| February 1999
Hotel Companies plan future strategies
after consolidation
The pace of consolidation within the global hotel industry has quickened
in the last year. The resulting organisations are now concentrating their
resources on how to develop and add further value to their existing and
inherited brands. The strategies of Bass Hotels and Resorts, Starwood Lodging
and Patriot American Hospitality illustrate the priority that hotel companies
give to increasing brand awareness in a competitive marketplace.
Bass Hotels and Resorts
At a recent conference in New Orleans, it was confirmed that Bass Hotels
and Resorts (BHR) will continue to focus on brand preference and the distribution
of each chain in its relevant market. BHR is also planning a significant
investment and aggressive expansion. Some US$1 billion is destined for
the Inter-Continental brand, whilst increased advertising and promotion
of loyalty schemes will enhance the market's awareness of the company 5
other brands, in particular Holiday Inn Express and Staybridge Suites.
The company is also focusing on boosting its presence in the Middle East
with several major projects under construction in Egypt, further expansion
in Saudi Arabia, and a number of developments in Lebanon and Jordan.
Starwood Lodging
Following the acquisition of Sheraton and Westin, Starwood has invested
US$400 million in its portfolio. During the first half of 1998, 49 management
agreements were signed with a further 20 scheduled for the latter part
of the year. Twenty-two hotels have been converted to the Westin or Four
Points brands. For the new brand, sites under construction include five
in North America, three in New York, one in Seattle and one in San Francisco.
Starwood also announced that it will be combining its REIT and Starwood
Hotels and Resorts to create a single C-corp with the REIT as a subsidiary.
This allows the corporation to work around the change in federal law that
precludes "paired share" REITs from growing through future asset acquisitions.
Patriot American Hospitality
During the third quarter of 1998, 19 hotels were converted to the Wyndham
brand, and Patriot predicts that the brand will have grown from 78 units
at the beginning of the year to 185 owned or managed properties by December
1998. During the second quarter, nine former Grand Heritage hotels were
repositioned as part of the Wyndham Grand Heritage brand. In the meantime,
the luxury hotel division, which currently consists of 11 properties, will
be branded Grand Bay Hotels and Resorts. The existing Carefree Resorts,
Grand Bay Hotels and Golden Door Spa will he folded into this new operation.
The roll-out of this brand will be limited to between 25 and 30 hotels
in the next five years to maintain the exclusivity of the product.
Will the gamble
pay off for Las Vegas … ?
Whilst the rest of the world looks cautiously to the future and development
plans are put on hold or scaled down, Las Vegas is once again breaking
the mold. During the next two and a half years, 20,000 new rooms will be
added. A large percentage of these are in the form of "mega-hotels" such
as Hilton's "Paris' property with replicas of the Eiffel Tower and Arc
de Triomphe. The scale of this new building boom is significant in itself,
but the fact that it is occurring at a time of such global economic uncertainty,
has raised questions about the scale of development.
There is also the added worry that the local hotel market has softened
somewhat, with occupancy rates now at 86 percent compared with more than
90 percent two years ago. These levels are, of course, still extremely
high, but when companies operate on the assumption of full capacity it
becomes a significant drop. The turmoil in the Asian market is also taking
its toll, especially with the intentional high rolling gamblers. In addition,
Las Vegas 10 years ago had a monopoly in legalised gambling; today additional
jurisdictions have legalised gambling. The competition is getting tougher.
In an attempt to attract more families to Las Vegas in the early years
of this decade, the city introduced Disney-style entertainment, but gambling
and other forms of themed entertainment do not always combine well and
the results have been somewhat mixed.
... and for the rest of the world?
In spite of concerns over current and future trading conditions, many
hotel companies are considering further investment and expansion across
the world. Recent announcements include.
| Following a 22 percent increase in profit for the six months to June
1998, U.K.-based Millennium & Copthorne Hotels has announced expansion
plans. These are said to include continental Europe and gateway cities
in the United States, such as Chicago, Los Angeles, Washington DC, Dallas
and Atlanta. |
| Paris-based Accor SA is undergoing an aggressive expansion plan in
Europe and South America. In Poland, the company is seeking to establish
subsidiaries and joint venture partners to assist them in their development
plan in central Europe. There are to be over 25 Ibis properties within
the next two years. The company hopes to establish a network of over 30
Etap budget hotels during the next five years. In Brazil, Accor aims to
have developed 5,500 rooms in 40 cities by the year 2002 with an initial
investment of US$21 million. |
| Accor is also continuing its interest in expanding into Asia. Speculation
continues over their interest in bidding for Century International. It
has been reported in the French press that Accor is interested in expanding
via the partial acquisition of Hong Kong-based Regal Hotels International. |
| For the first nine months of 1998, Starwood announced a 7 percent increase
in revenue per available room (RevPar) for their owned hotels worldwide,
with increases in Europe, Latin America and North America of 14 percent,
8 percent and 6 percent respectively. This resulted in a 14 percent increase
in EBITDA. The casino operation faired equally well with an increase in
revenues of 28 percent. Starwood's development plans not only include the
hotels division, but also the casino group. By the year 2000 there will
be a Caesar's riverboat in Indiana, USA with 90,000 square feet of casino
space and a 500-room hotel. A joint venture in Johannesburg, South Africa
with Guateng will create 75,000 square feet of casino space and a 200-room
hotel. |
| For the lodging brands of Marriott International in the United States
for quarter three, RevPar grew by 5 percent compared with the previous
year. Results for the international properties were moderately lower in
1998 due to the difficult trading conditions in the Asia-Pacific region.
This dip was partially offset by profit growth in Europe, the Middle East
and Latin America. However, the company expects to increase its portfolio
by more than 150,000 rooms during the next five years, 30,000 of which
are to open in 1998 within 200 hotels. |
| Utilising US$500 million of equity, Swissotel is eager to increase
its current portfolio of 24 hotels to 60 properties by the year 2000. Currently
the portfolio covers five continents with hotels concentrated in the main
business centres and resort areas. For the future, Swissotel is seeking
a presence in Los Angeles, San Francisco, Miami, London, Paris, Singapore,
Hong Kong and Tokyo. One may be surprised to learn that hotel companies
are seeking developments in Asia, but Swissotel management reportedly believes
that the economic situation in that region provides a good opportunity
for growth. |
In Jericho peace
prevails on the gaming tables
The Oasis Casino opened in September 1998 and is situated in the Jordan
valley, close to the ancient town of Jericho. Operated by Casinos Austria,
the recently opened US$150 million Oasis has been attracting large numbers
of Israelis. According to reports. in the first weeks after opening, at
least 1,000 people each day could be seen waiting to enter the casino,
which had already reached capacity. Frustrated crowds even tried to enter
the premises through the staff entrance to gain a chance to try their luck
at one of the 45 gambling tables and 220 slot machines.
This dramatic exposure of frustrated demand has spurred Israeli politicians
to revive a governmental committee, which was appointed by late Prime Minister
Yitzhak Rabin, to establish two casinos in Israel on a trial basis. The
Gavish Committee has previously had to deliberate over the possible pros
and cons of developing a casino in the highly popular Red Sea destination
of Eilat. The initial decision on opening a casino was postponed but remains
eagerly awaited by local hotel operators who are expecting strong increases
in demand from visiting gamblers.
The Oasis Casino is expected to generate positive side effects for the
local economy, supporting the 30,000 population resident in Jericho. The
casino employs some 1,000 locals, and the economic spillover from the traffic
created by gamblers who come from Jerusalem and even as far as Tel Aviv
is having a positive effect on the local population's attitude towards
the casino. Spending in Jericho has increased considerably, which in turn
has had a positive impact on a number of critics who had previously rallied
against the casino prior to its opening.
(This article was contributed by Taras Ettl, a Consultant based in
Arthur Andersen's Bahrain office)
U.K. travel industry
consolidation to set a global trend?
Consolidation of the U.K. travel industry has progressed at a rapid
pace during the past six months. The greatest level of activity has been
witnessed by the major players, as they aim to fight off competition by
increasing market share and the number of distribution channels in existing
markets, or obtain footholds in new markets.
Some examples of major deals in recent months include:
-
Acquisition of Unijet and Hayes & Jarvis by First Choice for £134
million in June 1998;
-
Purchase of Direct Holidays by Airtours in July 1998 for £80.7 million;
-
Acquisition of Crystal Holidays by Thomson for £66.2 million in August
1998; and
-
Announcement of the merger between Thomas Cook and U.S.-based Carlson in
October 1998, which, if approved by the Monopolies and Mergers Commission,
would create one of the world's largest leisure travel companies.
The high level of activity by the leading U.K. tour operators has forced
other companies to take a closer look at their distribution channels. In
October 1998, First Choice, Britain's third largest tour operator, unveiled
its new distribution strategy. In addition to purchasing retail travel
agent Bakers Dolphin for £12 million and acquiring minority stakes
in the regional chains Hays Travel and Holiday Express, it is also planning
to open 533 new shops within the next two years. Simultaneously, First
Choice is buying a 25 percent stake in Holiday Hypermarkets. Holiday Hypermarkets
is a pioneering new concept in retail travel, and it is estimated that
the 10,000 square foot shops will generate fifteen times the number of
bookings of an ordinary travel shop.
At the same time, U.K. companies have begun to diversify geographically
through acquisitions in Northern Europe and North America. In October 1998,
Airtours announced the acquisition of US-based tour operator Vacation Express
for US$24.3 million. In Europe, operators are very keen to gain a foothold
in Europe's largest outbound market, Germany. Airtours was the first U.K.
tour operator to gain entry, with the purchase of a 29 percent stake in
Frosch Touristik (FTi) and a further option to purchase the remainder in
2002. Thomson is also pursuing foreign expansion, having almost reached
its maximum allowable market share in the United Kingdom. Under U.K. law
more than 25 percent market share would technically make it a monopoly
and consequently in breach of the rules of the Monopolies and Mergers Commission.
According to Travel Industry Digest, Thomson is reportedly believed to
lie interested in a potential alliance with Neckermann, Germany's second
largest tour operator.
The current activity from the major U.K. tour operators is likely to
continue, as they remain eager to gain a foothold in foreign markets. The
Thomas Cook/Carlson deal indicates activity will most likely move away
from takeovers into formal alliances and share swaps as a means of consolidation..
(Contributions to this edition of World Hospitality Forum were provided
by Petra Ekas, Katharine Le Quesne, Jane Sanchez and Catherine Sxhlieben,
members of the London Hospitality and Leisure Research team.)
©Arthur Andersen |
