The financial valuation of the main hotel groups worldwide has evolved positively over the last few months, but the rise of digital players in tourism has been even faster. In addition to their strong growth and high valuation, these emerging players are characterized by their moderate consumption of resources. This puts pressure on traditional players whose performances are increasingly challenged by investors. Whereas hotel groups have already almost completely disengaged from real estate, this is not (yet?) the case with labor. Although the “servuction” process will always be part of hotels’ core business, will the major hotel groups resist the growing temptation to pass the burden of personnel costs on to others?
For more information, see the second part of this article.
While last year was marked by numerous world-class mergers and acquisitions in the hotel industry, the last few months have seen a consolidation of the latest movements and/or more targeted deals. While Marriott International reorganized its operations and teams following the takeover of Starwood Hotels & Resorts last year, Hilton Worldwide successfully completed the split of its new REIT (Park Hotels & Resorts), timeshare division (Hilton Grand Vacations) and its historic business as a hotel operator, on which the global No. 2 as now refocused. Meanwhile, French AccorHotels took advantage of the finalization of its acquisition of FRHI (Fairmont, Raffles & Swissôtel brands) to bring Qatari (QIA) and Saudi (KHC) investors on board in the summer of 2016. More generally, the overall upturn in the equity markets at the end of 2016 following the election of the new President of the United States allowed all listed hotel groups to see their share prices and market valuations rise.
However, this favorable movement must not overshadow the fact that hotel groups have been largely outperformed by digital tourism actors who are the darlings of stock markets. In two years, the enterprise value of the Priceline group (parent company of Booking.com, Agoda, Kayak...) has surged from 62 to nearly 95 billion dollars. Over the last 24 months, growth in the financial value of this single player has been stronger than all major hotel groups combined. And the symbolic threshold of 100 billion is now in sight for the famous OTA, which is not the only actor to have imposed itself on the landscape: AirBnB (not yet listed, but valued $31 billion by its latest fund raising round) and the Chinese CTrip both stand above the threshold of $30 billion in enterprise value. They are already worth more than the 2nd global hotel group, Hilton Worldwide, although its value has also progressed (excluding the technical effect of its split into three companies). It is now followed by Expedia, whose business value has risen sharply (to more than $23 billion) despite its IPO of Trivago at the end of last year.
In this context, and even if the recent rise in prices has given some respite to executive boards, hotel groups remain under investor pressure. Over the last few decades, their attention focused on real estate, asset sales, the creation of REITs and other transactions that generate cash quickly available for distribution to shareholders. These movements made it possible to reduce the capital intensity of the hotel operator business (at the cost of a certain loss of control over brands’ ability to deploy new concepts, but this is another story). As Hilton now has its REIT with Park Hotels & Resorts and AccorHotels is about to finalize its ‘‘Booster Project’’ (disposing of more than €6 billion in hotel real estate), this vast movement is coming to an end, because there is not much left to sell. As the ingredients for this successful recipe are no longer available, in the future investors will have to find other ways to prop up the profitability of their investments in hotel groups.
One of the main dimensions that today distinguishes the performance of new digital champions as opposed to traditional hotel groups, which are now ‘‘asset light’’, is the difference in how labor-intensive they are. Efficiency ratios are increasingly being tracked by financial analysis tools: they look at the turnover or the EBITDA generated per employee, with a view to comparing a company’s transformation capacity with the standards of its industry or other sectors.
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