Recent earnings calls from global hotel giants paint the picture of an industry experiencing strong recovery post-pandemic, adapting to new travel norms and consumer needs, and paying a keen focus on areas which have been previously under-explored. As these companies discussed their results and unveiled their plans, common trends emerged, helping to paint a picture of the future hotel landscape.
Conversions are key
Conversions continue to rise in importance globally and hoteliers are increasingly turning to conversions as a tool for growth, with many companies paying greater focus to conversions including Choice Hotels which noted that nearly 80 per cent of the domestic agreements awarded in the first half of the year were for conversion hotels. It added that around 30 per cent of its pipeline is of conversion hotels.
“We expect conversion activity to remain robust for the foreseeable future,” said Patrick Pacious, president & CEO of Choice Hotels.
IHG noted conversion opportunities represented around 40 per cent of signings and openings in the first half of the year, and Hilton stated that conversions accounted for nearly a third of its signings in the US.
“We expect openings to accelerate as the year progresses and expect conversions to account for around 30 per cent of openings,” said Chris Nassetta, president & CEO at Hilton.
Accor also stated majority of openings came from conversions and Mark Hoplamazian, president & CEO of Hyatt stated: “Notably, conversion opportunities remained a significant contributor to our 6.9 per cent net rooms growth this quarter.”
The reason for this increased focus is clear; it's more cost-effective and faster to reflag existing properties than to build new ones from scratch, especially in mature markets where real estate availability and costs can be prohibitive. Based on their statements, we expect conversion activity to remain robust and continue to grow for the foreseeable future, presenting many opportunities for smaller hotels. Struggling independent hotels or those under less impactful brands can leverage the strength of a recognized brand such as the above, while the major brands can rapidly expand their footprint without the extensive capital investment of new constructions.
Leisure still strong, corporate picking up
Leisure travel demand has rebounded faster than business travel, with most companies witnessing robust growth and even outperformance compared to pre-pandemic levels.
Hyatt said that compared to the second quarter of 2019, leisure transient revenue in the second quarter of 2023 increased by 26 per cent, and Hilton reported a 7 per cent year-on-year increase in leisure revpar. IHG highlighted that leisure revenue in the US remained buoyant, with elevated rates showing no sign of weakening.
Marriott noted that global leisure demand and ADR remained robust, with second quarter leisure transient room nights and ADR each increasing 5 per cent year-over-year, yielding 10 per cent revenue growth. Tony Capuano, president & CEO of Marriott added that leisure room nights from US and Canadian travellers to Europe jumped 20 per cent compared to the same period last year.
Although the pace of recovery in business travel is slightly behind that of leisure, it’s clear there’s optimism for the segment moving forward, with large corporate and event bookings picking up.
It seems their optimism isn’t misplaced. According to the 2023 GBTA Business Travel Index™ Outlook – Annual Global Report and Forecast, the international business travel sector is expected to grow to nearly $1.8 trillion by 2027. In 2022, global business travel spending rose 47 percent to $1.03 trillion, with a 32 per cent growth expected in 2023. Looking further forward, spending for 2024 is set to surpass pre-pandemic predictions of $1.4 trillion and by 2027, will grow to nearly $1.8 trillion.
“We're pleased to see the recovery in business transient revenue continuing to gain momentum up 36 per cent compared to the second quarter of 2022 and 86 per cent compared to the second quarter of 2019. We're benefiting from the tailwinds from Greater China, sustained demand for leisure travel, recovery of business transient travel and strong sustained demand for groups and events,” Hoplamazian said.
Hilton noted that business transient revpar grew 11 per cent year-over-year, adding that looking forward, it expects “continued strength driven by recovery in international markets, business transient and group demand”.
Martine Gerow, CFO at Accor added, “We definitely see a solid growth in corporate and event. In the MICE space in particular, we're seeing a very good recovery of events, which is obviously going to benefit hotels such as Pullman, but also Fairmont, which has a material MICE activity.”
It also seems that the concept of blended trips - combining business and leisure - is gaining traction.
“We think there's been some structural changes in how people are traveling for leisure. They're staying longer because they're mixing in work. And so there may be fewer air trips but people are staying longer. We're getting the same or more room nights out of it,” said Elie Maalouf, group CEO of IHG.
Capuano added. “We continue to see in the data, real legs to this phenomenon of blended trip purpose and we think that's going to continue to drive occupancy, particularly in the days of the week that historically we considered shoulder days.”
Mid-scale, luxury and extended stay moves
Post-pandemic, experts have widely discussed the challenges the midscale segment faces as the cost-of-living crisis pushes more consumers towards budget options and those with more cash to spare gravitate towards luxury. However, many of these hotel giants expressed interest in growing their midscale offering.
IHG said it plans to launch a new brand targeted at midscale conversion opportunities and Hilton reiterated its focus and confidence in the mid-market segment, with Nassetta stating “The big mass market opportunity in every major market in the world, is the mid-market. And so, we are not ashamed of saying we have every intention to have the best brands in every market to serve mid-market because we think that's where the most money will be made over the next 10, 20 or 30 years.”
Although these companies have continued to pursue mid-market opportunities, it is important to note their adoption of a multi-pronged approach, as many of them are also paying increased attention to, and taking advantage of both luxury and extended stay opportunities.
Hilton noted that while it’s currently focusing on the successful development of its premium economy Spark brand and extended stay Project H3 brand, it is also doing developmental work in the luxury lifestyle space.
The company stated that despite Project H3 being in its early stages, it has been attracting a lot of institutional interest, adding that it's currently negotiating around 300 deals for H3, most of which are with a limited number of “institutional-type” players.
IHG said its Luxury and Lifestyle brands continued to drive “high-value growth” in the first half of 2023, accounting for 26 per cent of signings in the period.
“Luxury & Lifestyle today represents 13 per cent of our system but is now 21 per cent of our pipeline. And we are still in the early stages of reaching the full growth potential of this exceptional brand collection,” Maalouf said.
Marriott has also announced plans for a mid-scale extended stay offering in the US and Canada, noting that while it is still early days, initial interest from the development community has been extraordinary. “We are working on several hundred deals and hope to have our first deal signed by the end of this year,” Capuano said.
For the first half, Accor posted a 40 per cent increase in like-for-like revenue for its Luxury & Lifestyle division at €1 billion. Revenue growth for Accor’s Luxury & Lifestyle division was 6 percentage points ahead of the Premium, Midscale & Economy brands, underscoring the fact that travellers are seeking more experiential and design-led stays and are willing to pay a premium for that.
“Regarding net unit growth, we do see an acceleration primarily driven by Luxury & Lifestyle and the openings that are planned in this division for the next year at least, is very strong,” Gerow said.
Choice also highlighted its investment in its extended stay franchise business, adding that it grew its domestic pipeline by 17 per cent year-over-year as at mid-year 2023.
“We remain very optimistic about our extended stay franchise business growth and expect the number of our extended stay units to increase at an average annual growth rate of more than 15 per cent over the next five years,” Pacious said.
He added: “We're having a lot of success in the mid-scale extended space segment, but we don't have a product in upscale extended stay. So there's some opportunity there.”
Wyndham also noted that over 70 per cent of its pipeline is in the higher revenue-generating mid-scale, upper mid-scale, upscale, upper upscale and luxury chain segments.
The future landscape of the hotel industry is being painted with broad strokes as hotel giants, consumers and investors both build and navigate this brave new post-pandemic world. Whether it's conversions, blending business with leisure or exploring lesser-traversed segments, the message is clear and can be conveyed with two short phrases; Fortune Favours The Bold and Adapt to Thrive.