The new business model for Accor’s hotel operations was the focus for a two-day briefing by the company in Paris this week.
The main objectives of the changes are to improve margins, return on capital employed and reduce cyclicality. Patient listeners were rewarded with a schedule of transactions that Accor is planning over the coming years.
CEO Gilles Pelisson said there were five strategic priorities for Accor: increasing midscale market share in Europe; doing the same with budget; strengthen Motel 6; grow economy and midscale in emerging markets; and reposition upscale and luxury brands.
A key way Accor believes it can deliver on its ambitious growth targets – it wants to grow from 4,000 hotels to 5,000 by 2012 – is through segmentation.
At the midscale level this includes the all suite product Suitehotel and the recently unveiled extended stay brand Adagio.
In the budget and economy segment, the conversion product All Seasons is the great hope. It is described as a non-standardised integrated chain sitting alongside rivals such as Comfort Inn, Kyriad and Days Inn.
The target market for All Seasons is customers who have historically stayed with independent hotels: the ambition is to provide consistent product and service quality while also offering diversity and personality.
All Seasons is a route to growth for Accor in market such as France, Germany and Benelux where it already has a large network of its existing brands. In markets such as Spain and Italy which currently have few budget or economy hotels, the main focus is to be new builds, particularly Etap.
In emerging markets, there are even more ambitious growth targets for economy and midscale. In China, Accor wants to grow from the 18 hotels it had at the end of 2006 to hit 125 hotels by 2010.
For India, it is a growth from one hotel to 40; for Latin America form 144 to 260 (200 in Brazil alone); and from 60 hotels in the Middle East to 140.
The final part of the branding jig saw is the introduction of the Pullman brand to tidy up the overstretched Sofitel flag. Pullman is pitched just below Sofitel which is being repositioned as a luxury offering.
Pullman is to focus both on business travellers and the meeting, incentives, conventions and exhibitions segment. It will initially comprise of reflagged Sofitels and Grand Mercures.
The online presence of Accor is also to be modified. Rather than sell from a site that focuses on the overall company, like Marriott does, Accor wants to emphasise the separate brands.
It is overhauling its websites but is keen to keep working with online third-party intermediaries such as Expedia. Third party web sites currently contribute 24% of room nights booked online, about 3.2 million.
Helping to give the company confidence online is a revamp of its revenue management system. In particular, dynamic pricing, which was first introduced in 2005, is boosting yields.
Also tapping into a new seam of demand is the new loyalty programme, A’Miles. This will consolidate all the existing Accor reward schemes and reach down to Ibis and All Seasons brands (though not Etap or Formule 1).
CFO Jacques Stern gave a detailed presentation on the changes being wrought by Accor’s switch away from ownership. In 2006, 50% of rooms were owned or on fixed leases: by 2012, the aim is to have just 23% on similar terms.
Variable leases were lauded for being contracts that reduce cash flow volatility and capital intensity while preserving operator flexibility and potential long-term control on cash-flow streams.
The lease payment was usually between 50% and 55% of EBITDAR. In revenue terms this was 15% in France, 18% in Germany and 21% in the UK.
In emerging markets too, the intention is to reduce asset intensity. The 100 hotels likely to be in Ibis China by 2010 will probably be sold into a specialised Real Estate Investment Trust within three to seven years.
Stern characterised Accor’s approach as “voluntarist and pragmatic”. The target was to restructure 75% of available hotels by 2010, about 600 out of the available 803 properties.
A schedule of forthcoming transactions was also revealed. This listed a Sofitel European partnership, parallel to the US version struck in 2006 and 2007 that was slated for next year. A similar sale and manage back is planned for Asia Pacific in 2009 to 2010.
Some form of sale and variable leaseback transaction, probably involving a REIT, is set for midscale and economy hotels in southern Europe during next year. Again, Asia Pacific is slightly later in 2009 or 2010.
Finally, a sale and franchise back is planned for Formule 1 at some point in France and Belgium during 2009 to 2010. Motel 6 will be similarly dealt with in the US in the same time frame.
Stern claimed that Accor’s approach improved ROCE while maintaining control; it reduced the volatility of future earnings; and the investment in property in emerging markets created value to shareholders in a manner that mirrored private equity’s style. In summary, Accor heralded its changes as representing a move from a hotel owner / operator culture to that of a service provider culture.