It’s enough to strike fear in the hearts of OTAs worldwide—if Google enters the hotel booking game, what will the resulting merchant landscape look like? Don’t worry about it too much because the scenario is not likely, according to industry experts.
Despite buzz surrounding Google’s pending acquisition of ITA Software, there are no signs that Google plans to become a hotel room retailer, according to industry participants. In fact, many think Google’s increased interest in travel-related search results could be a benefit, with an important exception being the online travel agencies.
To be clear, ITA processes flight information so the acquisition by Google in itself does not affect hotels directly. What is likely to happen, however, is OTAs will respond to the changes and that will in some way affect hotels, according to Tim Unwin, senior VP, product management for Pegasus Solutions.
Henry Harteveldt, Forrester Research
Google will likely take the combined capabilities of ITA and its existing platforms to the hotel search and discovery process, according to Henry Harteveldt, VP & principal analyst, Airline & Travel Research, Forrester Research.
“Google wants to take advantage of ITA’s capabilities to understand (consumer search) intent,” he said.
For some location searches, Google already is presenting Google Maps with an augmented display of specific hotel locations, rates and sometimes availability, Unwin said. “Whilst that is still an evolving service, there is a potential for that to become a customer source for shopping and booking,” he said. “But from my perspective, Google is important in search rather than the ultimate transaction.”
Google is being careful how they display hotel information, according to Chris Anderson, assistant professor at Cornell University’s School of Hotel Administration.
“Google is very conscious how they list those prices and where they put them,” he said. “They don’t want those consumers to go to that map and use that as their search base because that will reduce their revenue stream from general ads and sponsors links.”
The FairSearch movement
There is a movement afoot, called FairSearch.org, led by the big OTAs and other companies with interest in online search competition and transparency. Members include Microsoft; Expedia and its brands HotWire and TripAdvisor; Level.com (France); Farelogix; meta-search site KAYAK and its brand SideStep; vertical search engine Foundem; and Sabre Holdings and its brand Travelocity.
Google declined to comment on its work in the travel industry, except to deny the existence of “Google Travel.” Its corporate web pages refer to advertising and data opportunities in the travel space, rather than any consumer platforms.
Max Starkov believes the controversy surrounding the Google-ITA deal is fueled by the OTAs.
“(The negative press is) a scare tactic by the OTAs to scare the bejesus out of everybody that Google will be monopolizing travel,” Starkov said. “Google is not in the business of transactions. They’re in the business of presenting information in the most intelligent way. … I think it’s an intentional distraction to try to the scare the industry that there’s a bigger enemy than us. It’s Google.”
Google will not turn themselves into a travel agency, the chief eBusiness strategist with Hospitality eBusiness Strategies said. They will present rates and from there people will go to the respective booking agents.
Starkov’s predictions for how Google could proceed with monetization of its capabilities:
• They can take a referral fee or cut of the booking.
• They can charge more on search ad revenue (hotel companies pay more to show up more prominently in search results).
• They can charge a fee just to have the website listed, or charge for every individual booking made through their search results. “Google will probably say if we bring you a booking, we should somehow be compensated for that,” he said.
• They could license ITA software to hotel companies as it has airlines and travel agencies.
What if Google did decide to enter the hotel transaction space?
“It’s more difficult to envisage a single acquisition in the hotel space having a similar effect like what is likely to happen in airlines,” Unwin said. “There are still pieces of that picture that are evolving (for airlines).”
Google realizes it needs to talk to and work with the hotel chains and intermediaries, he said.
“They want to open up channels to allow access to the data they need to flow through to them,” Unwin said. “The one key thing is Google needs access to up-to-date and accurate information.”
They want to work with anyone who can contribute to the presentation of accurate information on inventory, but they don’t necessarily need to own anyone to get it, he added.
Monday, January 31, 2011
Wednesday, January 26, 2011
How investors will spend their money in 2011
The hotel industry can debate all day over branding, labor cost, revenue management, distribution, etc., but here at the Americas Lodging Investment Summit, the focus is on money. There would be no hotels to operate if there weren’t investors to build and buy them. So, what does 2011 have in store for the money guys?
Because of where 2011 falls in the cycle, owners are looking for any opportunity they can find to buy underperforming assets and carry them through the upturn.
“It’s a great time to be buying hotels,” said Monty Bennett, CEO of Ashford Hospitality Trust. “What makes certain investments turn out to be fantastic and other investments not so good … It all comes down to when you bought in the cycle. That is the driving factor. Now is the time to jump out there and buy.”
Bennett said Ashford will focus on properties and portfolios where it already owns a piece of debt and examine opportunities to become full owners. Any equity now should be spent on acquisitions, he said. Renovations—if they weren’t completed during the recent downturn—can wait.
“Don’t overinvest in capital expenditures right now,” he said. “And I hope no one builds.”
Don’t start building now
Jay Shah, CEO of Hersha Hospitality Trust, agreed. Hotels that aren’t in the ground yet might miss the boat by the time the doors open.
“By the time you’re up and running, we’re going to be over the hump,” he said. “Buying an asset and having it through the upturn is going to be most beneficial from an IRR standpoint.”
Adam Weissenberg, Deloitte (left), and Monty Bennett, Ashford, on the Hotel Leaders Outlook panel.
That’s true for full-service players, said Mit Shah, CEO of Noble Investment Group. But select-service players might have the option of buying or building because construction costs are down, land availability is higher and brands have a willingness to do things to help out.
“Whether it’s credit-enhanced debt or key money or some combination thereof, you can actually look at a model without robust (revenue-per-available-room) growth, in a stable demand market, where you can find an opportunity to develop some select-service hotels.”
Ed Walter, president and CEO of Host Hotels & Resorts, said his company is in buy mode, too, as evidenced by Host’s US$310-million purchase of the New York Helmsley from Leona Helmsley Estate.
“There are great opportunities to buy assets at discounts to replacement cost. Until those values get back to replacement cost, the new-build scenario doesn’t make a lot of sense,” he said. “Those numbers are going to make sense sooner in select-service than full-service.”
Debt markets loosen
The one hurdle that has kept many investors on the sidelines during the past few years—availability of debt—seems to be easing. The lending markets are loosening, although underwriting standards remain strict.
Hersha Hospitality Trust’s Shah heard talk in the ALIS hallways of 70% to 75% leverage availability. “It looks like 2004 again,” he said.
But as credit becomes more available, sellers get more stringent with their prices. The time to capitalize on deeply discounted hotels might have passed.
“The deals are not as juicy as they were in ’09 and ’10,” said Ash Israni, chairman of Pacifica Companies.
Israni said owners are sitting on properties in need of major improvements and deciding whether to spend the money or take the property to market.
“You’ve got to make the decision—do you want to fix the asset yourself or let someone else put up the capital?” Host’s Walter said. “Sometimes the best thing to do is to sell it.”
Because of where 2011 falls in the cycle, owners are looking for any opportunity they can find to buy underperforming assets and carry them through the upturn.
“It’s a great time to be buying hotels,” said Monty Bennett, CEO of Ashford Hospitality Trust. “What makes certain investments turn out to be fantastic and other investments not so good … It all comes down to when you bought in the cycle. That is the driving factor. Now is the time to jump out there and buy.”
Bennett said Ashford will focus on properties and portfolios where it already owns a piece of debt and examine opportunities to become full owners. Any equity now should be spent on acquisitions, he said. Renovations—if they weren’t completed during the recent downturn—can wait.
“Don’t overinvest in capital expenditures right now,” he said. “And I hope no one builds.”
Don’t start building now
Jay Shah, CEO of Hersha Hospitality Trust, agreed. Hotels that aren’t in the ground yet might miss the boat by the time the doors open.
“By the time you’re up and running, we’re going to be over the hump,” he said. “Buying an asset and having it through the upturn is going to be most beneficial from an IRR standpoint.”
Adam Weissenberg, Deloitte (left), and Monty Bennett, Ashford, on the Hotel Leaders Outlook panel.
That’s true for full-service players, said Mit Shah, CEO of Noble Investment Group. But select-service players might have the option of buying or building because construction costs are down, land availability is higher and brands have a willingness to do things to help out.
“Whether it’s credit-enhanced debt or key money or some combination thereof, you can actually look at a model without robust (revenue-per-available-room) growth, in a stable demand market, where you can find an opportunity to develop some select-service hotels.”
Ed Walter, president and CEO of Host Hotels & Resorts, said his company is in buy mode, too, as evidenced by Host’s US$310-million purchase of the New York Helmsley from Leona Helmsley Estate.
“There are great opportunities to buy assets at discounts to replacement cost. Until those values get back to replacement cost, the new-build scenario doesn’t make a lot of sense,” he said. “Those numbers are going to make sense sooner in select-service than full-service.”
Debt markets loosen
The one hurdle that has kept many investors on the sidelines during the past few years—availability of debt—seems to be easing. The lending markets are loosening, although underwriting standards remain strict.
Hersha Hospitality Trust’s Shah heard talk in the ALIS hallways of 70% to 75% leverage availability. “It looks like 2004 again,” he said.
But as credit becomes more available, sellers get more stringent with their prices. The time to capitalize on deeply discounted hotels might have passed.
“The deals are not as juicy as they were in ’09 and ’10,” said Ash Israni, chairman of Pacifica Companies.
Israni said owners are sitting on properties in need of major improvements and deciding whether to spend the money or take the property to market.
“You’ve got to make the decision—do you want to fix the asset yourself or let someone else put up the capital?” Host’s Walter said. “Sometimes the best thing to do is to sell it.”
Tuesday, January 18, 2011
A different view of ADR discounting
Industry pundits regularly say hold ADR and do not discount. If we heard nothing else in this recession, we heard that over and over. I have concluded discounting may be the right thing to do in such extraordinary circumstances as we are still in. It may also be something you have no choice doing given the new internet transparency and ease of comparing prices.
As we saw, demand is highly elastic. It appears that down to some level around 53%-55%, occupancy is heavily impacted by price and economic realities. At around 55%, or a little less, there seems to be an equilibrium demand based on essential demand from people who need to travel no matter what the economic situation. When the economy gets bad, occupancy falls substantially and demand dries up.
It is nice to say hold the line on ADR and they will still come. I do not believe that is true, and I now think discounting, and doing so quickly in the teeth of a major recession, may be the right thing to do. Your competitors will do it, so you need to not be the lone holdout or you will be left out of what business there is to get.
I have no statistical proof, but there is anecdotal evidence. There is some portion of demand that has to travel, but as we saw this time, there was a massive cutback by all types of companies on travel budgets. Someone had to really justify why they were traveling and the cost to get permission to do so. I had numerous people tell me they passed on the trip because of budget reasons. It seems to me that a number of trips happened because the rates for the hotel stay as well as the airfare were deeply discounted and employers or individual travelers could justify the cost. Attendees at conferences often made economic decisions last year, and hotel rates and flight costs clearly figured in. The resurgence of travel now is a combination of much-improved business travel, but also individuals, business and families taking advantage of discount deals.
Having been in the real estate business for many years, and having lived through the early ‘90s major recession and others before that, one lesson learned was: take your losses early and get things going again. That was the beauty of the RTC. It is also the essence of “your first loss is your best loss.”
By lowering rates sooner, you can possibly establish yourself with your regular customers as being prepared to meet their needs while maintaining your recession level of occupancy to avoid the competition stealing your guests.
Discounts and reality
The reality is that in a deep economic downturn, one much less terrible than what we just lived through, travelers expect a discount, and if you will not provide it they will go elsewhere. It is just like retailers at Christmas. With the Internet, price comparison is what almost everyone does today, so unless you are willing to go along, you will simply not get occupancy.
I do deals in many real estate sectors—not just hotels—so I see what happened in other product types. The office sector moved very quickly this time to reduce rents through both actual reductions and concessions. Manhattan effective rents declined by 20%, similar to the decline in hotel revenue per available room. Rents in retail and other sectors declined by similar amounts. It suggests that 20% reduction in net revenue, or there about, was what was required generally to get to an equilibrium level where demand was again restored sufficiently to stabilize the reductions in vacancy and price.
By moving fast, office landlords were able to retain some tenants and to get the pain dealt with quickly, so that now vacancy has stabilized and rents have begun to stabilize or rise slightly again. The multi-family owners cut rents and provided a lot of concessions quickly, and they are now experiencing much reduced vacancy and slightly rising rents and lower concessions.
The bottom line is there is no choice but to discount rates in a major recession. It is all a matter of good revenue management and discounting just enough to generate demand. All real estate sectors do it and did it massively in this downturn.
The secret is to out-market the competition and to maintain your asset as one of the best, so that when consumers compare deals they are paying the same or only a little more for your better property than the one down the road, which is of lesser quality. In deep recessions, quality matters, and hotel guests, office tenants and retail tenants all migrate to the better quality asset at a discount price.
Maybe the real point is to maintain or even upgrade your asset as best you can, and that will let you recover faster and to raise rates more when the economy improves.
As we saw, demand is highly elastic. It appears that down to some level around 53%-55%, occupancy is heavily impacted by price and economic realities. At around 55%, or a little less, there seems to be an equilibrium demand based on essential demand from people who need to travel no matter what the economic situation. When the economy gets bad, occupancy falls substantially and demand dries up.
It is nice to say hold the line on ADR and they will still come. I do not believe that is true, and I now think discounting, and doing so quickly in the teeth of a major recession, may be the right thing to do. Your competitors will do it, so you need to not be the lone holdout or you will be left out of what business there is to get.
I have no statistical proof, but there is anecdotal evidence. There is some portion of demand that has to travel, but as we saw this time, there was a massive cutback by all types of companies on travel budgets. Someone had to really justify why they were traveling and the cost to get permission to do so. I had numerous people tell me they passed on the trip because of budget reasons. It seems to me that a number of trips happened because the rates for the hotel stay as well as the airfare were deeply discounted and employers or individual travelers could justify the cost. Attendees at conferences often made economic decisions last year, and hotel rates and flight costs clearly figured in. The resurgence of travel now is a combination of much-improved business travel, but also individuals, business and families taking advantage of discount deals.
Having been in the real estate business for many years, and having lived through the early ‘90s major recession and others before that, one lesson learned was: take your losses early and get things going again. That was the beauty of the RTC. It is also the essence of “your first loss is your best loss.”
By lowering rates sooner, you can possibly establish yourself with your regular customers as being prepared to meet their needs while maintaining your recession level of occupancy to avoid the competition stealing your guests.
Discounts and reality
The reality is that in a deep economic downturn, one much less terrible than what we just lived through, travelers expect a discount, and if you will not provide it they will go elsewhere. It is just like retailers at Christmas. With the Internet, price comparison is what almost everyone does today, so unless you are willing to go along, you will simply not get occupancy.
I do deals in many real estate sectors—not just hotels—so I see what happened in other product types. The office sector moved very quickly this time to reduce rents through both actual reductions and concessions. Manhattan effective rents declined by 20%, similar to the decline in hotel revenue per available room. Rents in retail and other sectors declined by similar amounts. It suggests that 20% reduction in net revenue, or there about, was what was required generally to get to an equilibrium level where demand was again restored sufficiently to stabilize the reductions in vacancy and price.
By moving fast, office landlords were able to retain some tenants and to get the pain dealt with quickly, so that now vacancy has stabilized and rents have begun to stabilize or rise slightly again. The multi-family owners cut rents and provided a lot of concessions quickly, and they are now experiencing much reduced vacancy and slightly rising rents and lower concessions.
The bottom line is there is no choice but to discount rates in a major recession. It is all a matter of good revenue management and discounting just enough to generate demand. All real estate sectors do it and did it massively in this downturn.
The secret is to out-market the competition and to maintain your asset as one of the best, so that when consumers compare deals they are paying the same or only a little more for your better property than the one down the road, which is of lesser quality. In deep recessions, quality matters, and hotel guests, office tenants and retail tenants all migrate to the better quality asset at a discount price.
Maybe the real point is to maintain or even upgrade your asset as best you can, and that will let you recover faster and to raise rates more when the economy improves.
Thursday, January 13, 2011
18 tests for hotel sales pros
I was driving home from having my car serviced early last month and my mind was on the much-anticipated holidays and visits with family and friends home and away. Suddenly, I became aware that I might have missed an important turn and might be lost. How could this be? I had made this same trip—less than five miles from home—problem-free dozens of times over the years.
Why was this familiar trip so different this time? And then it hit me: Daylight saving time had ended a few weeks back, and it was now very dark outside. All of those previous trips back and forth to the dealership, each taking the exact same route, had been done during daylight hours.
Once I realized I was not having one of those senior moments, I was able to collect myself, identify exactly where I was, and work my way back home safe and sound.
The incident reminded me of how easy it is for those of us who sell for a living to become too familiar—perhaps too comfortable—with the routine of how, where and when we conduct our business. How adaptive are we when the playing field shifts slightly? How quickly are we prepared to adjust to something unexpected, something as simple as daylight saving time ending? How quickly are we prepared to adjust to new situations and to changes in our familiar working landscape?
Consider the changes impacting meeting planners these past few years. Budgets and staffs have been cut severely. Large and small meetings have been forced to cancel or postponed indefinitely. Planners have had more and more tasks placed on their plates. Many planners will tell you they are overworked, underpaid and under-valued by superiors. And then there’s a whole new generation of meeting planners without the experience of their predecessors who are in need of knowledge and expertise; unfortunately for them, new barriers are in place (new policies, security issues and time restraints) that make connecting and relationship-building with seasoned hotel sales professionals more difficult.
Adapting to change
I clearly remember a college professor writing on a blackboard so many years ago, “The only thing constant in life is change.”
Yes, I read Spencer Johnson’s book “Who Moved My Cheese” more than a decade ago, so I should always be prepared to deal with change. The biggest, of course, were the arrival of the Internet and more recently the emergence of various social media channels.
Dr. Johnson’s message was clear: Change happens, anticipate change, monitor change, adapt to change quickly, change, enjoy change, and be ready to quickly change again and again.
I believe it was Sir Winston Churchill who said, “To improve is to change; to be perfect is to change often.”
Here’s a laundry list of issues for hotel sales professionals to test to see if any “changes” might be in order for present and future success:
1. Have we become too comfortable, too dependent upon technology?
2. Have we become over-reliant on e-mailing clients and prospects?
3. Do we have a real sense of our prospects’ environment, pressure and time-restraints?
4. Do we establish quickly our prospects’ preferred communication tool—telephone, personal sales call, e-mail, texting, other? Do we never ask?
5. Do we fully understand why many prospects may prefer not to meet in person?
6. Do we give prospects a compelling-enough reason why we should meet?
7. Do we commit to making appointments with prospects?
8. Do we commit real-time hours devoted to making prospecting phone calls?
9. Do we avoid calling prospects during lunch, early mornings, or late afternoons?
10. What hour of the day are our top prospects most likely to take our calls?
11. Do we stop calling prospects when a second or third call is not returned?
12. Do we really return phone calls promptly? Within minutes, an hour, same day?
13. Do we need to change the content or tone of the voice messages we leave?
14. Do we commit to a regular schedule of outside sales calls?
15. Do we lock ourselves into making outside calls “only” on specific days?
16. Do we commit to making qualified sales trips? Attending qualified trade shows?
17. Do we argue for and justify why making qualified sales trips and attending qualified trade shows and other customer events cannot be cut from budgets?
18. Have we taken inventory of what works best for us? What’s not working? What, if anything, do we need to change?
Diamond wisdom
Those who know me well know of my love of baseball, and so I will close with a couple of pieces of wisdom from two hall of famers. (Yes, I’m still ecstatic about my Giants winning the World Series!)
Most veteran sales professionals know it is very easy to fall into “comfort” zones—to become locked into routines. It’s difficult for all of us to challenge ourselves to test whether those routines, those habits and those patterns may need changing.
Baseball hall of famer Johnny Bench said falling into a hitting slump was like falling into a waterbed—easy to fall into but hard to get out of.
And future hall of famer Randy Johnson said upon his retirement last year, “You don’t perform at the major league baseball level at age 45 without mastering making adjustments.”
Every hotel sales professional—veterans and rookies alike—should continue to look for those changes that have an impact on how they do their jobs and what adjustments might become necessary to succeed.
I recommend that both veterans and rookies use the laundry list above to test themselves—to determine whether some changes, adjustments or even simple tweaking might be in order.
Remember, sales professionals never stay the same; they’re either getting better or getting worse.
Why was this familiar trip so different this time? And then it hit me: Daylight saving time had ended a few weeks back, and it was now very dark outside. All of those previous trips back and forth to the dealership, each taking the exact same route, had been done during daylight hours.
Once I realized I was not having one of those senior moments, I was able to collect myself, identify exactly where I was, and work my way back home safe and sound.
The incident reminded me of how easy it is for those of us who sell for a living to become too familiar—perhaps too comfortable—with the routine of how, where and when we conduct our business. How adaptive are we when the playing field shifts slightly? How quickly are we prepared to adjust to something unexpected, something as simple as daylight saving time ending? How quickly are we prepared to adjust to new situations and to changes in our familiar working landscape?
Consider the changes impacting meeting planners these past few years. Budgets and staffs have been cut severely. Large and small meetings have been forced to cancel or postponed indefinitely. Planners have had more and more tasks placed on their plates. Many planners will tell you they are overworked, underpaid and under-valued by superiors. And then there’s a whole new generation of meeting planners without the experience of their predecessors who are in need of knowledge and expertise; unfortunately for them, new barriers are in place (new policies, security issues and time restraints) that make connecting and relationship-building with seasoned hotel sales professionals more difficult.
Adapting to change
I clearly remember a college professor writing on a blackboard so many years ago, “The only thing constant in life is change.”
Yes, I read Spencer Johnson’s book “Who Moved My Cheese” more than a decade ago, so I should always be prepared to deal with change. The biggest, of course, were the arrival of the Internet and more recently the emergence of various social media channels.
Dr. Johnson’s message was clear: Change happens, anticipate change, monitor change, adapt to change quickly, change, enjoy change, and be ready to quickly change again and again.
I believe it was Sir Winston Churchill who said, “To improve is to change; to be perfect is to change often.”
Here’s a laundry list of issues for hotel sales professionals to test to see if any “changes” might be in order for present and future success:
1. Have we become too comfortable, too dependent upon technology?
2. Have we become over-reliant on e-mailing clients and prospects?
3. Do we have a real sense of our prospects’ environment, pressure and time-restraints?
4. Do we establish quickly our prospects’ preferred communication tool—telephone, personal sales call, e-mail, texting, other? Do we never ask?
5. Do we fully understand why many prospects may prefer not to meet in person?
6. Do we give prospects a compelling-enough reason why we should meet?
7. Do we commit to making appointments with prospects?
8. Do we commit real-time hours devoted to making prospecting phone calls?
9. Do we avoid calling prospects during lunch, early mornings, or late afternoons?
10. What hour of the day are our top prospects most likely to take our calls?
11. Do we stop calling prospects when a second or third call is not returned?
12. Do we really return phone calls promptly? Within minutes, an hour, same day?
13. Do we need to change the content or tone of the voice messages we leave?
14. Do we commit to a regular schedule of outside sales calls?
15. Do we lock ourselves into making outside calls “only” on specific days?
16. Do we commit to making qualified sales trips? Attending qualified trade shows?
17. Do we argue for and justify why making qualified sales trips and attending qualified trade shows and other customer events cannot be cut from budgets?
18. Have we taken inventory of what works best for us? What’s not working? What, if anything, do we need to change?
Diamond wisdom
Those who know me well know of my love of baseball, and so I will close with a couple of pieces of wisdom from two hall of famers. (Yes, I’m still ecstatic about my Giants winning the World Series!)
Most veteran sales professionals know it is very easy to fall into “comfort” zones—to become locked into routines. It’s difficult for all of us to challenge ourselves to test whether those routines, those habits and those patterns may need changing.
Baseball hall of famer Johnny Bench said falling into a hitting slump was like falling into a waterbed—easy to fall into but hard to get out of.
And future hall of famer Randy Johnson said upon his retirement last year, “You don’t perform at the major league baseball level at age 45 without mastering making adjustments.”
Every hotel sales professional—veterans and rookies alike—should continue to look for those changes that have an impact on how they do their jobs and what adjustments might become necessary to succeed.
I recommend that both veterans and rookies use the laundry list above to test themselves—to determine whether some changes, adjustments or even simple tweaking might be in order.
Remember, sales professionals never stay the same; they’re either getting better or getting worse.
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