Mar102010

Major Hotel Chains in Market to Boost Hotel Brands

The message in the hotel industry is the time is right to buy hotel brands as the market is at a low. The dynamics of the hotel industry may not be relevant to most frequent guests, however, the availability of hotels for your stays, and places to earn and burn points is fundamentally useful information for the loyalty traveler.

Hubert Joly, CEO of Carlson Hotels, stated last week at the Carlson Hotels Global Summit in Orlando, “The future of the hotel business is strong brands will win.”

Consumers want value, and young travelers are even more focused on value. Hotel owners also want value and the big fish hotel chains provide that in this economic environment.

Hotel companies use a measure called RevPar index to measure performance of a hotel in its location against other hotels in its market segment. One of the slides shown at the Carlson conference used the Radisson St. Martin Resort in the Caribbean as an example property to show the effect of rebranding a hotel. Ten years ago this hotel was a Le Meridien (before Starwood Hotels bought the brand). It had a Rev PAR index of 85. The goal is to be at or over 100, which if I understand correctly, means the hotel is performing average or better than average in generating revenue among its competitive set of hotels. You want to be at least in the upper half of your hotel market segment.

The Le Meridien dropped its branding and went independent in 2005. Its RevPAR index plunged to 65. The hotel was severely underperforming. After Carlson Hotels rebranded the property as a Radisson Resort, the RevPAR index went up to 105 in 2008 showing its performance exceeded that of other hotels in its market.

The point I want to make is that independent hotels as a group are suffering more than branded hotels in this economic environment for the travel industry. I have seen data in the past year showing this statistic. That is why the time is right for the big hotel chains with capital to gobble up smaller independent hotels and hotel brands.

At the International Hotel Investment Forum in Berlin this week, Hubert Joly reiterated,  as he did last week in Orlando, that Carlson Hotels is sitting on a pile of cash ready to invest in expanding their hotel portfolio.

For those of us not in the hotel industry there may not be clarity in the relationship between a hotel company like Hilton, Starwood, and Carlson and its hotel properties. I am not in the hotel industry so my knowledge is quite basic, but this is how I understand the standard relationship.

Most hotels are not owned, and many are not managed by the major hotel companies. The hotels have owners and investors in a hotel investment company who agree to contract with Starwood, Hilton, or Carlson to align the hotel with a particular brand identity. The loyalty programs we belong to are incentives to concentrate our hotel stays with hotels in these brand identities. The parent chain like Hilton and Marriott set standards and practices for the hotel brands to enable a relatively consistent service quality for the guest as he or she travels from location to location and stays in different hotels within a brand.

The hotel owner gets name recognition for his hotel and the major hotel company receives fees from the hotel through the brand contract. The consumer has a recognizable name brand and receives loyalty program benefits. The hotel owner hopefully has increased occupancy and better rates due to hotel brand recognition driving traffic to the hotel. The hotel brand company like Hilton, Marriott, and InterContinental Hotels Group continues to grow as more hotels are willing to contract with a major industry player.

I met some hotel owners last week who own hotels branded with different chains like Hilton, Westin, and Carlson.  Just as we frequent guests compare programs to get the best deal, the hotel owners compare programs to contract with the companies where they feel the investment return will be strongest.

Stephen P. Joyce, president and CEO of Choice Hotels International states they are looking for a full-service brand to add to the portfolio. One of the recent brand additions to Choice Hotels is the Ascend Collection. These are often boutique hotels that have been added to the Choice Privileges network of 6,000 hotels (2nd largest hotel chain globally behind Wyndham Hotels).

Hotel brands change companies. Starwood bought Le Meridien several years ago and integrated the brand into the Starwood Preferred Guest program. Hilton bought Scandic Hotels, integrated those properties into HHonors, then the brand was bought and removed out of HHonors all in a period of about seven years. Hyatt purchased Hawthorn Suites and AmeriSuites. Many of the AmeriSuites Hotels were converted to the new Hyatt Place brand and Hawthorne Suites was sold and is now part of Wyndham Hotels.

The next couple of years look to be a time of hotel brand consolidation in the big companies. When a hotel company like Carlson Hotels states they are going to add 500 Country Inn & Suites and a couple hundred Radisson Hotels, these projects are mostly conversions of hotels from their existing brand to a new brand. The market place is currently flooded with hotel rooms and many hotels averaging 50% or less occupancy are in need of new life and possibly new owners. New hotel projects are slowing. Many existing hotels will be rebranded in the next few years.

The good news for loyalty program members is a new hotel option within your preferred loyalty program will be coming to a place where you need a hotel night. The big fish are poised to pounce on the little fish and the familiar brands will become more widespread.

Competition for the relatively low number of travelers in 2010 and 2011 should mean loyalty promotions will remain prevalent, lucrative, and competitive. This may not be a great time to be a hotel owner, but it sure is a good time to be a loyalty traveler staying at hotels.

Source: http://www.hotelworldnetwork.com/brands/wyndham-choice-accor-and-carlson-ceos-debate-branding

About Ric Garrido

Ric Garrido of Monterey, California started Loyalty Traveler in 2006 for traveler education on hotel and air travel, primarily using frequent flyer and frequent guest loyalty programs for bargain travel. Loyalty Traveler joined BoardingArea.com in 2008.

More articles by Ric Garrido »

Pingbacks

Comments

  1. You are probably right in that hotel property managers would like to be in the upper half of their market segment when it comes to RevPAR (just like all parents want their children to be “above average”), but I think RevPAR is simply revenue per available room (abbreviated), and is not a normalized index where 100 represents the average. However, your example mostly still stands — going from 85 to 65 to 105 could show the power of associating a specific property with a strong chain brand.

  2. I’ll leave it to someone who actually knows the industry to give an explanation of RevPAR index. The financial side of hotels is not my knowledge base, although I should learn the definitions of these key indicators.

    I generally never discuss RevPAR since as a frequent guest it is the room rate that is relevant to me and I typically use Smith Travel Research data to check ADR (average daily rate) and occupancy numbers.

    Here is the definition from the STR Global Glossary which explains the difference between RevPAR and RevPAR index.

    RevPAR (Revenue Per Available Room)-

    Revenue per Available Room (RevPAR) is the total guest room revenue divided by the total number of available rooms. RevPAR differs from ADR because RevPAR is affected by the amount of unoccupied available rooms, while ADR shows only the average rate of rooms actually sold.

    Occupancy x ADR = RevPAR

    RevPAR (Yield) Index –

    A RevPAR (Yield) Index measures a hotel’s fair market share of their segment’s (competitive set, market, submarket, etc.) revenue per available room. If a hotel is capturing its fair market share, the index will be 100; if capturing less than its fair market share, a hotel’s index will be less than 100; and if capturing more than its fair market share, a hotel’s index will be greater than 100.

    RevPAR Index is calculated:
    (Hotel RevPAR / Segment RevPAR) x 100 = RevPAR Index

    Fair share can be thought of as the subject hotel’s “piece of the pie” in the market. For example, if the subject hotel’s RevPAR is $50 and the RevPAR of its competitive set is $50, the subject hotel’s index would total 100. If the subject hotel’s RevPAR totaled $60, its index would be 120, which indicates that the subject hotel has captured more than its fair share. If the subject hotel’s RevPAR totaled $40, its index would be 80, which indicates that the subject hotel has captured less than its fair share.

    http://www.strglobal.com/Resources/Glossary.aspx#R

Comments are closed.