Trends and Opportunities
in the Global Hospitality Industry
Irish Hotels Federation Symposium
Alex Christou, Partner, Andersen Consulting
Dublin, 29 November 2000
Presentation outline
 Objectives
 Andersen Consulting
 Industry trends and opportunities
 Implications for Ireland
 Concluding remarks
2
Objectives
 Set out Andersen Consulting’s point of view concerning key trends in
the global hospitality industry including
– Customer service
– Procurement
– Financial management
– Brand and product management
 Identify key implications for the Irish hospitality sector
– Commonalities and differences
– Implications for industry strategy
3
Presentation outline
 Objectives
 Andersen Consulting
 Industry trends and opportunities
 Implications for Ireland
 Concluding remarks
4
Our organisation
With revenues of $8.9 billion and 67,000 professionals,
Andersen Consulting provides unparalleled global strength
in the business consulting marketplace.
Geography
 130 + Offices in 48
Countries
 Americas
 Asia/Pacific
 Europe/Middle
East/Africa/India
Industries
Resources
•Chemical
•Utilities
•Energy
•Natural Resources
Products
•Automotive & Industrial Equipment
•Food & Consumer Packaged Goods
•Pharmaceutical & Medical Products
•Transportation
•Travel Services and Hospitality
•Retail
Communications
•Communications
•Electronics & High Tech
•Media & Entertainment
Financial Services
•Banking
•Health Service
•Insurance
Government
5
Presentation outline
 Objectives
 Andersen Consulting
 Industry trends and opportunities
 Implications for Ireland
 Concluding remarks
6
Global hospitality and airlines industries are
large and fragmented segments which have
shown moderate revenue and profit growth
Global Airline and Hospitality Revenues 1996-1999
US$ Billions
Airline CAGR of 3.07%
320
US $ Billion
Hospitality CAGR of 5.18%
310
$ 295
300
290
$ 288
$ 287
$ 281
280
270
$ 308
$303
$270
$ 260
260
250
Airlines
Hospitality
240
230
1996
1997
Airline Industry
5.0%
6.9%
6.7%
5.3%
Hospitality Industry
13.5%
17.5%
20.8%
21.6%
Operating Margin
1998
1999
7
The major global players
1999
Total Rev
(US $M)
9000
8700
7500
6900
6757
5900
3747
3600
3335
3256
3160
3031
2500
2000
1657
1999
Operating
Margin %
16.8
8.1
28.7
24.4
9.8
4.1
58.1
24.7
-5.1
-3.1
34.2
Ritz-Carlton
MeriStar
1653
1558
1400
1350
1300
Fairmont (Canadian Pacific)
1233
2.7
1.3
-
Company
Bass
Marriott International
Cendant
Best Western (private)
Granada Compass
Carlson Hospitality (private)
Accor
Hyatt (private)
Starwood
Choice
Hilton Hotels Corp.
Hilton International
Wyndham International
SRS
Forte Hotels
Four Seasons
Club Mediterrannee SA
Hyatt International (private)
 Global lodging supply, though consolidating,
remains fragmented
– The 10 largest branded companies hold just 20% of
the worldwide branded market and generate 20%
of total revenue
 Globally, approximately 50% of Hotels are affiliated
with Chain Brands
– Nearly 70% US, 25% Europe and Africa, 15% Asia
 US and EU based Hotels account for
approximately 74%of the 15.5M Global Hotel Room
Supply
8
After a period of mixed performance the global
hospitality industry is focused on adding
shareholder value
Since 1987, the US Lodging Industry has consistently performed below
the Standard & Poors 500 Index and the Dow Jones Industrial Average.
 From 1996-1998, Lodging stocks performed well against the S&P index
 In 1998 a hiccup in the financial markets coupled with perceptions of oversupply in the industry caused Lodging stocks to badly under-perform the
broader market
• Under-performed the S&P in 1998 and 1999 by 65 and 23 percentage points respectively
 In 1998 to early 2000, the Lodging has struggled to regain it former momentum
 In the last few months, the mood of the industry is optimistic as, in the latter half of the year, Lodging stocks have outperformed the market
Source: Bigcharts.com
9
However, Lodging companies on average are
expected to generate moderate increases in
value
90%
Earnings now,
unclear future
80%
Four Seasons (85.2 , 38.6)
Premium
performance
and
stable growth
70%
% Change
in MarketCap from
1998 to
1999
60%
Meristar (58.1, 10.6)
50%
40%
30%
20%
Accor (17.1, 24.7)
Canadian Pacific
Starwood
(11.7, 20.5)
(12.0, 10.0,)
Marriott (10.1, 21.6)
10%
0%
Bass (-4.9, 15.7)
-10%
Mature to
Distressed
-20%
-30%
0
Source:FactSet 2000
10
Future growth
expectations
Hilton Hotels (-29.5, 11.6)
20
30
P/E Ratio 2000
40
50
60
10
Similar industry analysis and interviews found that the
lodging Industry is facing serious long term growth
challenges driven by chronic under-investment
Labour Shortages
Hospitality
Industry
Shareholder
Value
Limited Customer
Information
Infrastructure
Capital
Requirements
for Growth
Limited by
Ownership
Structure
11
Key industry issues


The structure of ownership /
management results in
under-investment
Performance is heavily
dependent on
uncontrollable,
macroeconomic factors




Demand is highly correlated by GDP and
consumer confidence
Supply is rigid, driven by real interest rates,
past demand and GDP forecasts
Profitability forecasting models are very
unreliable

Hotel ownership, management and brand may belong
to different parties resulting in complex relationships
Management companies must offer capabilities for
100% of managed Hotels, but only control 27% of
revenue resulting in under-investment
There is a shortage of
qualified labour


US hotel employee
turnover ranges from
60% to more than 300%
annually
Turnover can cost an
average $2,500 for direct
and $1,600 in indirect
turnover expenses per
departing employee

Hotels are not
capitalising on
eCommerce changes





Hotel
Chains


In general chains have
inadequate eCommerce
strategies and their capabilities
fall far behind other industries
Little attempt to target groups
and tours
Under-investment has
resulted in poor technical
infrastructure that limits
flexibility and profitability
85% of executives believe technology limits
growth
Multiplicity of Property Management
Systems (some older than 15 years)
Technology providers are fragmented and
unreliable



CRM
capabilities
are
Lodging
CRM
minimal
capabilities are minimal
The industry supply
chain is fragmented and
inefficient

3 levels of purchasing ( e.g.
corporate, regional, property)
with little visibility and control
over 10,000 skus

Despite access to the customer, chains have limited
marketing and CRM capability

Only 45%of chains have a guest database, 11% have
it integrated with an executive information system.
Only 23% have significantly automated the loyalty
program
12
Trends and opportunities
Value Lever
Reduce Costs
Area of Value
Creation
Likelihood
Impact
High
High
Back Office
Opportunity
Rationale
•ASP/BSP / Shared Services
•Areas include
•Financial systems, Accounting, Corporate
Services, Tax, Legal, etc.
•Currently fragmented (done at property) and
redundant (corporate
•Management Companies are perceived as “Fat
Cats;” current shared services are ineffective and
many costs of operations are charged back to
property owners
13
Trends and opportunities
Value Lever
Reduce Costs
Area of Value
Creation
Likelihood
Impact
Very High
Very High
Procurement
Opportunity
Rationale
•Procurement Strategy and Marketplace Integration
•Venture or “pure play” network marketplaces
•Procurement strategies at three levels:
Chain/corporate; Local/regional; Overall redesign
•Marketplaces are being created with out an
overarching eStrategy
•Current Lodging industry led exchanges attempt to
cover all buying activity; There may be an
opportunity to create niche exchanges
14
Trends and opportunities
Value Lever
Generate Revenue
Area of Value
Creation
Likelihood
Impact
Very High
Very High
Customer
Relationship Mgmt
Opportunity
Rationale
•eCommerce development (e.g., Branding;
Customer Loyalty)
•Consulting Database Implementation
•Business Service Provider/ Venture/ASP
•Despite significant contact with the customer,
Hotels have limited CRM capabilities
•Many hotel databases are not integrated
•Despite, branding Hotels risk becoming
commoditised
15
Focus on the customer
Guest/customer focus underpins the migration of lodging
corporations to new levels of revenue and profitability growth
Guest
Ownership
Focused
First Curve
(Measure: REVPAC)
Asset
Based
(Measure: REVPAF)
(Measure: REVPAR)
1998
2000
2002
Assets/Resources
Path of Paradigm Shift
Guests/Information
Market Value P/E
Business Transformation
Second Curve
Key:
REVPAR: Revenue
per available room
REVPAF: Revenue
per available
franchise
REVPAC: Revenue
per available
customer
16
Trends and opportunities
Value Lever
Generate Revenue /
Reduce Costs
Area of Value
Creation
Likelihood
Impact
Very High
Very High
CRS / PMS / Yield
Opportunity
Rationale
•Venture/ ASP- Add Lodging Activity Booking to
complement current hotel CRS/PMS offerings
•Venture/ ASP- Develop New, net-centric CRS/PMS
•Products offer broad marketing
•Large hotels are not doing it well
•Turnkey solution for chain expansion
•Most mid sized chains(15-30 hotels) do not own
systems, they rent
•Product could reduce current CRS/PMS spending
which we estimate can reach $5-10 per transaction
17
Integration of revenue management and
customer relationship management
Traditional Revenue
Management
 Focus on maximising
revenue on per reservation
basis
 Optimise demand forecast
given static set of products
 Not customer sensitive
 Not context sensitive
 “Memory of One” ; only the
current purchase matters
Customer Relationship
Management
 Objective to maximise
customer loyalty
 Optimise customer value
expectations
 Highly customer centric
 Often context sensitive
 “Lifetime Memory” of past
as well as expected future
purchases
18
Trends and opportunities
Value Lever
Area of
Value Creation
Rationale
Opportunity
Generate
Revenue
Customer
Relationship
Management
• eCommerce development (e.g.,
Branding; Customer Loyalty)
• Consulting Database
Implementation
• Business Service Provider/
Venture/ASP
• Despite significant contact with the
customer, Hotels have limited CRM
capabilities
• Many hotel databases are not
integrated
• Hotels are becoming commoditised
Generate
Revenue
Create Capabilities
in Markets other
than individuals
• Tours - Channel Integration
Consulting Project
• Groups -B2B Consulting Project
• Venture or “pure play”
• Tours are currently more important to
the European market created without
and overarching eStrategy
• Potential to create offerings to
facilitate large groups, meeting and
convention planning
Generate
Revenue/
Reduce
Costs
Customer
Reservation Systems
(CRS); Property
Management
Systems (PMS)
• Venture/ ASP- Add Lodging
Activity Booking to complement
current hotel CRS/PMS offerings
• Venture/ ASP- Develop New, netcentric CRS/PMS
•
•
•
•
Reduce
Costs
Procurement
• Procurement Strategy and
Marketplace Integration
• Venture or “pure play” network
marketplaces
Products offer broad marketing
Large hotels are not doing it well
Turnkey solution for chain expansion
Most mid sized chains(15-30 hotels)
do not own systems, they rent
• Product could reduce current
CRS/PMS spending which we
estimate can reach $5-10 per
transaction
• Procurement strategies at three levels:
Chain/corporate; Local/regional; Overall
re-engineering
• Marketplaces are being created with out
an overarching eStrategy
• Current Lodging industry led exchanges
attempt to cover all buying activity; There
may be an opportunity to create niche
exchanges
Probability
of Impact
Size of
Impact
Very High
Very High
Low
Low
Very High
Very High
Very High
Very High
19
Trends and opportunities
Value Lever
Area of
Value Creation
Opportunity
Rationale
Reduce
Costs
Back Office
• ASP/BSP / Shared Services
• Areas include
•Financial systems,
Accounting, Corporate
Services, Tax, Legal, etc.
• Currently fragmented (done at
property) and redundant (corporate
• Management Companies are “Fat
Cats;” current shared services are
ineffective and many cost of operations
are charged back to property owners
Reduce
Costs
Personnel / eHR
•
•
•
•
Generate
Revenue/
Reduce
Costs
Others
Generate
Revenue/
Reduce
Costs
Travel Experience
Integration
Probability
of Impact
Size of
Impact
High
High
• There is a shortage of qualified labor
in the Hotel industry
• Services could be offered to large
hotels and products to mid sized
chains
Average
Very High
• Participation in Auction Markets
• There could be an opportunity to off
load distressed inventory
Low
Low
Maximise revenue by optimising
the allocation of inventory to
various market segments.
• There has been an explosion in the
number of sales channels
• An effective channel strategy is even
key given the focus on customer
relationships and the opportunities to
significantly reduce distribution costs
Low
Very High
HR process re-engineering
ePeopleServe
Human Xchange
eHP offerings to improve human
performance (e.g., ePeopleserve)
20
Balanced scorecard1 - Turning strategy into
operations
“Hilton's goal is to create value for all its constituents --- customers, owners and
shareholders, employees (known as "team members"), strategic partners, and the
communities where each hotel is located --- by delivering a consistent value
proposition. To achieve that goal, the company relies on the axiom that what gets
measured and managed gets delivered.”2
 Identify the drivers of value
 Plan
–
Develop key performance
metrics and objectives for each
value driver
 Execute
–
Measure and report!
–
But … use KPIs
 Act / react
1. Robert S. Kaplan and David P. Norton, "The Balanced Scorecard-Measures That Drive Performance," Harvard Business Review, January-February 1992, pp. 71-79.
2. Source: http://www.hiltonfranchise.com/news/pg1.htm; Cornell Hotel and Restaurant Administration Quarterly; ©1999 Hilton Hotels
21
Technology model of the future
HR
Recruitment
Finance
Procurement
Multi-property PMS
Central Reservation System
CRM and Loyalty
Revenue Management
The technology model of the future enables individual hotels to focus on
execution - ie providing excellent customer service - while it enables
senior management to manage the chain or brand from the centre
22
Operating model of the future
Chain and Brand Management
Single Image
Inventory
Customer /
Property
Web
Distribution
Sales &
Marketing
Alliance Partners
Airlines / Car Rental
Revenue
Maximisation
eCommerce
Integrated Global Operations
Service
Delivery
Revenue
Maximisation
Control
Exception
Management
Accounting
and Planning
Dynamic
Marketing
Hotel Management
Global
Comms
Network
Global
PMS/Res
Integrated Global Services
Minimum Technology
Financial
Services
Technology
Services
CRO
Services
HR
Services
23
Presentation outline
 Objectives
 Andersen Consulting
 Industry trends and opportunities
 Implications for Ireland
 Concluding remarks
24
Implications for Ireland
 Increasing dominance of the major brands
– The Irish market does have a choice
– How do you achieve the benefits (economics/scale, flexibility, loyalty) without adopting brands?
 Flexibility in HR management
– Rostering between properties to balance demand
– Use of part-time employees to tune resourcing levels to occupancy
 Loyalty is becoming a key weapon in maximising customer revenue and contribution
– Loyalty is at the brand rather than individual property level
 Regulatory issues are transparent to the consumer
– Reliance on brand values, identification and loyalty rather than formal classification
 Increasing sophistication and ‘corporatisation’ of the global hospitality industry
– Central capabilities (procurement, financial management, revenue management and pricing, HR and
recruiting, customer interaction and billing)
– Sophisticated management techniques (technology, eCommerce, CRM, balanced scorecard)
– The Irish market is less highly developed in this sense: What needs to be done? Who takes forward?
25
Presentation outline
 Objectives
 Andersen Consulting
 Industry trends and opportunities
 Implications for Ireland
 Concluding remarks
26
Concluding remarks
 Global product and brand
– Leveraging increasing global travel and loyalty
 Scale economies
– Procurement, marketing and operations
 People
– Flexibility in rostering based on occupancy
 Management vs Ownership
– Focus on return on equity
 Focus on the customer
– Customer at the centre
– Drive profitability through customer relationship
 Balanced scorecard
– What gets measured gets done
 Outsourcing
– Business processes, technology, customer service
– Focus on core skills
 Technology
– Central visibility and higher speed of information flow
– Customer centric (Not hotel centric)
27