Chiefs in charge of AccorHotels, MGM Resorts International, Hilton and Marriott International spoke frankly at this week’s NYU International Hospitality Industry Investment Conference about how they’re dealing with the latest evolution of disruptors and why Airbnb has dropped off the radar a bit.
NEW YORK CITY—The CEOs of AccorHotels, MGM Resorts International, Hilton and Marriott International had a lot to say on the topics of demand, disruptors and macro travel trends at the NYU International Hospitality Industry Investment Conference this week, and they set a positive mood for the rest of the conference when they took the general session stage on Monday.
“Think about being here a year ago on this stage,” said Chris Nassetta, president and CEO of Hilton. “Maybe ‘fear’ is a strong word, but there was quite a bit of trepidation about where the industry was going from a fundamentals point of view. I think the biggest change over the last 12 months is that while we certainly have things to worry about, my guess is everyone in the room feels a lot better than we did a year ago.”
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Nassetta and the other CEOs on stage outlined some of the key forces driving the current United States hotel operating environment.
Economics drive demand
“You’ve got a positive force in tax reform,” said Marriott International President and CEO Arne Sorenson. “And I think you look at politics in markets around the world and you see a commitment to economic growth that is more powerful than it was a year ago. That speaks well for the demand side of our business.”
Nassetta agreed, citing “strength in leisure transient” business in recent months.
All speakers said they’ve seen indications that overall, more people are traveling and staying in hotels. Plus, corporate tax breaks are starting to show results, at least in corporate confidence, speakers said.
“Overall there’s more confidence and a better regulatory environment,” Nassetta said. “Every corporation has more money in its pocket because of tax reform, and some of that is being reinvested.”
Disruptors are evolving
“I think we’re in an absolute war for who owns the customer,” Sorenson said. “We have disruptors who are without a doubt trying to take ownership of our customers. I think less about Airbnb than I do about Google and Facebook and these digital empires who own all of us for some things—you can add Amazon to that list, too.”
AccorHotels President and CEO Sébastien Bazin underscored that point when he said he spends far less time worrying about his competitors on the hotel side—like Marriott, Hilton and IHG—and much more time worrying about the customer and who will capture his or her share of attention.
“I put these companies into buckets,” he said. “Bucket one are the digital players (Expedia, Booking.com, Airbnb, Amazon, Google, etc.). Another bucket is the hotel company gorillas, and a third has the non-gorilla hotel companies—the independent hotels and small chains.”
He said the overall market cap for the companies in the first bucket and the second bucket are roughly the same. “But what did it cost for the first bucket to get to that number? And what did it cost the eight of us (companies) in the second to get to that value? It took around $8 trillion dollars to get there,” Bazin said.
“You need to take a cold shower and understand the first bucket is much more agile, leaner, cap-light and asset-light,” he said.
James Murren, chairman and CEO of MGM Resorts International, said he sees these disruptors more as opportunities, particularly given the size and scale of his company.
“In Las Vegas, we own 42,000 hotel rooms, and it’s one of the top convention markets in the world, but we believe we’re an experiential company,” he said. “We’re not as concerned about the Airbnbs and the Amazons. People are still going to stay at Bellagio.”
He said making partnerships, not enemies, is key.
“We’re working with Amazon. What we see as a huge opportunity, at least in Las Vegas, is to work with the tech companies, the third-party providers, even Airbnb, because we own Las Vegas. That’s the way we’ve approached this—we build bridges rather than look at them as competitors.”
The CEOs agreed Airbnb may be less of a worry as the company evolves and becomes regulated similarly to hotels.
“It’s important to note that we all have to play by a common set of rules,” Nassetta said. “One of the things that happens with new technologies and the sharing economy is that … as they are formed, they have no rules and regulations … but now you’re starting to see governments and municipalities around the world catch up. There’s more belief they will be put on a level playing field, and I think that’s important.”
At the same time, Airbnb remains “fundamentally a different business,” Nassetta said.
“There’s two ends of the spectrum—these mega-platforms creating total transparency and distribution, and then there’s fulfillment,” he said. “My view is that people want more experiences. That’s the mega-trend under all of this. (The hotel business is) all in the fulfillment business. As we deal with mega-platforms and people in the middle, like Airbnb, we need to double down on fulfillment—having the biggest, best quality, service and experience.”
Data leads to loyalty leads to advantage
The speakers agreed loyalty is the ultimate key to winning the customer in the long run. That’s why many said they’re focusing their data-gathering efforts around loyalty.
“The Airbnb guest is also a guest of Accor, Hilton, Marriott—it’s the same guy,” Bazin said. “The name of the game is retention. It costs a fortune to acquire a client. You don’t want to lose that. You want to make sure you understand what (the customer) wants. It’s not a question of understanding the business model; it’s about understanding the guest.”
Sorenson was quick to point out that hotel guests must be able to see value in their loyalty to hotel companies.
“These other platforms are delivering value,” he said. “Why are we all members of Amazon Prime? Because it’s the simplest way to buy anything in the world. They deliver real value for us in convenience. … We do have tools to deliver value that include the human experience and also loyalty. When you’re driving the majority of your business from your existing customers, that’s a bulwark we can use.”
Capturing more international outbound travel is key
The CEOs also talked about how they are positioning their companies to capture growing business from overseas, particularly Chinese tourists.
“We talk about China all the time (at Hilton), and I would argue we don’t talk about it enough,” Nassetta said. “Every time I go, I’m overwhelmed by how the economy is growing, how entrepreneurial the Chinese people are and by how much they want to have life experiences, which is driving a massive amount of travel inside and outside of China.”
Hilton is looking to attract those guests via “a network effect in China to be able to build loyalty … so when they leave China they’ll stay with us,” he said. “The real battles will be won in the midmarket. Just like in the U.S., there’s a rapid growth in the middle class there.”
Bazin supported Nassetta’s point by talking about what he called “two Chinas”—the domestic travel market and the outbound market.
The domestic market, he argued, is “all a volume-driven market” powered by Chinese companies. The outbound market is the one most Western-based hotel companies are trying to capture, and those are the travelers who tend to stay within Asia/Pacific destinations when they travel outside the country, he said.
“What will evolve is us giving them the comfort they need to go elsewhere,” Bazin said. “The mega-change in the trend is trying to sell to (Chinese outbound tourists) that extra comfort to encourage them to travel beyond the Asia/Pacific.”
Murren, whose MGM Resorts owns a majority stake in MGM China Holdings Limited and develops hotels in China in joint venture with the Chinese government via its Diaoyutai MGM Hospitality division, shared his insights into the rise of the Chinese tourist.
“The Chinese customer is no longer just interested in a brand,” he said. “They want a curated, tailored brand for them—something that melds their rich history and confidence and pride of country with the global brands.”
Sorenson underscored the need for visa reform for this movement to gain traction.
“We all have major company efforts underway to grow (for the Chinese traveler),” he said. “But it’s still too difficult for Chinese travelers to get permission to go to the U.S. and Europe. We’re missing the economic opportunity. All of us need to use our influence to say this is a golden economic opportunity, which has other positive consequences of bringing people together.”