The booming luxury hotel sector needs to start positioning itself as part of the global luxury business and not as part of the global hotel sector if it is to optimise its potential, according to Richard Clarke, senior analyst at AB Bernstein.
“They really should be beginning to talk about themselves as part of the luxury landscape, because that makes them look better,” he insists. “If you look at luxury hotels as part of the hotel landscape, you might think they're over-charging because their prices have gone up more than other hotel types. If you think of them as part of the luxury landscape, they are under-priced.”
He points out that so far luxury hotels have not enjoyed the same pricing power as other luxury goods sectors such as fashion, accessories and watches have.
“So we do see an opportunity,” he says.
Clarke also notes that more luxury hotel brands have been targeting London, with the first Park Hyatt, the first Waldorf Astoria and the first Raffles opening, and while he concedes that there are not many global luxury hotel brands left with a presence in the UK capital, he stresses: “Every brand seems to be looking at London and finding some kind of heritage location or heritage property to build their brand into.”
Conversion opportunity is huge
Clarke also believes that the blue chip companies have a huge opportunity to accelerate their growth in the conversion of existing building, either from office or from independently-run hotels.
With new build growth slowing because of inflation and higher construction costs, the new supply pipeline has slowed, but Clarke says that the Bernstein view is that despite their move into conversions, the major hotel companies have yet to fully appreciate how big that conversion opportunity is.
“We think that there are still tens of thousands of independent hotels out there that could join a network. Not all, but we think there is a large opportunity there,” he says.
Overall, Clarke points to a resilient sector and a strong bounce back, though there has been “a little bit of a separation between the haves and have nots, the bigger you are the faster you've grown this year”.
However, in general travel stocks have done well according to Clarke, who points out they have outperformed the S&P 500 and the FTSE 100.
“I think we entered this year with a lot of concerns over the effect of interest rates, the effects of inflation on spending. And as we've moved through this year, we've not found ourselves in a deep recession. We seem to be heading towards a soft landing, wage inflation has kept pace with inflation. It's kept travels been going,” he says.
Market at near normality
“We find ourselves now in a position of near normality. Most of the post-Covid tailwinds have dissipated, maybe just Asia, a little bit of China, but certainly the rest of Asia has got a little bit of recovery still to go on.”
The slow-down in supply growth should also be good for hotel profitability and the recovery of occupancy, he says.
Clarke is also positive about concerns about structural change after the pandemic, with most commentators assuming that the long-term after effects would generally have a negative impact on travel.
“Everyone used thing we would see a drop-off because of Zoom and the like. Now we're trying to understand why it seems to have been positively affected and I think this bleisure trend, although no-one likes the term, is a key part of it,” says Clarke. “We have seen a big increase in nomadic work, remote work, and that Sunday and Thursday have recovered much faster than Monday, Tuesday Wednesday.”
This because many people are extending those days, so although leisure has been the best performer in the travel recovery, the blended hybrid shoulder day travel has also recovered quicker than other business travel, he contends.
“Covering travel companies, we've gone through years and years of ‘is this going to recover?’. You know, is travel permanently impaired, and then suddenly we come out the other side and no one sort of celebrates that,” says Clarke, who still believes that the strong fundamentals are being ignored by some.
“Then the questions are all onto these companies over earnings. It's all pent up demand. It's all excess savings, you know, it's all going to come down to earth,” he says of those analysts who initially believed that the travel recovery would run out of stream.