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TourInvest Forum 2016: how to invest in the context of a market undergoing restructuring?

For TourInvest Forum 2016, Vanguelis Panayotis, President of MKG Consulting, presented an overview of hotel investment. New arrivals, diversification of expectations, internationalization of the competition: all elements to be considered within a changing environment.

Selected extracts from the presentation by Vanguelis Panayotis, President MKG Consulting, at TourInvest Forum 2016:

While we may be aware of some of the challenges the hotel industry faces today, we must recall the key factors that led investors to change their strategies in recent years. First of all we cannot ignore the arrival of new players -sometimes coming from different fields- on the hospitality market. In a second stage we are seeing mutation, or at least a diversification, of customer expectations and needs. Finally, there is a real internationalization of the competition, increased by the instant access to information, the democratization of travel and the shortening of travel time.

For an industry that has long been -incorrectly- considered impossible to be outsourced, these elements have intensified the competition, not only between  destinations, but also within a single destination. In addition to the degradation of France's security situation and that of Europe in general, it is important first and foremost to study the economic factors that have truly changed the game for hospitality investment.

The difficulties encountered by markets affected by the terrorist attacks in 2015 and 2016, that took place parallel to the recovery in several destinations in the South and East of the continent, truly sealed the division of a Europe that operates at two speeds. This situation has continued to worsen throughout the year 2016, the attacks in Brussels and Nice especially weakened arrivals of clientele from Belgium and the French Riviera. After suffering from the crisis in 2008, markets such as Spain and Portugal benefit from real growth. While the latter benefit from a carryover of arrivals from the weakened destinations of North Africa, the Middle East and parts of Europe, it is also necessary to outline the importance of the recovery of local economies - the drop in unemployment going hand in hand with growth in buying power of domestic clientele. This observation may also be applied to hotel markets in Central and Eastern Europe, where activity remains strong, while certain destinations are experiencing renewed growth in interest: this is true for Budapest, Prague, Warsaw and Krakow.

This situation contrasts strongly with that observed in the years following the economic and financial crisis of 2008, when Europe's hotels posted a much more homogeneous picture. The new deepening of differences, accentuated by the economic shocks caused by the attacks of 2015 and 2016 - and perhaps the surprise that 'Brexit' holds in store for the United Kingdom in the years to come - outline the growing unpredictability of the sector, including in destinations heretofore considered safe by travelers and investors alike. This is all the more true since on the markets most affected by the difficult economic situation, alternative modes of accommodation have developed at a sometimes rapid pace: as in the case of Paris.

The development and then growth of 'disruptive' players has evidently been one of the biggest changes in recent years on the tourism and hospitality sector - this was the theme of this presentation at TourInvest Forum 2015. Considering the corporate value of the biggest active groups in the hospitality industry, the observation is final. Actors on what has long been called the sharing economy now rival with hotels that have been operating for years.  While AirBnB co-founder Brian Chesky just announced the group's desire to become a multi-service platform, the rise in strength of these new players could continue. Classic hotel groups have responded with an initial parry by adopting concentration strategies, a trend clearly illustrated in 2015 with the takeover of Starwood Hotels and Resorts or Marriott International, or even that of Fairmont Raffle operated by the French operator AccorHotels.

These changes to the international hospitality hierarchy take place within a context that is already seeing a separation of players. Hotel groups tend to establish clearer boundaries between their activities, and to favor the core operational trade rather than reinforce their real estate assets. Most major Western operators are trying to limit the risk factor by making direct ownership of their properties marginal. AccorHotels, Hilton Worldwide, InterContinental Hotels Group, as well as Marriott International: today, none of these groups owns more than 10% of their room portfolio.

For the international hotel industry another undeniable factor of change has resulted in another rise in power: that of Chinese players. While until now the sector was largely dominated by American and European operators, the eruption of Chinese groups changed global rankings. Among the fifteen biggest international players in terms of number of rooms, five are now based in China.

This veritable revolution goes hand in hand with another reorganization strategy that is facilitated by the powerful means of Chinese groups that have decided to rival with their Western counterparts. The biggest Chinese operator in the ranking, Jin Jiang thus finalized acquisitions of Plateno and Vienna Hotel Group, while BTG took over its rival Home Inns. The group HNA also received coverage this year with the takeover of Carlson Rezidor, demonstrating through this operation its firm intention to strengthen its positions outside its domestic territory. Another point of interest: the growing volume of shares owned by groups and Chinese firms in the capital of Western hotel giants. After the takeover of shares in the Blackstone group, HNA's share of Hilton Worldwide reached 25%, while after progressively increasing its participation, Jin Jiang now controls close to 15% of the capital of the French group AccorHotels.

While this trend gained ground in an unprecedented manner in recent years, it is imaginable that it will gain speed once again. While China is now the leading tourism growth engine on the planet, its national operators would be wrong to ignore opportunities as they arise that may help them in turn become real global players in the tourism and hotel industry. The metamorphosis of the global hospitality landscape, in which territories are increasingly being redistributed among international players and the rise of the new economy for catalysts, is far from being complete.

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