HOTELS' 325

Globalization has created a smaller world and larger hotel portfolios as the biggest chains continue their worldwide expansion plans.

By Karyn Strauss, Senior Editor -- HOTELS Magazine, 7/1/2007

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This year’s ranking of the world’s largest hotel companies marks another chapter in the story of “the big getting bigger” as strong balance sheets propel the GIANTS into new locales. Therefore, while 2006 marked yet another year of steady growth and impressive operating results, the real theme of the last 12 months has to be “setting the stage.” Regional players and brands are breaking ground to plant flags in new territories—such as the reunited Hilton Hotels Corp.’s ambitious plans to roll out many of its domestic U.S. brands abroad, namely into China, India and Russia, and the newly formed Fairmont Raffles Hotels International’s opportunity to expand its brands’ reach to opposite sides of the globe. In addition, Marriott International recently said that 50% of its development pipeline is outside the U.S. border—a first for the company, while Starwood currently has more than 100,000 new rooms in its pipeline, with nearly half of those outside of North America. Meanwhile, smaller players like Dubai-based Jumeirah, with 11 hotels currently—mostly in its home geography—has an ambitious international growth plan of its own, according to CEO Gerald Lawless. In the last 18 months the company has signed 10 management agreements and has 16 more “close to being signed” in markets from Shanghai to Phuket and London. The goal, Lawless says, is to become a global company with 60 hotels in the next four years.

Setting the stage also means looking to the numerous new brand announcements over the last two years. According to a recent study by PricewaterhouseCoopers (PwC), there were a total of 24 new hotel brand launches in the United States in 2005 and 2006, which marks the largest number of brand introductions in a two-year period since 1989. “As best as I can count, we have 234 hotel brands today; in 1980 there were 81,” says Bjorn Hanson, principal, Hospitality & Leisure Consulting, PwC. “We’re in a period of experimentation. The new brands being introduced are highly specialized concepts, and the chains [in response] are doing everything to enhance, fine tune and add to existing concepts to increase appeal to the emerging demographic patterns.”

While these new brands have yet to make a big impact on the GIANTS ranking, top players have significant—and global— aims. For example, where in the past hotel companies would test out a new brand in its home base first, Starwood plans to debut its new aloft and ELEMENT brands simultaneously around the world. How such growth among all these new brands will play out over the next 18 to 24 months could mean a shake up in the rankings. But, as Adam Weissenberg, managing partner of tourism, hospitality and leisure for Deloitte & Touche, cautions: “The question on everyone’s minds is ‘Are we creating new demand with these new brands or dividing up existing demand?’” Only time will tell.

Another theme related to growth in 2006 included the continuation of the “asset light” model of the big chains selling properties to fuel expansion. “Assets for us are a means to an end, which is brand delivery,” says Andrew Cosslett, CEO, InterContinental Hotels Group (IHG). “Our strategy is not to have assets to make money but to get additional distribution in major cities.” IHG now has sold all but 24 assets. Hilton’s Tom Keltner, CEO, Americas and global brands, concurs, saying that ownership today is about maintaining control of strategic assets. With Hilton’s ownership down to about 45 hotels, Keltner says the goal is to “always have 10 to 15 core assets.”

Hotel chains’ desire to sell real estate plays well into the aims of private equity investors, who continue to strongly pursue opportunities in the hotel sector. Positive fundamentals, including growing revenue at all levels of the hotel business and supply growth still well below average, have translated to a continued bullish outlook by private equity. These deep-pocketed individuals and institutions also carved out another trend in 2006—privatization. How players like Four Seasons Hotels & Resorts, Kerzner International and Harrah’s will grow under their new private status will be an interesting development to watch going forward. Challenges, however, including rising construction costs and labor shortages, are the few clouds dotting an otherwise sunny horizon.

Data for HOTELS’ 325 is gathered through a survey sent to company contacts, who are asked to report the number of guestrooms and hotels systemwide as of December 31, 2006. Companies that do not respond are subject to an estimate with data collected through the use of public information and various industry sources. All companies ranked with estimated data have an asterisk next to their numbers.

• In some cases, rooms and hotels are counted more than once because HOTELS chooses to separately report data from owner-operators, managers and franchisors on the same list.
• M&A activity that took place in early 2007 is not reflected in the rankings, including Accor’s sale of the Red Roof Inn chain and Hilton Hotels Corp.’s sale of the Scandic brand.
• A notable change this year is that REITs have been eliminated, as the ranking now focuses solely on operators. There are simply too many owners to represent here, and the inclusion of REITs was an oversight on HOTELS’ part. Canadian REITs, however, are included as they also operate hotels.

HOTELS would like to thank Horwath HTL, Tokyo, for its help in data collection.

Consortia Expand Reach, Offerings

Product differentiation, niche plays and diversified offerings are propelling the world’s largest consortia groups to not only grow bigger but also to grow better. The focus for many is not about simply adding to the number of member hotels, but rather to grow by expanding their geographical reach. And in the process, these sales, marketing and reservations services companies are adding to their mix of offerings to provide more of a “one-stop shop” approach, on par with the leading chains.

For example, Great Hotels Organization, London, moved up significantly in this year’s rankings by expanding its menu of services with its early 2006 introduction of G-rez, a proprietary new GDS and Internet reservations solution. Touting a more cost effective, user-friendly technology platform, G-rez has helped the organization double the size of its European member base. In the process, the company also added 1,000 member hotels in China—a main target for growth among consortia and chains alike. Later in the year the company also introduced a rewards program, Great Hotels Rewards, further adding to its arsenal of tools to help independents compete with the corporate chains.

Diversification of offerings also has been a focus for Leading Hotels of the World. “We’ve really have evolved from a consortia business structure to a growing concern. As a global brand we’re competing with the name brands in the luxury market for both hotel product and for consumers,” says Paul McManus, Leading’s CEO. “We’re becoming a more consumer-centric company—we want them to know what being a Leading destination means. On the hotel side, we’ve diversified into development, licensing and other business activities that are designed to work with owners and developers from inception. They are using our services to create that hotel product. Developers are getting more savvy and realize the can hook into a company like ours without having to put a luxury flag on it.”

Beyond adding new services, growth-minded consortia are heavily focused on expanding into new regions and destinations. Leading opened new sales offices in Mumbai, Dubai and Shanghai last year. “We’re about 50 destinations away from completing our global presence,” McManus says. “Our focus is a geographic one.”

David Maranzana, president of Epoque Hotels, which targets the boutique segment of independent hotels, also says growing by geography is more important than simply adding to its member roster. “Our goal is to have as many destinations as we can rather than as many hotels as we can. We want to add new destinations and have started to expand a little bit in Asia and Scandinavia, even South America,” Maranzana says. “So far our strength has been mainly in Europe. So we still have a great growth opportunity in markets like Asia. We have a few properties in Tai Pei, Hong Kong, Bali, Bangkok, but there are plenty more destinations we want to be in.”

With a heavy emphasis on its niche—the small, independent boutique hotel—Epoque, and consortia groups like it, are finding that the Internet truly is the great equalizer, and growth driver. The burgeoning company has invested heavily—predominately in sweat equity—in search optimization. The Internet accounts for 65% of bookings to its member hotels. “We are the reference in the market as far as boutique hotels in the world of the Internet. We’re very strongly positioned and quite formidable in that category,” Maranzana says. “The Web is a huge source for us. Others rely more on GDS—you take away the GDS, and they are in trouble. We don’t rely on it.”

Direct comments to: kstrauss@reedbusiness.org