Two executives of Europe-based hotel companies quieted some of the biggest worries about development on the continent during a recent panel.
LONDON—Black swan events can always happen unexpectedly, but as travel continues to evolve, Europe’s hoteliers must learn from the past and move forward, sources said.
Pandox CEO Anders Nissen, speaking on the Deloitte European Hotel Investment Conference’s “View from the top” panel, said business fundamentals are good, economic growth is there, and people are wealthier.
“From that perspective, we should not compare (today) with (pre-recession peak) 2008,” Nissen said. “On the other hand, we know historically things will go down, but I think there will need to be some form of terrible recession—something we do not want to talk about. When I started in the industry 30 years ago, the industry was fragmented; now it is the fourth-largest industry in the world, so looking back is not always so useful.”
Olivier Chavy, CEO and president of Mövenpick Hotels & Resorts, said the fundamentals vary depending on the region.
“The overall picture is nice, depending on the mix of your portfolio,” he said. “Chinese and Russian demand now is growing in Dubai, although the Chinese have less spending power. Northern Africa is positive, although funds remain there and (are) not being brought back as fees. (In Northern Africa), 85% to 90% of business is domestic, but it is nice to see the recovery there, for sure.”
Chavy added his main concern is the geopolitical situation in the Middle East where, in his words, Mövenpick is more exposed.
“I agree with Anders in Europe, but my concern is whether this will be sustained,” Chavy said.
Nissen said he and Pandox’s executives are bullish and looking for opportunities outside the company’s home base of Scandinavia. Last November, Pandox made a €415-million ($483 million) investment in seven hotels from Invesco Real Estate located in Germany, Austria and The Netherlands. Nissen said Pandox wants to continue to be a buyer.
“Scandinavia is expensive, so it is always easier to look elsewhere—the (United Kingdom), maybe Spain, where we have never been there and where maybe we have missed the train,” he said. “Canada is of great interest, in deals with management agreements of many years that hopefully are underperforming.”
Nissen also said London is a win-win, regardless of political discussions.
“With Brexit, either it will result in a devalued pound, so more tourists or economic success, so values will rise,” he added.
Nissen said he is concerned by the challenge of encouraging talent with new skills to enter the industry, which continues to adapt.
“We’re in a changing world linked with digitalization and new players,” he said. “The good part is that these new players have more than doubled their spend on marketing … and vertical integration over operations has created more opportunity in value creation now the brands have less risk in operations. We need new skills, though.”
Chavy said he’s seen design evolve and how those aesthetic changes enhance the guest experience.
“The industry has seen design move from being better than what you had at home to being the same as what you have at home, so the onus is on public spaces,” he said. “The physical plan of hotels in the future will change dramatically in terms of space-planning, and this comes from the ‘Airbnb-ization’ of the industry. Rooms will be smaller.”
He also said the hotel industry should make some more consumer-friendly changes.
“The second change will have to be to move out from the Age of Stone, which is where we are today, in areas such as credit-card guarantees (at check-in) and some of the other crap we have in the industry,” he said. “Arrival and departure will shift even further to a user-friendly mode. There will be some huge changes.
“Customers want the freedom to speak or not to speak, and this we still do not have today.”
Changes in guest behavior, distribution and technology will also lead to different methods for measuring performance and success, panelists said.
“My fight right now is net versus growth,” Chavy said. “All (key performance indicators) are based on (revenue per available room) growth, but sometimes a decreasing RevPAR gives you better overall performance.”
Balancing a varied brand portfolio also presents some challenges, Nissen said.
“We work with 20 brands. Gross RevPAR and net RevPAR are hugely different, and you see how expensive it is to you to have one of the most important brands on the roof,” he said.
Nissen said he is not against brands, but emphasized that they are not the only thing driving value in the industry.
“Brands, yes, macro, of course, also product range, management, productivity, asset management, et cetera; but because of technology, brands have lost power,” he said. “Overall, it is the knowledge we have in the company that is important. How do we always challenge ourselves? We bring in outsiders, we ask for criticism, we ask customers, and this really does not happen in hotels, regardless of how many questionnaires we have.
“Value creation is about doing things more efficiently,” Nissen continued. “And this is where brands can be expensive. Scandic is a very efficient model, and there also is a premium on the share price. Travelodge and Premier Inn, too, (are) fantastic brands in terms of the cash coming out of them.”
Chavy agreed that single-brand companies, such as Mövenpick, can flourish, by virtue of allowing owners and operators to be aligned and grow together.
“There is a certain type of owner that this is very attractive to,” he said. “It is a balance-sheet business, and this is our way to flourish.”