International Growth Strategies of Major Hotel Chains - March 2007

INTRODUCTION
 DEFINITIONS OF KEY TERMS
DATA SOURCES
OVERVIEW
 HNWI FINANCIAL WEALTH TO GROW
Figure 1: Growth in the numbers and financial wealth of high net worth individuals, 1995-2005
North America
Japan
Europe
 STRONG CONTENDERS
Figure 2: Countries with the fastest growth in the number of high net worth individuals, 2004-05
Figure 3: HNWI financial wealth forecast, by region, 2003-10
 WHAT COULD UPSET THE APPLECART?
Rising interest rates spell higher risk
Air travel restrictions a long-term risk
Figure 4: GDP, air travel and hotel demand in the US, 1987-2003
Long-haul flights will be reserved for an elite
 THE IMPACT OF AN AGEING POPULATION
 A STEADY RATHER THAN SPECTACULAR FUTURE
BRANDING
 TOO STRICT OR TOO LOOSE…?
 ONE-BRAND CHAINS PUT ALL THEIR EGGS IN ONE BASKET
 INTANGIBLE SERVICE FEATURES DEFINE THE UPSCALE BRAND
 ARCHITECTURAL UNIFORMITY DEFINES THE BUDGET BRAND
 LOW-COST AIRLINES ARE THE BUSINESS MODEL FOR BUDGET HOTELS
 EXPRESS BY HOLIDAY INN IS ONE OF THE MOST STANDARDISED
 MULTI-BRAND CHAINS TARGET A BROAD MARKET
 BRAND PORTFOLIOS
InterContinental Hotel Group (IHG)
Figure 5: IHG brand positioning, 2006
Figure 6: IHG brands’ positioning and pipeline, September 2006
Branding strategy
 WYNDHAM WORLDWIDE IS TARGETING INTERNATIONAL EXPANSION
A third more rooms by 2010
Figure 7: Wyndham brand positioning vis à vis the competition in the US market, 2006
 MARRIOTT HAS BROAD HOTEL MARKET COVERAGE
Select service the way forward
Only offer what guests want and need
Self-service lowers prices
Open lobbies encourage guests to do their own thing
Mini-markets instead of mini-bars
Lower moderate-price select-service categories
New SpringHill Suites rollout
Collaboration with franchisees
Four extended-stay products
 HILTON REUNITED
Hilton’s brands cover all markets except the economy segment
Hilton and Hampton account for 60% of HHC’s branded rooms
Figure 8: Hilton hotels and rooms, by brand, September 2006
Hilton targeting around 25% growth in branded rooms by 2009
Hilton to take its limited-service brands abroad
Hilton Garden Inn has already come to Europe
Hilton has sold Scandic
 CHOICE COVERS THE RANGE FROM ECONOMY TO LOWER UPSCALE
Suburban Extended Stay positions Choice as economy extended stay
 ACCOR HAS TWO CATEGORIES OF BRANDS
Mercure’s easy format has favoured rapid expansion
Figure 9: Accor’s brand positioning 2006 and 2010
A non-standardised brand for the economy segment
Red Roof Inns under review
Sofitel a weak link in the chain?
‘Wine & Women’ or ‘Women & Wine’?
 STARWOOD CONCENTRATED IN UPSCALE AND LUXURY
Figure 10: Starwood hotels and rooms, by brand, 2006
Stepping up its rate of expansion
Figure 11: Starwood’s pipeline, 2006-09
The first smoke-free hotel chain
Preserving Le Méridien brand
W Hotels – Starwood’s boutique hotel brand
W is taking the advice of celebrity chefs
Whatever, Whenever and Whappenings
Eight hotels in the pipeline
Some Ws have Bliss spas
 CARLSON HOTELS WORLDWIDE
Carlson’s hotel brands cover the range from upper economy to luxury
Regent is finally getting off the ground
North America
Asia-Pacific
Europe
The Middle East
 FUTURE PERSPECTIVE: NEW BRANDS FOR NEW LIFESTYLES
 CHOICE IS ENTERING THE UPSCALE ALL-SUITES SEGMENT
Some 43 franchises already on the way
 HILTON: THE WALDORF-ASTORIA COLLECTION
 HYATT’S BRAND RENEWAL
Targeting Generation X
Conversion will cost US$220 million
Entering the extended-stay segment too
 IHG’S HOTEL INDIGO – A LIFESTYLE BOUTIQUE HOTEL BRAND
 SOL MELIÁ
Music, art and cuisine
Key execs come from Hard Rock & W Hotels
Rande Gerber bars and restaurants
Álvaro Sans collaborated with Keith Hobbs
The first hotel has opened in Madrid
 TWO NEW STARWOOD BRANDS: ALOFT AND ELEMENT
David Rockwell as design consultant
aloft already exists in the virtual world
Developers keen
500 alofts by 2012?
element, the latest Starwood brand
element will offer ’smart space’ living
À la carte breakfasts and barbecues
Target customers are well-to-do business travellers
element hotels will cost US$110,000-130,000 per key to build
Also targeting 500 elements worldwide
Crillon and ‘1’ Hotel
Crillon
€1.5 billion to spend on hotels
Major capitals and unique resorts are being targeted
‘1’ Hotel & Residences is designed for eco-appeal
‘1’ Hotels to be built according to LEED standards
A list of branding experts are guiding the process
Key operations will be outsourced to industry leaders
15 hotels over the next two years
 BIG CHAINS LEVERAGE THEIR BRANDS
 TIMESHARE AND ‘FRACTIONALS’
The big chains have a great advantage in marketing
Restoring the image of timeshare
Banking services
Timeshare owners
Cost synergies and maintenance fees
Wyndham Worldwide extends its brand to all its timeshare development activity
Around 18 upscale Wyndham resorts by end 2007
Timeshare contributes 45% of group EBITDA
Wyndham is launching a major publicity campaign
Marriott was the first hotel chains to enter the timeshare business
Exchangeable points enhance timeshare’s attractiveness
Hilton Grand Vacations Club has 37 properties in its system
Starwood is in the timeshare business too
Hyatt has developed 12 timeshare resorts since 1994
Carlson’s hotel brands extend into the cruise business
Regent brings a more personalised approach
“Circles of Interest” provides guests an individualised experience
Redesigned suite life
 BIG CHAINS WORKING WITH LUXURY BRANDS
Bulgari hotels run by Ritz-Carlton
Ferragamo is also a hotelier
Soon to be two Palazzo Versaces
Rezidor has replaced Cerruti with Missoni
Missoni is into interior decoration, clothing and fragrances
Three Hotel Missoni sites are already in the pipeline
Studio Thun’s master design concept realised locally
Armani Hotels & Resorts to launch four luxury properties
Hotel operations are headed up by former Méridien chief
EMAAR has deep pockets and a long reach
Hamptons will help promote Armani hotels and residences
Ten properties over the next decade
LXR Luxury Resorts & Hotels’ first Hotel Ralph Pucci
Collaboration with architect/designers Pilar Proffitt and Robert Bristow
Hodge-podge or brilliant design concept?
DISTRIBUTION AND MARKETING STRATEGIES
 DIRECT CHANNELS
The hotel chain website
 ONLINE TRAVEL AGENTS
 ELECTRONIC CHANNELS GENERATE THREE QUARTERS OF CHAIN CRO BOOKINGS
 PRESENT TRENDS SET TO CONTINUE
Figure 12: Trends in booking channels for 23 major hotel chains, Q3 2006
 INTERNET BOOKINGS BY TYPE OF WEBSITE
Brand websites
Third-party distributors
Figure 13: Internet hotel reservations, by type of website, Q3 2006
IHG has laid down the law
Taxes and fees obscured by websites
Online travel agents increasingly unattractive
Links cut with Expedia
Still working with other websites
Hilton has established ground rules
Merchant & ‘opaque’ transactions
 CENTRALISATION OF THE RESERVATION FUNCTION
Travelodge (UK)
 STRONG GROWTH IN HOTEL PERFORMANCE HAS FAVOURED THE CHAINS
 EXPEDIA’S HOTEL DISTRIBUTION MARGINS UNDER PRESSURE
 SEARCH ENGINE OPTIMISATION
 DISCOUNTING ONLY WORKS WHEN DEMAND ELASTICITY IS HIGH
Figure 14: Elasticity of demand for hotel rooms and correlation to GDP growth in the US, 1967-2003
 LOYALTY PROGRAMMES
Figure 15: Change in loyalty programme effectiveness*: 2002-05
The ten leading brands
Figure 16: Brands with the most effective loyalty programmes, 2005
Driving clients to chain websites
‘Me-too’ programmes
Accor’s scheme separates ‘soft’ and ‘hard’ benefits
Guest loyalty schemes – costly necessity or dynamic marketing?
Figure 17: Breakdown of US hotel guests, by travel frequency and overnights generated per segment, 2005
Figure 18: Number of loyalty scheme memberships for frequent travellers, 2005
Loyalty versus rewards
The risk of cannibalisation
Costs high and unpredictable
Real value essential
Onsite benefits of little value
Solution: charge a fee?
PROPERTY AFFILIATION STRUCTURES
 SPECIALISATION THE NAME OF THE GAME
 EXPANSION DRIVING BRAND VALUES
Property owners bear the risk
 FRANCHISES
Beds, bathrooms and breakfast centre of attention
Franchise fees based essentially on room revenues
Some chains charge for CRS
Key customer agreements help drive business
Financing loyalty programmes
Only the tip of the iceberg
High land costs can impede expansion of franchised brands
Figure 19: Costs and requirements for economy hotel franchises in the US, 2006
Figure 20: Costs and requirements for mid-scale hotel franchises in the US, 2006
 MANAGEMENT OR LEASE CONTRACTS
Figure 21: Costs and requirements for upscale hotel franchises in the US, 2006
Working with ‘second-tier’ managers
Figure 22: Interstate hotel portfolio, by brand, 2006
Property owners’ upper hand
Hotel owners becoming more demanding
No standard fee structure
Chains forced to make further concessions
Length of management contracts
Figure 23: Management contract terms, by region, 2005
Net instead of gross operating profit
Meeting agreed standards
Management companies can be terminated
Figure 24: Profile of management contract in the Americas, 2005
Base fees
Figure 25: Profile of management contracts in the Asia-Pacific region, 2005
Figure 26: Profile of management contracts in Europe, 2005
Incentive fees
Leases
Figure 27: Profile of lease contracts in Europe, 2005
 AFFILIATION STRUCTURE BY MAJOR CHAIN
IHG
Figure 28: Hotel affiliation structure of IHG brands, 2006
Figure 29: Room affiliation structure of IHG brands
Marriott
Figure 30: Marriott’s hotel portfolio, by affiliation structure, Q3 2006
Hilton
Figure 31: Hilton asset management structures, by numberof hotels and rooms, 2006
Figure 32: Profile of lease contracts in Europe, 2005-06
Accor
Figure 33: Affiliation structure, by Accor brand, 31 December 2005
Figure 34: Projected change in Accor’s asset management structure, 2004 and 2009
Starwood
Figure 35: Starwood’s portfolio, by asset management structure, 31 December 2005
FINANCIAL MANAGEMENT STRATEGY
Figure 36: Top eight publicly quoted hotel chains, by number of branded rooms, 2005
 IHG
Figure 37: Chart of IHG’s stock price (in UK pence), 2006-07
 WYNDHAM WORLDWIDE
Figure 38: Wyndham/Cendants share price performance versus the S & P 500, 1996-2006
 MARRIOTT INTERNATIONAL
Figure 39: Diluted* weighted average shares outstanding 1998-2006
 HHC
 CHOICE HOTELS INTERNATIONAL
Figure 40: Trend in the share price of Choice Hotels International 1998-2007
 ACCOR
 STARWOOD HOTELS & RESORTS
 TUI AG/TUI HOTELS & RESORTS
Figure 41: TUI share price 2002-07
Two of the top ten are still in private hands
 REITS
 IPOS
 PRIVATE EQUITY FUNDS
 COLONY CAPITAL HAS BITTEN OFF A CHUNK OF ACCOR
 SIMILAR TREND ON THE OTHER SIDE OF THE ATLANTIC
 THE DEAL OF THE YEAR
 COLONY ALREADY OWNED RAFFLES
 FHR IS LARGEST LUXURY HOTEL MANAGER IN NORTH AMERICA
 FAIRMONT AND RAFFLES COMBINED
 FOUR SEASONS BOUGHT OUT
 OTHER ACQUISITIONS AND DIVESTITURES
Starwood and Le Méridien
Hotel groups are selling non-core assets
Hilton has disposed of its standalone health club business
Still substantial asset sales to come for Accor
GEOGRAPHICAL EXPANSION STRATEGY
 CHAINS SEEKING PORTFOLIOS
 CRITICAL MASS IS IMPORTANT
 CHAIN GROWTH OUTPACING OVERALL HOTEL SECTOR
Figure 42: Hotel industry growth, 1995-2004
 ACCOR
Accor jumps headfirst into India
100 Formule 1s for India
15 Ibis hotels on the drawing board
Midscale hotels: Novotel and Mercure
 CHOICE
Figure 43: Choice’s international hotel capacity, 2001-05
International portfolio
Figure 44: Choice’s foreign hotels, by major country, December 2005
Friendly
Relinquishing its master franchise
CHE’s troubles not over yet
Strong grip on the Scandinavian market
Brazilian partner
Doubling its Mexican properties
Australian focus
Big in Japan and India
 HILTON
Little geographical overlap
Taking its limited service brands abroad
Hilton Garden Inn already in Europe
Hilton wants to sell Scandic
Targeting 50-75 hotels in India by 2014
Hilton Garden Inn coming to China
Hilton and Doubletree to enter Costa Rica
 HYATT
Figure 45: Hyatt pipeline, 2006
Figure 46: Hyatt Hotels under construction, March 2007
Favouring mixed-use development
Figure 47: Hyatt hotels in development in Greater China, 2007-09
Grand Hyatt expanding in southern China
Hyatt Regency
 IHG
Buying its way into the Japanese market
First mover advantage
ANA’s hotels to be co-branded
Quadrupling its portfolio in Japan
13 ANA hotels up for sale
Big luxury brands moving into Tokyo
Moving into China – full steam ahead
InterContinentals sprouting up in the provinces
Investing in education and training
 MARRIOTT
Courtyard Marriott’s growth vehicle
Figure 48: Courtyard Europe and Middle East compared to US model, 2006
Figure 49: Marriott room openings in Asia-Pacific, by brand, 2007-09
Different ownership profiles
 NH HOTELES
Doubling numbers
Driven abroad by stiff competition at home
Possibly a take over candidate?
Aggressive growth objectives
 STARWOOD
Le Méridien geographically well diversified
Rapid expansion in China
Breaking new ground in Inner Mongolia
German partnership restructured
 WYNDHAM
Hospitality Alliance
Turnover-based leases reduce risk
HA is targeting MICE and wellness
Ramada and Treff hotels
Ramada on ice
Rudi Ramada promoting the brand
Recent performance has been strong
Re-branding
Wyndham signed up second European partner
Adapting brand standards
Numerous equity partners
Super 8 international market leader
Indian partner
SPECIALISED LODGING GROUPS
 TOUR OPERATORS
First Choice and Club Med move upmarket
MyTravel already forced to retreat from vertical integration
Thomas Cook is ‘dis-integrating’
TUI plans further new openings
Figure 50: TUI Hotels & Resorts, properties and beds, 2006
Vertical integration enhances quality control
Who is better qualified to own resort hotel?
TUI centralises many hotel functions
Figure 51: Geographical presence of TUI lodging brands, 2006
RIU accounts for nearly half of TUI capacity
RIU has 50% more capacity than in 2000
Figure 52: Growth of RIU, 2000-06
RIU in Cape Verde
RIU in Mexico and the Caribbean
Figure 53: RIU’s portfolio of hotels in the Caribbean, as of end 2006
Figure 54: Schedule of RIU hotel openings, 2007-08
Grecotel is the first and largest Greek hotel chain
Figure 55: Grecotel locations and seasonal opening dates, 2006
Other TUI lodging brands include:
Atlantica Hotel
Dorfhotel
Gran Resort Hotels
Grupotel
Iberotel
Magic Life
Nordhotel
Paladien
Club Robinson
Sol y Mar Hotels
 EXPLOSIVE GROWTH FOR GAMING GROUPS
Hotels are growing in importance
MGM Mirage more than doubled its lodging capacity in 2005
Macao is the new Eldorado for US casino operators
MGM to expand with non-gaming hotels in China
Harrah’s has doubled it capacity due to the merger with Caesar’s
Harrah’s itself has been bought
Harrah’s is expanding internationally
Harrah’s still largely dependent on Vegas and Atlantic City
Figure 56: Harrah’s capacity, by location, 31 December 2005
Figure 57: Harrah’s gaming and lodging capacity, 31 December 2005
 THEME PARK OPERATORS: CASE STUDY
Disney
Four for three
The Mickey Mouse Penthouse
Disney to offer standalone hotels
Disneyworld in Bahrain?
WHAT NEXT?
 CHAINS STEPPING UP EXPANSION RATE
 CHALLENGES
 CONCESSIONS WILL HAVE TO BE MADE
 HOTEL BRANDS MUST PROLIFERATE RAPIDLY
 NICHE OPPORTUNITIES REMAIN IN US MARKET
 HOTEL BRANDS MUST REPRESENT A LIFESTYLE CHOICE
 THE CHAINS WILL SQUEEZE INTERMEDIARIES
 FREQUENT-GUEST PROGRAMMES
 MORE SHARE BUYBACKS ON THE WAY
 MORE ‘TAKING PRIVATE’ TO COME
INDEX TO TRAVEL & TOURISM ANALYST
Index grouped by geographic area
INDEX TO TTI DESTINATION REPORTS 1993-2006
Country reports
SPECIAL REPORTS INDEX