Auteur/autrice : Michael Nowlis

Catégories
Ailleurs dans le monde Enjeux Hébergement Transport

Le tourisme mondial: tirer parti des situations difficiles

Des tempêtes à l’horizon

L’économie mondiale est en chute libre et personne ne sait lorsqu’elle touchera le fond. Selon le Fonds monétaire international (FMI), les économies avancées ont connu une baisse sans précédent de 7,5% de leur produit intérieur brut (PIB) réel durant le quatrième trimestre de 2008. Le FMI prévoit une baisse similaire pour le premier trimestre de l’année 2009 et une chute de plus de 4 % du PIB de la zone euro cette année. En 2009, l’économie mondiale se repliera pour la première fois depuis la grande crise.

Les économies les plus importantes du monde sont mises à rude épreuve. Le PIB des États-Unis s’est replié à un taux annuel dépassant les 6% au cours des deux derniers trimestres. Le FMI croit que la Russie et le Japon verront leur PIB diminuer d’un taux semblable pendant 2009. L’économie d’exportation du Japon connaîtra son premier déficit commercial et le pays essuiera probablement une dangereuse spirale déflationniste.

Le tourisme: un secteur fragile

L’industrie du tourisme et du voyage est très sensible aux changements macroéconomiques. L’Organisation mondiale du tourisme des Nations Unies (OMT) a annoncé une diminution des arrivées de touristes internationaux par rapport à l’année précédente pour le deuxième semestre de 2008. L’Asie et l’Europe ont connu une chute particulièrement vertigineuse de 3%.

L’année 2009 a débuté dans la frayeur lorsque les agents de voyages et les voyagistes internationaux ont noté une baisse considérable des réservations pour la prochaine saison estivale. L’industrie hôtelière américaine subit d’importantes pertes du fait que le taux d’occupation et les prix des chambres diminuent sans cesse. À New York, au mois de mars, le revenu par chambre disponible (RCD) a chuté de 35,5% par rapport à l’année précédente. Le RCD à Orlando et à Miami a diminué respectivement de 28% et de 29%.

Deux provinces canadiennes, le Nouveau-Brunswick et l’Île-du-Prince-Édouard, ont terminé l’année 2008 avec un taux d’occupation moyen de 45%. Ces provinces s’attendent à une diminution accrue de la demande cette année. Le sort de certains marchés urbains canadiens est encore plus lamentable. Le taux d’occupation annuel des 10 000 chambres d’hôtel de Niagara Falls n’était que de 38 % en 2008 et aucune amélioration n’est prévue pour cette année.

Les marchés dynamiques de l’Asie n’ont pas été épargnés. En mars, les hôtels indiens et chinois ont enregistré une baisse de RCD de 35% et de 40% respectivement par rapport à l’année précédente. Le marché thaïlandais, touché par les troubles politiques, a connu une diminution de RCD de 37%. Bien que la mondialisation soit à l’origine de la forte hausse du tourisme international au vingtième siècle, elle a également éliminé des barrières qui auraient pu contenir la contagion économique à laquelle est exposée l’industrie du voyage et du tourisme réceptif.

À quelque chose malheur est bon

Ce sombre horizon économique rend inertes de nombreux dirigeants d’entreprises. Selon la croyance populaire, les marchés en croissance sont une mine d’occasions intéressantes, tandis que les récessions obligent les entreprises à se replier sur elles-mêmes pour ne pas succomber. Par contraste, le professeur Don Sull, mon collègue à la London Business School, est devenu un gourou de l’optimisme en disant que les occasions d’affaires les plus lucratives se présentent durant les ralentissements économiques. Les recherches du professeur Sull montrent qu’il est plus facile d’effectuer des changements organisationnels et d’instaurer de meilleures pratiques en temps de récession  qu’en plein essor des marchés. Il explique comment les chefs d’entreprises peuvent employer à bien une récession afin d’identifier les occasions d’investissement lucratives, de retrouver un sentiment d’urgence, de justifier des décisions impopulaires et de vaincre la complaisance (www.donsull.com).

Appliquer l’hypothèse de Sull à l’industrie touristique durant les plus importantes crises financières du siècle dernier peut être instructif. Les entrepreneurs, les investisseurs et les chefs d’entreprises ont souvent su tirer parti de situations économiques difficiles. Les trois exemples suivants illustrent comment des professionnels du voyage et du tourisme réceptif ont pu profiter d’occasions intéressantes au cours de récessions antérieures.

Cas no 1: Waldorf-Astoria

L’hôtelier Lucius Boomer ouvre le Waldorf-Astoria de New York le 1er octobre 1931, au beau milieu de la grande crise. Situé sur Park Avenue, cet imposant hôtel de 42 étages et de presque 2 000 chambres est le plus grand et le plus luxueux des hôtels jamais construits. Étant donné la confusion des marchés des actions et le fait qu’un quart de la population américaine est sans emploi, peu de personnes croient que l’hôtel fera long feu. Les marchés des valeurs mobilières sont à la baisse depuis deux ans et les problèmes économiques ne semblent pas près de tirer à leur fin.

Malgré les temps durs, l’ouverture du Waldorf-Astoria symbolise le changement radical que la grande crise opère sur un modèle d’affaires fondamental. Boomer mise sur les faibles coûts pour obtenir un avantage concurrentiel. Il tire profit du chômage des travailleurs de la construction pour négocier des contrats avantageux. Le coût des matériaux de finition ayant dégringolé, il peut utiliser le marbre, le granit, le bois et le laiton les plus fins. Des artisans sans emploi amenés d’Europe travaillent sur la partie intérieure de l’hôtel à une fraction de leur salaire avant la crise. En fin de compte, le palace doit sa construction à un budget de pauvre.

La veille de l’ouverture officielle du Waldorf, le président Herbert Hoover prononce un discours d’inauguration à la radio. «Nos hôtels sont devenus des institutions communautaires, déclare-t-il. Ils sont les points centraux de l’hospitalité… L’érection de cette magnifique structure a contribué au maintien d’emplois et est un exemple de courage et de confiance en soi pour la nation entière.»

Le Waldorf-Astoria est également un investissement extrêmement lucratif. Au milieu des années 1930, l’hôtel accueille des présidents, des membres de la famille royale et des capitaines d’industrie. Aujourd’hui, bien que la valeur des immeubles, du contrat de gérance et du fonds commercial du Waldorf soit discutable, cet hôtel est probablement le plus précieux du monde entier. Et ce sont les conditions économiques de la grande crise qui ont permis au Waldorf d’être érigé dans toute sa gloire et sa splendeur.

Cas nº 2: Carnival Cruise Lines

La plupart des professionnels du tourisme hésiteraient à considérer les problèmes économiques de 1974 comme la conjoncture idéale pour fonder une entreprise capitalistique dans un secteur de l’industrie qui dépend fortement des dépenses discrétionnaires des personnes âgées à la retraite. Après l’effondrement du système Bretton Woods, le PIB américain chute et l’inflation dépasse les 12%.

Dans ce mauvais contexte économique, Ted Arison achète un navire de croisière en ruine pour un dollar américain et prend en charge une dette de 5 millions de dollars. En novembre 1974, l’indice Dow Jones ayant reculé de 45% par rapport à la moyenne la plus élevée de l’année précédente, Arison inscrit la Carnival Company comme propriétaire et gestionnaire des Carnival Cruise Lines.

À l’époque, nul ne comprend le désir d’Arison, brillant homme d’affaires, d’acheter un croisiériste près de la faillite au lendemain de l’embargo pétrolier des pays arabes. Le prix du pétrole a quadruplé et un navire de croisière peut consommer 200 litres de carburant par minute. À première vue, cette acquisition n’a aucun sens du point de vue économique. Arison a d’autres idées en tête, cependant. Il va révolutionner l’industrie des croisières.

Arison cible un segment de marché regroupant les gens de 25 à 40 ans qui considèrent les croisières comme un passe-temps pour les vieillards. Le navire de Carnival est redécoré dans un style fluorescent criard. Un casino et une discothèque y sont incorporés. La distinction et l’élégance font place à la jeunesse et à la frivolité dans la publicité visuelle. Micky Arison, le fils de Ted, rencontre des douzaines d’agents de voyages avec lesquels il utilise un ton dynamique et décontracté pour leur dire que les croisières seront très populaires auprès des jeunes adultes.

En moins d’un an, Carnival fonctionne à pleine capacité. Plus tard, elle devient le croisiériste le plus important au monde. Arison a su profiter des occasions que lui offrait la crise; le dollar qu’il a investi a fait de lui un multimilliardaire.

Cas nº 3: Emirates Airline

Après les attaques terroristes du 11 septembre 2001 aux États-Unis, l’industrie mondiale du voyage s’arrête brusquement. Les compagnies aériennes et les hôtels sont assaillis par les annulations de réservations. Les transporteurs aériens, croyant à un long ralentissement, commencent à annuler leurs commandes d’avions. Le prix des actions de Boeing et d’EADS (société mère d’Airbus) chute.

Ahmed Bin Saeed Al-Maktoum, président du groupe Emirates, voit une occasion là où ses concurrents voient une menace. Personne ne sait combien de temps durera la crise, mais le cheik Ahmed croit qu’Emirates est bien positionnée pour une croissance à long terme. En octobre 2001, au salon aéronautique de Dubaï où peu se rendent, le président d’Emirates passe une grosse commande d’appareils Boeing et Airbus. Dans le but de protéger leur part de marché tandis que les annulations se multiplient, les deux fabricants lui accordent des rabais considérables.

Emirates répartit la commande entre les deux entreprises et achète des appareils pour 15 milliards de dollars américains. Bien que cette acquisition soit plus importante que prévu, le cheik Ahmed expliquera plus tard que les prix dérisoires attribuables à la récession étaient trop alléchants pour qu’il n’en profite pas.

Même si les avions sont livrés sur une période de plusieurs années, la confiance des clients et des investisseurs est manifeste. Au cours de la pire année de l’histoire de l’industrie de l’aviation, le groupe Emirates clôture l’exercice 2001-2002 avec un résultat net représentant 8 % de revenu. La compagnie distribue des dividendes substantiels à ses actionnaires et verse une prime équivalant à 3 semaines de salaire à tous ses employés. Pendant que ses concurrents mettent à pied une bonne partie de leur personnel, Emirates ne licencie aucun employé et paie les augmentations de salaire en entier. Primée de nombreuses fois, Emirates est également élue « compagnie aérienne de l’année 2002 » par 4 000 000 d’internautes lors du deuxième sondage annuel de Skytrax Research et meilleure compagnie de fret aérien pour le Moyen-Orient par Air Cargo News. En tenant compte des occasions stratégiques à long terme, Emirates a su tirer parti de ce ralentissement.

Quelles sont les occasions intéressantes?

Certaines entreprises de tourisme réceptif sont moins touchées par la crise économique que d’autres. Si on la compare à bon nombre de compagnies de restauration, la McDonald’s Corporation a tenu bon au cours de la dernière année. Elle est au quatrième rang des entreprises aux meilleurs rendements de l’indice Dow Jones. Le prix de ses actions n’a baissé que de 9% par rapport à la moyenne de 38% de cet indice. L’entreprise a eu assez confiance en son rendement à court terme pour augmenter de 32% ses dividendes du quatrième trimestre de 2008.

McDonald’s tire profit des revers de Starbucks pour lancer McCafé, un concept de restauration rapide qui offre des cappuccinos, des cafés au lait et des mokas. Étant donné que Starbucks a dû fermer presque 1 000 de ses établissements, McDonald’s croit qu’elle peut attirer des clients voulant un café spécialisé plutôt qu’une simple boisson pour accompagner leur repas.

Il y a également des occasions lucratives d’investissement à long terme à saisir dans le secteur de l’hébergement. Tandis que le nombre d’acquisitions d’hôtels et de portefeuilles d’hôtels a chuté de façon considérable au cours de la dernière année, les investisseurs ayant accès à du capital ont pu acheter des biens immobiliers à grand rabais. Au Royaume-Uni, particulièrement, la vente d’hôtels de grande qualité s’est faite à des prix qui auraient été considérés comme scandaleux il y a deux ans. Des entreprises en perdition comme la Royal Bank of Scotland et le géant du tourisme réceptif Mitchells & Butlers ont dû vendre des hôtels pour obtenir des fonds dont ils avaient terriblement besoin.

Dans un marché paralysé par la crise du crédit, l’entreprise britannique Travelodge a fait de grandes dépenses en achetant six propriétés (650 chambres) de Menzies pour 85 millions de livres sterling, sept hôtels Swallow (669 chambres) pour 70 millions de livres sterling et cinq hôtels indépendants (500 chambres) pour 35 millions de livres sterling. Travelodge profite de la conjoncture pour prendre de l’expansion dans le but de dominer le secteur britannique des hôtels économiques lorsque le pays sortira de la crise.

Un œil neuf

Quand l’économie se porte mal, les dirigeants d’entreprises arrivent difficilement à voir le bout du tunnel. Ils parviennent encore plus difficilement à trouver les occasions qui s’offrent à eux. Pour éviter l’échec, il leur faut miser sur la réussite. Comme le dit le proverbe chinois: «Si nous ne changeons pas de direction, nous risquons de nous retrouver là où nous nous dirigeons.»

Lorsque les temps vont mal, les dirigeants de l’industrie du tourisme et du voyage doivent savoir profiter des occasions d’affaires intéressantes. Il est possible de tirer parti de la plupart des tourmentes. Les trois cas présentés plus haut l’illustrent bien: le défi n’est pas de chercher les bonnes occasions, mais de les considérer d’un œil neuf.

Catégories
Geographic markets Trends

Global Tourism: Black Clouds with Silver Linings

Stormy Skies on the Horizon

The global economy has fallen off a cliff and no one is sure when it will hit bottom. According to the International Monetary Fund (IMF), the world’s advanced economies experienced an unprecedented 7.5% decline in real Gross Domestic Product (GDP) during the fourth quarter of 2008. The IMF projects a similar drop for the first quarter of 2009 and says Euro zone GDP will fall more than 4% for the year. In 2009, the world economy will contract for the first time since the Great Depression.

The world’s largest economies are particularly challenged. GDP in the United States has contracted at an annual rate exceeding 6% for the last two quarters. The IMF forecasts that Russia and Japan will see GDP shrink by a similar amount through 2009. Japan’s export-driven economy will experience its first-ever trade deficit and the country will likely experience a dangerous deflationary spiral.

Fragile Tourism

Travel and tourism are particularly sensitive to macroeconomic developments.  The United Nations World Tourism Organization (UNWTO) reported a year-on-year drop in international tourist arrivals for the second half of 2008.  Asia and Europe experienced particularly steep declines of 3%.

The current year got off to a frightening start with international travel agents and tour operators reporting substantial declines in reservations for the coming summer season.  The US hotel industry is suffering massive losses as both occupancy and room rates dive precipitously.  In New York, March revenue per available room (RevPAR) dropped 35.5% on a year-on-year basis.  RevPAR in Orlando and Miami declined by 28% and 29%, respectively.

Two Canadian provinces, New Brunswick and Prince Edward Island, finished 2008 with average hotel occupancy at a paltry 45%. Both provinces are forecasting further demand deterioration this year. Some Canadian urban markets are faring even worse. Annual hotel occupancy for Niagara Falls’ 10,000 hotel rooms was just 38% with no improvement foreseen this year.

Asian powerhouse markets have also been devastated.  Chinese and Indian hotels reported March year-on-year RevPAR declines of 35% and 40%, respectively.  The Thai market, complicated by political unrest, witnessed a RevPAR drop of 37%.  While globalization ignited the twentieth century international tourism boom, it also eliminated firewalls that could have contained the economic contagion ravaging the travel and hospitality industries.

The Upside of a Downturn

With so much gloom on the economic horizon, many business executives are suffering from managerial catatonia. Conventional wisdom dictates that opportunities abound in surging markets, while recessions oblige businesses to hunker down and weather the storm. In contrast, Professor Don Sull, my colleague at London Business School, has become a guru of sanguinity by suggesting that the most lucrative business opportunities are present during economic downturns.  Professor Sull’s research argues that it is significantly easier to implement organizational change and instil better practice in stressful recessionary markets than in boom times. He explains how managers can harness a downturn to identify lucrative investment opportunities, renew a sense of urgency, justify unpopular decisions and overcome complacency (www.donsull.com).

Applying Sull’s hypothesis to the tourism industry during the gravest financial crises of the last century can be an insightful exercise.  Entrepreneurs, investors and managers have frequently identified silver linings in dark economic clouds.  The following three examples illustrate how travel and hospitality professionals have seized opportunities during economic recessions of the past.

Case 1: The Waldorf-Astoria

Hotelier Lucius Boomer opened New York’s Waldorf-Astoria on October 1, 1931, in the midst of the Great Depression.  Towering 42 stories above Park Avenue with almost 2000 rooms, it was the largest and most expensive hotel ever built.  With equity markets in shambles and a quarter of the US population unemployed, few were the fools who expected the hotel to remain open for long. Stock markets had been declining for two years and there was no end to the economic turmoil in sight.

In spite of the gloomy discourse, the opening of the Waldorf-Astoria manifested how the Great Depression had radically altered a fundamental business paradigm. Boomer focussed on depressed costs to attain a competitive advantage. He capitalized on the idle construction sector to negotiate favourable building contracts.  The cost of previously expensive finishing materials had plummeted, permitting use of the finest marble, granite, hardwood and brass.  Unemployed artisans and craftsmen were brought from Europe to work on the hotel interiors at a fraction of their pre-Depression wages.  In the end, a palace was built on a pauper’s budget.

President Herbert Hoover inaugurated the Waldorf in a radio address on the eve of its grand opening. “Our hotels have become community institutions,” said Hoover.  “They are the central points of civic hospitality … The erection of this great structure has been a contribution to the maintenance of employment and an exhibition of courage and confidence to the whole nation.”

The Waldorf-Astoria was also an extremely lucrative investment.  By the mid-1930s the hotel was filling its suites with presidents, royalty and captains of industry.  While the value of the Waldorf’s real estate, management contract and goodwill are debatable, it is probably the most valuable hotel in the world today.  In the end, it was the economic conditions of the Great Depression that permitted the Waldorf to have been built in all its glamour and glory.

Case 2: Carnival Cruise Lines

Most tourism professionals would hesitate to consider the economic turmoil of 1974 the ideal business climate in which to found a capital-intensive enterprise in an industry sector heavily dependent on discretionary spending by retired senior citizens.  Following the breakdown of the Bretton Woods system, US GDP was contracting and inflation exceeded 12%.

In the face of this economic ataxia, Ted Arison purchased a distressed cruise ship for one US dollar and the assumption of $5 million in debt.  In November 1974, with the Dow Jones Industrial Average down 45% from its previous year high, Arison registered the Carnival Company as owner and manager of Carnival Cruise Lines.

At the time, it was difficult to understand why Arison, a savvy businessman, would purchase a near-bankrupt cruise company on the heels of the Arab oil embargo. Petroleum prices had recently quadrupled and a cruise ship could burn up to 200 litres of fuel per minute.  On the surface, the deal made no economic sense.  Arison had different ideas, however. He was about to revolutionize the cruise industry.

Arison targeted a younger market segment (25-40 year olds) that had considered ocean cruises a leisurely pastime for the geriatric set.  Carnival’s ship was redecorated in a flashy neon-esque style. An onboard casino and discotheque were added. Marketing imagery turned away from elegance and genteelness in favour of youthfulness and frivolity. Micky Arison, Ted’s son, made sales calls on dozens of travel agents, employing a casual youthful style to convince them that cruises would be the next big holiday trend for young adults.

Within a year, Carnival was operating at 100% capacity.  It went on to become the world’s largest cruise line. By identifying opportunities in a downturn, Arison’s one dollar investment made him a multibillionaire.

Case 3: Emirates Airlines

Following the September 11, 2001, terror attacks in the United States, the global travel industry came to a screeching halt.  Airlines and hotels were besieged with reservation cancellations. Looking longer term, air carriers began to cancel aircraft orders.  Share prices for Boeing and EADS (Airbus’ parent company) plummeted.

Ahmed Bin Saeed Al-Maktoum, Chairman of the Emirates Group, sensed an opportunity where his competitors saw a threat. No one knew how long the downturn would last but Sheikh Ahmed knew that Emirates was well positioned for growth in the long term.  At the lightly attended Dubai International Air Show in October 2001, the Emirates Chairman negotiated with Boeing and Airbus for an enormous aircraft order.  In an attempt to defend market share as order cancellations poured in, the two manufacturers offered deep discounts.

Emirates ended up splitting the order between the two companies, buying US$15 billion worth of airplanes. While the purchase was more than originally anticipated, Sheikh Ahmed later explained that fire-sale prices resulting from the economic downturn were too attractive to forego.

While delivery of the aircraft would take place over several years, client and investor confidence was immediately apparent.  In the airline industry’s worst ever year, the Emirates Group finished the 2001-02 fiscal exercise with net income representing 8% of revenue. The airline paid a substantial shareholder dividend and a bonus payment of 3 weeks salary to all employees. While competitors laid off large numbers of staff, Emirates did not make a single employee redundant and paid salary increments in full. Among numerous awards, Emirates was voted “Airline of the Year 2002” by 4,000,000 Internet users in the second annual Skytrax Research Study and Best Cargo Airline to the Middle East by Air Cargo News. By considering long-term strategic opportunities, Emirates seized the upside of a downturn.

So where are the opportunities?

Some hospitality businesses are less affected by broad economic strife than others. In comparison to many restaurant companies, McDonald’s Corporation has held up well over the last year. It is ranked as the fourth best performer on the Dow Jones Industrial Average. Its share price is down just 9% compared to the DJIA average of -38%. The company had sufficient confidence in its short-term performance to increase its 2008 fourth quarter dividend by 32%.

McDonald’s is capitalizing on Starbuck’s misfortunes to launch McCafe, a quick service restaurant concept offering cappuccinos, lattes and mochas. With Starbuck’s closing nearly 1000 units, McDonald’s is betting it can attract consumers specifically to purchase specialty beverages rather than just as a support for its food offerings.

Lucrative long-term investment opportunities also exist in the lodging sector. While the number of portfolio and single asset hotel transactions has dropped significantly over the last year, investors with access to capital have been purchasing properties at deep discounts.  The United Kingdom, in particular, has witnessed the liquidation of premium hotel assets at prices that would have been shocking two years ago.  Distressed companies like Royal Bank of Scotland and hospitality giant Mitchells & Butlers have been obliged to sell hotels to generate desperately needed cash.

In a market frozen by the credit crisis, Britain’s Travelodge has been on a buying spree, picking up six properties (650 rooms) from Menzies for £85 million, seven Swallow Hotels (669 rooms) for £70 million and five independent hotels (500 rooms) for £35 million.  Travelodge is opportunistically fleshing out its geographic coverage with aspirations of dominating the British budget sector when the country emerges from its current downturn.

New Eyes

In challenging economic times it is difficult for business leaders to see the light at the end of the tunnel. Indeed, it is even harder to identify opportunities at hand. As such, failure can be a self-fulfilling prophecy.  A Chinese proverb advises that “If we don’t change our direction, we’re likely to end up where we’re headed. »

In challenging times, it is critical that managers in the travel and tourism industry recognize existing business opportunities. There is a silver lining in most black clouds.  As illustrated in the three cases presented herewith, the challenge is not seeking new opportunities but having new eyes to identify them.

Catégories
Ailleurs dans le monde Enjeux Produits et activités Transport

Global Tourism: Black Clouds with Silver Linings

Stormy Skies on the Horizon

The global economy has fallen off a cliff and no one is sure when it will hit bottom. According to the International Monetary Fund (IMF), the world’s advanced economies experienced an unprecedented 7.5% decline in real Gross Domestic Product (GDP) during the fourth quarter of 2008. The IMF projects a similar drop for the first quarter of 2009 and says Euro zone GDP will fall more than 4% for the year. In 2009, the world economy will contract for the first time since the Great Depression.

The world’s largest economies are particularly challenged. GDP in the United States has contracted at an annual rate exceeding 6% for the last two quarters. The IMF forecasts that Russia and Japan will see GDP shrink by a similar amount through 2009. Japan’s export-driven economy will experience its first-ever trade deficit and the country will likely experience a dangerous deflationary spiral.

Fragile Tourism

Travel and tourism are particularly sensitive to macroeconomic developments.  The United Nations World Tourism Organization (UNWTO) reported a year-on-year drop in international tourist arrivals for the second half of 2008.  Asia and Europe experienced particularly steep declines of 3%.

The current year got off to a frightening start with international travel agents and tour operators reporting substantial declines in reservations for the coming summer season.  The US hotel industry is suffering massive losses as both occupancy and room rates dive precipitously.  In New York, March revenue per available room (RevPAR) dropped 35.5% on a year-on-year basis.  RevPAR in Orlando and Miami declined by 28% and 29%, respectively.

Two Canadian provinces, New Brunswick and Prince Edward Island, finished 2008 with average hotel occupancy at a paltry 45%. Both provinces are forecasting further demand deterioration this year. Some Canadian urban markets are faring even worse. Annual hotel occupancy for Niagara Falls’ 10,000 hotel rooms was just 38% with no improvement foreseen this year.

Asian powerhouse markets have also been devastated.  Chinese and Indian hotels reported March year-on-year RevPAR declines of 35% and 40%, respectively.  The Thai market, complicated by political unrest, witnessed a RevPAR drop of 37%.  While globalization ignited the twentieth century international tourism boom, it also eliminated firewalls that could have contained the economic contagion ravaging the travel and hospitality industries.

The Upside of a Downturn

With so much gloom on the economic horizon, many business executives are suffering from managerial catatonia. Conventional wisdom dictates that opportunities abound in surging markets, while recessions oblige businesses to hunker down and weather the storm. In contrast, Professor Don Sull, my colleague at London Business School, has become a guru of sanguinity by suggesting that the most lucrative business opportunities are present during economic downturns.  Professor Sull’s research argues that it is significantly easier to implement organizational change and instil better practice in stressful recessionary markets than in boom times. He explains how managers can harness a downturn to identify lucrative investment opportunities, renew a sense of urgency, justify unpopular decisions and overcome complacency (www.donsull.com).

Applying Sull’s hypothesis to the tourism industry during the gravest financial crises of the last century can be an insightful exercise.  Entrepreneurs, investors and managers have frequently identified silver linings in dark economic clouds.  The following three examples illustrate how travel and hospitality professionals have seized opportunities during economic recessions of the past.

Case 1: The Waldorf-Astoria

Hotelier Lucius Boomer opened New York’s Waldorf-Astoria on October 1, 1931, in the midst of the Great Depression.  Towering 42 stories above Park Avenue with almost 2000 rooms, it was the largest and most expensive hotel ever built.  With equity markets in shambles and a quarter of the US population unemployed, few were the fools who expected the hotel to remain open for long. Stock markets had been declining for two years and there was no end to the economic turmoil in sight.

In spite of the gloomy discourse, the opening of the Waldorf-Astoria manifested how the Great Depression had radically altered a fundamental business paradigm. Boomer focussed on depressed costs to attain a competitive advantage. He capitalized on the idle construction sector to negotiate favourable building contracts.  The cost of previously expensive finishing materials had plummeted, permitting use of the finest marble, granite, hardwood and brass.  Unemployed artisans and craftsmen were brought from Europe to work on the hotel interiors at a fraction of their pre-Depression wages.  In the end, a palace was built on a pauper’s budget.

President Herbert Hoover inaugurated the Waldorf in a radio address on the eve of its grand opening. “Our hotels have become community institutions,” said Hoover.  “They are the central points of civic hospitality … The erection of this great structure has been a contribution to the maintenance of employment and an exhibition of courage and confidence to the whole nation.”

The Waldorf-Astoria was also an extremely lucrative investment.  By the mid-1930s the hotel was filling its suites with presidents, royalty and captains of industry.  While the value of the Waldorf’s real estate, management contract and goodwill are debatable, it is probably the most valuable hotel in the world today.  In the end, it was the economic conditions of the Great Depression that permitted the Waldorf to have been built in all its glamour and glory.

Case 2: Carnival Cruise Lines

Most tourism professionals would hesitate to consider the economic turmoil of 1974 the ideal business climate in which to found a capital-intensive enterprise in an industry sector heavily dependent on discretionary spending by retired senior citizens.  Following the breakdown of the Bretton Woods system, US GDP was contracting and inflation exceeded 12%.

In the face of this economic ataxia, Ted Arison purchased a distressed cruise ship for one US dollar and the assumption of $5 million in debt.  In November 1974, with the Dow Jones Industrial Average down 45% from its previous year high, Arison registered the Carnival Company as owner and manager of Carnival Cruise Lines.

At the time, it was difficult to understand why Arison, a savvy businessman, would purchase a near-bankrupt cruise company on the heels of the Arab oil embargo. Petroleum prices had recently quadrupled and a cruise ship could burn up to 200 litres of fuel per minute.  On the surface, the deal made no economic sense.  Arison had different ideas, however. He was about to revolutionize the cruise industry.

Arison targeted a younger market segment (25-40 year olds) that had considered ocean cruises a leisurely pastime for the geriatric set.  Carnival’s ship was redecorated in a flashy neon-esque style. An onboard casino and discotheque were added. Marketing imagery turned away from elegance and genteelness in favour of youthfulness and frivolity. Micky Arison, Ted’s son, made sales calls on dozens of travel agents, employing a casual youthful style to convince them that cruises would be the next big holiday trend for young adults.

Within a year, Carnival was operating at 100% capacity.  It went on to become the world’s largest cruise line. By identifying opportunities in a downturn, Arison’s one dollar investment made him a multibillionaire.

Case 3: Emirates Airlines

Following the September 11, 2001, terror attacks in the United States, the global travel industry came to a screeching halt.  Airlines and hotels were besieged with reservation cancellations. Looking longer term, air carriers began to cancel aircraft orders.  Share prices for Boeing and EADS (Airbus’ parent company) plummeted.

Ahmed Bin Saeed Al-Maktoum, Chairman of the Emirates Group, sensed an opportunity where his competitors saw a threat. No one knew how long the downturn would last but Sheikh Ahmed knew that Emirates was well positioned for growth in the long term.  At the lightly attended Dubai International Air Show in October 2001, the Emirates Chairman negotiated with Boeing and Airbus for an enormous aircraft order.  In an attempt to defend market share as order cancellations poured in, the two manufacturers offered deep discounts.

Emirates ended up splitting the order between the two companies, buying US$15 billion worth of airplanes. While the purchase was more than originally anticipated, Sheikh Ahmed later explained that fire-sale prices resulting from the economic downturn were too attractive to forego.

While delivery of the aircraft would take place over several years, client and investor confidence was immediately apparent.  In the airline industry’s worst ever year, the Emirates Group finished the 2001-02 fiscal exercise with net income representing 8% of revenue. The airline paid a substantial shareholder dividend and a bonus payment of 3 weeks salary to all employees. While competitors laid off large numbers of staff, Emirates did not make a single employee redundant and paid salary increments in full. Among numerous awards, Emirates was voted “Airline of the Year 2002” by 4,000,000 Internet users in the second annual Skytrax Research Study and Best Cargo Airline to the Middle East by Air Cargo News. By considering long-term strategic opportunities, Emirates seized the upside of a downturn.

So where are the opportunities?

Some hospitality businesses are less affected by broad economic strife than others. In comparison to many restaurant companies, McDonald’s Corporation has held up well over the last year. It is ranked as the fourth best performer on the Dow Jones Industrial Average. Its share price is down just 9% compared to the DJIA average of -38%. The company had sufficient confidence in its short-term performance to increase its 2008 fourth quarter dividend by 32%.

McDonald’s is capitalizing on Starbuck’s misfortunes to launch McCafe, a quick service restaurant concept offering cappuccinos, lattes and mochas. With Starbuck’s closing nearly 1000 units, McDonald’s is betting it can attract consumers specifically to purchase specialty beverages rather than just as a support for its food offerings.

Lucrative long-term investment opportunities also exist in the lodging sector. While the number of portfolio and single asset hotel transactions has dropped significantly over the last year, investors with access to capital have been purchasing properties at deep discounts.  The United Kingdom, in particular, has witnessed the liquidation of premium hotel assets at prices that would have been shocking two years ago.  Distressed companies like Royal Bank of Scotland and hospitality giant Mitchells & Butlers have been obliged to sell hotels to generate desperately needed cash.

In a market frozen by the credit crisis, Britain’s Travelodge has been on a buying spree, picking up six properties (650 rooms) from Menzies for £85 million, seven Swallow Hotels (669 rooms) for £70 million and five independent hotels (500 rooms) for £35 million.  Travelodge is opportunistically fleshing out its geographic coverage with aspirations of dominating the British budget sector when the country emerges from its current downturn.

New Eyes

In challenging economic times it is difficult for business leaders to see the light at the end of the tunnel. Indeed, it is even harder to identify opportunities at hand. As such, failure can be a self-fulfilling prophecy.  A Chinese proverb advises that “If we don’t change our direction, we’re likely to end up where we’re headed. »

In challenging times, it is critical that managers in the travel and tourism industry recognize existing business opportunities. There is a silver lining in most black clouds.  As illustrated in the three cases presented herewith, the challenge is not seeking new opportunities but having new eyes to identify them.

Catégories
Accommodation Around the world

Getting Out of the Hotel Business and into the Business of Hotels

Our expert, M. Michael Nowlis from Tourism Control Intelligence, traces three related trends that have revolutionized the global hotel industry over the last 25 years.

It begins by chronicling the emigration of hotel assets from American ownership to foreign investors in the 1980s and their subsequent repatriation starting in the mid-1990s. Second, it examines how the management focus of large international hotel groups has shifted from a real estate orientation to an emphasis on brand management. Finally, the article explains how this business reorientation resulted from the increasingly shorter planning horizons of global investors.

The Great American Sell-off

Recent reports in the press speculate that InterContinental Hotels Group (IHG) will be the target of a US$ 11.2 billion takeover bid in the coming months. The stratospheric price tag stuns even seasoned industry analysts who have followed hotel mergers & acquisitions for decades. IHG has an impressive portfolio of internationally recognized brands – InterContinental, Holiday Inn, Crowne Plaza and Indigo among others. The company is well diversified in terms of market segments and global coverage. Nonetheless, IHG’s 60% increase in share price from August 2006 to January 2007 raises numerous issues concerning market speculation, quality of management and company financial fundamentals. Industry analysts predict an American REIT (Real Estate Investment Trust) or private equity group will make an unsolicited offer of 1500p for outstanding IHG shares during the first half of this year. Such an offer would represent an 80% premium over the August share price (840p) on the London Stock Exchange.

An IHG takeover would be significant for reasons in addition to the lofty price. The two most frequently cited contenders are US investment firms – Barry Sternlicht’s Starwood Capital and the Blackstone Group, a private equity firm with extensive hotel assets. The acquisition of IHG by American investors would bring the international hotel industry full circle, reestablishing North American dominance in the global lodging sector.

The American withdrawal from international hotel markets began in 1981 when Pan American Airways sold its InterContinental division to Grand Metropolitan, a British food and hotel group. The sale sparked a prolonged sell-off of North American hotel companies to foreign investors. Most notably, Holiday Inn, the world’s largest hotel company at the time, was sold to England’s Bass Brewing Company in 1987.

The InterContinental sale sparked another trend that would radically transform the travel industry over the coming years. Airlines began to shed their hotel assets to focus on core transportation activities. Within a period of a few months in 1987, Chicago-based United Airlines sold its Hilton International, Westin and Camino Real hotel subsidiaries to British and Japanese investors. In the following years, all of the world’s major airlines liquidated their lodging divisions. Travel industry executives came to reject the conventional wisdom that airlines and hotels, operated by the same company, were strategically complimentary business units.

Asian investors were particularly eager to acquire American hotel groups. Hong Kong-based New World Development purchased the Ramada International, Renaissance and Stouffer’s hotel companies. Regal, another Hong Kong group, acquired Richfield, one of North America’s largest management companies with a vast portfolio of hotels flying Sheraton, Hilton, Choice and Holiday Inn flags, among others. Dubai’s Kingdom Hotel Investments went on a Canadian shopping spree, picking up Delta and CP Hotels, as well as taking significant positions in Four Seasons and Fairmont.

While Asians were focusing on the luxury segment, French investors turned their attention to the US budget sector. With its purchases of Motel Six and Red Roof Inns, Groupe Accor acquired more than 1000 lodging establishments in the US and Canada.

As one hotel company after another was sold to foreigners, North American investors were accused of an obsessive focus on short-term profits. Analysts claimed that Asian and European investors with longer planning horizons would reap handsome returns further down the road. American impatience, it was argued, was allowing foreign investors to purchase the crown jewels of the global hotel industry at prices that were likely to appreciate at supernormal rates of growth.

Coming Home

Just as the American sell-off appeared to have reached the tipping point, a curious thing happened. In 1994, a group led by little-known Starwood Capital and Goldman Sachs purchased Westin from the Japanese Aoki group, returning the company to US ownership. While Aoki had liquidated some non-strategic assets, the $537 million selling price was approximately a third of what the Japanese had paid United Airlines for the company in 1988. Analysts claimed the Westin takeover was an opportunistic acquisition that did not portend a trend in hotel asset repatriation. It did not take long, however, to prove them wrong.

In 1997, Marriott purchased Renaissance, Ramada International and New World Hotels from their Hong Kong-based proprietors. More recently, Hilton Corporation bought Hilton International, its British based namesake, for $5.7 billion. The Hilton acquisition reunited the company 42 years after the international division had been spun off to Trans World Airlines and nearly 20 years after it moved its headquarters to the UK.

American investors are not known for tiptoeing into business markets any more discreetly than the US Army tiptoed into Baghdad. Such was case with their return to international hotel investment. Not satisfied with merely reclaiming « American » hotel companies, US investors went on a shopping binge, acquiring a vast array of international lodging firms. Sheraton purchased CIGA, the Rome-based company that maintained a virtual monopoly on Italy’s upscale hotel market. The Carlson Companies, parent of Radisson Hotels, purchased Regent International, the Hong Kong-based hotel group that had established Asia’s reputation for luxury hotel keeping. Starwood picked up Le Meridien Hotels, a chain founded by Air France and sold to British interests in 1994. Starwood also acquired Hotels du Louvre, Europe’s 2nd largest hotel company which included the upscale Concorde brand.

Shorter Investment Planning Horizons

Have American capital markets given up short-term investing to concentrate on long-term asset appreciation? Nothing could be further from reality. The return of US dominance to hotel equity markets manifests the economic globalization of international investment activity in general. Investors of all nationalities are calculating risk and return for increasingly shorter planning horizons. In uncertain times, why would Hong Kong investors wait several years for investment returns when the Shanghai Composite Index was up 122% in 2006? Bourses in Peru, Vietnam and Venezuela appreciated at168%, 144% and 156% respectively last year. In the interconnected and interdependent world of the 21st century, investors from Albania to Zambia are using the same investment criteria to identify the most lucrative opportunities in global markets. Calculations no longer focus on the net present value of expected cash flow for decades to come. The key is to assess appreciation of asset values (real estate or management contracts) next year or even next month.

The Hotel Washington in the US capital provides an illustrative case study of this trend. Gal-Tex, which owned the hotel for 65 years, sold it to Westbrook Partners for $120 million in the spring of 2006. Barely six months later, Westbrook turned the property over to Istithmar Hotels for $150 million, reaping more than $1 million profit for each week it had owned the hotel.

The Savoy Group in London provides an even more astonishing example of such rapid-fire turnover of trophy assets. The Savoy Hotel and its three sister properties with a total of 772 rooms were purchased by the Irish investment group Quinlan Private in May 2004 for $1.36 billion. The 226-room Savoy Hotel was valued at approximately $380 million at the time of sale. Within a few months, Quinlan sold the Savoy to Kingdom Hotel Investments for a reported price of $475 million. Measured by the $1.8 million per room price tag, the sale represents one of the highest prices ever paid for a hotel. While Quinlan had been widely criticized for overpaying for the Savoy Group, the acquisition provided a $95 million profit on the sale of just one hotel that it owned for less than a year.

From Real Estate to Brand Management

The plethora of hotel transactions also manifests the value of non-tangible assets in the hotel industry. As lodging companies divest of real estate, the value of management contracts, franchise agreements and internationally recognized brands has become increasingly easier to assess. When Hutchinson Whampoa, the proprietor of the Hong Kong Hilton, demolished the hotel in 1995 to build a commercial office complex, it was obliged to pay Hilton $125 million to buyout the remaining 20 years of its management contract. In a bizarre paradox, the sum was not being paid to manage the hotel but rather to not manage the hotel. In testament to the potential value of a management contract, Hilton made clear that it did not want a payment of $125 million. The company preferred a continuation of the management contract. In the end, Hilton was legally obligated to vacate the premises and accept the settlement. The case illustrates, however, the radical changes that have turned the hotel sector upside down.

The growth of franchising has further altered the basic structure of the industry. While franchising of lodging establishments was pioneered by Holiday Inn’s standardized motels in the 1960s, only recently have upscale international groups been willing to permit owners to manage their hotels under a prestigious corporate banner. Almost all of the major international hotel companies now engage in franchising as a capital-free vehicle for rapidly growing their brands. The Carlson Companies have taken the concept to the extreme, having sold all of their hotels and given up most management contracts. The group now focuses almost exclusively on franchising its Regent, Radisson, Park Plaza and other hotel brands.

As hotel franchisers and management companies put increasing emphasis on international product recognition, brand management is becoming the critical skill for competitive advantage. This revolution has been manifested in recent years by the selection of brand management professionals (rather than hoteliers) to head the world’s largest lodging companies. Ian Carter, President of Black & Decker EMEA was appointed Chief Executive of Hilton International in 2005. When Hilton Corporation acquired the company the following year, Carter was the only top executive retained by the parent company, where he now serves as Chief Executive Officer for international operations.

Andrew Cosslett, President of Cadbury Schweppes EMEA, was named head of InterContinental Hotels about the same time Carter joined Hilton. The following year, the logic for hiring an executive from the confectionary industry to head a hotel company was explained in a CNBC broadcast. Interviewer Ross Westgate asked Cosslett, « Because you manage hotels now rather than own them – you’ve sold a lot of the assets off, so is it now brand management – is that essentially what you do? » The new chief executive replied, « That’s really our focus. »

When Starwood Hotels founder Barry Sternlicht decided to step down as Chief Executive Officer, none of the short-listed candidates to replace him were from the hotel industry. Steven Heyer, President of Coca-Cola was eventually recruited to assume the CEO position at Starwood, primarily for his branding prowess. Shortly thereafter, Starwood recruited Javier Benito, President of Coke’s US retail division to serve as the company’s Executive Vice President.

While peddling Coca-Cola in supermarkets may appear greatly removed from selling St. Regis suites on the web, the success of both depends on the effectiveness of brand management. The fact that executives with no hotel experience are increasingly recruited to manage the world’s largest lodging companies has significant implications for hoteliers, investors and educators. If branding skills are the most important qualifications for heading a global hotel company, what is the future of the industry? Where is the value in a hotel company?

Traditional hotel executives may scoff at such trends but stockholders are euphoric. The recent 60% rise in IHG share price has persuaded investors that hotel companies need a new breed of leader to maximize return on investment. If the IHG takeover bid is successful, providing stockholders an 80% share appreciation in less than a year, it will be difficult to argue with them.

Conclusions

The increasing divergence of hotel ownership (real estate), operations (management) and marketing (brand distribution) will intensify in the coming years. « Hotel management » will refer only to those activities that directly impact above-GOP (Gross Operation Profits) controllable expenses. Private equity funds, REITs and institutional investors are dominating the hotel real estate markets. Franchisers are achieving competitive advantage in sales and distribution. Increasingly, companies once considered at the core of the lodging industry are getting out of the hotel business and into the business of hotels.

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Accommodation Around the world

Commentary from Michael Nowlis on the hotel classification

Michael Nowlis is Managing Director of Tourism Control Intelligence. He has rated hospitality establishments for various guides and trained AAA inspectors.

Why make things simple when you can make them complicated?  Such a rhetorical question summarizes the obfuscation created by tourism authorities, intergovernmental organizations, travel companies and trade associations in their discombobulated initiatives to classify hotels. Many European countries categorize hotels using a system of one to five stars. However, that's just the beginning.  The French government awards a maximum of four stars but has an alternative category called « four-star luxe » and another, termed « HT ». In Dubai, a major destination for European vacationers, there is a seven-star hotel. Spanish lodging establishments are graded using a star scale with additional qualifiers such as « R », « H » and « Hs ». A modest Madrid hostel, for example, could have a rating of « ** R Hs ». European hotel classification is a jumbled litter of incomprehensible stars, diamonds, letters and numbers.

While hospitality industry has long resisted Brussels' initiatives to harmonize hotel categorization in the name of consumer protection, national tourism authorities are also losing the battle to standardize hotel ratings. Devolution and decentralization have resulted in classification standards becoming increasingly diverse rather than more uniform. In Spain, each of the seventeen regional authorities has its own approach to grading lodging facilities.

Catégories
Trends

Commentary from Michael Nowlis on the tourism trends in 2006

François Chevrier's article concerning tourism trends in 2006 summarizes the broad expectations of many analysts in the North American market. As it is difficult to address the multitudinous industry developments in such a brief piece, I am pleased to suggest a few international trends to complement his list.

Gen Y hybrid consumers will use price transparency provided by the Internet and the euro to combine five-star hotel accommodations with low-cost flights, both reserved at discount travel sites. Although practitioners of conspicuous consumption, the Millennial Group sees no contradiction in following a 5-minute lunch at McDonald's with a 5-hour dinner chez Ducasse. New concepts of value for money will result in consumers mixing and matching products to satisfy their desire of the moment.

Merger and acquisition activity in the hotel sector will continue at a torrid pace. Starwood's recent purchases of Meridien and Société du Louvre, the Fairmont-Raffles merger and the reunification of Hilton are precursors of the rapid consolidation ahead.

Multi-brand lodging companies will further capitalize on the reputations of their flagship properties to create upscale product groups using brands such as St. Regis, Waldorf-Astoria and Crillon. These super-luxury properties will justify stratospheric rates by offering enhanced amenities and employing database technology to introduce new standards of service excellence.

As budget airlines emerge in new geographic regions, they will expose the long-ignored fact that air transport is a commodity where low-cost leaders are most profitable. Investors who shied away from traditional carriers will find confidence in these new airlines as manifested by Ryanair's ranking of maintaining the second highest market capitalization of European airlines (behind Air France-KLM).

While travelers become increasingly accustomed to living in an unsafe world, security will play a significant role in selecting leisure destinations. Disease, crime, air safety and terrorism will become important criteria for holidaymakers planning trips abroad.

While Mr. Chevrier provides a broad optimistic forecast for North America, other destinations will manifest greater variations in demand. In Europe, the United Kingdom, Austria and the Netherlands will see increasing growth in their business and leisure markets while Poland, Germany and Sweden will struggle to fill hotel rooms and tourist facilities. François Chevrier cites the growing attraction of China and India but Asian tourism markets such as Indonesia, Sri Lanka and Nepal will suffer from political instability.

In 2006, analysts, scholars and industry leaders will discover the meaning of Albert Einstein's observation that « The only constant in the universe is change ».

Catégories
Accommodation Around the world

Hotel classifications vs. customer expectations

Spain's Cantabria University conducted a study to determine whether that country's hotel classification system was an accurate indicator of the quality of actual hotel experiences. The results showed that customers staying in luxury establishments had proportionally higher expectations than average. Since the criteria for awarding stars is based primarily on tangible elements, this sometimes leads to a discrepancy between customer expectations and customer perceptions. +++ Commentary from Michael Nowlis, Managing Director of Tourism Control Intelligence +++

Widespread systems

Classification systems to define the quality of hotel establishments are widely used in tourist destinations. The criteria used to determine the number of stars (or other symbol of recognition) usually correspond to tangible, measurable factors (room comfort, availability of parking, furnishings, etc.): the higher the rating, the more one can expect the room to be luxurious and costly.

However, it is also important to consider factors that, while they are not so easily quantified, strongly influence customer satisfaction. Did the room meet the customer's needs and expectations? What elements most often tend to disappoint customers in each of the various hotel categories?

Survey results

In Spain, establishments receive up to five stars, according to their ability to meet certain technical criteria with regard to the services provided and the hotel's characteristics. Customers seeking superior rooms are, of course, going to have higher expectations. The question is, do these hotels actually meet customer expectations? The survey results show that, in most cases, the actual perception of the product was inferior to prior expectations (Table 1). For each of the criterion rated, respondents indicated their agreement on a scale of 1 to 7, with 7 meaning « strongly agree. »

Table: Comparison between ratings of customer expectations and customer perceptions, by hotel category

Hotel category

Expectations

Perceptions
4 and 5 stars 6.76 6.45
3 stars 6.18 5.89
2 stars 6.35 6.01
1 star 6.08 6.20
Source: Department of Business Administration, Cantabria University

The only category in which perceptions surpassed expectations was that of 1-star hotels. Since stars are attributed on the basis of a combination of specific, predefined criteria rather than the quality of the experience, hotels in this « tourist-class » category appear to pleasantly surprise their guests.

Sources of disappointment

For the purposes of the survey, the service quality assessment criteria were divided into four major categories:

  • Reliability (staff discretion, guaranteed reservation, problems solved quickly and effectively, quick and able service)
  • Characteristics of the personnel (courtesy, professionalism, individualized service)
  • Tangible elements (rooms are comfortable, quality food and drink, premises are safe, visually attractive premises)
  • Complementary offering (location is pleasant and restful, information available about diverse activities, wide range of services offered by hotel)

In Table 2 below, the sources of the discrepancy between expectation and perception are illustrated for each hotel category. A plus sign (+ or ++) means that, for the given criterion, the customer's experience was superior or largely superior to initial expectations. If the experience was inferior or largely inferior to initial expectations, this is indicated with a minus sign (- or –).

Table 2: Breakdown of differences between customer expectations and customer perceptions, by hotel category

1-star hotels

2-star hotels

3-star hotels

4 and 5-star hotels
Reliability ++ – – –
Characteristics of the personnel + – + –
Tangible elements ++ — — –
Complementary offering – — — —
Source: Department of Business Administration, Cantabria University

Proliferation of rating systems = more confusion

A single destination often employs a number of classification systems which can create confusion for consumers, notes Michael Petrone, director, Tourism Information Development for the Automobile Association of America (AAA).

Many online travel agencies also use their own classification systems, although they rarely have a field staff of evaluators to physically inspect the properties. In many cases, evaluations are supplied by the hotel itself and not by an impartial intermediary. It is therefore difficult for consumers to assess the significance of the various ratings, let alone their accuracy.

As for the top two North American hotel rating systems – the five diamonds from AAA and five stars from Mobil – a comparison by Hotel Online concluded these systems are very similar. Both recognize the top lodgings and are prestigious, respected by the industry and trusted by travellers. Although not perfect, they are certainly credible.

Sources:
– Nobles, Harry and Cheryl Griggs. « 5 Star vs 5 Diamond: What's the Difference?, » Hotel Online, November 2004.
– Petrone, Michael. « Internet Hotel Ratings Causing Confusion for Consumers, Says AAA, » Business Wire, December 6, 2004.
– Fernandez, M. Concepcion Lopez and Bedia, Ana M. Serrano. « Is the hotel classification system a good indicator of hotel quality? An application in Spain, » Tourism Management, Vol. 25, May 9, 2004.

Commentary from Michael Nowlis, Managing Director of Tourism Control Intelligence

Michael Nowlis is Managing Director of Tourism Control Intelligence. He has rated hospitality establishments for various guides and trained AAA inspectors.

Why make things simple when you can make them complicated? Such a rhetorical question summarizes the obfuscation created by tourism authorities, intergovernmental organizations, travel companies and trade associations in their discombobulated initiatives to classify hotels. Many European countries categorize hotels using a system of one to five stars. However, that's just the beginning. The French government awards a maximum of four stars but has an alternative category called « four-star luxe » and another, termed « HT ». In Dubai, a major destination for European vacationers, there is a seven-star hotel. Spanish lodging establishments are graded using a star scale with additional qualifiers such as « R », « H » and « Hs ». A modest Madrid hostel, for example, could have a rating of « ** R Hs ». European hotel classification is a jumbled litter of incomprehensible stars, diamonds, letters and numbers.

While hospitality industry has long resisted Brussels' initiatives to harmonize hotel categorization in the name of consumer protection, national tourism authorities are also losing the battle to standardize hotel ratings. Devolution and decentralization have resulted in classification standards becoming increasingly diverse rather than more uniform. In Spain, each of the seventeen regional authorities has its own approach to grading lodging facilities. Italy has an obligatory five-level scheme administered by the Ministry of Tourism but permits local authorities to add supplementary requirements. The four regions of the United Kingdom – England, Wales, Scotland and Northern Ireland – each maintain their own classification criteria. In a seamless Europe where holidaymakers can travel from Finland to Portugal without ever stopping at a border and use a single currency along the way, the lack of coherence in hotel classification is an embarrassment to the tourism industry.

Faced with resistance and a lack of governmental coordination, the World Tourism Organization and International Hotel & Restaurant Association have abandoned efforts to standardize hotel classification. Where governments and official organizations have failed, the private sector is filling the void. When Europeans speak of « Relais & Chateaux », they are not necessarily referring to the limited number of member hotels that belong to the marketing network. The name has become a generic adjective to describe any lodging establishment with personalized service, luxurious appointments and extraordinary cuisine. Just as the Mobil and AAA guides have become the preeminent hotel rating authorities in North America, Michelin is considered the bible for travelers in France and throughout much of Europe. If national tourism authorities and intergovernmental organizations are unable to forge a consensus on hotel classification, they should step aside and let the private sector do it.

Catégories
Trends

Global Megatrends Revolutionizing the Tourism Industry at the Dawn of the Third Millennium

Tourism Trends

> The cruise industry will experience explosive growth.

> An older, better-educated population in Europe and North America will increasingly seek ecotourism and cultural travel products.

> « Slow cities » and « slow food » trends will expand from Italy to much of Europe.

> London, New York, Sydney and Dubai will be the leading tourism poles through the end of the decade.

> Non-residents will pay significantly higher entry fees to tourist attractions than those paid by locals (Venice, Petra, Bath, etc.).

> Tourism Satellite Accounting will be adopted by several developing countries but ignored by the U.S., China, Japan, Russia and most Western European countries.

> Prayer rooms and compasses will be installed on most passenger aircraft serving the Islamic world.

> Antarctica will become an ecotourism tourism destination complete with hotels, restaurants and full-service tours.

> Shopping, from mega-malls to folk craft centers, will increasingly become a critical feature for tourism destinations.

> Rides on private spacecraft will become a recreational outing for the wealthy.

> Mega-resorts (Las Vegas, Orlando, Sun City, etc.) will do what no one thought possible: get bigger.

> Cruise ships will sell condominiums, becoming ocean-going resorts.

> In spite of organized international efforts to fight them, sex and drug-focused tourism will flourish.

> Airlines, travel agents and tour operators will ally themselves with financial institutions to offer consumer travel loans.

> Western tourists will shun countries with immense tourism potential but « rogue » leaders (Zimbabwe, Libya, Iran, North Korea, etc.).

> MGM Mirage will beat out rivals Hilton, Harrah's and Bally's to become the undisputed leader of the casino industry.

> National economies in Cuba, Egypt, Spain and Thailand will become dangerously dependent on tourism.

> « Rave » tourists will travel further abroad in search of the perfect party (BringItOn! Travel, Like Hiptrips, Experienceibiza, etc.).

> Enormous infrastructure projects will significantly expand automobile-accessible tourism options (Channel Tunnel car lane, Bahrain-Qatar causeway, etc.).

> China will be the first country to receive 100 million international arrivals in a 12-month period, sometime around 2018 – France will follow within 2-3 years.

Product & Service Trends

> Hotel rooms, increasingly equipped as offices with full-size desks, computers and advanced communications technologies, will minimize the need for business centers.

> Expansion of Europe's high-speed train network will eliminate short haul flights.
 
> Hotel meeting and dining areas will be designed less formally in an attempt to attract the casual business traveler.

> Small super-luxury boutique inns will take market share from Four Seasons, Ritz Carlton and Fairmont.

> Hub airports will install capsule-cocoon hotels in terminal facilities.

> Hotel and restaurant facilities will be designed for an aging population with lower rise steps, more handrails and wider doors.

> Travel guidebooks will become highly specialized and more frequently consulted – primarily on the web.

> The distinction between business and leisure hotels will erode as business clients seek fitness and entertainment activities and vacation guests demand advanced telecommunications IT.

> « 100% Satisfaction Guaranteed » will replace « Let the Buyer Beware ».

> Growth in demand for home food delivery will outpace all other food service segments.

> An aging population and growing infatuation with healthful living will bring a wave of European holistic spas and  'health-tels' to North America and Asia.

> A new wave of budget conference & exhibition hotels will be built to meet the convention needs of cost conscious companies.

> European and Japanese new-build hotels will be obliged to design larger guest rooms closer to North American standards.

> Restaurant groups will operate F&B outlets wherever people gather (Laundromat bars, espresso counters at service stations, etc.).

> Center-city urban resorts will challenge sun, sand & sea vacation villages in the leisure market.

> Credit card check-in/check-out, F&B vending machines, self-cleaning bathrooms and self-serve laundries will eliminate most human contact in budget hotels.

> Luxury resorts that once shunned children will welcome them with an expanded array of activities and tailored dining options.

Investment & Finance

> Hotel real estate assets will be increasingly concentrated in the portfolios of fewer investors, particularly private equity funds.

> Intense competition for hotel operating contracts will push management fees as low as 1% of gross, 5% of IBFC and $4 per reservation.
 
> Airlines will continue to rack up significant losses as they struggle to deal with high fuel costs, new security requirements, an onslaught of no-frills carriers and brutal competition from 'open skies' agreements.

> Following the big American sell off of the 1980s and 1990s, hotel companies will be repatriated to the U.S. (Westin, Ramada, Renaissance, etc.).

> Airline alliances of the 20th century will evolve into acquisitions as weaker players struggle to survive (Air France-KLM, American-TWA, etc.).

> By the end of the decade, a score of management companies will control the world inventory of branded hotel rooms.

> Hotel feasibility studies will become an unprofitable commodity for hospitality consulting firms.

> Hotel operating companies will sell their remaining equity in real estate to free up capital for expansion of management contracts.

> Per room hotel acquisitions in Europe will reach stratospheric new records (i.e. Savoy Group).

> Franchising will experience explosive growth as hotel companies strategically reposition to get out of the hotel business and into the business of hotels (i.e. Radisson, Choice, Cendant, Holiday Inn, etc.).

> Fewer new-build hotels in Europe and North America, more existing property renovations.

Human Resources

> Critical shortages of skilled staff will encourage hospitality corporations to develop or outsource proprietary training centers.

> The introduction of new technologies in the upscale tourism industry will not replace the human element in service delivery – to the contrary, it will gain importance.

> Unionized hotel and restaurant workforces will trade scheduling and task flexibility for job security and quality-of-life benefits.

> Tourism and hotel management schools will move out of the classroom and out of the library, onto the web and into the field.

> Powerful unions, a shorter workweek and reluctance to taper social benefits will maintain Europe's standing as the world's most expensive tourism destination.

> Middle Eastern countries enforcing employment quotas for nationals will experience reduced productivity and higher labor costs.

> Airline employees will accept significant wage and benefit cuts to prevent their employers from going bankrupt.

Marketing

> The Internet will become the dominant distribution channel for all travel and tourism products eliminating most intermediaries.

> Understanding customers as people – their likes, dislikes, habits, interests and hobbies – will become critical to establishing competitive advantage in hospitality marketing.

> Customer retention will replace customer acquisition as travel agencies' strategic objective.

> Homogenization of airline services will render them commodities while lodging products will continue to focus on differentiation.

> Data warehousing and data mining will provide one-to-one and relationship-marketing opportunities never imagined.

> Print media advertising will move onto the Web.

> Increasingly value-conscious customers will demand more and better product information.

> Consumers will increasingly expect to negotiate hotel and airline rates.

> Cross-sector strategic alliances between food service, lodging, travel and entertainment companies will prove to be effective marketing formats.

> Better understanding of psychographic consumer behavior will lead to more precise identification of customer segments and sub-segments.

> As marketers increasingly distinguish between loyalty and satisfaction, frequent use programs will become more elaborate.

> Hotel revenue management systems will become more sophisticated and be relocated from the reservations department to sales & marketing.

> Revenue management tactics will be applied to pricing in restaurants, amusement parks, golf courses, tour buses, cinemas, convention centers and sports stadiums.

> Hotel companies' PMS standardization will result in the transfer of database and data warehousing responsibilities to CRS for greater operational and marketing efficiency.

> Market share and product profitability will be replaced by customer share and customer profitability as measures of marketing effectiveness in the hotel industry.

Safety & Security

> Consumers will systematically consult travel health sites before checking ticket or room availability.

> Security concerns in the Holy Land encourage religious tourists to make pilgrimages to sites in Ethiopia, Cuba, Greece, Italy and Morocco.

> Crime and terrorism will render some traditional tourist destinations unsellable.

> Customer credit cards will replace coded key cards in most hotels.

> Guest room safes will be enlarged to accommodate standard laptop computers.

> International hotel companies will refuse management contracts and franchises for hotels without in-room sprinkler systems.

> Terrorism fears will keep Israel, Indonesia, Iraq and India off the mainstream tourist circuit for the foreseeable future.

> Advanced encryption technology will make on-line payment genuinely secure.

Financial Management & Cost Control

> Zero-based budgeting will become the industry norm.

> GOPAR will replace RevPAR as the standard measure of hotel sales profitability.

> Speech recognition technology will lower staffing levels and operating costs in CRS call centers.

> To improve energy and water conservation, hotels will install usage meters and levy charges for consumption.

> Deregulation of the global telecommunications market will benefit the hospitality industry more than the deregulation of the airline markets.

> As hotel reservations made through global distribution systems diminish, GDS will exploit communications advances to reduce fees and costs.

> While hotel and café guests will increasingly expect wireless Internet access, other factors will encourage hospitality operators to invest in it – serving as a platform for mobile point-of-sales, reducing cable costs and more efficient restaurant table auditing.

Tourism Control Intelligence
E-mail: Nowlis@aol.com

Catégories
Trends

Global Megatrends Revolutionizing the Tourism Industry at the Dawn of the Third Millennium

Tourism Trends

  • The cruise industry will experience explosive growth.
  • An older, better-educated population in Europe and North America will increasingly seek ecotourism and cultural travel products.
  • « Slow cities » and « slow food » trends will expand from Italy to much of Europe > London, New York, Sydney and Dubai will be the leading tourism poles through the end of the decade.
  • Non-residents will pay significantly higher entry fees to tourist attractions than those paid by locals (Venice, Petra, Bath, etc.).
  • Tourism Satellite Accounting will be adopted by several developing countries but ignored by the U.S., China, Japan, Russia and most Western European countries.
  • Prayer rooms and compasses will be installed on most passenger aircraft serving the Islamic world.
  • Antarctica will become an ecotourism tourism destination complete with hotels, restaurants and full-service tours.
  • Shopping, from mega-malls to folk craft centers, will increasingly become a critical feature for tourism destinations.
  • Rides on private spacecraft will become a recreational outing for the wealthy.
  • Mega-resorts (Las Vegas, Orlando, Sun City, etc.) will do what no one thought possible: get bigger.
  • Cruise ships will sell condominiums, becoming ocean-going resorts.
  • In spite of organized international efforts to fight them, sex and drug-focused tourism will flourish.
  • Airlines, travel agents and tour operators will ally themselves with financial institutions to offer consumer travel loans.
  • Western tourists will shun countries with immense tourism potential but « rogue » leaders (Zimbabwe, Libya, Iran, North Korea, etc.).
  • MGM Mirage will beat out rivals Hilton, Harrah’s and Bally’s to become the undisputed leader of the casino industry.
  • National economies in Cuba, Egypt, Spain and Thailand will become dangerously dependent on tourism.
  • « Rave » tourists will travel further abroad in search of the perfect party (BringItOn! Travel, Like Hiptrips, Experienceibiza, etc.).
  • Enormous infrastructure projects will significantly expand automobile-accessible tourism options (Channel Tunnel car lane, Bahrain-Qatar causeway, etc.).
  • China will be the first country to receive 100 million international arrivals in a 12-month period, sometime around 2018 – France will follow within 2-3 years.

Product & Service Trends

  • Hotel rooms, increasingly equipped as offices with full-size desks, computers and advanced communications technologies, will minimize the need for business centers.
  • Expansion of Europe’s high-speed train network will eliminate short haul flights.
  • Hotel meeting and dining areas will be designed less formally in an attempt to attract the casual business traveler.
  • Small super-luxury boutique inns will take market share from Four Seasons, Ritz Carlton and Fairmont.
  • Hub airports will install capsule-cocoon hotels in terminal facilities.
  • Hotel and restaurant facilities will be designed for an aging population with lower rise steps, more handrails and wider doors.
  • Travel guidebooks will become highly specialized and more frequently consulted – primarily on the web.
  • The distinction between business and leisure hotels will erode as business clients seek fitness and entertainment activities and vacation guests demand advanced telecommunications IT.
  • « 100% Satisfaction Guaranteed » will replace « Let the Buyer Beware ».
  • Growth in demand for home food delivery will outpace all other food service segments.
  • An aging population and growing infatuation with healthful living will bring a wave of European holistic spas and ‘health-tels’ to North America and Asia.
  • A new wave of budget conference & exhibition hotels will be built to meet the convention needs of cost conscious companies.
  • European and Japanese new-build hotels will be obliged to design larger guest rooms closer to North American standards.
  • Restaurant groups will operate F&B outlets wherever people gather (Laundromat bars, espresso counters at service stations, etc.).
  • Center-city urban resorts will challenge sun, sand & sea vacation villages in the leisure market.
  • Credit card check-in/check-out, F&B vending machines, self-cleaning bathrooms and self-serve laundries will eliminate most human contact in budget hotels.
  • Luxury resorts that once shunned children will welcome them with an expanded array of activities and tailored dining options.

Investment & Finance

  • Hotel real estate assets will be increasingly concentrated in the portfolios of fewer investors, particularly private equity funds.
  • Intense competition for hotel operating contracts will push management fees as low as 1% of gross, 5% of IBFC and $4 per reservation.
  • Airlines will continue to rack up significant losses as they struggle to deal with high fuel costs, new security requirements, an onslaught of no-frills carriers and brutal competition from ‘open skies’ agreements.
  • Following the big American sell off of the 1980s and 1990s, hotel companies will be repatriated to the U.S. (Westin, Ramada, Renaissance, etc.).
  • Airline alliances of the 20th century will evolve into acquisitions as weaker players struggle to survive (Air France-KLM, American-TWA, etc.).
  • By the end of the decade, a score of management companies will control the world inventory of branded hotel rooms.
  • Hotel feasibility studies will become an unprofitable commodity for hospitality consulting firms.
  • Hotel operating companies will sell their remaining equity in real estate to free up capital for expansion of management contracts.
  • Per room hotel acquisitions in Europe will reach stratospheric new records (i.e. Savoy Group).
  • Franchising will experience explosive growth as hotel companies strategically reposition to get out of the hotel business and into the business of hotels (i.e. Radisson, Choice, Cendant, Holiday Inn, etc.).
  • Fewer new-build hotels in Europe and North America, more existing property renovations.

Human Resources

  • Critical shortages of skilled staff will encourage hospitality corporations to develop or outsource proprietary training centers.
  • The introduction of new technologies in the upscale tourism industry will not replace the human element in service delivery – to the contrary, it will gain importance.
  • Unionized hotel and restaurant workforces will trade scheduling and task flexibility for job security and quality-of-life benefits.
  • Tourism and hotel management schools will move out of the classroom and out of the library, onto the web and into the field.
  • Powerful unions, a shorter workweek and reluctance to taper social benefits will maintain Europe’s standing as the world’s most expensive tourism destination.
  • Middle Eastern countries enforcing employment quotas for nationals will experience reduced productivity and higher labor costs.Airline employees will accept significant wage and benefit cuts to prevent their employers from going bankrupt.

Marketing

  • The Internet will become the dominant distribution channel for all travel and tourism products eliminating most intermediaries.
  • Understanding customers as people – their likes, dislikes, habits, interests and hobbies – will become critical to establishing competitive advantage in hospitality marketing.
  • Customer retention will replace customer acquisition as travel agencies’ strategic objective.
  • Homogenization of airline services will render them commodities while lodging products will continue to focus on differentiation.
  • Data warehousing and data mining will provide one-to-one and relationship-marketing opportunities never imagined.Print media advertising will move onto the Web.
  • Increasingly value-conscious customers will demand more and better product information.
  • Consumers will increasingly expect to negotiate hotel and airline rates.
  • Cross-sector strategic alliances between food service, lodging, travel and entertainment companies will prove to be effective marketing formats.
  • Better understanding of psychographic consumer behavior will lead to more precise identification of customer segments and sub-segments.
  • As marketers increasingly distinguish between loyalty and satisfaction, frequent use programs will become more elaborate.
  • Hotel revenue management systems will become more sophisticated and be relocated from the reservations department to sales & marketing.
  • Revenue management tactics will be applied to pricing in restaurants, amusement parks, golf courses, tour buses, cinemas, convention centers and sports stadiums.
  • Hotel companies’ PMS standardization will result in the transfer of database and data warehousing responsibilities to CRS for greater operational and marketing efficiency.Market share and product profitability will be replaced by customer share and customer profitability as measures of marketing effectiveness in the hotel industry.

Safety & Security

  • Consumers will systematically consult travel health sites before checking ticket or room availability.
  • Security concerns in the Holy Land encourage religious tourists to make pilgrimages to sites in Ethiopia, Cuba, Greece, Italy and Morocco.
  • Crime and terrorism will render some traditional tourist destinations unsellable.
  • Customer credit cards will replace coded key cards in most hotels.
  • Guest room safes will be enlarged to accommodate standard laptop computers.
  • International hotel companies will refuse management contracts and franchises for hotels without in-room sprinkler systems.
  • Terrorism fears will keep Israel, Indonesia, Iraq and India off the mainstream tourist circuit for the foreseeable future.
  • Advanced encryption technology will make on-line payment genuinely secure.

Financial Management & Cost Control

  • Zero-based budgeting will become the industry norm.
  • GOPAR will replace RevPAR as the standard measure of hotel sales profitability.
  • Speech recognition technology will lower staffing levels and operating costs in CRS call centers.
  • To improve energy and water conservation, hotels will install usage meters and levy charges for consumption.
  • Deregulation of the global telecommunications market will benefit the hospitality industry more than the deregulation of the airline markets.
  • As hotel reservations made through global distribution systems diminish, GDS will exploit communications advances to reduce fees and costs.
  • While hotel and café guests will increasingly expect wireless Internet access, other factors will encourage hospitality operators to invest in it – serving as a platform for mobile point-of-sales, reducing cable costs and more efficient restaurant table auditing.

Tourism Control Intelligence
E-mail: Nowlis@aol.com