On a panel at The Lodging Conference, hotel executives said they are prepared to face any challenges that may come from a downturn, but see plenty of opportunity ahead.
PHOENIX—There’s no need to dwell on a downturn with the number of opportunities currently available in the industry, according to executives speaking on the “View from the C-suite” panel at The Lodging Conference.
While a downturn could be approaching, or might be here from some people’s perspective, Jim Merkel, CEO of Rockbridge, said “it doesn’t really matter.”
“At the end of the day, it’s business, and we’re dealing with the challenges that face us, and it is hard. But I look back at 2010, and it was hard,” he said. “Some people look through a rose-colored lens at 2010 and 2012, and the opportunity that was there, but when we were in it, it was really, really hard. Being an opportunistic industry and where we are today, you deal with the challenges you face.”
Thomas Magnuson, co-founder and CEO of Magnuson Hotels, said he doesn’t think the industry is in a downturn, but he does see it maturing.
“We see supply continuing to exceed demand as resulting in flattening occupancy, as resulting in the lagging of pricing; we’re seeing so much new inventory coming on … but overall demand on a global level is going to outpace our GDP (in the U.S.),” he said.
The prospect of a downturn cannot be ignored completely, executives said, noting a focus on profitability is a reasonable way to prepare.
Jagruti Panwala, chairwoman for AAHOA and president and CEO of Wealth Protection Strategies, said she has conversations with owners to make sure they are not overleveraging properties. In 2009 and 2010, many lost their assets because they were overleveraging, she said.
Labor is a large expense for companies, and finding and retaining good talent in a tight labor market is challenging, said Joel Eisemann, chief development officer for the Americas at InterContinental Hotels Group. His company is investing in training for employees, which leads to happy employees and “better customer satisfaction and top-line performance, which adds to the ability to generate profit,” he said.
Justin Knight, president and CEO of Apple Hospitality REIT, said the length of this cycle has helped facilitate the abundance of mergers and acquisitions in the industry.
“As it’s become more challenging to generate incremental profit, regardless of the segment that you’re in, groups have looked for creative ways to move the needle, and M&A is one of the ways,” he said.
This activity allows the big players to “carry a lot of weight,” and scale is being used responsibly, he said.
Speaking specifically to Aimbridge’s pending merger with Interstate, Merkel said those larger management companies are coming to terms with some of the same issues they were facing before they decided to merge, which include staying connected to “the team and communities as a giant company.”
Two great leaders coming together might help address that challenge, he said.
For the big brands, the success of consolidation is dependent on “the execution of the companies coming together to drive the efficiencies,” said Ken Greene, president of the Americas at Radisson Hotel Group.
He said it’s important for a company or brand to not lose its personality and customer base, which is a “tough thing to do when you get up to a certain scale,” but there are great benefits to these types of deals.
Looking into the future
Hoteliers are thinking about different things going into 2020 than they were 10 years ago, speakers said.
Panwala said it’s no longer enough to purchase an asset and just run with it.
“There’s a lot of other factors involved to make that decision,” she said.
Panwala said she is worried about the number of disruptors entering the industry.
“As an industry, we need to somehow keep up with the pace of change,” she said.
There’s “incredible disruption” and change happening in the industry, which hoteliers should be aware of but not distracted by, Merkel added.
“The way we capture information today is so different from 10 years ago, and the volume of information; you have to be very deliberate about what you’re doing,” he said.
Not getting distracted by what’s going on in the industry will be more of a challenge in 2020 than it was in 2010, he said.