Serving as moderators at last week's Americas Lodging Investment Summit in Los Angeles were Scott Berman, the U.S. hospitality industry leader at PricewaterhouseCoopers (PwC), and Guy Langford, U.S. travel, hospitality and leisure leader at Deloitte. Hotels editor Danny King spoke with both separately at the conference, asking them the same set of questions.
Scott Berman
Q: Analysts say there are at least another three years of room-demand growth in the U.S. hotel industry. Do you agree?
Berman: If we were having this conversation a year ago, I would've said industry RevPAR [revenue per available room] would've grown at about 6%. Last year, it finished at 8.3%.
Everything in terms of supply-and-demand metrics was aligned. You're in a limited supply-growth environment, you have demand coming from three basic food groups: leisure, commercial and group.
So we're saying there's going to be a repeat performance.
Langford: The question to ask is, is the dance going to end at some point, and how is it going to end? When things do slow down, is it going be a softer landing or a bumpy landing?
I would say it'll be a softer landing, but we've still got plenty of runway before we get to that point. We've got a lot of positive things. Interest rates are low, we've got amazingly low oil prices, we don't have excess supply vs. demand plus we've also got this emerging traveler set in the form of the millennials who are demanding different things.
Q: What could throw a wrench into this upcycle?
Berman: There's nothing from an economic perspective that's really troubling to us, though, caveat, we need to very closely watch foreign markets, with respect to inbound tourism. If the rest of world is unhealthy and we're the only healthy country carrying the day, that could have some impact.
Guy Langford
Langford: You've always got geopolitical unrest, and you've got life events in the form of terrorism, weather or natural disaster. And some of them you can prepare for.
What's interesting, though, is the proliferation of the use of this device [points to his iPhone]. You've got to look at cyber as a particular exposure or risk for the industry. There's a huge hunger for personal information. We saw that with Sony, and some of the larger retailers, and we've seen examples in this industry where accounts have been hacked. This industry as a whole hasn't opened itself to thinking that way, yet we're now embracing the technology in mobile and digital really rapidly.
So there are going to be a number of "a-ha!" moments in the industry where people are going to start saying, "We need to focus on that."
Q: With the largest hoteliers recently announcing or debuting a number of new brands to the U.S. market, could that lead to confusion or cannibalization?
Berman: It's a fair question. Many of these hotel operating companies are publicly traded, so they have a responsibility to their shareholders, and part of that strategy involves inventory growth.
But they also have a responsibility to their current owners, and therefore there are radius restrictions embedded in contracts for a reason.
One way to overcome those is to create new product under a new brand.
Now, it's up to them to be able to define and articulate what those brands mean to the consumers.
One way to do that is through their loyalty programs. Twenty years ago, it was about reservation systems. Today, it's about loyalty programs.
Langford: It's really going to take a bit of thought on the part of the brand owners to say, "Do we have the right mix, and is this going to cannibalize existing brands?"
What it's also going to boil down to is, where does the loyalty lie? With an individual brand, a macro brand or an OTA [online travel agency]?
Everybody wants to own the customer, but the customer doesn't want to be owned. They want the choice to say, "For business, I'm going to stay at a nice Marriott, and then when I'm going to Hawaii, I'll do Airbnb."
Q: What particular sector might be undervalued?
Berman: I have been pleasantly surprised to see the rebirth of the resort segment and the importance of resorts in the overall definition of the lodging industry. Four or five years ago, you could've bought some of the best resorts in this country at a heavy discount. And those that were smart enough to make those moves are doing very well.
And part of it is 1) the rebirth of the group biz, 2) that thirst to spend quality time with family and friends, and 3)they come back for the loyalty programs and redemptions. So that bodes well for Hawaii, Mexico and the Caribbean.
Langford: Urban is obviously a popular asset class, though some would say it's a little bit frothy.
But if you look who came out of this last recession with their feet planted firmly on the ground, the limited-service assets performed well during the downturn, and they also have performed exceptionally well during an upcycle. So my thought would be limited-service assets will continue to see growth and give you a little bit of a downside hedge, as well.