Exceptional, July - December 2014
Chris Nassetta, President and CEO of Hilton Worldwide, and Howard Roth, EY’s Global Real Estate Leader, discuss how Millennials are changing the face of the hotel sector and why technology is the way forward.
Greater disposable income, low-cost airlines and mobile booking sites have made travel accessible to more people than ever before. Combine this with increasingly tech-savvy and knowledgeable customers, and accommodation providers are racing for innovative ways to enhance the customer experience.
In light of this, and drawing on knowledge from a combined 60 years in the real estate and hotel industries, Chris Nassetta and Howard Roth discuss current trends, challenges and predictions for the future.
What trends are you currently seeing in the hotel and hospitality industry?
Nassetta: I think there are many trends that are positively affecting the business. Today, travel and tourism is the biggest industry in the world. It makes up 9% of global GDP and it’s also the largest employer; 1 in 11 jobs in the world is in this industry.
There’s an expectation over the next 10 years that 75 million new jobs are going to be created. In the past 20 years, the middle-class population has doubled, and over the next 20 years, it’s expected to double again.
Tourist arrivals over the past 20 years have also doubled and are expected to double again in the same period. If you look at the hotel business just in the US, there are 15.7 hotel rooms for every 1,000 people.
If you look at many of the other regions, and particularly the emerging markets, there is less than one hotel room per 1,000 people. That means there is huge potential for growth.
Roth: Broadly, hospitality has been on the upswing. There are more capital flows coming from east to west, with growing middle classes, a more affluent Millennial generation and demand for faster, more customized service.
There are a lot of accommodation providers moving toward a “lifestyle” or boutique style of accommodation to cater for changing demographics. Over the next 5 to 10 years, we will see mobile continuing to be a hot platform, as well as social media and digital innovations as tools to engage customers and build loyalty.
We also see many companies deploying analytics tools to gain insight into consumer preferences. By using this information to create differentiated experiences, they hope to motivate customers to visit more frequently, stay longer and spend more.
Sustainability remains at the forefront of many customers’ accommodation considerations and should be important for hoteliers, too.
What were the main challenges for Hilton in moving from a private to a public company?
Nassetta: When I joined Hilton, from an organizational point of view, it was very dysfunctional. The performance of the company was mediocre at best. I recognized that there was immense potential, but that it was not in any way being optimized.
We immediately focused on a plan to address all of the issues identified as part of the underwriting thesis. It started and continues as a cultural revolution.
That meant rebuilding the organization and getting people aligned around core principles, our vision, mission, values and a set of key strategic priorities that would guide everything that we did. It involved gaining intense alignment of the organization, optimizing the performance of the enterprise, continuing to strengthen and expand the portfolio of brands, and expanding our footprint with a focus on international growth.
In the six years since the acquisition, we have become the fastest-growing major lodging company in the world, with growth in rooms at 37%. We have the largest pipeline in our history, with nearly 200,000 rooms, and more new rooms under construction than anyone else in the industry. Most importantly, we’ve received a great reception upon our return to the public markets and are feeling very positive.
Roth: We have seen a lot of hotel companies go public. Recent hotel IPOs in the US have largely been driven by major private equity players.
Several years of steady revenue growth and limited additions to supply have enhanced investor confidence, particularly where a dynamic growth story like Hilton’s exists for the future. Other large private owners have clearly taken notice, and we see this hotel IPO trend continuing for large portfolio owners with appropriate economics and growth stories.
How is the industry changing as the customer base shifts to the so-called Millennials?
Nassetta: That is a great question and a very important one. I would say we’re like everyone else in the business in that we are thinking about shifting demographics but want to continue to appeal to a broader set of customers across all age cohorts.
Each of our brands is designed to cater to customers across different price points and travel needs. There is no one brand that is our Millennial brand, or Generation Y brand — every one of our brands needs to appeal to a broad audience base.
We have not yet launched a lifestyle or boutique brand, but we are in the process of developing something in that space. Proportionally, that brand will probably draw more Millennials, but if we do it right, it will be like our other brands in having a fairly broad appeal.
Roth: There are a number of accommodation providers now tweaking their offerings for the Gen Y customer. Predicted to be the core customer within the hospitality and travel industries over the next 5 to 10 years as they enter into their peak earning, spending and travel years, this demographic will benefit the majority of airlines, hotels and travel companies.