Hotel executives went into detail over their companies’ latest deals, developments and operational strategies during a general session at the 2018 Lodging Conference.
PHOENIX—The past year has seen a number of shakeups in the hotel industry, including brand acquisitions and spinoffs.
Hoteliers sitting on the “A view from the C-Suite” general session panel at the 2018 Lodging Conference shared insights into their companies’ most recent dealings and how they have played into their overall operational strategy.
RLH Corporation’s strategy
When looking at the Knights Inn acquisition, RLH Corporation President and CEO Greg Mount said it comes down to distribution and advantages in pricing. For his company, there are a number of consolidation opportunities out there that aren’t colossal deals, and these companies might be less on the radar screen, but they are “pretty accretive.”
“When you think about some of the multiples the other transactions are trading at, it’s pretty accretive to us and valuable to us,” he said.
There are still a number of regional brands that are attractive to RLHC, he said, and his company has become a good aggregator for these owners. The first time it acquired a brand, it took about four to five months to fully integrate the platform, he said, and it has since been able to cut down on that time.
Don’t underestimate the value and opportunities for organizations to get shelf space, Mount said. Being the biggest out there doesn’t guarantee a spot on the shelf, he said.
“Google has over 90% of the search traffic in the world,” he said. “If Google wants to put you out of business, they can.”
When it came time for Wyndham Hotels & Resorts to sell the Knights Inn brand, Wyndham CEO Geoff Ballotti and his team saw an opportunity, Mount said. The company had achieved the level where it becomes a challenge to meaningfully support every brand, he said, and RLHC had hit the same point before when it reduced the number of its brands from 12 to nine.
“Geoff made a strategic decision where to place his resources,” Mount said. “We thought of it as an opportunity to take a brand that was taken off the ledge a bit and kind of give it a rebirth.”
The La Quinta deal
Over many years, La Quinta Holdings followed a strategy of driving product consistency, guest experience consistency and driving engagement with consumers, said Keith Cline, president and CEO of CorePoint Lodging and the former president and CEO of La Quinta. But he said the company struggled getting scale in distribution as a single brand, it was a challenge getting scale in distribution.
“As you think about being a single brand, the way to win is to punch above your weight in terms of product quality and service quality,” he said.
Given the broad scope of distribution, when guests enter the booking path, they follow one of two ways, he said. The first is brand loyalty, in which they’ll go through direct channels and find the brand in the location they want, he said. The other is loyalty to a price point, in which they want options in a location at a certain price point. The next place they go is guest experience, he said, where they’re looking for a reason to stay at a particular reason out of all the other choices in the area.
In looking at the real estate investment trust space before CorePoint launched, Cline said, there were two clusters of REITs: full-service REITs chasing similar deals; and select-service REITs in the upper-upscale space chasing similar assets. The midscale, upper-midscale and economy segments see $34 million to $35 million in revenue, he said, and the areas are fragmented with little institutional ownership.
“I think CorePoint Lodging has a fairly clear runway in terms of what we could become,” he said.
Many La Quinta owners who are members of the Asian American Hotel Owners Association were upset by the LaQuinta/Wyndham deal, said Hitesh (HP) Patel, chairman of AAHOA and president of Capital City Hospitality Group. They had a lot of questions initially, he said, such as how the deal would affect their asset values and whether they could still develop the brand like before. Wyndham did a great job during the spinoff, he said, and Ballotti made sure the culture was going to stay intact.
As a single brand, the main thing is the guest experience, he said, as the owners don’t have the marketing dollars to market themselves. Acquisitions like this help the individual brands get to the level of the bigger players, he said.
It’s got to make sense at the end of the day, he said, and for the members, it’s about return on investment. Being bought by a larger company can mean new brand standards and more infrastructure costs, he said. When the changes come, make it a seamless process so there aren’t two systems running, a lot of downtime and guest services issues, he said.
“As owners, we don’t want to deal with that,” he said.
Make the owners feel comfortable with the deal, Patel said. It’s a personal thing for them and they don’t want to feel like just a number, he said.
“The biggest thing is you want to make sure when consolidations do happen, that it’s a win-win for everybody, not just a win for the brand,” he said. “You have to take care of the franchisee. Without the franchisees, the brands can’t do what they’re doing.”
Ownership of Radisson
The Chinese consumer play is huge, said Ken Greene, president of the Americas at Radisson Hotel Group. There are 120 million outbound travelers from China today, he said, and that is expected to reach 180 million of the next couple of years and double-digit growth over the next decade. That play is powerful, he said, and HNA Group had an interesting position of capturing the point of origin and then putting travelers into this part of the world and others.
However, the Chinese government defines HNA as an aviation company, he said, so his company is now being acquired by Jinjiang International. It’s the largest hotel company in China, he said, and by adding Radisson, the company will be the second largest in the world by any metric.
“The same story for HNA just got better for us when Jinjiang closes (on the deal),” he said.
Owners have had positive feedback regarding the latest development, he said. Two years ago, nobody really knew who HNA was, he said, and it unraveled pretty quickly and the noise from it has been a bit of a distraction. The story for Radisson remains the same, he said, as it has a five-year strategic plan and a great team of people.
Magnuson Hotels’ plan
The biggest single change that Magnuson Hotels is seeing now is the emergence of individualism, said Thomas Magnuson, CEO and co-founder of that company. Recent data from Europe shows that 50% of first-time Airbnb guests won’t stay at a standardized lodging establishment again, he said.
“That’s a very powerful statistic, and so we see what people are wanting is individuality, and that somehow rubs against the concept of standardization that is driven by the (property improvement plans) and a lot of chain standards,” he said.
Magnuson is responding to this is to support the underlying owners’ need of profitability with a platform, he said. His company tells owners it’s here to help them get where they want to go, he said. The owners know their market and their customer, but they need help, he said.
The company makes a personal commitment, he said. The company gives them a revenue manager and a marketing manager who are basically available 24 hours a day, he said.
“It’s not a system of here is our platform, here’s your sign, here’s your three-ring binder—good luck,” he said. “We’re in there deep with them every day.”
The company doesn’t have 20-year contracts, he said, it only has five- and 10-year deals. Owners say they like working with Magnuson because they’re involved and they help out, he said. The key is customization to support the owners in the local markets and capture as much as they can, he said.