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After going “asset light”, are hotel champions bound to disengage from employment? [2/2]

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 first part of this article.

Priceline and its nearly $95 billion in valuation rely on revenues of over $10 billion and $4.2 billion in EBITDA earned by 20,500 employees worldwide. By comparison, Marriott International, the world’s largest hotel group, generates $17 billion in revenues and $2.8 billion in EBITDA, with 226,500 people worldwide: more than 10 times more than the OTA, yet only half of its enterprise value. And what about AirBnB, whose financial value has already exceeded $30 billion while the company still employs only 3,000 people worldwide? Overall, hotel group efficiency ratios are miles away from those of digital, due to their large workforce. The main exception to this rule is ‘‘pure franchisors’’ such as Choice Hotels, which communicate only the jobs generated by their headquarters; however their market value is much lower.

In this context, it seems possible that hotel groups will be looking to ‘‘lighten’’ their structure in the future, as they have previously done with real estate, by transferring staff and associated expenses to their partners. For example, 40,000 jobs out of a total of 250,000 are expected to change hands after the sale of HotelInvest by the French AccorHotels as part of its ‘‘Booster’’ project. And the British IHG goes further: if the group employs 350,000 people in its hotels around the world, it only includes 6,587 in its annual report, corresponding only to the staff of its headquarters, reservation services or (rare) owned properties. It is also because this total does not include the nearly 5,500 people who work in its ‘‘System Fund’’ –a specific vehicle that covers expenses associated with its loyalty program and those of marketing operations– and more than 22,000 hotel directors and other IHG employees whose costs are borne by the hotels themselves. Nevertheless, the British group is the first among its peers to be able to so clearly distinguish between an ‘indirect’ number of jobs in its hotels –more than 350,000– and a number of “direct” jobs (in its headquarters and owned hotels) reduced to less than 7,000 employees generating on average more than 100 K€ of EBITDA per head. Are we headed for a disengagement of hotel groups from (direct) employment? While it is too early to make that case, this scenario is no longer a work of faraway fiction.

If you wish to access the complete file, find the entire 2016/2017 worldwilde hospitality report on our store.

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