Hotel brand companies continue to launch new brands and offer more fee-based services, but owners in particular weigh many factors before making the decision to brand or not to brand.
LOS ANGELES—Hotel brand companies in the U.S. continue to build their businesses along asset-light/franchise-heavy models, yet as the industry cycle shifts, owners and managers are casting a more critical eye on the pros and cons of brands for their particular portfolios.
Two general-session panels at the Americas Lodging Investment Summit brought owners, managers and brand executives together on the stage to discuss topics brands face including consumer trends, brand proliferation, changing portfolio models and more.
The theme of both discussions: Today’s branded hotel environment is a lot more diverse than it was in the last downturn, so owners expect more and brands are trying hard to deliver on those expectations.
What owners want
Brand executives stressed their dual allegiance to consumers and to owners.
Choice Hotels International President and CEO Patrick Pacious said Choice’s branding endeavors are “driven by the owner,” and he explained how the company’s course has changed to a more asset-light model that emphasizes fewer cookie-cutter approaches, more localization, growth of soft brands and expansion further into extended stay.
Federico González, president and CEO of Radisson Hotel Group, said the company has evolved into what he called “a mindful, thoughtful and thorough brand-management company, built on a belief that we want to be extremely relevant to the key stakeholders—the consumer and the owner.”
Owners said they do recognize the diversification brand companies have undergone, but that owners as a group more than ever must be laser-focused on what drives returns and choose to brand—or not—accordingly.
“There’s a time and a place for independent execution,” said Jay Shah, CEO of Hersha Hotels & Resorts, citing the company’s Rittenhouse Hotel in Philadelphia. “We operate that ourselves, without a brand, and it’s the leading hotel in the marketplace. But across the way we have a 330-room Westin (the Philadelphia Westin) and the capabilities we have are not well-suited for us to do a hotel that size as an independent. In that case, distribution matters.”
Shah said Hersha’s ownership platform has changed over the last seven years from deriving “close to 90, 95% of (earnings before interest, taxes, depreciation and amortization) from hard brands, to today where 40% of the (real estate investment trust’s) EBIDTA is driven by indie collections and soft brands.”
He said the company is adding more independent hotels to its REIT as well as its third-party managed platform lately because “not only is there an economic advantage as long as you can create the distribution, but also because it allows us to drive more differentiation.”
For hotel owner Homi Vazifdar, CEO of private equity company Canyon Equity, brands are important provided they’re the right brand to support the company’s ultra-luxury platform.
With brands like Six Senses, Four Seasons and Aman in its portfolio, the company has success with brands because of the nature of ultra luxury, Vazifdar said.
“You build a great product. You have a great brand,” he said. “Rates are north of $2,000 (average daily rate). Key count is always less, which means there is induced demand and therefore we run pretty high occupancy.”
Still, he cautioned more traditional luxury brands against growing too large that they dilute what they stand for.
“Some of these companies are getting so damn big that they’re bastardizing themselves,” he said.
Banking on demand
As they diversify, brand companies also are deepening their attention to demand drivers and other factors that ultimately drive guests to hotels.
“The consumer is alive and well,” said Hyatt Hotels Corporation President and CEO Mark Hoplamazian. “We serve the higher-end consumer and we see very sustained demand and good growth on a global basis. People are still gainfully employed and spending money on vacations with their families.”
Elie Maalouf, CEO of the Americas region for InterContinental Hotels Group, echoed that support of continued demand, but added “there’s a big requirement to do it in a sustained way.”
“You still have GDP growth in the U.S., low interest rates, high consumer confidence, record low unemployment and a pretty resilient financial market,” he said. “That’s a scorecard people will take.”
Dave Johnson, CEO of Aimbridge Hospitality, said leisure is “by far the most dominant” in the Aimbridge portfolio, and he called it “a really good bellwether about how people feel about spending money.”
As the cycle shifts, good management is key to harnessing demand and optimizing revenue, the brand executives said.
That management may come through the brand or through third-party management companies, and on that front, brand companies carve out their own preferences.
“The future for us in terms of scale and growth will mostly come from franchising, but while managing won’t be the largest part of our business, it’s the soul of our business,” Maalouf said. “It’s how we stay intimately close to our owners.”
Hoplamazian pointed to the importance of a great GM, whether the hotel is brand-managed or third-party managed.
“Turnover is a killer, as is the lack of continuity in creating a spirit of a team,” he said.
Too many brands?
When asked the question whether too many hotel brands are crowding the landscape these days, speakers all shared different opinions.
Brand companies spend a lot of time developing their products to fit market niches and address consumer and owner need, the brand executives said.
John Cohlan, CEO of Margaritaville Holdings, said he considers his brand company to be in a lot of different businesses, and above all, it’s a training company.
“We’re in the training business,” he said. “We exist to train the Aimbridges and (other management companies) of the world and develop long-term relationships with them.”
Shah said that for his company’s purposes, “there are more than enough brands,” and that “it’s incumbent on us to look out and create the highest and best returns for the real estate.”
One worry he has is that with many publicly traded brand companies now, “revenue per available room) is less important and net unit growth is very important,” he said.