of a brand has driven record investment volumes in our industry.”
Isaac Collazo, VP of performance strategy and planning, InterContinental Hotels Group
“In 2007, the U.S. stock market continued to climb despite large increases in home foreclosures, lodging demand growth slowed to less than 1% and (revenue per available room) growth was supported by solid (average daily room) growth (+7%). There was talk of a slowdown in 2008, but most, including the lodging industry, believed that any upcoming recession would be mild.
“As we know, it wasn’t. As I reflected on what happened 10 years ago, what struck me was (the industry’s) collective inability to imagine/model adequately the impact on the industry of a moderate-to-severe recession. We were so keen on having one (forecast) that we didn’t develop ranges and/or plans for anything but a mild recession. Also, we were rather myopic when it came to economic indicators; our scope was narrow versus broad, so the increasing growth in subprime foreclosures was missed until it became daily news.
“Ten years on, let’s not forget that a holistic plan based on multiple indicators (industry and economic) offers more opportunities than locking into a single one. Hope is not a strategy.”
Thomas Willms, CEO, Deutsche Hospitality and Steigenberger Hotels AG
“The recession lead to the rise of online travel agencies. Hotels started to give high inventory volumes to OTAs’ distribution in order to drive volumes, and because of that the distribution landscape was able to excel. After the recession, the interest rates were taken down, which resulted in an increased interest of investors in the hospitality industry. Markets are getting swamped with new rooms/supply, again a strain on rates and thus profitability.
“(What’s) important now is that the demand coming from emerging countries increases, so the supply and demand curves are getting more in line with each other. (What’s also important is) concentration on niche markets, e.g. sports, which are not as much prone to economic developments and can help to overcome losses of business.
“A direct result (of the recession was) that distribution landscape development accelerated. This meant that hotel rooms were easier to book, and people traveling around the world has increased. This positive effect on demand as well as the drop of interest rates caused investors to focus on hotels with an increase of supply. This supply growth has not always been good for ADR development (or) profitability, which caused hotel chain consolidation.”
James Devitt, managing director, Herald Hotels
“I guess the biggest change we have seen from a United Kingdom perspective is changes in the debt market influencing hoteliers’ attitude to debt. The sources of debt have widened as traditional lending sources were forced to retrench and new lenders have come forward. No longer do the main U.K. and Irish banks dominate hotel lending to the same extent. By ‘hoteliers,’ I refer to hotel owners rather than international hotel operators, who in the main no longer own or control the assets, another fundamental change in the industry.
“These new hotel owners are a disparate set with wide-ranging characteristics, but many of them are relatively new to the industry. They have scrutinized both the scale of their borrowings and the small print of their loan terms more carefully than perhaps was the norm pre-recession. In fact, all aspects of acquisition due diligence have become more thorough and wide-ranging as purchasers demand fuller information before commitment and their financiers likewise. However, investment decisions made and the proportion of debt in any deal have also been decided against the background of extremely benign interest rates, which may change in future adding pressure to these structures.
“Hotel owners still use debt as a tool to enhance their financial returns. The current trend for including ground leases in their ‘debt’ options may indeed show that the hotel cycle is close to full circle after a decade of recovery.”
Richard Lewis, CEO, Northern Powerhouse Developments Hotels
“The greatest lesson is to be prepared. Establish contingencies for numerous ‘What if?’ scenarios. Be adaptable and embrace change.
“Great planning includes flexibility at all levels. When implemented with sensitivity and empathy, our industry has proven to be extraordinarily resilient. Time after time.”