Melia CEO Q&A: Managing uncertainty and conversion opportunities

Gabriel Escarrer, CEO of Meliá Hotels International shares his view on the hospitality landscape and his company’s growth ahead of International Hospitality Investment Forum (IHIF) in Berlin.

He examines the company’s conversion strategy and recent successes in repositioning dated properties in strategic markets, as well as the growth in luxury demand and achievements in ESG initiatives.

How positive are you about current market conditions?

Gabriel Escarrer: The main challenges for our sector in 2023 are related to high inflation, which is putting a lot of pressure on the entire tourism value chain, and to uncertainty, which continues to drive last-minute bookings. On the other hand, I would say that the industry is facing a very rapid and profound social change, with post-pandemic travellers who are very conscious and highly demanding about the behaviour and sustainable commitment of hotels and destinations; travellers who travel more and are willing to spend more, to live meaningful and purposeful experiences.

Our forecasts for 2023 do not indicate, so far, a change in the cycle, apparently showing that demand will continue to rise despite inflation and other macroeconomic conditions. We hope that during 2023 the inflationary situation that was aggravated and accelerated by the war in Ukraine will stabilise and improve, and that we’ll be able to have greater visibility in our business, as uncertainty progressively decreases.

Conversions have become a major focus for hospitality companies; what is your approach to development?

Gabriel Escarrer: The company's development strategy has always placed a strong emphasis on conversions, which have been a key factor in its success over the course of its 65-year history. The company has carried out many successful conversions in every market where it has a presence, for both its own hotels and third-party hotels. Rather than seeking merely quantitative or speculative growth, the company is focused on selective and qualitative growth that adds value and profitability to its brands in the long term, as well as to potential new partners.

The maturity of a given market is the factor that most determines the conversion opportunities that may arise. In established markets such as Spain, Italy, or Greece, opportunities for growth will typically come through the conversion of existing hotels or buildings that have had a different use, but which have the potential to become excellent hotel products due to their strategic location. For example, the company is currently engaged in the conversion of the Generali building in Milan, which is located right next to the Duomo, to a Gran Melia Hotel. One of the company's most successful conversion projects was its portfolio of hotels in Magaluf, Mallorca, where the destination had become outdated, and its reputation was declining. By extending the travel season, increasing the number of families and adult travellers, diversifying into segments such as MICE and sports groups, and improving the safety and image of Magaluf in general, the company was able to provide the destination with superior quality leisure, shopping, and dining facilities. Another example of the company's conversion strategy is its recent alliance with Vinpearl Group, which includes 15 existing hotels and more than 4,500 keys, where the company has carried out different types of conversions and adaptations.

In markets such as Mexico, Cuba, and the Dominican Republic, which were once ideal for new-built hotels, we still have this focus on new builds but important conversions are now taking place to adapt outdated products to the increasingly demanding needs of clients. Finally, in emerging tourism markets such as Albania, Montenegro, Vietnam and many others the company foresees opportunities for both new-built hotels and conversions of existing hotels.

What operating structures are you focusing on, and how are they changing?

Gabriel Escarrer: Over the last years the company has had a clear focus on an asset-light strategy, which will be maintained in the future. Both management and franchise agreements will represent more than 90% of the signings in the upcoming years. Our international presence, as of today in 43 countries, dictates the level of flexibility we are willing to assume in some markets, trying to find the best operating structures to drive the best results to each particular hotel on a win- win approach.

Overall, we are perceiving an ever-increasing level of complexity for all operating structures, both in the definition of fees and the commercial conditions. Moreover, the level of risk is being progressively redirected from the owner side to the operator side. Finally, the maturity of the destination strongly affects the previous factors, thus making the one-by-one basis the strategy of growth for every individual project we analyze.  

What regions do you see as having the biggest potential for growth? 

Gabriel Escarrer: At the close of 2022, our pipeline included a total of 14,352 rooms, which is a clear indication of our development strategy that focuses on the primary holiday and bleisure destinations around the world. We refer to these destinations as the "leisure axis," which includes the Mediterranean, the Caribbean, and South-East Asia. Our strategy targets both the resort segment and the urban leisure, or "bleisure" segment.

Moving forward, we plan to consolidate our strategic position in countries such as Spain, Italy, Greece, Portugal, UK, Germany, Dominican Republic, Latam, Cuba, Mexico, Thailand and Vietnam. Additionally, we are thrilled to introduce our portfolio of brands in new markets such as Albania, Malta, Saudi Arabia, Montenegro and the Seychelles. These new market introductions present exciting opportunities for our company.

What segments are you focusing on?

Gabriel Escarrer: Our brand portfolio includes proposals for various segments (with the exception of low cost): Luxury brands (Paradisus by Meliá, Gran Meliá, The Meliá Collection and ME by Meliá), Premium brands (Meliá Hotels & Resorts, Innside by Meliá, Zel hotels (in partnership with Rafa Nadal) and Falcons' resorts by Meliá), and Essential brands, such as Sol by Meliá and Affiliated by Meliá.

We have a very clear strategy for all of them, but in recent years we have witnessed exponential growth in demand for our premium and luxury brands (to which 65% of our portfolio already belongs) and we have deployed a very special commitment to these brands, focusing on its development, with 80% of our development pipeline for the next 3 years belonging to Premium & Luxury brands. Our vision of luxury is based on values and aspects such as our powerful Mediterranean heritage and a lifestyle influenced by Spanish fervour and sophistication, the priority we give to experiences that enrich a trip and give it a "purpose", as well as a strong awareness and commitment to the environment and the community of the destinations in which we establish ourselves, their sustainable development, and their prosperity.

What does performance look like for your company now?

Gabriel Escarrer: We are satisfied with our 2022 performance results (as of the 2nd quarter, once the impact of the Omicron variant of Covid-19 had been overcome), as demand experienced a "V-shaped" recovery throughout the year, with a record summer season, driven by the pent-up demand after the pandemic, and due to the authentic “travel fever” that arose as a result of the restrictions. Finally, we concluded the year with 6% less revenue than in 2019 - which was a quite positive year - thanks to the positive evolution of average rates, which offset the still lower occupancy (-12,9% vs 2019).

Our main business indicator continues to be RevPAR (Revenue per Average available Room), which has clearly shown a faster rate of recovery in prices (made possible in our case mainly by product improvement and commitment to rooms and luxury hotels, and to a lesser extent, due to the inflationary context) than in occupancy levels, where we still have significant room for improvement.

For 2023, we have already finished Easter, one of the most intense periods of the year in areas such as Spain Vacation and Spain -bleisure destinations, among others, and one of the "thermometers" that guide us every year to make estimates about the next season of summer. And, in general, this week's assessment can be described as very positive, with double-digit growth compared to 2019, a growth that is almost in its totally due to the improvement in the average rate, since in occupancy the pre-pandemic volumes are recovered.

With the utmost prudence, it can therefore be concluded that these results would point to the maintenance of strong demand and a full recovery of the business in 2023.

What new opening are you most proud of in 2022-2023 ?

Gabriel Escarrer: In the summer of 2022, we opened our first Net Zero hotel on the Island of Menorca, the Villa le Blanc, a Gran Meliá Hotel, a spectacular hotel with a unique location and a wonderful design, and above all, a sustainable hotel that will become an example for new hotels to come. The hotel is sustainable both from the environmental point of view (with the best facilities and systems for energy and water efficiency) and from the social and economic perspective, since it has doubled the staff of the existing hotel and promotes local production and art by acquiring everything that can be bought in Menorca. The hotel showcases Menorcan gastronomy, also providing spaces for the island's fashion and craft brands showrooms, etc. The opening of this destination hotel on a Biosphere reserve island like Menorca has been a real success, already in the brief months of opening, and it faces 2023 with great prospects.

In 2023 I could not be prouder of the recent opening of Paradisus Gran Canaria, the first exponent of our “Destination Included” luxury all-inclusive Resorts brand outside the Caribbean, which is promoting a revolution in sustainable luxury hotels in the Canary Islands.

What are you looking forward to with regards to your participation to IHIF? 

Gabriel Escarrer: As any other year, we are looking forward to sharing our views with the industry leaders about the evolution of the market and the new and most rising trends and more specifically, our news for 2023 and our Development Strategy. And in this occasion, we are thrilled to see how other major brands see and respond to the future in a still uncertain environment.

Hear more from Meliá at the International Hospitality Investment Forum (IHIF) in Berlin, where the company is a Patron Sponsor.


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