Relationship management 

Anyone who has ever attended a conference in this sector anywhere in the world, ever, will know all about the phrase ‘relationship management’. It’s what the lenders trot out when they are asked about whether they are lending to anyone at the moment. Of course, they say, those which we have lovely, lovely relationships with. No we can’t tell you who or how much.

The relationships between owners and the brands have, historically, been less lovely and many of those same conferences have been filled with panels involving much shrieking into the wind from owners about how they aren’t feeling the loving enough. It was thought the pandemic might persuade both parties to have a more equable arrangement, but we’re still working on that.

There was some sign of success at IHG this week, with Keith ‘too young to be served at the’ Barr telling analysts that the group had “continued to expand the benefits for our owners of being part of the IHG system whilst also improving the guest experience. We deployed value engineering and mitigated inflation-driven increases of 10% to 20% across furniture, fixtures and equipment categories. We have lower build costs for our brands with Atwell, Candlewood and Staybridge Suites seeing savings of between 3% and 5% by increasing floor plan efficiency and updating FF&E standards” and so on and so forth. 

But of more interest was the new type of relationship the group had launched, with Iberostar Beachfront Resorts. This ‘exclusive partners category’ saw the creation of a long-term agreement with fun for all – in this case with fees per key more than 10% higher than the average IHG average, reflecting, Barr said,  “the nature of these resort hotels in much sought-after destinations”. 

He added: “in terms of the royalty rate, these are very complicated partnership deals because they’re distribution relationships, there’s a royalty rate to it as well. And each one is going to be slightly unique.

“So commercial agreements in the exclusive partners category drive high-quality fee streams and additional systems growth for IHG, while providing more choice for our owners, guests and loyalty members. We continue to look at similar opportunities to leverage the scale and the performance of our enterprise platform.” 

CFO Paul Edgecliffe-Johnson stepped in with: “the nature of a franchise contract is that we’ve created a brand and then we charge a fee to someone to use the brand – that isn’t the case here. This is Iberostar have the brand; they’re now working as an exclusive partner with us. And we’ll generate, as Keith said earlier, more than $40m on the P&L and growing a similar amount on the system fund. So very, very pleased with the deal.”

The next evolution of the soft brand? Looks like it. 

Meanwhile at Accor, the originators of the variable lease, the news from the Bazosphere was that it too wanted to “remain the chosen partner of our hotel owners and customers”. The specifics of this were limited, with the leadership team focused on the division of the company along luxury & leisure and the rest lines. Analysts were eager to hear more about a three to five year plan for the group, hopes which were rebuffed by CEO & chairman Sébastien Bazin. 

“The reorg is ahead of time”, he said, “The three year, five year target is a big debate. Part of that has been should we be daring? I am in the camp of showing you something dynamic.. [but] we have only had three months with the new CEOs.”

He didn’t say that they were going to sell their economy brands to Marriott International, so observers were always going to be disappointed. A deep dive is promised in June. “You’re going to have to be patient,” said Baz, adding “As much as I have been blamed for being boring, it is not the time to go into transformation number five. Our focus is ‘get focused’. Let’s get our act together and we will defer that question”. NO! NO! Don’t! TELL US NOW!

There was also no update on the flogging off of the remainder of AccorInvest, with deputy CEO & CFO Jean-Jacques Morin commenting: “We need another year or two to firm up the revenue [of AccorInvest] before we consider the ownership. As ever, rotation of the asset is the name of the game”.

Bazin added: “We’re just out of the woods. We have missed two years. Let’s not miss the next two years. The next two years are about operations and reducing debt.”

In other sell offs, despite selling out of H World (formerly Huazhu formerly China Lodging), the group are “pursuing their rewarding partnership and strong growth strategy initiated in 2016”, which has enabled the pair to open 450 economy and midscale hotels in China, mainly under the Ibis, Novotel and Mercure brands. There are 190 properties in the pipeline are scheduled to open over the next three years.

This was good news for the NUG, which was 3.2% for 2022, against 5.5% in 2019. The chairman defended with, “50% of Accor growth in new openings has been in AsiaPac. I want to remind you that even if it is lower, the volume of fees is of a higher magnitude than in 2019, because of the mix. What matters is margin, not percentage.”

So flexibility from IHG and keep them hanging on for Accor. Owners can take their pick. 



image: IHG

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