Executives speaking during the ALIS Summer Update said preventing operational costs from skyrocketing is essential for hotels to continue along the road to recovery.
DALLAS—Tony Farris, the matter-of-fact CEO of Quorum Hotels & Resorts, during the ALIS Summer Update’s “View from the Boardroom” event on Monday, deadpanned a summary of the operational cutbacks during the recession that every hotel operator can most likely relate to:
Quorum Hotels & Resorts
“All the low-hanging fruit is in fruit pies and jam,” Farris said. “There’s no low hanging fruit left. … (Cost) creep is coming back.”
Monty Bennett, the CEO of Dallas-based Ashford Hospitality Trust who also will never be classified as shy when it comes to voicing his opinion, gave credit to brands for helping reduce costs during the recession, but sees a different story unfolding now that a rebound is under way.
Ashford Hospitality Trust
“Now there’s a pent up demand on the brands’ part to ramp those costs back up,” he said. “Our push back is we’re in a different world now (than before the recession). This is not a typical recovery we’re going through. This is a very difficult recovery.”
Ashford is a real-estate investment trust that has direct investment in 127 hotels comprising more than 26,500 guestrooms and is prohibited by law from operating the hotels. Bennett said Ashford’s affiliate managers have been able to keep costs much more in line than the brand partners that manage its properties have.
“A focus on keeping those costs low is probably our No. 1 focus right now,” he said.
Farris said the biggest cost-containment challenge for Quorum, which is a Dallas-based management and asset-management company that specializes in full-service hotels, is in human resources.
“You have a history of a decade or more of entitlement where it was free meal in the cafeterias, where everybody gets an (automatic pay) increase,” he said. “Let’s be strategic on our rates, let’s be strategic with what we’re selling in the future; and let’s keep the costs contained.”
president and CEO
Choice Hotels International
Steve Joyce, president and CEO of Choice Hotels International and another industry executive who freely speaks his mind, disagreed with Farris and said there is some low-hanging fruit left when it comes to cost containment—particularly in cloud-based technology.
“Then computing costs come down because you can change everything once (when a cloud-based system is in place),” he said.
He also said the cost of electronic distribution channels will continue to come down—but pointed out the cost of marketing for those channels will not be reduced.
The value proposition
The executives agreed the value proposition is more important than ever as price and location are the two top drivers of business for hotels.
“You’re going to continue to see a lot of pressure providing value at every segment of the industry,” Joyce said.
That means guest-loyalty programs will continue to play an important role for brands, but they are not the panacea that some industry observers make them out to be, the executives said.
“At the end of the day we’re still location, location, location,” Farris said. “That loyalty program is not going to pull a customer from a more desirable location.
“From a rate side, we’ve got a market-mix problem,” he added. “We’ve got way too many rooms occupied by people being driven through demand channels that are not driving rate for us. We’ve got to get corporate America comfortable paying (higher rates).”
Joyce said travelers are booking more rooms with handheld devices and that is a trend that’s especially noteworthy among younger travelers who make booking decisions on the fly rather than months in advance.
“I was on a panel and a young lady was talking about using a PDA to book rooms. She said: ‘No offense, planning is for old people,’” Joyce said. “That’s what we’re seeing.”
Bennett said loyalty points are indeed important and properties that don’t have them are at a disadvantage—but they are expensive to the owner and they are a tough cost to contain.
Accor North America
Olivier Poirot, CEO of Accor North America, said customers are less predictable, so defining the customer experience is essential for success. Accor’s Motel 6 brand will continue to not offer a frequent-stay program, he said.
“Price value is what we base the model on,” Poirot said.
Brand loyalty is a struggle most prevalent with experiential travel, an area that is growing quickly, Farris said.
“Even at the luxury level … value is a big part of the fundamentals,” he said.
The biggest booking obstacle for the hotel industry to overcome is in group business, the leaders said. That doesn’t make group business the most important element to worry about, though, Bennett said.
“The most rate potential is transient corporate,” he said. “It will take years to push group rate; meanwhile, transient you can push tomorrow morning. Transient is the name of the game, it’s what’s carried us so far and it’s a segment of the business that has the most upside for the next year or two.”
Bennett said the record-high level of hotel-room consumption is fueled by employees taking more trips. The demand spike has occurred despite a high unemployment rate.
“Companies aren’t hiring; they’re just working their people harder, so that means more trips,” he said.
All owners are aiming to get back to 2007 profit levels, Farris said, and it is doable under certain conditions.
“You’ve got to move (average daily rate), and you have to hold costs at all levels in order to get back to that gold standard,” he said.
Selecting the right target market is key to accomplishing that goal, according to Bennett.
“The trend is trying to get a handle on these young travelers and marketing to them and getting them to be loyal travelers,” he said.
Joyce said the industry is poised for a “great” run through 2014 or 2015 but there’s a big concern that must be addressed.
“Not allowing the disruptive technologies out there to allow people to get in between our customers and our hotels,” Joyce said.
He said hotel owners who put up all the money and risks must be diligent in ensuring emerging technology from companies such as Google and Amazon don’t get between hotels and customers.