Aviation, Accommodation & Asia: The Links

Transcript

Michael Issenberg:Great to be at an aviation conference as opposed to a hotel investment conference that we had here last week. Michael Issenberg, I'm the Chairman and CEO of Accor Asia Pacific. For those of you that— hopefully most of you do know who AccorHotels are. We're a multinational French company listed on the CAC 40. We have more than 4,000 hotels around the world and about 800 of those are here in Asia Pacific. And we go from budget to luxury and I'll actually talk a little bit about our brands later. And myself, you can tell from the accent, I was actually born in the United States but I actually lived here in Sydney for 22 years and then I moved to Singapore about 10 years ago. So I'm gonna give you really my perspective on obviously mostly the accommodation industry and the trends that are going on and how they relate to the aviation industry and probably most importantly how we're responding to those. And what I probably won't do is talk too much about statistics if I can, yeah. I'm sure, I think you probably got a lot of those yesterday and a few of those from Andrew this morning. But really, what do those mean? Obviously, our industry is growing, the tourism industry. We're in a blessed industry. I mean, how many industries have grown at 4 or 5% compounded for the last 10 years? And by all means, we'll continue to for the next 10 years. I guess I have the advantage of being based in Asia and of course you hear about China and India, but even ASEAN with 600 million people, And the growth that we're seeing is extraordinary. And that growth of the middle class, it can be a bit of a cliché, but it's absolutely true. And I think if you say to just about, if I say to just about anybody in this room, if you had either more time or more money or both, what would you do? And invariably, most people answer, travel. And as a result, our industry is just going from strength to strength and it's more, obviously lots of challenges and it's how do we cope with those and how do we maximize that opportunity. You know, and here in Australia, you heard some of the statistics, the growth is unbelievable. I actually moved to Sydney in 1985. And I'll never forget my boss at the time, actually now currently the Chairman of Tourism Australia, Tony South, said to me, I want you to go to the peak tourism industries meeting and I'd like you to attend that meeting. And I, you know, fresh off the plane and, you know, United States tourism is a big industry and I I said, oh great, where is it? Oh, it's at the Shore Inn in Ataman. And this was AADIA, chaired by Sir Frank Moore, for those of you who've been around for a long time. And I took myself off to Ataman, and I'd only been in the country for about a month, and the Shore Inn, and this was the peak industry body for tourism. So the good news is we've come a long way. And as Andrew said, we have a long way to go. But from my perspective, it is fantastic that the government does actually recognize tourism is a real industry. And that wasn't the case that long ago. And certainly most of the states as well get it. And so we are in the right spot. But we can't take our foot off the pedal. I was a director and then deputy chairman of the TTF for about 10 years. And I'm a big believer in lobbying the government. And we have to continue to educate about how important our industry is. We're one of the few industries that as we grow, we absolutely create jobs and we have to constantly hammer that message home to government because there are still a lot of impediments to our growth. There's a lot that government can do to help. You heard Andrew touch on it from the aviation industry. From our perspective, besides those, the actual employment, the visa, the employment visa is crucial. Still a lot of people don't want to clean rooms, they don't want to, we don't have enough chefs, all those sort of things. So we still have to continue to work with government to enhance our industry. Obviously, air capacity and our ability to grow are linked. You've heard about the growth that Qantas has, the other airlines are having, the capacity coming into Australia is fantastic. Our growth has never been stronger. There was probably the last time it's been this strong was in the lead-up to 2000. We ourselves have 23 hotels that are committed and will open in the next few years. We have a 600-room Sofitel hotel opening at Darling Harbour on the 6th of October. That spread is across the country. Our competitors are growing as well. So the new product is definitely coming to Australia because again, living in Asia, I do have to admit that our hotel product has become, not on the whole, but in a general sense, a little bit stale in Australia. But I think with the new product that you're going to be coming— see coming into the market, the renovations that are taking place, the quality of the hotel product is lifting dramatically. And of course we have to work with the airlines to match that. And that's why it is actually exciting to hear about the new Qantas direct service from Perth to London. We actually have a big presence in WA. In fact, at one point way back in the early '90s, about 40% of our whole Asia Pacific network was based in WA. We're in places like, you know, obviously Broome, the Kimberleys, the Pilbara, Geraldton, Margaret River. And so we've always had a big presence there. So having that disbursement coming to Western Australia, I think will be obviously great for the state, but I also think it'll be fantastic for tourism in Australia because WA really is some of the most unique part of the world. And to be able to now put that on the doorstep of Europe, I think will be very good for— Tourism. us here in Australia. The power of China, and you just can't underestimate it. You know, yes, you hear the statistics, you hear about the growth. I've been going to China pretty much every month for about 15 years, and it just is extraordinary. And, you know, sometimes, you know, and the pundits who maybe have been once or twice in their life and they all comment on China, what's happening in China, and they talk about the slowdown in China. Honestly, don't believe it. Alright, just don't believe it. It's just, if anything, it's accelerating. Yes, there's 1.4 billion people in China, but if you just take the 4 major regions, you know, from Hong Kong to Guangzhou, the Pearl River Delta River, from Shanghai to Nanjing, Greater Beijing, Chengdu in the west, there's about 400 million people just in those 4 mega regions. So, And if you go and you visit on a regular basis and you see what's going in terms of development, in terms of building, in terms of the way that fashion and retail and consumption is growing, the way that the language skills are growing, the investment in research and development and in technology, it is just mind-boggling. So that's— and that's the good news. On the flip side, we just have to be a little bit careful as a tourism industry, and this also goes back to government. That China obviously is still a very political country, and when they get upset with somebody, it has very serious implications for tourism. If you look at what's going on in South Korea at the moment, our business, you know, Asia Pacific, we're having a great year, but the one country where we're down probably about 30% this year is South Korea. Why? Because the Chinese government isn't too happy with the South Korean government, and they've turned off the tap. Right, they've done the same thing to Macau, even though that's part of China, a couple years ago they did it to Vietnam, so we just have to be a little bit careful, and we certainly don't wanna put all our eggs in that basket, but I also can tell you, in terms of megatrends, geopolitical, the most important thing happening, not just for Australia, not just for Asia, but for the world, is what is happening in China. But personally, I'm excited by that, I think it's fantastic. Michael, Then again, of course, our industry disruption. And there's a few. OTAs. OTAs, travel agents have been around forever. And they've been an important part of all of our businesses, aviation, accommodation. And OTAs are an important part of our business. And in fact, part of that growth for the industry is being driven by OTAs, which is fantastic. Now, where do I have probably a little bit of a beef with OTAs? Obviously their commissions are higher than traditional travel agents. And I've actually been in Australia for the last couple weeks, which is a little bit unusual for me to be able to spend so much time here. And the amount of advertising on television that I've seen by the OTAs is extraordinary. And that's not necessarily, that's not really, and they're not actually talking about stimulating demand, they're just talking about use our distribution channels. Yeah. So I know that Booking, who are a good partner, they spend about $3.5 billion in marketing, which is great, but wouldn't it be wonderful as opposed to just trying to use all that marketing to drive through their distribution channel, but to actually use it more for growth in the industry might be a bit more helpful. But a very important partner to us, but we have to, I think there's a balance that needs to happen. Rise of mobile, you've all heard about it, but of course in Asia, in India, in Indonesia, that smartphone is their computer, that is their window to the world. And making sure that all of our technology, most importantly our booking systems and our reservations, are up to date and easily usable in multiple language is probably one of the most important things that we can do as a company to enable travel. And then that's a trend that's only gonna continue. Private rental. Big disruptor to us, the most well-known one is Airbnb. And it has had a big impact on our business. Private rental's been around forever. You think about the Gold Coast service departments, they've been around for 30, 40 years. But what the Airbnbs of the world have done, they've enabled an increase of use of private rentals. And probably the biggest impact for us is more on constrained days. It's like when the Grand Final's on or the Grand Prix is on, or major conventions in the city where we used to really be able to drive yield at a significant level, and we still are, but we can't drive it to the same extent because that's when people are jumping online and say, well, I'm not gonna pay $1,000 a night to stay here at the Sofitel. I'm actually gonna go for an Airbnb out in Bondi Junction. And so that's something, and I'll talk about how we're responding to that a little bit later. The rise of the tech giants, Google, Facebook, You know, if I'm a Booking, if I'm a Priceline or Expedia, what would keep me awake at night is what's Google's response ultimately gonna be? And the power that Google has in our world, that's something they have to be aware of. And of course, big data and artificial intelligence is another megatrend that's impacting our industry. And then the last change is really what people are expecting from accommodation. You've seen where it's been a pure commodity, Or making goods. So like, back, the first Novotel opened 50 years ago this year in France, and it was meant to be an absolute standardized product so that people that were traveling knew what they were getting, and that was very important. Whereas today, that's changed. It's moved to, the next thing was, well, we want really great service. To, no, it's not just about the room, we want an experience. When we travel, it's all about experience. Yeah. And even now it's going to another level. People are traveling because they want to transform themselves. They want to learn, they want a transformational experience, they want to return from their holiday new. And whether that's through wellness, whether it's through interaction with local culture, but people are increasingly looking for transformation. And so we need to develop product that enables that. And then in our industry, a lot of consolidation is going on. The merger between Marriott and Starwood, we acquired Fairmont, Raffles, and Swiss Hotels. The Chinese are buying an awful lot. Jingjiang bought Louvre Hotels, HNA bought Carlson Rezidor, took a 25% stake in Hilton. So consolidation in our industry. This is how we've grown in Asia Pacific and I put this up for a couple of reasons. One, I have to admit I'm very proud of the way that we've grown. What's interesting is when you look at that trend line, right, it really took off. China joined the WTO in 2001, and what you can see is our growth has accelerated. It took us about, it took us from 1982 to 1996 to open 100 hotels, and it took us from 1996 to 2006 to get to about 300 hotels, and then in the last 10 years, We've gone from 300 hotels to almost 800 hotels. And again, that's really being driven by the growth in Asia, in China, in India, in Indonesia. And then in terms of how did we respond to China? You know, we've been operating there since 1985. We've invested hundreds of millions of dollars. We've built our own hotels. We've managed hotels on behalf of others. And I'll tell you, China is hard work. And we took a decision, we formed an alliance with a company called Wazoo. It's listed on the NASDAQ, it's also known as China Lodging. We launched our first economy hotel in China in 2004, an Ibis Hotel. And we then got up to about 90 Ibis Hotels last year. Wazoo launched their first hotel in 2002, they now have 3,000 hotels in China. And they're one of the 3 major hotel companies in China. So we decided we're not gonna take them on head on any longer. We actually sold them our economy hotels, we gave them the master franchise for our economy brands, and co-development rights for Novotel and Mercure in China. But in return, we took an 11% stake in their company. And I have to say, I can honestly say now, we have absolutely made money in China, because when we sold it to them, that 11%, they were trading at $25 on the NASDAQ, $25 US dollars, and that was worth $192 million. They actually passed $100 US dollars, and this is only in the last 2 years, and our stake is now worth over $700 million. So it was actually a very good decision. So working with China, again, it's very hard to do from here, you gotta be on the ground, but you have to find a way to crack the China market if you're gonna be successful, in Asia Pacific. Going back to that change of what people are looking for, that experience, that transformation, our traditional brands of Ibis, Novotel, Mercure, to a lesser extent Pullman, they were built on standardization. They were built on predictability. And it served us very well for the last 50 years. But we've acquired a whole range of new brands. The biggest acquisition we made, $2.7 billion acquisition, were the Fairmont, Raffles, and Swissotel brands. We also took a stake in Banyan Tree, which is listed in Singapore, and we now have the development rights for Banyan Tree in most of the world. We acquired a company called 25Hours based out of Munich. We also, a couple years earlier, Mama Shelter. We launched a brand called Joe Joe, and they're all lifestyle brands, all experiential brands. So we now have 24 brands. Going from budget to luxury. And the response from our partners, our owners, has been fantastic. And so that development pipeline is actually picking up speed, 'cause we're getting a tremendous response to that. And then when it comes to private rental, we've also taken a number of bets in the private rental space. We're not gonna let this pass us by. Some of our competitors have stuck their heads in the sand and said, private rental isn't impacting our business. We don't believe that for a second. So we actually acquired all of these companies except Oasis. We took a minority stake in that and we've actually decided to exit it. So One Fine Stay, UK-based company, Squarebreak, French-based company, and TravelKey is a US-based company. We just announced last week we're now gonna put them all under the brand of One Fine Stay. And that is gonna be, that's our response to private rental. So we will be aggressively growing in the private rental space. We'll be doing it at the upper end of the market. And the point of differentiation is that we're gonna be delivering a service to go with private rental. I'm sure a lot of you have used Airbnb or another type of private rental. You know, you go, you gotta find the key, you check in, or not check in, you get your key, you go to the apartment, and that's it. Well, what we're going to be doing is actually delivering a service to go with that private rental. And we think there's a tremendous business opportunity. Thank you. We also acquired a company called Jean Paul, which is a virtual concierge service. And that's, for us, it's going to do a number of things. One, it's going to help us in the private rental business because they're going to provide the backend in terms of helping with that service delivery. But most importantly for us, it's about AI, about big data. They are experts in data mining and they're going to enhance our loyalty program. Because again, what's the most important in terms of delivering that guest experience is tailoring that guest experience and our loyalty program, Le Club AccorHotels, is crucial to our success. And then as we move, as the world changes, we have to have a different view to the world. We have a very dynamic Chairman who's been with us for 4 years, Sebastian Bazin. And we're reshaping the way that we view the tourism and travel industry. Of course, at the core of what we do will continue to be hotels. You got more than 4,000 of them and we're opening a new hotel every day, so that's going to remain the core of what we do. But then we're also— how can we grow that? How can we use that expertise to move into other industries? And whether that is things like private rental, or others. So we really, you know, 3 pillars. The biggest one of course being the hotel business where we're predominantly a franchisor and an operator, though we do actually have $10 billion of real estate predominantly in Europe. But here in Australia we have $300 million of real estate. But also a big part of that of course the marketing, the distribution, the loyalty, and other hotel activities. Then in the travel space itself, things like private rental, We acquired a couple of digital companies, one called FastBooking and one called AvailPro. And those are targeted at helping independent hotels with their digital needs and taking bets in adjacencies. But then community services. One, Jean Paul, a project that we call Project Nest that we now launched as AccorLocal in France and we'll be expanding it around the world where we use our hotels to service the local community. And that's going to mean a variety of things. And then other services to be developed using the real estate that we control to help the community. So not just travel, but in day-to-day needs. So maybe making sure that we're expanding our footprint, making sure that we're poised for growth. One last slide, I think, if I could maybe get some help on that. Oh, 2 more slides. So then just the last thing in terms of just the way that we look at life and how we fueled our growth. As I said, we have about 800 hotels around Asia Pacific. And believe me, I love Australia and I intend to come back and retire in Australia. But running an Asia business from Australia, and I did it for 5 years, I can tell you it's very difficult. you have to be on the ground in Asia. So what do— and we took that decision 10 years ago, set up our corporate office in Singapore. But most importantly, the reason we've been successful here in Australia, we have more than 200 hotels, is because Simon McGrath is here in Sydney running this business. And then we have an office in Jakarta, we have an office in Bangkok, we have an office in Delhi, we have one in Shanghai, Hong Kong, and Seoul. And having people on the ground is what has fueled that growth. And if there's one thing I can— That's great. So make sure you, if you're really serious about growing in Asia, you need to be there. And then just lastly, I'm no expert in aviation, but what can you learn from the hotel industry? It's about the guest experience, and increasingly it is what experience can you deliver. And we have an advantage, we have people staying with us longer. In the aviation industry, you're sitting in a seat, but I do think that you can do it. Brand is, I believe brand is more important than ever. Making sure that you grow your brand. Using that technology to understand your guests so that you can deliver the tailored experience. And then continue to evolve your business model to use your core as the platform and then what else can you do in the travel space to enhance your growth. So I hope I've been able to enlighten you a little bit about AccorHotels and our view on not just the hotel industry but the travel space. Thank you very much.

Copyright policy: All transcripts on this site are the copyright of CAPA - Centre for Aviation. Our reproduction policy is as follows: you may quote up to 400 words of any transcript on the condition that you attribute the transcript to CAPA - Centre for Aviation and link to the original video page. All other use is prohibited. While we aim for 100% accuracy in the transcript, there may be some minor transcribing errors.