• Accor sees increased pricing power

Accor said that it saw an acceleration of its recovery in the second quarter, with steady growth in demand and pricing power gradually improving in all segments.

The group's business was driven by the emerging countries and by gateway cities, including London, where CFO Sophie Stabile said that the city had been outperforming its other markets. Accor is now looking to complete its move to a pure hotel business, and has growth planned in both established and emerging markets.

While the gateway cities and emerging markets were driving the group's growth, Stabile said that business was stabilising in some of its other markets, including Italy and Spain, the last European countries in the group yet to see rate increases in the second half.

Accor said it was confident that "this favourable momentum will carry on through 2011, with positive signs already visible concerning activity of the summer season and the early autumn".

The group saw revenue accelerate in the second quarter, increasing by 6.1% like-for-like, against 5.8% for the whole of the first half. For the first half, expansion accounted for Eu50m of the Eu2.97bn revenue, and 1.7% to the reported growth of 4.4%.

The segment to see the strongest growth for the group was its economy hotels (excluding the US), where like-for-like revenues for the first half increased by 6.4%, against its upper and midscale hotels, where revenue rose by 6% like-for-like. In the second quarter this was more pronounced, with economy hotels up 6.7%, against 6.2% for the upper and midscale, indicating a strong breadth of demand.

Stabile said that, in the economy sector (excluding the US) growth was "still mostly driven by occupancy in all key markets, but pricing power improved". In the emerging markets Q2 revenue was up by 11.7% in Asia Pacific and 20.4% in Latin America.

The group's US economy business, represented by its Motel 6 brand, remained beleaguered, with revenues up 3.4% like-for-like in the quarter, showing slower growth than the rest of Accor. Stabile said that recovery in the US remained slow "on poor economic trends, rising unemployment and oil price". The brand continues to pursue asset-light expansion, adding 22 hotels under franchise in the first half and there was no comment relating to ongoing rumours that it could be sold.

The company said that it was confident of meeting its target of opening 30,000 rooms for the full year, despite having opened 13,700  – less than half the target – in the first half. The group has, however, seen its rate of opening increase, with 7,100 of those rooms opening in the second quarter. Seventy-eight per cent of the first half total was under management and franchise contracts, in line with the group's expansion strategy.

The results came shortly before it announced that it was in exclusive talks with Sodexo over selling catering business Lenôtre at an enterprise value of Eu75m, a move which CEO and chairman Denis Hennequin said would leave the group "fully focused" on the hotels business. Hennequin stated in the press than he favoured pillows over macaroons – referring to Lenôtre's output – but hoped to continue working with the group, which supplies Accor's luxury hotels.

Stabile commented throughout the results presentation that, particularly in the group's upper and midscale properties, the growth in revenue came despite increasingly tough comparatives. The group is relying on markets such as the UK – where occupancy in London was over 90% – and where it has been able to increase rate across its portfolio, despite continued competitive pricing pressure in the provinces.

In addition to building rates in its established hotels, the group is also looking to the rapid growth in the emerging markets. Of the hotels opened in the first half, 32% were in Asia Pacific, 10% Africa and the Middle East and 5% in Latin America, meaning that close to half of the company's new properties came under the ‘emerging' banner.

Stabile confirmed that the group could lose up to Eu20m in revenue as a result of the Arab spring, with the group's hotels in Libya and Egypt the cause of most concern. However, she said that the Africa and Middle East so far remained "small markets for us".

 

HA Perspective: With Accor continuing to see the UK and its domestic market of France as targets for growth, it looks to be maintaining a balance between established and emerging markets.

But it remains a puzzle why it retains its unprofitable established market operations. In particular, there seems to be little strategic benefit in running Motel 6 in the US.

If there is a point, the new management team now at the helm of Accor need to start explaining it.

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