Strong, steady hotel demand not equating into pricing power

From left: Marriott International's Liam Brown; AccorHotels' Kevin Frid; Carlson Rezidor's Ken Greene; Magnuson Hotels' Tom Magnuson; Watermark Capital Partners' Mike Medzigian; RLH Corporation's Greg Mount; and AAHOA's Bhavesh Patel.

PHOENIX — Hotel operators enjoying strong and sustained hotel demand and occupancy in the latter stages of the cycle are anecdotally reticent to drive higher rates, even though numbers from the likes of STR point otherwise.

During The Lodging Conference, here at the Arizona Biltmore, STR's Ali Hoyt pointed to the company's latest forecast numbers, which pinned 2017 and 2018 demand increases at 2 percent and 1.9 percent, respectively, coupled with 2017 and 2018 forecasted ADR growth of 2.3 percent and 2.5 percent, respectively. RevPAR, meanwhile, is expected to increase 2.3 percent in 2017 and 2018, led by ADR. (Forecasted occupancy this year is predicted to grow 0 percent, while occupancy next year, STR predicts, will actually decline 0.2 percent.)

And while the data suggest rate is on the upswing, hotel owners and operators bemoaned meek rate growth. "This is the golden age of travel," said Michael Medzigian, managing partner of Watermark Capital Partners. "We have high demand, but no pricing power."

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Part of the worry, many say, is over new supply bubbling in some markets, and the existential threat of Airbnb and other home-sharing disruptors. Fear of raising rates and losing out to a competitor linger in revenue managers' minds.

"Yes, demand grows but competition grows, as well," said Kevin Frid, COO of North & Central America for AccorHotels.

Hotel companies and owners are in the business of growing market share, driving revenue and limiting expenses. And with GDP growing 3 percent in the third quarter, hoteliers are very optimistic that their business will prosper.

Liam Brown, president of franchising, owner services and MxM select brands, North America for Marriott International, said there is a solid correlation between GDP and the prospects of the hotel industry. "There is oversupply in some markets," he said, "but from a macro view, there is a positive bend toward business."

He said Marriott remains very focused on the international traveler, especially what he called the "China opportunity."

"Millions of trips were taken last year. It's our challenge to make sure we get our fair share of international travel. We want safe secure borders but also a welcome mat for travelers," he said.

Ali Hoyt of STR delivers predictions.

Brands, Millennials, Mandates—Oh My

No hotel executive panel is safe from discussion of demographics and brands—more specific, what people think of them: good, bad or otherwise.

While there is no doubt there are many brands in the market, that's fine, according to Accor's Frid, as long as they are clearly defined. "You have to make sure brands are still distinctive," he said. "And you can't bucket people. Chances are they move around hotels based on why they are traveling."

To Greg Mount, CEO of Red Lion Hotels Corporation, millennials are the showpiece cohort and because of that, a hotel company's strategy and programming should fit that focus. "This year, the 75 million millennials eclipsed the boomers," he said. "That’s important to understand, and to then understand the digital marketing space."

Mount cited OTA ubiquity and their potency as a challenge. "Consumers are online some 140 times before they book. How do they make that decision to book?" he asked, acknowledging the rise of personalized data and personas. "SEO and SEM are so two, three years ago," he explained. "Google is using Gmail to provide advertising and offers. There are smaller, more personalized options."

Accor's Frid is unconvinced regarding millennials, telling the audience to a smattering of applause, "There is such a focus on millennial research, but they have no money. And once they have money, all their needs and wants will have changed. Matures are still the biggest spenders out there."

Medzigian agreed with Frid, though acknowledging their wanderlust. "Millennials have a higher incidence of travel, but not the money," he said.

Regardless of demographic, all on stage are concentrated on delivering the elusive experience. "Everyone now is realizing experiential travel," said Tom Magnuson, CEO of Magnuson Hotels. "Consumers are rejecting standardization."

"There are expectations by guests around cleanliness, the basics—those need to be consistent. But you don’t need a red carpet over a blue carpet and expect a return," said Red Lion's Mount.

"Customers want the basic fundamentals, but they don’t care about color or what kind of roof pitch there is," added Magnuson.

Marriott's Brown was quick to fire back on standardization, something Marriott is credited creating in the hotel space. "Customers have an expectation on what you deliver, so there have to be standards there," he said. "Now, you do need an interesting product and service that connects. It's been an evolution. I have to believe our brands resonate. Experience means different things to every guest."

"Great brands have great consistency," added Ken Greene, president, Americas for Carlson Rezidor Hotel Group.

But brand standards remain a thorn in the side of owners and franchisees—especially if they are seen as onerous and unnecessary. "There are too many brand mandates. Do they make a difference?" asked Bhavesh Patel, the chairman of AAHOA, whose some 17,000 members constitute many brand franchisees. 

"We are hit daily with different mandates," said Medzigian, who leads two separate REITs filled with branded hotels. "I don’t think brands are just coming up with crazy ideas, but do I want to pay for that bigger TV?"

"We have to walk in our owners shoes," said Greene, pointing out that is easier for Carlson Rezidor since it has hotels on its own balance sheet. "When we roll something out, we have to make sure there is a ROI and that it's backed up by consumer data that that’s what they want."

In conclusion, Marriott's Brown made the point that brands and owners are in this business together and for each other, not against.

"We aren’t in the business to destroy the economics of business, that of cash flow margin and return on invested capital," he said.