Independent hotels have been warned that the fragile improvement in the UK regions may not mean that tough times are not necessarily over. But for enterprising independents, surrender to a brand flag is not the only option.
Corporate recovery specialists Begbies Traynor gave the warning in their latest Red Flag Alert report, analysing the health of business sectors across the UK. The good news is that levels of “critical” financial stress in the hotel sector fell 24% in the last quarter of 2013, the best improvement across all sectors the consultants survey. But the recovery in the UK remains patchy, varying from region to region, and there has been an increase of 28% year on year in the number of hotels suffering from what the consultants call “significant” stress levels.
Begbies partner Julie Palmer noted that concerns remain. “Our data shows that independent hotels and gyms are particularly at risk in the current economic climate as ambitious larger chains continue to slash prices and develop lower cost models, forcing smaller independent players to compete through price and operate at unsustainably low margins. With hotel occupancy levels and revenue per room in the last quarter of 2013 falling, the hotels sector is in a difficult position as it enters the lean Q1 trading period.”
And executive chairman Ric Traynor warned: “A large population of businesses continue to suffer from ‘significant’ distress resulting from funding, management or accumulated debt issues. The next year will be a key period for these businesses to either sort out their problems and prosper or finally reach the end of the road.”
Yet the warning comes as record results from two hotel affiliate groups demonstrate that independents have viable alternatives to joining a brand flag. Both Preferred Hotel Group, and Small Luxury Hotels of the World (SLH), revealed 2013 was a record year for their portfolios, demonstrating their systems delivered more business to member hotels. In addition, there are indications of a rise in hotels deflagging from major brands, to join these affiliate groups.
Preferred generated a 14% increase in revenues at USD834m, pushing up ADR 6% for its member hotels with a 20% increase in room nights. The group increased its global reach with new hotels added in Vietnam and Myanmar, while it helped drive revenues up with a 16% increase in ADR for its member hotels in Mexico, and 15% in France.
Preferred welcomed 126 new properties to its system, of which 11 were de-flags of hotels leaving major brands. Among these were luxury hotels leaving the Waldorf Astoria, Crowne Plaza and Hyatt Regency portfolios; and the Hotel du Collectioneur in Paris, formerly a Hilton. “We have a lot of Chinese hotels, they are deflagging at quite a rate,” commented a Preferred spokeswoman.
“I am proud that we successfully executed on every initiative we set out to accomplish in 2013, from the expansion of our global footprint to the introduction of ground-breaking programmes,” said president Lindsey Ueberroth. “Preferred is entering 2014 well positioned for continued growth as a favoured partner for independent hotels and resorts worldwide. We are building on the momentum of last year and have many exciting developments in the pipeline.”
Preferred has also successfully launched a points-based loyalty scheme, claimed as a first for independents. The iPrefer programme gives guests opportunities to spend their points at 450 subscribing hotels globally, and has seen a substantial uptake since launch.
SLH delivered an 8% increase in room nights sold, with revenues up 12% to USD134m. The group also added 55 properties, of which 29 came from EMEA, and 17 from Asia Pacific.
Paul Kerr, CEO for SLH said: “This has been another extraordinary growth year for SLH. Certainly, there has been an increase in consumer confidence globally, but SLH offers a great product that is easily booked whether that is through a travel agent, online – via computer, tablet or mobile – or over the phone. However consumers choose to buy, we’re there, and we are looking forward to 2014, when we revamp our website to make it faster and perform better.”
SLH also runs a loyalty programme, which saw a 71% increase in members during 2013, now numbering 325,000. The group also ran a flash sale initiative at the end of the year, generating a 37% increase in reservations, and 51% increase in revenues for members, in the week after Christmas. The promotion drove 229% more hits on the SLH website, where an online booking engine now takes more than a third of all revenues.
HA Perspective: [by Katherine Doggrell] When is a brand not a brand? When it’s an affiliate programme. The growth of the ‘distribution but no brand manual’ market has been one of the successes of the downturn, where hotels, particularly those in the luxury sector, have been unwilling to pay for branding they don’t want, or need, just to have access to a global distribution network.
This has been great news for the likes of Preferred and SLH, but they face competition from the global operators, who have realised that they can add one of these Lite Brands and add a whole lot of hotels into their system at minimal cost all round. Marriott International has Autograph Collection, Starwood Hotels & Resorts has The Luxury Collection. For luxury properties, which have nailed the service and amenities parts which other hotels go to brands to finesse, there is little point in scrapping that hard work for someone else’s logo.
So what’s not to like? A word of caution to the operators look for cheap pipeline. At the Boutique Hotel Summit last year, Jeremy Robson, whose RAM Group owns the Great Northern Hotel in London, said that one of the attractions of these contracts was that “I can break it, it’s as simple as that”. A rare situation in the market where power is shared evenly.