14 May 2012 7:06 AM
By David Backes
With nearly 20 million unique visitors, Pinterest is a website people are visiting freqently.
Pinterest gets a hotel in front of a new set of travelers, driving bookings back to brand websites and getting the SEO benefits of inbound links to boost search-engine rankings.
Instagram recently was acquired by Facebook for $1 billion.
Last time, I wrote some tips for busy hoteliers looking to save some time executing social-media strategies. Let’s say you have the basics under control, but now you’re looking to stay ahead of the curve and your competition by reaching new audiences with the latest social-media platforms. Pinterest and Instagram are the latest big social networks making a splash, and both provide opportunities for the travel and leisure industry to boost engagement.
What is Pinterest? If Pinterest is not already on your radar, then it should be, as Pinterest’s rapid social media popularity is a compelling reason to join. For instance, Pinterest’s unique visitors have more than tripled since April 2011. At the end of February 2012, more than 15 million unique visitors were exploring Pinterest boards.
With nearly 20 million unique visitors, Pinterest certainly is a site people are visiting frequently. But is it an engaging site? According to Statista and comScore, it is one of the more engaging sites online. An average visitor from the United States spends an average of 97 minutes per visit on the site; global visitors are spending 89 minutes on Pinterst per visit.
The reasons for getting started with Pinterest are compelling—getting your content and hotels in front of a new set of travelers, driving bookings back to brand websites and getting the search-engine optimization benefits of inbound links to boost search-engine rankings—but there are roadblocks in place, similar to when brands first started getting on Facebook and Twitter. Many hoteliers have the same query, wondering, “As a hotelier, what do I actually do with Pinterest?” Here’s a step-by-step guide to getting started.
Step 1: Get on Pinterest
If you’re the one executing your Pinterest strategy, you’ll have to know what’s going on. So, the first step is to request an invite, then create an account and sign in. Then poke around and get the feel for what other people are pinning, what kinds of things get re-pinned most and how people communicate on Pinterest.
Step 2: Set up relevant boards
“Our Hotel” is boring because it’s very inward facing. Instead, create boards that embody your brand. If you’re an environmentally friendly hotel, make boards about the outdoors. If your gardens are second to none, create gardening and horticulture boards.
Step 3: Allow user comments and pins on your board
Step 4: Follow others
Find other users to follow in relevant categories including people/brands who pin items about hotels, the city where you’re located, art, food, interior design, weddings, gardening or any other relevant categories.
Step 5: Try hosting a contest
For example, run a contest that asks users to create a board that showcases the experience they had at your hotel.
Your guide to Instagram Instagram, which has generated a whopping zero dollars in revenue, recently was acquired by Facebook for $1 billion. While some brands already are on the platform, many have yet to dip their toes in the photo-sharing websites social-networking pool. Naturally, this massive sale caught the attention even with those unfamiliar with Instagram, but there’s still time to make an impact before the platform gets saturated with companies. Instagram is a fairly simple application: you take photos with your mobile device, select a filter from a variety of options, tag your location (if you want) and share those photos to Facebook, Twitter and Instagram’s platform. Instagram’s filters can make any photo look great, which is why it has been dubbed “the autotune of photography.”
Step 1: Take interesting photos
Maybe you’re marketing an incredibly beautiful hotel with immaculate gardens, carefully planned pool, food presented in an interesting way, colorful cocktails and so on. All of these things can contribute to an interesting Instagram feed. What you don’t want to do is take picture after picture of your guestrooms—people on Instagram get turned off quickly by overtly sales-oriented material. Even taking pictures featuring the city that the hotel is in can help boost engagement.
Step 2: Follow others
Instagram allows you to find friends based on your contact list, Facebook friends and Twitter followers; you also can search for specific people. The easiest way to get started is to follow your Twitter and Facebook friends that already have connected with your hotel’s Twitter feed and Facebook profiles. After this, simply double-tap pictures to like them. Your followers will notice you liking their content, and if you’ve followed the first step, you should already have interesting content for them to engage with.
Step 3: Integrate Instagram with your web presence
Although it’s still in its infancy, Instagram does allow third-party applications. One of the best for brands is Followgram.me. This app provides web-facing Instagram photos that people can view and share. Here’s Ikea Italy’s stream, for instance. Widgets can be placed on your websites for people to see new images of the hotel, your grounds and the surrounding city.
HVS data shows demand weakening to 1% growth in 2016, from a forecast 3% during 2012.
“Those of you on the rate-setting side of the business, you guys are wimps,” Robert W. Baird’s David Loeb said. “You can do better.”
A potential Hilton Worldwide IPO could occur soon, Loeb said.
Pinnacle Advisory Group’s Rachel Roginsky (left) and HVS’ Anne Lloyd-Jones smile as panelists are introduced during HELP’s opening general session.
BOSTON—The U.S. hotel industry will continue building on the momentum gained during the past several months, but the prospect of weakening demand looms, panelists said Wednesday during the inaugural Hotel Equity and Lender Perspectives conference in Boston.
The recent uptick in leading economic indicators bodes well for the immediate future of the industry, Mark Woodworth, president of PKF Hospitality Research, said during the opening general session. The data shows demand is likely to show growth in hotel demand in the late third quarter this year and stretching into early 2013. Year-to-date through March, demand is up 4.1%, according to data from STR, parent company of HotelNewsNow.com.
Revenue per available room and average daily rate was up 7.9% and 4% year-to-date through March, according to STR.
Rachel Roginsky, principal with Pinnacle Advisory Group, said the upward trend should continue. “So far so good is our theme,” she said.
Adding to the positive outlook for hotels is the low supply story. The number of active development pipeline rooms in March was down 9.7%, according to STR.
While some development projects have made headlines recently, David Loeb, senior research analyst with Robert W. Baird & Company, expects supply to remain muted. “Press releases are essentially warning shots,” he said. “Don’t build your hotel here. Press releases are not breaking ground. … I think (pipeline growth) will be pretty tame.”
With all the things the hotel sector has in its favor, Loeb said he’s most surprised by the reluctance of revenue managers to raise rate more than they have.
“Those of you on the rate-setting side of the business, you guys are wimps,” he said. “You can do better.”
Long-term outlook The steam behind the hotel industry’s recovery won’t last forever, and one panelist said the long-term outlook shows signs of weakness.
Anne Lloyd-Jones, managing director, HVS Global Hospitality Services, said demand will weaken through 2016. HVS data shows demand slowing to 1% growth in 2016, down from a forecast of 3% this year. HVS also forecast ADR growth to slow to 3% in 2016, down from an expected 5.5% in 2013.
STR forecasts demand growth of 2% during 2012, slowing to 1.8% growth during 2013.
The sentiment from the panelists was one of optimism, however.
“There are reasons to be concerned, and there are reasons to be positive,” Woodworth said. “The positives outweigh the negatives.”
Transactions outlook As the sector’s performance has improved, the hotel transactions market also has heated up, the panelists said. For the 15-month period through March, Woodworth said a total 225 hotel deals of more than $10 million were consummated. These deals, at an average price per room of $210,000, represented a total volume of more than $12 billion.
Nearly a quarter of these deals took place in the top coastal gateway markets of New York; San Diego; San Francisco; Miami Beach, Florida; and Washington, D.C.
Also, Loeb said hotels owned by real-estate investment trusts, which have increased their acquisition activity of late, represent approximately 70% of U.S. hotel rooms.
“You cannot imagine the voracious appetite of the public companies to buy real estate,” he said.
There is “tremendous upside” for hotel deals, Lloyd-Jones said. An increasing amount of financing—and the low cost of that financing—is contributing to a climate conducive for hotel transactions.
Potential challenges As rosy as the hotel sector appears, there are potential roadblocks, the panelists said. They include the political climate and economic volatility.
Woodworth sees the biggest threat to U.S. hotels being in the form of federal policies, including health care reform and the expiration of tax cuts enacted by former President George W. Bush.
As for economic issues, the panelists largely downplayed the effect rising gas prices might have on the hotel sector.
“People are over the shock of $4 a gallon,” Lloyd-Jones said.
Loeb said travelers feel they are entitled to a vacation and won’t necessarily let high gas prices prevent them from hitting the road.
Future IPOs? The panelists also delved into other areas. Panel moderator Jeff Higley, VP of digital media and communications with HotelNewsNow.com, STR and STR Global, asked Loeb when Hilton Worldwide will go public.
Hilton’s initial public offering could occur soon, perhaps next year, Loeb said, adding the IPO could see Hilton broken up into multiple, separate public companies.
“We love Hilton so much, why not have two of them?” Loeb asked.
Also, Loeb said a La Quinta IPO could be in the cards, too, but would likely happen after Hilton goes public. La Quinta has debt issues to resolve first, he said.
Associate Justice Antonin Scalia said the debtors in the case attempted to “confirm a cramdown bankruptcy plan” over Amalgamated’s objections.
“We think (the decision) limits the opportunity Chapter 11 debtors have to confirm financing over the objections of secured creditors,” Perkins Coie’s David Neff said.
Amalgamated plans to move forward with its plans for the site, which include renovating the Radisson Hotel at Los Angeles Airport and the construction of a parking deck.
REPORT FROM THE U.S.—In a landmark ruling that has its roots in the hotel industry, the U.S. Supreme Court has found that secured creditors cannot be denied the right to credit bid for their own assets.
The ruling stems from Radlax Gateway Hotel LLC, et al. v. Amalgamated Bank. At issue was whether lenders should have the right to purchase their own collateral at bankruptcy auction by using debt, a process known as credit bidding.
The dispute surrounds the proposed auctions of a pair of hotels owned by entities of River Road Hotel Partners LLC—the InterContinental Chicago O’Hare and the Radisson Hotel at Los Angeles Airport—which declared bankruptcy in August 2009. Court filings show River Road had secured stalking horse bids totaling $89.5 million for the properties.
But before the transactions closed, Amalgamated, the principal secured lender for the hotels that court documents show is owed in excess of $161 million, objected to the bid procedures on 8 July 2010, stating the bank was not given the opportunity to credit bid, a tactic that courts were split on allowing.
Associate Justice Antonin Scalia, delivering the opinion of the court, said River Road attempted to “confirm a 'cramdown' bankruptcy plan over the bank’s objection.”
“The debtors’ reading of (U.S. bankruptcy law) is hyperliteral and contrary to common sense,” Scalia wrote. The decision was nearly unanimous, with only Associate Justice Anthony Kennedy not taking part in the decision.
In an emailed statement, officials at Amalgamated said the decision strengthens the bank’s ability to be repaid and allows the company to proceed with its plans for the Radisson Hotel at Los Angeles Airport, for which it provided a $142-million loan to be used for a renovation of the property and the construction of a parking deck. That loan will eventually be worked out, according to the statement.
David Neff, an attorney at Perkins Coie who argued the case before the Court on behalf of River Road, is “disappointed” in the decision.
“We think it limits the opportunity Chapter 11 debtors have to confirm financing over the objections of secured creditors,” he said. “Obviously, that would include hotel owners on the bankruptcy level.”
In June 2011, the U.S. Seventh District Court of Appeals ruled that, absent consent, secured creditors cannot be denied the right to credit bid when a reorganization plan proposes a sale of encumbered assets free and clear of liens and security interests. That decision went against a ruling from the Third and Fifth Circuit Courts of Appeals.
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With the hotel investment market continuing to gain momentum in 2012 after a solid improvement in transaction levels and pricing in 2011, many investors have been wondering: where do we stand in the operating environment?
Last year was a record year in terms of occupied room nights in Canada, suggesting that demand has rebounded since the lows in 2009. Despite this, RevPAR trends have struggled, sitting at $79 nationally in 2011, about 7% below 2008, the previous peak. Colliers International Hotels asked Carrie Russell, AACI and Managing Director of HVS Canada to provide a glimpse into Canadian hotel operating performance, focusing on how the market has tracked since the previous RevPAR peak in 2008. The analyses covers overall market performance and zeros in on regional markets in Western, Central and Eastern Canada.
By Carrie Russell, AACI
Managing Director, HVS Consulting
It is clear that 2009 was the nadir for hotel operating performance across Canada. But has hotel performance returned to the peak recorded in 2008? By looking at Smith Travel Research ("STR") data regarding the performance of the country as a whole as well as 21 individual hotel markets across Canada, it is clear that there are some bright lights showing unprecedented growth, yet several markets still have some ground to regain.
The past year was one of stable but moderate growth, following the turbulent two years that preceded it. The primary performance measures (occupancy, average daily rate (ADR), and revenue per available room ( RevPAR)) posted year-over-year growth across both the group and the transient segments. Pricing power started to return, especially in the transient segment, with ADR being the primary driver to RevPAR growth by year end.
In the group segment, year-over-year ADR growth turned positive in early 2011, after two years of negative group ADR growth. Stronger overall occupancy and higher retail rates set the stage for group ADR recovery. But perhaps more importantly, group contracts negotiated during the depths of the 2009 downturn finally worked their way through the system, and created less of a drag on group ADR.
Business travel customers continued to drive transient segment growth in 2011. Business demand, consisting of customers buying negotiated and retail rates, grew by 6.6% year-over-year. Business segment ADR was strong as well, growing by 3.0%. This ADR growth was led by the rise in retail rates. Retail ADR grew 4.0%. Negotiated ADR grew by 2.2%. Higher retail pricing has set the stage for more growth in negotiated pricing in 2012.
The transient leisure segment did not grow in 2011. Occupancy growth was actually slightly negative at -0.4%. Transient leisure ADR improved, however, up 4.1%. Leisure growth was likely affected by multiple factors. This overall demand strength led to higher retail pricing, raising leisure (discounted) pricing as well. This meant that there were fewer deals available to the most price-sensitive leisure guests. Finally, the economic malaise or at least uncertainty felt by 'main street' likely had the most effect on demand in the leisure segment.
2011 Performance Recap
The demand outlook heading into 2012 is quite strong. Committed occupancy, which represents group commitments (blocks) and transient reservations on the books, is up by 5.3% over this same time last year. Group commitments are driving this growth, with the group segment up by 5.4%. Group commitments are up over same time last year in every month of 2012. Group demand is especially strong in the second half of the year, up by 8.0% and 10.9% in Q3 and Q4 2012, respectively. New group sales over the past month have also been strong, up by 6.2% over the comparable period last year.
The transient segment is also starting off the year on a positive note. Transient reservations on the books for 2012 are up by 4.8% over the same time last year. Transient business demand continues to be strong, up by 3.9%. However, transient leisure demand, flat in 2011, is currently up 5.8%. While it is too early to project the overall leisure outlook for 2012, since most of this booking activity is for stays in the first quarter, it is nevertheless encouraging to see such strength in this segment as we start the new year.
With all segments of demand now contributing to occupancy growth, and with rate recovery well underway, we look forward to another year of positive occupancy, ADR and RevPAR growth in 2012. Regaining the ground lost during the downturn has been a long journey, and more remains. But a strong 2012 could get us much closer to seeing ADR and RevPAR return to pre-recession levels.
The chart below shows the year-over-year position by market of committed occupancy, reserved occupancy, ADR and RevPAR, based on business on the books for the future 12 months. Committed occupancy is group blocks plus transient reservations. Reserved occupancy, ADR and RevPAR are based only on reservations (group pickup and transient reservations). Shades of green indicate performance better than the market average. Shades of orange/red indicate performance worse than the market average.
TravelClick (www.TravelClick.com) is a leading provider of profitable revenue generating solutions for hoteliers worldwide. TravelClick offers hotels world-class reservation solutions, business intelligence products and comprehensive media and marketing solutions to help hotels grow their business. With local experts around the globe, we help more than 30,000 hotel clients in over 140 countries drive profitable room reservations through better revenue management decisions, proven reservation technology and innovative marketing. Since 1999, TravelClick has helped hotels leverage the web to effectively navigate the complex global distribution landscape. TravelClick has offices in Atlanta, Barcelona, Chicago, Dubai, Hong Kong, Houston, London, Melbourne, New York, Orlando, Shanghai, Singapore and Tokyo. Follow us on www.twitter.com/TravelClick and www.facebook.com/TravelClick
Knowing how to adapt channel mix depending on seasonality is one way to maintain a high occupancy level during peak and shoulder periods.
Hoteliers need maximum exposure and maximize lead time, said Chinmai Sharma, VP of revenue management at Wyndham Hotel Group.
During shoulder periods, hoteliers can’t induce demand but should shift it using distribution channels.
REPORT FROM THE U.S.—The ebb and flow of seasonality can be cause for much angst among hoteliers. However, having a distribution strategy in place to combat shoulder seasons while capitalizing on peak periods can help maintain healthy levels of demand, sources said.
“The best way to deter a bad season is to build around it,” said Paul Wood, VP of revenue management for Greenwood Hospitality Group.
“Be proactive and take measures against it. If you know the first quarter is going to be bad, steal demand or shift demand back on the third or fourth quarter. Have promotions in place, book transients and have marketing materials ready so you’re able to communicate and market to the public,” he said.
Hoteliers should be aware of all channels available to them, as well as looking at the local-market demand that online travel agencies bring to the market. From there, the best practice is to find the optimal channel mix, especially during shoulder periods, instead of discounting rates, said John Hach, senior VP of global product management at TravelClick.
“Hoteliers that lower the rate have a problem because they’re lowering profitability for the hotel. They’re not bringing in new travel, they’re just redistributing demand that will come in anyway,” he said.
Partnering with OTAs, especially when it comes to pricing, helps hotels to not have to sacrifice retail rate, Hach said.
The benefits of using opaque channels and packages means the “consumer doesn’t know the individual parts. The hotel has an advantage. People don’t know the value. On (its) own, the hotel is exposed without a bundle. The lower price will drive the market down. The benefit from having that package price is that it’s harder to determine hotel value within that bundle,” he said.
“The trick is during demand or high season, you can yield price and fine-tune promotions and maximize revenue on all channels. Off-season strategy changes; promotions and discounts should reflect more value,” said Chinmai Sharma, VP of revenue management at Wyndham Hotel Group.
But never discount irrationally, he said. Discounts should add incremental value.
Traci Mercer, VP of market management for Expedia, said the challenge during peak season is to yield the highest return.
“The No. 1 fundamental rule: Don’t turn off a marketing or demand channel. Leverage that channel to drive demand during peak season. Leverage lengths of stay, and keep as much demand as there is to ensure that you’re hitting your goals.”
To do this, Mercer said hoteliers should look at hotels within their competitive set or overall marketplace to see if there’s a customer base they can target and shift demand to their hotel. OTAs such as Expedia, she said, can see where customers are booking, where demand is being aligned and how to satisfy those needs.
Hach also said understanding the vacation schedule is key. The leisure segment in the United States is stimulated by family and when children are out of school, usually from June to Labor Day, he said.
OTAs captured the largest share of demand during the 2010 summer season, according to total channel demand data from STR, parent company of HotelNewsNow.com.
Bookings made through the merchant and opaque models increased during the 2010 summer season, while those made through the retail channel remained steady, according to STR data.
Get ahead of trends Because seasonality is variable, often fluctuating based on various events, group or transient bookings, hoteliers should know “the biggest thing is not keeping up and understanding the trends,” Wood said.
“Past data is really important,” Sharma said.
Market trends are so dynamic that Sharma advised not to look beyond one or two years. “The trends used to be so steady, but given what we’ve seen in the past four to six years, hoteliers can’t rely too much on history but on current trends,” he said.
“The key is to look at the market build 30, 60 and 90 days out,” Hach said. “… The key takeaway from hotels is to invest in business intelligence with forward-looking data. It allows (hotels) to look at seasonality trends,” in the market.
In fact, looking at the broader picture, outside of shoulder and peak periods, is also conducive to understanding seasonality, Berry said.
“If our horizon is so short that we’re making decisions for a month or a week, we’re making some kind of price decision that will inevitably hurt us and hurts market pricing over the long term,” he said.
“Make smart long-term decisions, which may result in taking short-term pains in anticipation of long-term gains,” Berry said.
“The trick is to plan as much in advance as you can,” Sharma said. “… In the busy time, the lead time can be shorter and doesn’t need planned so much—there’s enough demand. In lean times, you need to plan in advance; plan six to eight weeks out in lean times.”
TravelClick’s Hach shared a similar sentiment. “Hotels need to know what their average lead time is for reservations. It helps (them) have crystal-clear decision making,” he said.
Knowing this will help “hotels take proactive steps opposed to reactive steps,” he said.
Lower-commission online travel agencies lack the critical mass or marketing clout to compete with established players such as Expedia and Orbitz, experts said.
Several other low-commission models have failed in the past.
Booking.com, which boasts 55% market share in Europe, is a major threat to the OTA merchant model in the U.S., said Max Starkov of Hospitality eBusiness Strategies.
GLOBAL REPORT—The launch of several “hotel friendly,” lower-commission online-travel agencies is unlikely to impact the existing commission structures of established players such as Expedia, Orbitz and Priceline, according to experts.
The founders of the recent entrants, however, are betting they can make a splash.
The past year has seen a swell of such low-commission players, including the Asian American Hotel Owners Association’s Mybesthotelrate.com, Tom and Melissa Magnuson’s Global Hotel Exchange and the brand-led Room Key.
Each has generated its fair share of buzz, but they lack the critical mass or marketing clout needed to compete in a crowded distribution space, said Max Starkov, president and CEO of Hospitality eBusiness Strategies.
What’s more, they lack the value propositions necessary to make an impact, he said.
“When you look at any such player in the distribution space … you have to look at it from both the travel-supplier perspective but also the travel-consumer perspective,” Starkov said.
The new platforms benefit suppliers with lower commissions or fees. Mybesthotelrate.com and Room Key charge commissions of approximately 10%, according to reports, while the Global Hotel Exchange is free to hoteliers—it’s funded by a US$2.99 service fee charged to consumers for each booking. OTAs can charge upwards of 20%, Starkov said.
But what’s the benefit to consumers?
“When I look at it, there are none at this point,” Starkov said. “That’s my main concern. If I am a travel consumer and over the past 17 years already I’m using Expedia or I’m using Orbitz … or if I’m brand-conscious and I’m very loyal to Marriott and I’m using Marriott.com, why am I using Room Key? Where is the value proposition?”
Tom Magnuson, who is CEO of both the Global Hotel Exchange and Spokane, Washington-based membership group, Magnuson Hotels, said the value proposition is in knowing exactly what customers want: simplicity in booking.
“People know what they want, when they want and how much they want to spend, and they want to get in and get out,” he said.
When travelers enter a search for a 3-star hotel in Cleveland within X miles of the Rock and Roll Hall of Fame and Museum, they don’t want 300 choices, Magnuson gave as an example. “I want five or six that exactly match,” he said.
But Starkov said simplicity might actually be working against Global Hotel Exchange and other low-commission OTAs.
“People don’t want simple; they want information,” he said. “The information-rich OTA actually has an advantage here. People book a room within the context of the destination—period.”
Further amplifying matters is the lack of marketing clout, Starkov said. The heads of Mybesthotelrate.com, Global Hotel Exchange and Room Key have very publically outlined a route of frugality when it comes to TV and Internet advertising spend.
“It’s a very expensive proposition,” Starkov said of establishing a new brand. “We’re talking about multimillion dollars to even remotely establish any kind of brand, especially in the travel space, which is perceived as already overcrowded. I don’t see these guys having the resources to build brand awareness.”
Based on public records of spending from U.S. Security and Exchange Commission filings, Expedia and Orbitz spend approximately one-third of their revenue on marketing and selling, with operations being closer to 20% of revenue. This is in contrast to the amount a hotel spends, which is approximately 10% to 12% of its revenue on marketing and 35% to 40% on operations, according to the “Distribution Channel Analysis” study, which was published by the Hospitality Sales & Marketing Association International Foundation. STR, parent company of HotelNewsNow.com, provided data for the study.
But Magnuson points to other brands that have caught on without a major marketing spend.
“Marketing for Global Hotel Exchange is just going to be the idea,” he said. “Google didn’t need any marketing.” The same was true for Magnuson Hotels, which caught fire nearly a decade ago based mostly on positive word of mouth. The membership group now has 2,000 hotels in the U.K. and North America, Magnuson added.
And early signs suggest Global Hotel Exchange, along with its lower-commission peers, could experience similar growth.
Failed attempts But while momentum might be in the favor of the lower-commission players for the time being, previous attempts at similar models suggest the new entrants face a rocky road ahead.
Before Room Key, for example, several major brands joined in support of TravelWeb.com. Debuting in 1994, the platform was the first real-time hotel booking reservations engine online. The site was built by Pegasus, who in 2000 joined with Hotel Distribution Solution, a consortium of five major chains. Numerous factors led the site’s owners to sell the platform to Priceline.com a few years later.
WorldRes.com was another less-than-successful attempt. The distribution platform charged hotels approximately 5% commissions but lacked a value proposition to set it apart in the eyes of consumers, Starkov said. While WorldRes.com still is a functional site, it comprises an exceptionally low share of overall online bookings, Starkov said.
“They were merely online agencies that were friendly to the hospitality industry as opposed to OTAs. And where are they today? Nowhere,” he said.
OTA commissions holding strong Executives at Expedia, for one, have no plans to lower the OTA’s commission structure, regardless of what new distribution platforms emerge on the scene.
“Expedia is committed to ensuring that our compensation levels are in line with the value that we deliver to our hotel partners,” said Melissa Maher, the company’s senior VP of global strategic accounts and industry relations.
That value includes more than just the ability to distribute rooms, Maher emphasized. Rather, it includes a high volume of demand, a vast international reach, multiple channels within in a single marketplace (Expedia offers several distribution methods, such as opaque, package, standalone and seasonal), marketing and support from dedicated market managers.
Factor in all of those services on top of the traditional 10% commission the hotel industry has adopted for third-party sales through all travel agents, and the OTAs feel justified in charging commission upwards of 20%, 25% and 30%, Starkov said.
The next big competitor? While Mybesthotelrate.com, Global Hotel Exchange and Room Key attempt to cultivate their respective consumer bases, Starkov thinks the biggest threat to standard-commission OTAs is already flexing its muscle: Booking.com.
The Priceline-owned distribution engine is the biggest in Europe, with more than 55% market share of all online bookings in the region.
The site runs on a pure agency model: Guests search for hotel rooms on Booking.com, which passes credit card information and other key data to the hotel direct. The hotel charges the guest’s credit card on arrival and pays Booking.com a 15% commission after the fact.
The OTA’s success in Europe was bred from the region’s lack of brands. Without the likes of Marriott or Hilton providing hoteliers with global reservation engines, Europe’s independent hotel owners turned to Booking.com’s simple and affordable distribution platform to keep pace in the Internet age, Starkov said.
Booking.com already has expanded into the U.S., primarily on the West and East Coasts where international inbound visitors are most likely to travel. But the OTA’s executives have their sites on the entirety of the U.S.
“In the U.S., Booking.com is expanding its business rapidly with offerings that are very competitive with other online hotel reservation services,” Booking.com executives said via an emailed statement. “Many of the Booking.com hotels are offered on a ‘pay at the hotel’ basis, which is attractive to travelers who prefer not to pay for their rooms up-front. Also, many of the published-price hotels available on priceline.com are sourced from Booking.com.”
“If Priceline succeeds in that, this will automatically work against the OTA merchant model,” Starkov said.
Panelists at the HELP conference discuss the return of construction lending.
Net operating income remains a key metric when lenders determine which loans are good and which loans are bad.
Even with European financiers laying low, there is liquidity in the U.S. debt markets.
BOSTON—There’s a simple indicator to know when construction financing is in full bloom again for hotel developers, according to Christopher Jordan, executive VP and group head of the hospitality finance group for Wells Fargo & Company. It’s all about the continued comeback of commercial, mortgage-backed securities.
“The catalyst for more banking interest in construction is when the CMBS market heats up and disintermediates the bank markets,” Jordan said during a Hotel Equity and Lender Perspectives conference session about getting large deals done. “When underwriting gets more aggressive and hotel (net operating income) cash flows can be traced to prior peaks so you can pull out proceeds and the CMBS really takes share, that’s when the bank market, by the process of elimination, gets forced into more construction lending to create revenue.”
Archon Capital’s Barry Olson said he is beginning to hear more conversations around the country about hotel-construction financing.
That scenario isn’t imminent, so what should the industry expect in the meantime?
“Until then, it’s still going to be limited, choppy, hit or miss,” Jordan said.
“Macro-wise it’s not heading in that direction for the banks,” said David Harris, director of global real-estate investment banking for Deutsche Bank Securities. “There’s a lot of regulation. These kinds of risks are really being frowned upon by ratings agencies.”
Construction debt continues to trickle from a nearly bone-dry tap, and lenders have good reasons to keep it that way, according to the panelists. But also there could be thirst-quenching libations in the offing for developers.
“From a risk-adjusted process, what do I need to charge for a construction loan to make sense?” said Barry Olson, managing director and COO at Archon Capital. “If I’m going to have to charge an appropriate rate for a construction loan with my book, it’s going to crush the construction loan because I’m not going to make money on it for three years. Mathematically I’m not your guy.”
“Our next fund, we might think about it but not in our current fund structure,” he added. “We’re seeing locations around the country where the conversation is out there. It just doesn’t fit for us this time.”
"How can we play in that space if we’re really trying to get 8s, 9s 10s (debt yield) for the whole loan?” said Stuart Silberberg, managing director for Starwood Property Trust. “Someone looking at a traditional construction loan with pricing in the 4, 5, 6, 7% range, A) it’s not likely to be us and, B) it’s probably a harder market to find non-recourse construction lending like that.
Sponsorship is key, but we’re not there yet. The market is getting there. There will be people who will go after yield on the construction lending side in six months or less.”
Harris said it’s a simple case of CMBS lenders getting comfortable with the idea of extending their position on the risk spectrum—and no one is sure when that comfort level will be achieved.
Cash flow determines a lot That leaves the acquisition market as the primary driver of hotel debt. Again, NOI is king when those deals are considered and trailing 12-month performance is the governor.
“We use first-year underwritten cash flow,” said Timothy Kenny, managing director, Cornerstone Real Estate Advisers. “We’ll assume that there’s growth there, depending on what market and pent-up demand, we may use 5% growth rate. In some deals where a new owner comes in and the hotel has been mismanaged, we’ve used 7% or 8% growth rates.”
“Historically trailing 12-month cash flow is probably the chief metric, but we will lean forward, we will look at what is the business plan and in virtually all cases our clients have a well-thought-out business plan to extract value,” Jordan said.
He cited the Liberty Hotel in Boston as an example. Wells Fargo spent a lot of time with the borrower last year and the eventual loan came in at a little over 7 in-place debt yield, Jordan said.
“The hardest thing for this group is what kind of growth rate you use going forward,” Kenny said. “We’re not using the 8 to 9% (revenue per available room) growth we saw on charts yesterday (during a general session), but we want to be realistic. If you use a straight 2% or 3% growth rate, a lot of these deals you can’t get to work.”
There are other metrics in play as well.
Jordan said in addition to T12 cash flow, Wells Fargo looks at debt yield, loan per key and replacement costs as some of the other metrics in play.
“We try to triangulate between those metrics and not get singularly focused on one metric,” he said.
Harris said paying attention to what ratings agencies are saying is essential when dealing with securitized debt.
“Where we get a little more flexible is when we are using our balance sheet,” he said. “We can take a look at assets that have incredible per-key value propositions and make loans. We can write to very high loan-to-values, even 80, 85%. There’s going to be a cost to that kind of capital.”
There is liquidity out there Jordan said there’s more liquidity in the market even though European financiers, who traditionally have been active in the hotel space, have retreated completely or provide only capital with high costs.
“Net-net there is higher liquidity,” he said. “We see more generalist real-estate lending groups out of the domestic banks dabbling in hospitality.”
That’s a good omen, according to moderator Robert Stiles, executive managing director, Cushman & Wakefield Sonnenblick Goldman.
“For borrowers, if you get more people dabbling, that’s good news,” he said.
Kenny said some insurance companies are getting back into lending B pieces and “hotel financing is typically 75 to 100 basis points wider than other loans we’re doing.”
Silberberg said the pace has picked up for large hotel deals that are more than $25 million.
“Today we see hotel deals getting done for 9, 10, 11 on the debt-yield side, depending on the type of the deal,” he said. “It’s much tighter than it was. It’s bringing a lot more hotel paper into the market … all the uncertainty that was in the last six months of the year lifted a little bit; there was a flood of hotel deals that came our way.”
He projected that approximately 40% of the debt volume SPT will engage in this year will be in the hotel industry.
Part of the fun in our jobs as data guys is to have the ability—and maybe the obligation—to dig deep into the data pile, to establish trends and patterns and then to forecast the future. At all major hotel industry conferences someone from STR, the parent company of HotelNewsNow.com, is being asked to stand up and present our version of the crystal ball and to interpret and explain where we see the industry going. Our founder Randy Smith will do so once again at the NYU International Hospitality Industry Investment Conference in June at the New York Marriott Marquis. All of our forecasts are based on our unique database of historic performance results that we gather from the majority of U.S. hotels. We combine this with insights from our partners at Tourism Economics, which is part of the larger macroeconomic forecasting firm Oxford Economics.
Our 2012 Forecast The continued macroeconomic recovery has resulted in some heady demand increases, and the U.S. lodging industry is poised to sell more rooms this year than ever before in history—just like it did in 2011. Based on the sound supply and demand fundamentals and nationwide occupancies of more than 60%, we increased our revenue-per-available-room forecast for the year to 5.5%. RevPAR growth for the remainder of the year will be fueled by average-daily-rate increases of approximately 4% and demand increases of approximately 2%, coupled with negligible supply growth of around 0.5%.
The 2012 Guidance from the major players Of course, numerous other companies, most prominently amongst them our friends at PKF Hospitality Research, PricewaterhouseCoopers and the major equity analysts, also are forecasting industry performance. They have come up with somewhat more optimistic scenarios. In addition, most of the publicly traded companies gave RevPAR guidance during their first-quarter conference call. Their guidance numbers are for their own universe of hotels and not a forecast for the total U.S. lodging industry. Most lodging analysts keep a sheet such as the following in their top drawer to keep score of the many RevPAR guidance numbers. This also helps them understand larger trends in the sentiment of the publicly traded companies.
Marriott International and Starwood Hotels & Resorts probably have the most widely spread portfolio in terms of price points and therefore often are used as a bellwether for the health of the industry overall. So, given that their guidance is between 6% and 8%, and given that a number of owners published their guidance in this same range, why is the STR number decidedly lower? Asked differently, what explains the difference between the STR forecast and the companies’ guidance? Or, to paraphrase a prominent CEO of a real-estate investment trust: “What are you smoking?”
Let me point to a three-part answer:
1) Our chain-scale forecast tracks guidance.
2) Independents underperform the industry.
3) We do not believe (yet) in meaningful Group ADR growth.
Below is some more background on these three statements:
Our chain-scale forecast tracks guidance In addition to forecasting the industry, we also produce year-end 2012 RevPAR projections by chain scale. As the following table shows, the RevPAR growth rates range from 7.9% for luxury chains to 4% for the group of non-chain affiliated hotels.
Given that a large number of publicly traded companies have exposure in the upscale and luxury segment, their guidance and our forecast actually line up when you “peel the onion” and look at the chain scales individually.
Independents underperform the industry
It is worth repeating that while the majority of conversations at conferences are focused on the brands, around one-third of all rooms are independent. We track the performance of those hotels separately and over time an interesting pattern emerges:
When looking at the post-9/11 hotel recovery and the depths of the downturn in 2009, the independent hotels underperformed their branded brothers. While during the rebound years of 2002 and 2004 the performance for chains and independents basically moved in lockstep, RevPAR growth for non-branded hotels eventually slowed while it continued to accelerate for branded hotels. During the most recent downturn, independent RevPAR declines were steeper than those for the branded hotels. And while the recovery pattern so far has exhibited a similar trajectory as observed after 9/11, it is probably not unreasonable to argue that, in the upcoming quarters, branded hotels will continue their RevPAR growth faster than their independent counterparts.
We do not (yet) believe in meaningful group ADR growth
Lastly, for the upper end of the market, we collect data that breaks out room demand and ADR for “group” (rooms sold in increments of 10 or more) and “transient” (rooms sold in increments of between 1 and 9). As the following two charts show, the ADR growth for transient and group rooms have been consistent since January 2011, but at a level that we find surprisingly weak.
As can be seen, the ADR growth for transient rooms seem to fluctuate between 3% and 5% for the last 15 months, with the most recent months showing growth around 4%. The good news is transient room rates, with the shorter booking window, can increase meaningfully as midweek and weekend occupancies continue to rise and hoteliers feel that they have pricing power. We expect that to happen throughout this fall and the summer.
Since January 2011, group ADR has been growing at a pace of between 2% and 3%. Unfortunately, this room-group-rate pace was negotiated in 2010 and 2011 based on a position of fear and limited visibility. We are afraid that despite the increases in occupancies and perceived pricing power, group room rate growth will continue to be hampered because group room rates for the fall are already “on the books” and now will be consumed in the coming months and quarters.
Putting these two rate scenarios into a model yields the following outlook for 2012:
I assume transient ADR will grow 5% (not unreasonable given the past performance) and group ADR will have a growth of 3% (maybe aggressive, maybe not, given what was negotiated for this summer and fall). This is based on historic patterns that the revenue mix on the upper end of the market is two-thirds from transient travelers and one-third from group guests. Given those ratios and assuming occupancy growth of approximately 2% (again, not unreasonable given prevailing demand patterns) a reasonable RevPAR forecast for the upper end of the market is more than 6%.
So, what are we … thinking? Given the math and observations above, we think that our projections are perfectly reasonable. Our forecast and the publicly available guidance differ in a few key points, but I think we all agree on the prevailing sentiment of demand recovery and ADR increases in 2012 and 2013. The strength of the recovery is obviously cause for debate as not all chain scales will see similar pricing power. But, if the industry outperforms our forecast, we will be the first one to admit that we were not bullish enough. Let’s see what happens.
If loyalty is defined as being faithful to a cause, ideal, custom, institution or product, then there seems to be a certain amount of infidelity in the workplace these days.
Consider some recent studies: MetLife's 10th annual survey of employee benefits, trends and attitudes released in March puts employee loyalty at a seven-year low. One in three employees, the survey says, plans to leave his or her job by the end of the year. According to a 2011 Careerbuilder.com report, 76% of full-time workers, while not actively looking for a new job, would leave their current workplace if the right opportunity came along. Other studies show that each year, the average company loses anywhere from 20% to 50% of its employee base.
Whatever the actual figures, some employees are clearly feeling disconnected from their work. Among the reasons cited for this: the recession, during which companies laid off huge swaths of their employees with little regard for loyalty or length of service; a whittling away of benefits, training and promotions for those who remain; and a generation of young millennials (ages 15 to 30) who have a different set of expectations about their careers, including the need to "be their own brand," wherever it takes them. In a nomadic world, one of the casualties is a decreasing sense of commitment to the organization.
Wharton management professor Adam Cobb sees another reason for what is clearly an evolving relationship. "When you are talking about loyalty in the workplace, you have to think about it as a reciprocal exchange," says Cobb. "My loyalty to the firm is contingent on my firm's loyalty to me. But there is one party in that exchange which has tremendously more power, and that is the firm."
Cobb suggests that at a minimum, "loyalty is not something a company can rely on. But when people say that employees have no loyalty to their firms, you get into a chicken-and-egg kind of argument. Imagine a different world where firms took care of their employees, and loyalty was reciprocal. Would employees be job hopping to the extent they are now?"
Employee behavior, Cobb says, has been influenced by the dramatic organizational restructuring that began 30 years ago. "Firms have always laid off workers, but in the 1980s, you started to see healthy firms laying off workers, mainly for shareholder value." In their announcements of pending staff cutbacks, "firms would say, 'We are doing this in the long-term interest of our shareholders,'" Cobb notes. "You would also see cuts in employee benefits — 401(k)s instead of defined benefit pensions, and health care costs being pushed on to employees. The trend was toward having the risks be borne by workers instead of firms. If I'm an employee, that's a signal to me that I'm not going to let firms control my career."
Peter Cappelli, director of Wharton's Center for Human Resources, agrees that these days, employers' attitude toward their employees has changed. "They see them as short-term resources," he says. And because employers have ended lifetime employment, adds Cappelli, author of the forthcoming book, Why Good People Can't Get Jobs: The Skills Gap and What Companies Can Do About It, "job security depends now on continuing usefulness to the employer. Cuts in pay and increasing workloads happen when it is useful to the organization. As employees see their careers operating across many employers, they no longer focus their attention solely on the ones" they work for now.
Loyalty to Individuals, Not the Company
The Loyalty Research Center, an Indianapolis-based consultant that focuses on customer and employee loyalty issues, defines loyalty in part as "employees being committed to the success of the organization and believing that working for this organization is their best option….. [Loyal employees] do not actively search for alternative employment and are not responsive to offers." Cappelli says that "employee loyalty" is a "practitioner term. The closest analogy in research is with the concept of commitment, [the idea] that employees are looking after the interests of their employer."
Wharton management professor Matthew Bidwell divides the term into two parts: "One piece is having the employer's best interests at heart. The other piece is remaining with the same employer rather than moving on." Management experts, he says, describe this as "organizational commitment." And that, he notes, is changing. "There is less a sense that your organization is going to look after you in the way that it used to — which would lead you to expect a reduction in loyalty as well." But Bidwell questions how much loyalty people ever felt to their organizations, in good times or bad. "Employees are often more loyal to those around them — their manager, their colleagues, maybe their clients. These employees have a sense of professionalism — and loyalty — that relates to the work they do more than to the company."
Some of Bidwell's research has focused on comparing independent contractors to full-time employees. One would typically expect these independent contractors to have an "arm's length, less-committed relationship" with company managers compared to the commitment level of full-time staff, he says. "But when I talk to managers, they often suggest that there really isn't much difference between the contractors and the company employees." Relationships with organizations are getting weaker, he notes, which is "why some people believe that company loyalty is dead."
James Harter, chief scientist, workplace management and well-being, for Gallup, has a different perspective based on a Gallup poll first initiated in 2000 to measure employee engagement. The poll divided workers into three parts: "engaged" employees are those who are "emotionally attached to their workplaces and motivated to be productive." "Not engaged" employees are those who are "emotionally detached and unlikely to be self-motivated," while "actively disengaged" employees are those who "view their workplaces negatively and are liable to spread that negativity to others."
In 2000, the poll indicated that 26% of employees were engaged, 56% not engaged and 18% were actively disengaged. In 2008, those figures came in at 29%, 51% and 20%; in 2010, at 28%, 53% and 19%; and in 2011, 29%, 52% and 19%. In short, there is surprisingly little difference between the numbers. Indeed, as Harter sees it, "not much has changed in terms of people's everyday experience at work."
He cites a Gallup report titled "State of the American Workplace: 2008-2010," which includes 12 questions designed to address such issues as productivity, quality of relationships with coworkers and managers, and employee alignment with the organization's overall mission. One conclusion of the report: "Despite the workplace stresses accompanying the most severe recession in decades, American employees' average level of emotional engagement with their jobs did not drop significantly."
Finding that Silver Bullet
Loyalty, which can be considered a component of employee engagement, is based on a number of factors, says Harter, including whether the employer "looks out for employees' best interests, pays attention to their career path, gives them opportunities to improve their well-being and so forth." In this equation, managers play a crucial role, he adds, referring to a survey done several years ago that analyzed all the reasons people stay with or leave an organization. "If you're looking for a silver bullet, it is the quality of the relationship between an employee and his or her manager that determines the overall level of employee engagement. Good companies develop a growing list of great managers over time…. It's local level teams and how they are connected together by leaders and managers" that have the most impact.
Human nature, Harter adds, "doesn't change when the economy changes. It might take on a different dynamic" during a recession, but what remains constant is "the need to be connected — to a manager, a co-worker and/or a purpose, and also the need to be recognized." People's perceptions of their own standards of living "did drop as the economy dropped," he says. But that same drop was not registered in workplaces where employees said they have "someone who encourages their development. There is something about having a mentor, or someone in your life who helps you see the future in the midst of chaos, that can make a difference."
Wharton marketing professor Deborah Small cites a body of research on what is called "procedural fairness," indicating that much of what employees feel about an organization "is not the outcomes they get, but the processes. If people feel like processes are handled fairly in the organization, even if they don't get the best for themselves," that would tend to encourage loyalty.
Research also shows that not all behavior is self-interested, Small adds. "Sometimes people do things at considerable cost to themselves, like sticking to a job with lower pay when they could move on and potentially earn more money. It's because we care a lot about relationships and the welfare of others. When we have a relationship with our firm or colleagues, there is a social cost to leaving." To the extent that an employee is well treated by a firm or a boss, "that might, on the margin, make a difference" in his or her decision to stay or leave.
Financial incentives — including stock options, restricted stock and pensions — are other ways that companies have tried to tie employees to their firms. But Wharton accounting professorWayne Guay isn't sure that such types of deferred compensation are strongly correlated with loyalty. "There is evidence that stock options, restricted stock and other devices that require vesting do result in lower turnover," he says. "Executives and others tend to stick around a little longer. But it doesn't [suggest] an implicit bonding between an employer and employee. It's more of a contractual agreement."
Defined benefit pension plans have historically been a strong retention device used by companies to lock employees in, Guay adds, but very few firms these days offer them. More common are 401(k)s, which require employees to bear the investment risk, and which are portable — employees can take these vehicles with them when they leave the company.
At the same time, stock and stock options can, in some cases, be more than a retention device. They can motivate employees to not just stay at the company, but to work hard and go beyond the minimum requirements, says Guay, adding, however, that they are most effective with high-level executives "who can actually see how their own actions affect the firms' stock price and overall performance. Once you get too far down in the organization, there is usually less of a direct link between your actions as an individual employee and overall performance." Some firms, he notes, have division level or plant level versions of incentive plans that can drive better performance.
Growth of the global marketplace is another factor in workplace mobility. "There is a tremendous amount of competition, both domestically and internationally, which has forced firms to be more nimble with respect to hiring and firing," says Guay. "It is now a two-way street: Employees recognize that firms are not going to be able to offer lifetime employment, and companies recognize that employees will feel free to move around." Social and business networking plus the explosion of available information on companies and career paths have helped that process along. "In the last 10 or 20 years, it has become so much easier to find jobs in other industries or regions than it was 10 or 20 years ago when we didn't have the Internet," he notes.
Bidwell suggests another dynamic behind the changing employer-employee relationship. Many of the things employers did to increase employee loyalty — at least up until the 1980s — were done not to encourage higher productivity and job satisfaction, but to keep the unions out, he says. "Companies were very worried about unions and the possibility of strikes. They treated their employees well so they wouldn't join a union. But that is no longer the case. Unions are on the decline. It's easy to quash them if they try to organize. So some managers might not care as much about employee loyalty as they used to."
The Challenge of Measuring Employee Loyalty
Is it possible to measure employee loyalty, and if so, does any increase or decrease in loyalty affect company performance? While loyalty is clearly not on the same level as revenues or profits, for example, which directly affect the bottom line, "there is some evidence that an organization's more satisfied employees perform better," says Bidwell, "but the link is not that compelling."
Using employee loyalty as a performance metric has merit, adds Cappelli. "The issue has been to put a dollar value on this: How much is it worth if employees consistently place the company's interests ahead of other factors in those situations where they have discretion? Probably a lot, but it's hard to put into dollar terms."
Cobb also acknowledges the difficulty in coming up with a definitive loyalty measure. "Often the survey questions related to this are something like: 'Do you intend to look for another job in 12 months?' I could be looking for a job for a variety of reasons that have nothing to do with displeasure with the company," he says. "I could be considering going to graduate school or perhaps I want to live closer to my elderly parents. So these kinds of measurements are fuzzy. They are not actually measuring loyalty. They are measuring what you hope is related to loyalty."
Do organizations need to be concerned about fostering loyalty when some employers simply want their employees to do what is asked of them? Cappelli would answer "yes." The big challenge for employers, he says, is that "employees have discretion, more so now with jobs that have more autonomy. Bosses aren't, and can't be, looking over them to tell them what to do all the time."
In addition, notes Cobb, some workers have brought with them, or acquired, skills that are very difficult to replace. "You don't want that knowledge and expertise to walk out the door." Also, disloyal employees can be a risk for an employer if they spread the word that their company is an undesirable place to work. "It affects the perceptions your customers have of you," he adds.
Perhaps the most compelling argument for trying to retain good workers is that replacing managerial and professional employees can cost approximately 150% of their annual salary, according to various estimates. Harter suggests that for frontline, lower end workers, it costs about half of their salaries, while for high-level IT professionals, the figure could be as high as 200%. "The real impact," he says, "can be on co-workers' productivity."
For Cobb, the debate over employee loyalty comes down to the actions of the more dominant side of this equation — the firm. "The employee/employer relationship has changed because of the firms. You hear people say that 'employees just don't care about having long-term employment relationships.' Maybe I'm naive, but I don't think humanity changes that much." The rhetoric of the 1980s, he says, was all about "'taking control of your career, and your life.' I have a hard time thinking my father is that different from me [in this regard]. It doesn't make sense to say that individuals who were born in the 1970s experience a [huge] epiphany that they need to be in control of their lives, and that people born in the 1940s don't think that way. People have always wanted to be more in control of their lives." What's different now, he notes, is how firms treat employees. "It seems strange to me to be loyal to a firm that I know has no loyalty to me."