• Accor ponders Air France-KLM buy

AccorHotels confirmed that it had “resumed its reflections” over buying a stake in AirFrance-KLM.

The deal would see AccorHotels deepen its position in the travel funnel, rivalling the offerings of the OTAs.

Shares in Air France-KLM rose by 7% the morning after the news broke, while AccorHotels’ fell by 5%.

AccorHotels said: “Over the past years, AccorHotels has held discussions with Air France-KLM, notably with a view to developing joint digital projects as well as a joint loyalty and services platform. The aim was for both these world leaders in the travel space to offer their customers an enriched global range of mobility services. Reflections included the potential acquisition of a minority stake by AccorHotels in AirFrance-KLM, in order to strengthen the industrial growth project.”

The group said that it was at the “very early stage of assessing the feasibility and potential terms and conditions which will be discussed with Air France-KLM in due time”.

According to Les Échos the company could buy some or all of the French government’s 14.3% in Air France KLM, a move which was expected to help the carrier push through reforms which might have been harder to implement with the state as a shareholder.

Options outlined by Les Échos also suggested that the state could maintain its links with AirFrance KLM through a partial sale, but also that it could swap shares, making the hotel operator at least partially owned by the government.

“While the strategic rationale for Accor is there, we wonder why this cannot be achieved by a commercial partnership without any equity stake,” said Bernstein analyst Caius Slater.

Last month saw Air France-KLM CEO Jean-Marc Janaillac resign after staff at the carrier’s French operations rejected a pay deal aimed at ending months of walkouts.

The vote saw 55.44% of Air France workers reject a pay rise of 7% over four years. Unions said the increase was too little after six years of pay freezes and demanded a 5.1% raise this year instead.

The Air France-KLM board said that it recognised Jean-Marc Janaillac’s “courageous decision and sincerely hopes that it will open the way to the conditions for a transformation at Air France and fresh momentum for Air France-KLM”.

Air France exited the hotel sector in 1994, when it sold its 57.3% stake in Le Méridien to Forte, a deal which was hotly contested by Accor, bankrolled by Prince Al-Waleed bin Talal, which put pressure on the French government to intervene in its favour, including meeting with Nicolas Sarkozy, now a board member at AccorHotels. In the event the deal went to Forte, with Rocco Forte calling on the British state to intervene in Brussels to prevent any discrimination along national lines.

Le Méridien was then sold in 2001 by Compass Group (which merged with Forte owner Granada in 2000) to Nomura, led by Guy Hands, and Le Méridien was merged with Principal Hotels, which was acquired in February 2001. In December 2003, Lehman Brothers acquired the senior debt of Le Méridien and in 2005, the Le Méridien brand and management fee business was acquired by Starwood Capital Group. The leased and owned real estate assets were acquired in a separate deal by a joint venture formed by Lehman Brothers and Starwood Capital.

The brand is currently owned by Marriott International, where observers have frequently speculated over the likelihood that it will be sold. Marriott International has consistently denied that it planned to dispose of any of the brands it acquired through its takeover of Starwood Hotels & Resorts.

The transaction would not be AccorHotels’ first foray into the travel sector in its most recent round of deal-making, with the company acquiring a 50% stake in Orient Express from SNCF, which chairman & CEO Sébastien Bazin described as cementing the alliance “of two major French players in the world of travel for a shared purpose, that of giving fresh impetus and international standing to an historic and world-renowned brand. Thanks to this partnership, our customers will be able to enjoy a prestigious range of services and exceptional experiences based on a portfolio of luxury brands”.

AccorHotels was to develop a new collection of hotels under the name. SNCF will retain ownership of the iconic train cars, which Accor said would provide “a new and exceptional setting for events, which may be held in collaboration with AccorHotels’ other businesses such as Potel & Chabot, Noctis and John Paul”.

 

HA Perspective [by Katherine Doggrell]: This deal, should it go ahead, could very well be peak Accor. It has it all – getting deeper into the funnel, driving home the group’s connection to its homeland and throwing in the spice of politics which has been a feature of Bazin’s reign.

That we didn’t see this coming at Hotel Analyst, even though Accor has done more deals in the past year on the fringes of the traditional hotel sector than we’ve had dinners hot, cold or buffet, is, of course, a matter of personal shame. We need to think bigger, think Bazin, so we’re going to pitch our tent in favour of the group leveraging its connections in China and buying a stake in ride sharing group Didi Chuxing. Why not?

Meanwhile, at Air France-KLM, we are bound to speculate what it would mean, not only in terms of vertical integration, but for Accor’s position. Around the time of Sarko’s appointment to the Accor board, we wondered whether this was part of a plan to bring the company under the protective wing of the state, given that, at the same time, it was having some bother with Jin Jiang. Bazin denied this to us at the time – Sarko’s connections overseas could aid development, was the strategy (and the less said about his current legal bother, the better).

Strategic industries – where the state can block foreign takeovers – include transport, not hotels in France. But a blurring of the two might help. And even if not, in these days of global M&A, it couldn’t hurt to be able to draw on the government as a shareholder.

 

Additional comment [by Andrew Sangster]: This deal is a fascinating prospect but there are several things it is not. It is certainly not the creation of a super brand of travel.

Air France KLM is a great airline but it is only capable (currently) of dominating its home markets of France and the Benelux. Accor, by contrast, is a true global player, quite able to host people who are neither French or Dutch or foreigners visiting France or the Netherlands.

The historic association of some upscale and luxury hotel brands with airlines died out for a reason: there was little industrial or commercial logic to keeping them combined.

You can make a case for resorts benefiting from the association but this is marginal. Tour operators have multiple source markets, running charter flights to each, to deliver sufficient volumes of guests at either owned or contracted hotels. It is hard to see Air France jumping into the charter business in a big way and even harder to see how they would fill the planes with package holidaymakers.

So, it is no wonder then to see shareholders in Accor mildly recoil from the prospect of being connected to a legacy airline with all the political challenges involved. And during a CNBC interview, Bazin admitted there would be challenges in gaining sufficient benefits for Accor from taking a stake.

The one thing it would do, is solidify the French culture within Accor. And this is an important aspect of the experiential offer of Accor’s properties: there is nothing like declaring your Frenchness by having a few more French people around.

In a world of grey and beige boxes, a little bit of ooh-la-la maybe just what is required.

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