International Growth Strategies of Major Hotel Chains - March 2007

Table of Contents

• 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