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Hotel Industry: Key Trends That Impact Congress Centres International Association of Congress Centres Graz, Austria 17 July 2007 Stephen D. Powell SVP Worldwide Sales Topics • Industry Performance • Consolidation • Key Growth Areas • Outlook for 2009 • Hotel Operations – Pricing Strategies • Hotels and Convention Centres – Relationships 2007 is shaping up to be another strong year in the global hotel industry • Global demand drivers are robust – Best global economy in 40 years – Inflation is in check – Unemployment is at multi-decade lows – Corporate profits moderating but still growing • Supply growth is increasing, but remains modest • Occupancy stable at levels enabling continued rate gains The global economy is very strong and is expected to remain so for the next two years Worldwide Real GDP Growth 5.4% 5.3% 4.9% 4.9% 4.0% 2003 2004 2005 2006 Source: International Monetary Fund World Economic Outlook Database, April 2007 2007F Unemployment remains low, and in industrialized countries is well below the mid-1990’s peak G7 Global Unemployment 6.6% 2003 6.3% 2004 6.0% 2005 5.6% 5.5% 2006 2007F Source: International Monetary Fund World Economic Outlook Database, April 2007 Tourism is up 6.3% April YTD, above the prior two years, and ahead of the 4% gain expected at year end International Tourist Arrivals Change Over Prior Period 10.1% 8.7% 6.8% 5.4% 2004 2005 4.9% 4.9% 2006 Jan-07 5.1% Feb-07 Source: UNWTO World Tourism Barometer Mar-07 Apr-07 Rate growth continues to be the primary driver of performance around the world RevPAR Change by Region May YTD 15.1% 8.6% APAC 5.2% 5.6% 6.5% U.S. Americas Europe OCC ADR Source: HotelBenchmark; Smith Travel Research/The Bench MEA Most key global cites are also seeing substantial rate growth RevPAR Change by Market May YTD Abu Dhabi Singapore Sao Paulo Dubai Tokyo Buenos Aires Sydney London New York San Francisco Berlin Hong Kong Paris Toronto Washington, DC Beijing Tel Aviv Rome Rio de Janeiro 32.7% 24.5% 18.1% 16.3% 15.7% 15.6% 15.3% 12.8% 12.4% 9.1% 7.6% 7.1% 5.8% 5.8% 5.5% 4.2% 3.5% -2.4% -5.4% OCC Source: HotelBenchmark; Smith Travel Research ADR In Europe, demand grew at a slightly lower rate in the first quarter while supply growth remained flat European Supply & Demand Monthly Change 10 5 0 -5 -10 2002 2003 2004 Supply % change 2005 2006 Demand % change Source: Smith Travel Research/The Bench 2007 U.S. demand growth has slowed while supply is on the increase U.S. Supply & Demand Monthly Change 10 5 0 -5 -10 2002 2003 2004 Supply % change Source: Smith Travel Research 2005 2006 Demand % change 2007 Recognise Where We Are! Buyer’s Market Seller’s Market Development Increases Occupancy Declines Rapid Development Long Run Occupancy ADR Increases ADR Declines Occupancy Increases Development Slows Minimal Development Where we were Source: PKF Where we are Industry Performance : Summary • • • • • • • • • Sound global fundamentals are driving demand Industry is doing well and will continue to through Qtr 3 of 2008 Supply has started to grow, but remains at modest levels Supply and Demand forecasted to intersect in late 2008 Demand growth in most markets is unprecedented High occupancies supporting continued rate growth Rate growth is beginning to slow down in many markets RevPar growth driven by rate rather than occupancy 2008 looks positive for the industry, but growth will continue to decline Continued Strength of Global Lodging Market Mergers/Acquisitions/Consolidation • Hilton Deal – Blackstone buys Hilton for $26bn – Purchase price exceeds stock value by 40% – 15x Multiple EBIT for Hilton vs. 7-12x Multiple – Blackstone claims strategic vs. financial investment • Comments from the financial analysts – Too much capital for too few assets – Assets yield cash – More purchase opportunities in the industry – Starwood, Marriott, IHG and others are appealing to investors Key Growth Areas • China – All major brands represented – 88,000 rooms added by 2009 • India – All major brands represented – 45,000 rooms added by 2009 • North America – Lodging Supply Growth: 1.1% to 3.5% from 2006 to 2009 • United Kingdom • Middle East Growth by Segment • Balanced Growth Globally – Luxury/Upscale to Midscale to Budget • Number of Hotels – Indexes to limited service • Number of Rooms – Indexes to Upscale (larger room inventory) • Urban growth – Suburban growth outpaces CBD development Outlook for 2009 • Supply Begins to Meet Demand • Rate growth begins to decline • Occupancy growth declines • Pressure on profit margins • Pressure for improved hotel performance from those owners that paid high multiples for the asset • Some hotels preparing now by optimising levers and adjusting overheads Current Pricing Strategies The Impact on the Convention Market • Corporate Transient Demand • Pricing Strategies – Preference for Corporate Transient • Rate Yield • Drives Less Flexibility – Internet Drives Transparent Pricing – Connectivity: Less Allocations • Real time availability and pricing Corporate Transient vs. Meetings Sunday Monday Tuesday Wednesday Thursday Friday Saturday Price Point 1 $350 Price Point 2 $280 Future Pricing Strategies The Impact on the Convention Market • Dynamic Pricing (Flex Rates) • Value to the Customer – % Discount rather than Fixed Discount Rate – % Discount from BAR (Best Available Rate or Market Rate) – Supply and Demand Pricing – Customer Protection: BAR must be competitive in the market • Confluence of Negotiated Corporate Transient Rate Programs with Volume Meeting Rate Hotels and Convention Centres The Relationship • What are the Key Performance Drivers? – For the Convention Centre? – For the Hotel? • Marketing and Sales Plan Alignment? – Local Trade Events or Meetings/Exhibitions with inbound travelling delegates? – Focus on destination marketing – Price Sensitivity in Peak and Off-Peak • Real Estate? What is the primary focus? – Guest Rooms or Function/Exhibition Space? Or – Delicate Balance of Both? Hotels and Convention Centres Future Development • Increasing preference for branded hotels in the business segment – Brand alignment and distribution with meetings market • Brand fit with the destination – Luxury, Upscale, Midscale – New property inventories decreasing • “Asset-light” branded hotel companies – Major branded hotels companies prefer NOT to own – Investor Concerns • Can hotel stand alone and achieve financial performance targets? • Accessibility of the destination? • Preference for mixed use development: exhibition space, office, retail, hotel, etc. • Land prices • Local planning agreed: planning and parking regulations, local government support, tax incentives or inducements Hotel Industry: Key Trends That Impact Congress Centres International Association of Congress Centres Graz, Austria 17 July 2007