Expedia, Hyatt, Loews & AccorHotels CEOs talk travel and investment

NEW YORK — What do three hoteliers and the head of an OTA talk about over coffee? Plenty. At the NYU International Hotel Industry Investment Conference, held this week at the Marriott Marquis, Sébastien Bazin, chairman and CEO of AccorHotels; Mark Hoplamazian, president and CEO of Hyatt Hotels Corporation; Jonathan Tisch, chairman and CEO of Loews Hotels & Company; and Dara Khosrowshahi, president and CEO of Expedia, took a break from the event’s main sessions to sound off on the big issues affecting the hospitality and travel industries.
 
Here are six notable insights from the CEOs. 

1. Guests have changed…

Today’s travelers have to deal with ever-changing factors from online review sites to fears of terrorist strikes in major cities. Bazin, whose AccorHotels saw revenue fall after two attacks in France last year, noted that safety concerns don’t seem to affect people's’ desire to travel, but does affect where they go. “They go elsewhere,” he said. “All the traffic we didn’t get in France for the past 12 months went to Spain, Northern Europe, Amsterdam and London.”
 

And then there’s the internet, with sites like Yelp and Travelocity offering reviews of everything from restaurants to hotels. “User-generated content is now like word-of-mouth on steroids,” Khosrowshahi said. This can sometimes be bad, he said, but transparency can also be beneficial. “You have more choice than you ever had, and you have more information.” But, he acknowledged, with increased choice comes some pricing pressure. “From an industry challenge perspective, there will be pricing challenges,” he said. “But usually, lower prices spur demand, and I think you’re seeing that happen.  

2. ...and so has their spending

The retail industry’s struggles could be hospitality’s gain, Tisch said. With millennials—and other demographics—opting to spend money on experiences rather than things, hotels are poised to see stronger bookings. “We’re benefitting in the travel industry and the hotel business, because people want to be on the road,” he said. 

3. The travel ban isn’t changing travel patterns...yet 

While the industry as a whole is waiting to see what long-term effects the President’s attempts at instituting a travel ban will have on inbound travel to the U.S., none of the CEOs said that they had seen a significant impact on numbers that they could attribute to the bans with any certainty.
 
Bazin said that inbound travel to New York City from Europe seems to be down by about 5 percent. “Whether that is related to the new administration, I don’t know,” he said. 
 
“We are not seeing a clear impact at this point,” Khosrowshahi said of the ban. Instead, he said, the biggest factor for the global OTA was currency fluctuations: “For example, when the Brexit happened, the pound went down, [and we saw] huge amounts of demand going into the UK.” U.S. volumes were hurt a little by the strong dollar, he said, but now that the dollar’s getting weaker, that should be a tailwind for inbound U.S. demand. “I can’t say that the administration has had a direct effect on travel patterns at this point.”  
 
Tisch said that some groups coming to the U.S. are canceling trips if one member of the group is from a country affected by the ban. “They didn’t want to risk having an interruption of that person’s travel,” he said, but acknowledged that the information was anecdotal to a certain extent, and that firmer numbers and analytics would be available in a few weeks.
 
“The other factor on transatlantic travel is air ticket prices, especially for the leisure traveler who’s quite price-sensitive,” Khosrowshahi said. “Transatlantic and transpacific ticket prices are down year-over-year, which, again, is a stimulant for travel.” To gauge demand, he said, keep an eye on prices and see how they change. “If you see air prices going down, that could be a sign of demand being a factor.”  

4. Regulating Airbnb is going to be tough

While traditional hoteliers and Airbnb will likely never see eye to eye, Hoplamazian said that AH&LA is focusing on taking the wind out of the homesharing service’s sails through local laws. “The particular focus has been on listings by what could be described as commercial owners of multiple properties,” he said, emphasizing that these businesspeople are not just renting out a room in their apartment but are buying multiple apartments in which they never reside, but list on the site for visitors to rent. “As a consequence of that, it feels like a ‘shadow hotel’ operation,” Hoplamazian said, arguing that these rentals can affect the cost of real estate in crowded urban hubs and cause an increase in the homeless population. 
 
Khosrowshahi, an internet entrepreneur, expressed some skepticism about an internet service driving up the cost of real estate. “They’re going up because of the tech sector and all the wealth that’s created there,” he said. Still, he called for “appropriate” and “constructive” regulations that would not prevent advancement but would level the playing field. “A lot of good is happening, but right now there’s a bunch of thrash as regulations catch up,” he said. 
 
“There also is the element that we as hotel companies spend a lot of money protecting and keeping our guests and our team members safe,” Tisch said. “That is yet another issue where that is not the [case] for somebody renting out their home.” 

5. Hotel investment is still strong

In spite of changing times and travel patterns, hotels are still a popular investment option. “We’ve seen pretty consistent demand for hotel properties,” Hoplamazian said. “No question that interest rates have contributed to the level of activity and also interest, but also in helping to preserve returns.” 
 
The “hyper-focus” on where the industry is in the cycle is “a bit overdone,” Hoplamazian continued, “other than for people who are really trying to focus on a quick flip of a hotel property—and anybody who’s actually owned a hotel at any point in their lives knows that that’s a fool’s errand. So I don’t believe that for the people who really matter to the marketplace in terms of where the big capital is, this whole idea of where we are in the cycle is less important than what the viability of that asset is and what the special, unique selling point looks like over time.” 
 
An asset’s location is also critical for investors, Bazin said. Buyers looking to get a 10-12 percent return on investment within eight to 12 years can do well buying properties outside of key markets. For hotels in central business districts, investors will accept a much lower return, but they’ll know the risk of losing the capital is very limited because of the location. 
 
“We’re seeing that assets that are currently listed for sale are priced for perfection, that they’re expensive,” Tisch said. “Oftentimes you come in as a new owner or a new operator and invest capital, so you add that to the cost of the asset.”  

6. Top markets are attracting lots of attention

What regions are hot for investment right now? The panelists had a wide range of opinions. “The Asia Pacific markets are going gangbusters,” Khosrowshahi said. “The outbound Chinese consumer is an absolute powerhouse as far as demand goes.” Notably, Khosrowshahi said, while Asian demand for the U.S. and Europe is still strong, intra-Asian travel among different countries within the region is on the rise. “The growth rates are extraordinary,” he said. “Between 60 and 70 percent of the middle class is going to be Asian in 10 years, and I think all of the travel companies, including ourselves, are investing a heck of a lot of capital in that marketplace—and I’d say so far, so good.”
 
Bazin agreed. “The pace of travel increases by 3.5 to 4 percent per year,” he said. “When we look at the pace of international travel in Asia Pacific, it’s exactly double that.” 
 
Africa is also ripe for development, Bazin said, and is attracting investors from South Korea and China. “That market is pretty virgin in terms of integration and market share,” he said. “But it’s a difficult market because each country has different geopolitical risks or macroeconomic risks. So for those who know better, this is a place not to miss—but it’s a 20-year-bet.”
 
Since Loews is a domestic company, Tisch expressed concern that some cities in the U.S. were being overbuilt. “There are a lot of rooms being added,” he said. “It is a bit of a caution, it is a bit of a warning. Business continues to be strong, but if that should not be the case, then some of these markets, there’s going to be a lot of rooms—and it’s impacting prices.” Over the last 10 years in New York City, he said, room count jumped from 77,000 to 110,000, with another 20,000 under construction or in development. “So our expenses keep going up and we have negative RevPAR growth. It really puts your profits in a bit of a difficult position as you keep an eye on expenses. But it’s a little hard to raise your revenues.” 

And then there’s the proverbial elephant in the room: Cuba. Over the last three years, diplomatic and trade relations have improved between the U.S. and Cuba, and more global hotel companies (including U.S.-based Marriott) have started to gain a foothold. 
 
But Cuba might not be the draw that some developers and investors might be looking for, even if they don’t have to work around the U.S. embargo.
 
AccorHotels, Bazin said, has three hotels open in Cuba right now, and is looking to open another 10. In comparison, he said, AccorHotels has 250 hotels in Brazil—a testament to both Brazil’s appeal for investment and the challenges of doing business in Cuba. “It’s a place in which you have to spend time in order to get comfortable,” Bazin said. 

 
“It’s a relatively modest market,” Hoplamazian said. “It’s a very attractive market, and not one that one would ignore.” Still, he noted, there are unique challenges to opening and operating a hotel in Cuba—not the least of which is the lack of a domestic market. “The market there is 100 percent inbound,” he said. “Many people are on food rations and make a very modest amount of money, so there’s no domestic market to speak of. You’re not going to be building resorts and hotels for Cubans traveling within Cuba.” Still, he said, Hyatt is in “active discussions” right now to gain entry into the country. “It’s not an easy process. It’s quite controlled and cumbersome. But we’re committed to finding a way to do that. I don’t feel like we’re late in any way because I think the market is evolving—just slowly.”  
 
“We’ve opened up Cuba as a destination and the demand we’re seeing incredibly encouraging,” Khosrowshahi said. “The bigger picture as it relates to travel is a voice being heard in the administration. Cuba is an issue, but there are much larger issues that we are facing as an industry. Our coming together and having our voices heard in this administration is vitally important. The last administration’s early days were bumpy with travel if you remember. It took a bunch of effort from the folks in this room and the U.S. Travel Association to get our voices heard. Travel is a very strong strong economic driver. More and more of our GDP is going to travel, and I think that our voices need to get louder and louder in order to protect our customers and also to protect our industry.”