How changes at the big hotel brands may impact owners

From a new chief executive at IHG, and Accor splitting its operations, to Choice’s attempted hostile takeover of Wyndham, big changes have been afoot at some of the global hotel brands over the last 12 months. What will these mean for hotel owners, investors and franchisees in 2024 and beyond?

Despite the headline-grabbing news, Richard Clarke, senior analyst at AB Bernstein, doesn’t think that owners will necessarily be seeing many changes at an operational level – with the exception of the potential Choice-Wyndham merger.

“Fundamentally, they’re not changing. These businesses remain multi-franchise powerhouses that continue to gain a pretty steady share of the market growth, so I don’t think there’s been much need to change and some of the changes will probably be more presentational than fundamental,” he says.

Accor’s split

Accor restructured last year, splitting its operations into two divisions, separating premium, midscale and economy from luxury and lifestyle.

“With our new simplified organisation, we have focused our expertise,” says Jean-Jacques Morin, group deputy CEO and premium, midscale & economy division CEO at Accor. “We have the most diversified portfolio in the industry with +45 brands, so we are best serving the needs of every traveller and at the same time the hotel investors, owners, and franchisees.”

However, the change was arguably a continuation of the group’s strategy over recent years and Clarke does not imagine a hotel owner is necessarily seeing any great change at an operational level. “This is not changing the stakeholder interaction. The people that are observing the change are probably much more investors because they’re seeing the two sides differently,” he explains.

“What’s really interesting is that you’ve seen this double down on luxury and lifestyle... Accor has said, ‘we can be a fundamental growth business by focusing on luxury and lifestyle’.”

The split, he suggests, was not only a signal that Accor felt the two sides of the business should be managed differently, but that the luxury side should be valued differently.

“Most sectors out there, you will see a premium being paid for luxury exposure [that] doesn’t really happen in the hotel world,” he says. “I guess what Accor are trying to do is demonstrate that that should exist, that luxury/lifestyle performance, if managed correctly, should be value accretive to the whole group.”

He adds: “Accor as a stock trades at quite a sizeable discount to some of its US-focused peers, so I think it’s also an attempt to show, ‘there’s something different about us, maybe you want to reconsider what you’re valuing us at.’”

IHG’s new leadership

Meanwhile, following Keith Barr stepping down as IHG CEO last year, Elie Maalouf has been appointed his successor. Formerly IHG Americas CEO, Maalouf has relocated to the UK, where the group is headquartered.

Clarke similarly thinks it’s unlikely owners will see any big directional changes under the new leadership, as Maalouf was already on IHG’s board and executive committee. “This is a business that has consistently delivered, in non-pandemic years, double-digit earnings growth, so you wouldn’t look at it and say, ‘wow, this really needs a complete re-think’. The shareholder returns have been very good,” he says.

Karin Sheppard, SVP managing director, Europe for IHG Hotels & Resorts, says Maalouf will provide “seamless continuity of our company strategy, values and approach”.

“Staying laser-focused on our owners and their returns, we’re continuing to invest in the technology, tools and solutions that make the biggest difference,” she adds.

Clarke foresees any changes may be influenced by the different backgrounds of the former and current CEOs – Barr’s background, for example, was in loyalty, branding and, geographically, building the business in China.

“You could see the progress that was made with him at the helm – the loyalty programme got refreshed, they launched a series of new brands, and China was really a standout area,” Clarke points out.

“[Maalouf is] someone who’s lived and breathed the Americas division and that’s probably somewhere where the business hasn’t performed as well as it has in other areas.”

Bringing the former Americas CEO to the centre of the C-suite, he suggests, could be a way for IHG to catch up on some of that underperformance, with IHG’s recent deal with Iberostar a possible indication of how the company plans to drive that.

Hostile takeover

The Choice-Wyndham merger, however, could be a different story – if it happens. Choice has nominated eight directors for Wyndham’s board in its latest attempt to push through the $8b deal, which Wyndham has claimed undervalues the company and has raised concerns about exposure to antitrust risk.

Choice argues that the deal would bring franchisees further benefits of scale, allowing them to be more competitive against OTAs, bringing down cost of operations, and of course making more brand options available to them. However, it currently depends on the result of the US Federal Trade Commission (FTC) review.

“If a deal gets done, and let’s say it gets done at the end of the year, that could be a gamechanger looking to 2025 and beyond. You’re going to have a massive economy and midscale player in the United States,” explains Michael Bellisario, director, equity research senior analyst at Baird.

“I suppose [the FTC] could approve it with conditions, but it doesn’t really make sense to combine those two companies with fewer brands or hotels.”

Clarke, meanwhile, has his reservations. “I don’t think that adding the two businesses together is going to suddenly make them better and the hotels, the underlying product, great”, he says.

“It’s hard to see how it will completely transform the operations and fix some of this organic weakness that they’re seeing. I’m a little bit sceptical that it will turn everything round. It’s not just the scale of the businesses, but the historic level of execution.”

Wyndham has a difficult balance to strike of keeping franchisees happy, who are the company’s lifeblood and growth engine, and the shareholders who will be voting on the deal.

“If the shareholders want to sell the company and the franchisees don’t like it, the shareholders win,” points out Bellisario. “There’s a little bit of inherent conflict there and it’s something that the boards and management teams need to balance, but that’s the nature of the business they’re in.”

A slowdown in construction could be driving brands to look more at conversion and consolidation opportunities. As a result, Choice may be reacting to pressure, both on volume and revenue per available room (revpar), by seeking strength in numbers to defend itself against a perceived slowdown. Brands have certainly shifted their attention down the chain scale with recent launches such as Hilton’s premium economy brand Spark and IHG’s midscale brand Garner.

“Of the first 20 hotels that [Spark has] put on their website, eight are conversions from Choice and two were Wyndham,” points out Clarke.

And the FTC process could go on for several months, leaving Wyndham franchisees with uncertainty, particularly those whose contracts may be coming up for renewal.

Bellisario compares the situation with the 2016 Marriott-Starwood merger: “People had chosen Starwood because they liked Starwood, they did not choose Marriott for a reason,” he says.

“Starwood’s signings and net unit growth slowed in 2015 and 2016 when there was uncertainty around what the company would be, who the owner would be, what the business would look like... if you’re signing a 10-, 15- or 20-year contract, you kind of want to know who the franchisor is going to be.”

Clarke agrees: “They don’t like uncertainty and what they definitely don’t want to incur is capex that’s wasted.”

Should the deal not go through, however, Choice may have to look elsewhere for acquisition opportunities – all eyes will be on the outcome of the FTC review in the meantime.

At this year’s IHIF EMEA you’ll be able to hear from:

  • Accor CEO - Sébastien Bazin
  • Hilton CEO – Chris Nassetta
  • Jumeirah Group CEO  - Katerina Giannouka
  • Hyatt CEO - Mark Hoplamazian
  • IHG CEO - Elie Maalouf
  • Louvre Hotels CEO - Federico González

To register for this year’s event, click here