The theme of the Americas Lodging Investment Summit in Los Angeles last week was "Where's the Peak?" With 2015 marking a record year for U.S. hotel-room demand, hoteliers, analysts and investors debated the factors that could continue to boost business or constrain it. Hotels editor Danny King spoke with Mike DeFrino, CEO of InterContinental Hotel Group's Kimpton Hotels & Restaurants, and Kirk Kinsell, CEO of Loews Hotels & Resorts, in separate interviews.
Q: Has the U.S. lodging sector reached a demand peak?
Mike DeFrino
MD: People got a little freaked by the fourth quarter, and the first quarter has had a tough start. Whether it's truly weakness or paranoia, I'm not sure, but it certainly suppressed our short bookings in the first quarter. But group [reservations] are still strong, and long-term bookings have kept up. And January is a funky month; it's not a month that behaves like any other. So we think we're still within the strong cycle.
KK: You need to constantly be evolving and constantly be investing in yourself, and for that matter, the industry. What is peak? Are we at our best, yet? No. Financially, are we seeing the maximum revenue performance for a while? If I knew the answer to that question I wouldn't be sitting here. But it doesn't matter whether we've peaked or not. It's "is the glass half full or half empty?" I care more about who took the other half and working on filling that glass back up.
Q: How can hotel companies reverse that trend of rising distribution costs that has come with the growth of OTAs?
MD: OT-whats (laughs)? We're all doing a lot to try to increase the value proposition through our loyalty programs, to try to upend the OTA myth that lower rates can be found on OTAs, so we are trying to build a stronger rewards system to compel our customers to stay and book with us. That's really the ultimate value proposition: the benefits you're getting on property, the best-rate guarantees and the discounts and specials that we're pushing out to reward members are really the main ways we can combat that. Ultimately, we have to convince customers or penalize them in a way, which is already happening. They don't get benefits, they don't get points and they don't get free WiFi if they don't book directly. It's a value thing there.
Kirk Kinsell
KK: Like all of the other brands, we like when guests book direct [instead of OTAs]. Not only are our costs less, but more importantly, it's a better experience for our guests. Through [direct booking], we'll have much better access to information about our guests, and we're better able to serve our guests. They get a wider array of benefits, so we're focusing our time and attention around our voice side and our Web side in terms of our presence on the Internet, and we use social media very cleverly and more so than others as another way to book through Facebook and Twitter. And then this thing here [holds up his mobile phone] is a vacancy/no vacancy sign, and having a connected experience through a mobile platform is also critical for us, so we're continuing to look at those opportunities and invest behind that.
Q: Is Airbnb a threat to hoteliers or is it broadening the pool of potential travelers?
MD: It's probably a hybrid of both, isn't it? When there's compression in the city, they're welcome, they're fine, the pie's big enough for everybody. The problem is when the pie shrinks and the number of blueberries is the same ... in a market that might be in a valley, Airbnb could hurt. That said, it's a compromise: If it's too expensive [at a hotel] or I can't get a room, I'm going to stay at an Airbnb. I don't think [a potential guest] is saying, "I want to go on Airbnb and sleep in somebody's basement in the Mission [District of San Francisco] tonight." There are lower-rated travelers who probably aren't my customers anyway, who may create some incremental new business because they can stay for $50 in San Francisco. But the guy who needs to be in Union Square? I don't think he's choosing Airbnb if he doesn't have to.
KK: It's both. It creates some demand, and that's OK. And it's an alternate choice other than couch-surfing with a friend. While they're a competitor, and we respect all competitors, we don't see them being a competitive threat in terms of [a potential guest]making a choice between Airbnb and a Loews hotel.