Accor says M&A activity is unnecessary 'distraction'

Paris Pullman Eiffel Tower
Accor Pullman Paris Eiffel Tower

Accor, the French hotels group, says it currently has: “no time and no will” to get involved in mergers and acquisitions.

“One hundred and fifty percent of our effort is on day-to-day actions,” said Jean-Jacques Morin, deputy CEO. The company, he said, was not interested in “distractions around consolidation.”

The comment, from a company with a reputation for active participation in industry consolidation, came as Sébastien Bazin, chairman and chief executive, said: “there is no question” that “rebound and recovery” is on its way.

The views were expressed on 29 July 2021 as Accor released financial results for the half year to 30 June 2021.

Mr Bazin said: “Since May, we have seen a clear recovery. Positive signs including the ramp up of vaccine roll out and the progressive reopening of borders will continue throughout the summer.”

Revenue per available room (RevPAR) improved by 5 percentage points in each of April, May and June and the trend, the company said, is likely to continue in July.

Accor said that the outcomes are geographically uneven. It said that a rebound was under way in territories including the United States, China and Australia but was being delayed in Thailand, Vietnam, Argentina. France, Germany, Brazil and the UK were, it said, “ready for rebound.”

“The recovery is gaining traction but remains heterogeneous,” said Mr Bazin. He said the state of trading is closely associated with vaccination figures. Meanwhile, Accor hotels are doing better in countries with strong domestic demand and less well where there is a dependence on international travel.

Accor said it had no way of knowing what might happen later in the year. It said that in Europe, where it has around 50% of its rooms, half of bookings are made less than three days prior to guests’ arrival. In its northern Europe division which includes the UK, it said a third of rooms were reserved with less than 12 hours’ notice.

The company made losses of €120 million before interest, tax and depreciation in the first six months of 2021. It was a marked improvement on the €227 million equivalent loss in the same period of 2020.

Mr Bazin said: “In the first half of the year, Accor significantly improved its operating performance. Furthermore, we continued to efficiently and cautiously manage our liquidity and investments . . . It is still too early to fully define the outlook for the end of the year, but we are confident in our ability to capture recovery in all geographies and to put into place a reinvented vision of travel.” 

Mr Morin said that lower operating expenditures, about half of which came with reductions in workforce numbers, were going to be permanent. “You can put the €200 million cost savings in the bank,” he said.

Accor made a net profit of €67 million for the January to June period compared with a net loss of €1,512 million in first half of 2020. The latest number was helped by a €585 million one-off gain from the sale of a stake in Huazhu, the Chinese hotelier. There was a hefty €1 billion impairment charge on the value of hotel assets in 2020.

At the end of June Accor owned, managed or franchised 762,072 rooms in 5,199 hotels. Two-fifths are categorised as “economy” while a quarter are described as “luxury and upscale.”

Comparisons between 2021 and 2019 - bypassing the much-disrupted first half of 2020 - show a 35% fall in occupancy rate, an 18% drop in average room rate, and a 60% collapse in group-wide RevPAR.

There is no dividend.

Insight

Talk of takeovers has accompanied recent reports of big financial losses in the pandemic-blighted hotel industry. For the moment, according to Accor at least, there is no actual appetite to do deals. Its focus is on improving operating returns by reducing costs and hoping for a pick-up in trade. 

Would-be buyers worry about the economic viability of any hotel assets in circumstances as uncertain as those prevailing during the pandemic. In theory, however, consolidation makes sense because weaker players may prefer to sell rather than risk going out of business altogether.

If, as Accor is already hoping, trading performances improve post pandemic, the underlying operating strengths of hotels will start to come through and may give buyers confidence to get their cheque books out.