While industry fundamentals are arguably the best they’ve been in a decade, “we still have work to do,” commented Justin Knight, CEO, Apple Hospitality REIT, Inc., at the C Suite Update, held yesterday at The Lodging Conference, in Phoenix, Arizona. Moderated by Rachel Humphrey, founder of the Women in Hospitality Leadership Alliance, the session also included panelists Omer Acar, CEO, Raffles Hotels & Resorts and Fairmont Hotels & Resorts; Greg Friedman, managing principal, CEO, Peachtree Group; Craig S. Smith, CEO, Aimbridge Hospitality; and Shai Zelering, managing partner, Real Estate Group, Brookfield.
“I think overall, this is a great time to be in the business,” Friedman asserted, and that means “it’s a great time to shore up. It’s a great time to build, go back and build talent, which is another thing that the industry is really lacking. So overall, we’re sitting in a decent place right now.” Zelering echoed that positive assessment, noting that “It’s been a very good year, both from a transaction perspective and fundamentals. I’m sure we’ll talk about interest rates, but overall, we’re in a very constructive environment.” And regarding high interest rates, Zelering added that, historically, they’ve been higher: “If you look between 1970 and 1995, interest rates were much higher than they are today. So, on a relative basis—relative to the past 20 years—they’re higher, but they’re still constructive.”
For Zelering, it’s not conviction in the industry that’s lacking; it’s urgency at a time when hoteliers need to capitalize on a strong year. Knight pointed to the positive transaction environment, and reinforced Zelering’s idea: “There’s still a lot of people who want to get transactions done. I think the comment earlier about urgency is a real one, especially in an environment where things are getting materially better very quickly. I think you still have a little bit of a bid-ask spread between buyers and sellers that is yet to be fully bid up.”
Panelists went on to discuss several other areas where the industry can further improve, including catering to the luxury guest, owner/brand relationships, and readiness for the AI revolution. When asked where luxury guests are willing to invest their money, Acar replied, “The short answer is experience. … We sell an experience … how we make that feel instead of what they get as a service. … Growth and differentiation for a brand—they are not competing priorities. You can have disciplined growth, but you can also differentiate the brand. So, I think that the guests on the luxury and ultra-luxury side, they are looking for that differentiation [of] experience that they want to go and travel for.” Zelering added, “Luxury will remain there just because the high-net-worth cohort is growing, and people are seeking experiences. … You don’t get luxury because of the logo on the building; you really have to focus on the experience itself.”
Crafting the right guest experience in any segment is often a collaborative effort between brand and owner, and that relationship can always be improved. Acar maintained that before brand executives judge franchisees, they must listen, “understanding their financing issues, understanding of the performance issues, and let’s look at ourselves,” he said. “What can we do first before we can ask others to do? And that has been a little bit of the tone that we have established over the last few years in North America and the rest of the world. Now, the brand was always looked at as a standards enforcer—let’s be realistic. But I think owners are paying us also to find ways we can create uniqueness.”
On the topic of owner/brand relationships, Knight cited “a meaningful distinction in how brand profitability has trended versus owner profitability over the past decade, and there are a variety of factors.” However, “I think brands are coming to the table to get to where we need to be. There will be hard decisions that impact short-term profitability potentially, but drive long-term help for the business overall.”
Owners, brands, management companies, and other industry stakeholders are all facing the challenge of navigating the implementation of AI, and hard decisions need to be made in that area as well. “It’s the second greatest change in the industry in 30 years. So, digital was the first one. [AI] is going to be the next greatest change,” said Smith. “You can use AI in forecasts. You can use AI in models for labor management. … And then, are we getting our people ready? Are we using AI to prepare ourselves for this onslaught of how people work in the future? And I’m not sure as an industry we’ve really thought through that. Everybody’s waiting for the digital side of it to change—brands, the OTAs, and individuals will figure that out. But the real question: Are you ready as a hotel? [For example] do you have descriptors out there, or do you have a very boxy website that just says, ‘I have a pool.’ … The descriptors on your hotel need to be, and they can be, built with AI bots, and you’ve got to get them out there. … The brands, the operators, and the hotel owners—we can’t wait for this. We have to figure out, where does everybody put their flag down, and where do we help to win in the space? Because it’s coming, and it’s going to be faster than the digital revolution. … We all have gray hair on this stage to remember that digital piece before and how that changed the world that we lived in. Imagine now something that is going to happen faster and much more dramatically.” Providing an example of getting on board with the AI revolution, Acar noted that Fairmont has “launched an AI concierge for all Accor properties, 6,000 hotels worldwide. We believe that once you own the guest journey, then you have a real competitive advantage.” The tool helps travelers make their booking decisions based on budget and numerous preferences in the destination, F&B, activities, amenities, etc.
“There’s so much capital flowing to AI, and as it relates to real estate, it’s data centers,” Friedman pointed out. “About a third of the new capital coming into real estate is going to data centers.” The investment into AI is therefore a given; it remains for hoteliers in all areas of the industry to continue to decide how they will invest in it, and panelists stressed the urgency of those initiatives.