Communication is the most crucial tool in a hotel company's arsenal as the industry continues to recover, according to four CEOs who spoke during “A View From the Top” at the 34th Deloitte European Hotel Industry Conference.
Speaking at the Biltmore Mayfair hotel, Liia Nõu, CEO of Sweden-based Pandox, said correct communication is vital, but so is giving employees freedom in decision-making.
Pandox has offices in Stockholm and Brussels, and has a staff of 60. Nõu said the company focuses on giving employees the freedom to act within a strategic framework and have fun.
“It is lean, and everyone has a big mandate," she said. "It is professional but informal, and there must be the environment in which to have some fun. We love having dogs and children in the office, and this you can make work. Also, it makes all our great people stay."
Good communication helps foster the flexibility in a team, which is a must to navigate a fast-moving industry, said Federico González, CEO at Radisson Hotel Group.
“We know change will come,” he said.
Krysto Nikolic, senior managing director and global head of real estate at owner ICG, said one of the concerns that worries him is increasing work from home and lower office occupancy, which could trickle down to less use of business demand at hotels.
“What we’ve seen is a standardization to 25% to 30% less office use, and that decrease in margin is totally destructive of office value. We are pretty much out of that space. … and we see that trend, too, in our underlying portfolio companies,” he said.
Nikolic added his firm’s business model is to back and empower world-class talent.
“The worst thing to do is to panic and react to short-term changes,” he said.
Puneet Chhatwal, CEO of Taj Hotels, Resorts & Palaces, said the hotel industry needs to focus on business fundamentals during any industry slump.
“A focus on excellence, on digitalization and on the acceleration of that," he said, adding companies also need to focus on increasing the skill sets of their employees.
Nõu said companies that are not properly organized before the next crisis comes will be the ones to suffer.
Being Detailed
The CEOs said they focused on making strategic improvements as the pandemic lingered.
“We took a decision to change the operations and revenue-management systems, which we are confident will give us an edge. I feel more confident than I did in 2019,” González said.
He said Radisson has signed 200 hotels in China and India in the last couple of years.
“Yes, China is paralyzed, but there are more opportunities today than in 2019,” González said, adding the biggest problem is a lack of labor.
The panelists said strategic shifts should highlight a firm’s strengths.
“Taj [Hotels] is our only international brand. [Our] others are best kept local,” Chhatwal said.
He said knowing whether a brand is local, regional or global helps define the strategy.
"Some brands at the lower end of the spectrum do not have the ability to scale globally," Chhatwal said. "Some do not have the ability to move across borders, and essentially that is the point of a brand."
González said Radisson decided to only have one brand in any one segment, a choice he said works well in relation to guests selecting hotels on very defined criteria.
“This allows us to operate with a higher yield, to improve [gross operating profit] and [average daily rate]. It is clearly defined,” he said.
The last three years have given the industry the chance to look at all costs under the magnifying glass, which has made it more efficient, Chhatwal said. He added it also allowed his company to refocus on its guests.
“Consumers are not another stakeholder but the very essence of what we do, and that has been enlarged by the pandemic,” he said.
High inflation and skyrocketing interest rates have created a tense economic environment, and a global recession could follow. Hoteliers must stand straight in the face of such headwinds, Nikolic said.
"In a general backdrop of a likely recession and increasing interest rates, [we look to find] businesses that have a little more resilience. We pick our sweet spots and navigate a pretty tricky macro backdrop,” he said.
Nikolic referred to ICG’s September joint venture with Australian investor and hotel-management firm Pro-invest Group to invest approximately $500 million in United Kingdom hotel real estate.
“The reaction to this in the press was that there was some notion of distress, but [the partnership] was about backing the Pro-invest team over the long term. It is just that [for the media] this looks like an interesting time to have done this,” he added.
While businesses need to be well-resourced with both labor and capital, Nikolic said owners also need to be agile as “there will be a few things that go bump in the night.”
Pandox owns 160 hotels, 20 of which it also operates, Nõu said.
“The last few years have taught us to be continuously looking for value creation. There are noncore owners wishing to sell, some who have realized they do have operational risk,” she said.
Drivers of Change
Nikolic said in his view consolidation is happening faster and faster.
“This is being done to make products relevant, to attracting capital and talent, and larger businesses are just better at getting both,” he said.
Real estate continues to be in the Dark Ages compared with other industries in terms of “really cutting-edge technology,” Nikolic said.
González said there needs to be more focus on margins than in 2019.
What is necessary in that equation is to add environment, social and governance metrics, panelists said.
“We can either have an industry ESG goal or go it alone and gain a competitive advantage,” Chhatwal said.
“ESG will not be necessarily powered by the consumer, as they might be as confused as the rest of us,” González added.
The CEOs agreed the most meaningful ESG metrics will come via initiatives across the global hotel and hospitality world.
“The challenge as a financial sponsor is how you measure ESG, and we are pretty far back in the journey as an industry,” Nikolic said.