Finding Rationality in an Irrational World: The Economics of Successful Hotel Negotiations

Transcription

1 Finding Rationality in an Irrational World: The Economics of Successful Hotel Negotiations Isaac Collazo, Vice President, Performance Strategy & Planning, InterContinental Hotels Group (IHG) Maria Lowry, Area Director of Revenue Management, Americas-Eastern Region, Marriott International Michael Sacks, Associate Professor in the Practice of Organization and Management, Emory University 1

2 Agenda A Review Of The Economy and Lodging Industry The View From A Revenue Management Perspective Strategies For Successful Negotiations Panel Discussion 2

3 A Review Of The Economy And Lodging Industry Isaac Collazo Vice President, Performance Strategy & Planning InterContinental Hotels Group (IHG) 3

4 The economy and industry are being dominated by the three Cs. Chaos The euro crisis has resulted in widespread economic forecast downgrades. A resolution will remain elusive. Caution New hiring plans remain mostly on hold as few companies are willing to take any risks given the economic uncertainty. Corporates Healthy balance sheets and solid profits have driven travel demand over the past year or so. 4

5 GDP forecasts are being revised downward. India China Brazil Mexico World US UK Germany France Eurozone Italy Spain Real GDP Forecasts Year-Over-Year Change (4%) (2%) 0% 2% 4% 6% 8% 10% July 2012 Forecast June 2011 Forecast Oxford Economics 5

6 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 But, corporate profits are at an all-time high as are corporate cash levels. 250 Corporate Profits Last Six Quarters Indexed to Same Quarter in 2007 Brazil Canada China Germany Mexico UK US Level 50 0 Oxford Economics Note: 2Q12 Forecast 6

7 As a result, transient business trips have recovered while group remains curtailed. Global International Business Trips 2007 Index Tourism Economics 7

8 Placing the lodging industry in a transition. Rapid Development Rapid Development Occupancy Declines Long Run Occupancy Development Increases ADR Growth Slows/Declines ADR Increases Development Slows Occupancy Increases Minimal Development PKF Hospitality Research, LLC 8

9 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Increasingly, the lodging industry is being driven by ADR growth. 8% 6% 4% 2% 0% (2%) (4%) (6%) (8%) Global Industry Occupancy and ADR Change 12-Mth Average Year-Over-Year Change Constant Sample Constant USD Occupancy Change ADR Change Smith Travel Research; STR Global 9

10 ADR gains are also generally driving growth in most key markets. Brazil UAE Russia US Japan Mexico Australia France Germany Canada Spain Italy China UK India Industry Occupancy & ADR Change By Key Countries 12-Mths Ending June 2012 Year-Over-Year Change Constant USD Occupancy Change ADR Change Smith Travel Research; STR Global 10

11 While growth is slowing, global demand is at a record level. Global Industry Room Demand 12-Months Ending June 2012 In Billions Constant Sample (100 Countries) Smith Travel Research; STR Global 11

12 US demand is also at a record high. Nearly 3 million rooms are being sold everyday. US Average Daily Room Demand 12-Months Ending June 2012 In Millions Smith Travel Research; STR Global 12

13 Occupancy, however, remains below its previous high. 64.8% Global Occupancy 12-Months Ending June 2012 Constant Sample (100 Countries) 61.8% 63.0% 58.7% 59.4% Smith Travel Research; STR Global 13

14 Supply gains during the recession is holding back today s occupancy; growth is slowing. Global Supply 12-Months Ending June 2012 Constant Sample (100 Countries) Supply In Billions Supply Change Year-Over Year % 2.4% 2.2% % % Smith Travel Research; STR Global 14

15 Occupancy in key cities has generally been high and it s still increasing. Hong Kong Singapore New York Sydney London Tokyo San Francisco Dubai Miami Boston Berlin Beijing Orlando Washington, DC Toronto Rome Chicago Madrid Sao Paulo Atlanta Shanghai Occupancy By Key Cities 12-Months Ending June % 50% 60% 70% 80% 90% Smith Travel Research; STR Global 15

16 As a whole, large group & meetings hotels are nearing their previous occupancy peak. US Occupancy Meetings Hotels 12-Months Ending May ,249 Selected Hotels 68.7% 68.2% 66.4% 63.2% 63.3% Smith Travel Research; STR Global; IHG PS&P 16

17 While increasing, ADR gains have been fairly subdued so far. Global ADR Growth 12-Mths Ending June 2012 Year-Over-Year Change Constant Sample Constant USD 5.1% 3.1% 3.4% (2.8%) (6.0%) Smith Travel Research; STR Global 17

18 In the key cities and among business hotels, ADR growth has been more significant. Hong Kong Sao Paulo San Francisco Dubai Beijing Singapore Miami Boston New York London Chicago Orlando Sydney Rome Atlanta Berlin Toronto Washington, DC Tokyo Madrid Shanghai ADR Change By Key Cities 12-Mths Ending June 2012 Upper Upscale, Upscale & Upper Midscale (10%) (5%) 0% 5% 10% 15% 20% Smith Travel Research; STR Global 18

19 Overall, the average business hotel is still priced well under their 2008 level. Hong Kong London Sydney San Francisco Berlin Boston Washington, DC Atlanta Toronto Miami Chicago Orlando Beijing New York Rome Madrid Shanghai Dubai ADR Deficit By Key Cities 12-Mths Ending June 2012 Compared to 12-Mths Ending June 2008 Upper Upscale, Upscale & Upper Midscale Constant USD ($80) ($60) ($40) ($20) $0 $20 $40 $60 $80 Smith Travel Research; STR Global 19

20 Global economic growth is expected to wane this year, but a recession is not anticipated. Global GDP Forecast Year-Over-Year Change 3.7% 2.8% 3.0% 2.4% Oxford Economics 20

21 Corporate profits will likely remain positive, resulting in continued business travel. 8.3% Global Corporate Profits Forecast Simple Average Based On 44 Countries Year-Over-Year Change 6.8% 6.7% 4.7% ; Oxford Economics; IHG PS&P 21

22 Growth in hotel room nights will slow, but they too will likely remain positive. Global Guest Nights In Hotels Forecast Year-Over-Year Change 5.3% International Guests Nights Domestic Guest Nights 5.6% 4.1% 4.4% 3.9% 4.5% 2.4% 1.2% Tourism Economics 22

23 The travel outlook remains moderately positive. Uncertainty to remain in place for the foreseeable future. Global economic growth will moderate in Stronger growth is expected to materialize in the second half of Europe and slowing global trade remain as key risks. With solid travel intentions and healthy companies, the hotel industry will likely see continued growth over the next three years. Thus, understanding both the seller s and buyer s needs is vitally important in negotiating a win-win outcome. 23

24 The View From A Revenue Management Perspective Maria Lowry Area Director, Revenue Management Americas - Eastern Region Marriott International 24

25 Communicating the Supplier needs Costs go up each year Budget guidelines based on anticipated economic conditions What is hotel s goal? Increased volume? Increased rate? Better pattern? Every Market is different one size doesn t fit all 25

26 Understanding the Buyer needs Understand their travelers Offer variety of hotel solutions most hotel chains have an array of hotel choices designated by trip purpose Value adds If requested value add is free in another brand, can travel be shifted to that brand Location vs. Price What is total stay cost? 26

27 Pricing Options Seasonal fixed pricing Dynamic pricing Multiple room types Length of Stay 27

28 Bridging the gap between buyers and suppliers Successful negotiation is getting harder to achieve as more electronic mediums and third parties are incorporated into process Same policy message for multiple/all markets are difficult to meet due to different market conditions Need to find the common ground 28

29 Strategies For Successful Negotiations Michael Sacks Associate Professor Practice of Organization and Management Emory University 29

30 Panel Discussion: Finding Rationality in an Irrational World: The Economics of Successful Hotel Negotiations Isaac Collazo, Vice President, Performance Strategy & Planning, InterContinental Hotels Group (IHG) Maria Lowry, Area Director of Revenue Management, Americas-Eastern Region, Marriott International Michael Sacks, Associate Professor in the Practice of Organization and Management, Emory University 30

31 Send Your Questions to: 31