Hotel Industry: Key Trends That Impact Congress Centres

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Hotel IndustryKey Trends That Impact Congress
Centres

• International Association of Congress Centres
• Graz, Austria
• 17 July 2007

Stephen D. Powell SVP Worldwide Sales
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Topics

• Industry Performance
• Consolidation
• Key Growth Areas
• Outlook for 2009
• Hotel Operations Pricing Strategies
• Hotels and Convention Centres
• Relationships

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2007 is shaping up to be another strong year in
the global hotel industry

• Global demand drivers are robust
• Best global economy in 40 years
• Inflation is in check
• Unemployment is at multi-decade lows
• Corporate profits moderating but still growing
• Supply growth is increasing, but remains modest
• Occupancy stable at levels enabling continued
  rate gains

4
The global economy is very strong and is expected
to remain so for the next two years
Worldwide Real GDP Growth
Source International Monetary Fund World
Economic Outlook Database, April 2007
5
Unemployment remains low, and in industrialized
countries is well below the mid-1990s peak
G7 Global Unemployment
Source International Monetary Fund World
Economic Outlook Database, April 2007
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Tourism is up 6.3 April YTD, above the prior two
years, and ahead of the 4 gain expected at year
end
International Tourist Arrivals Change Over Prior
Period
Source UNWTO World Tourism Barometer
7
Rate growth continues to be the primary driver of
performance around the world
RevPAR Change by Region May YTD
Source HotelBenchmark Smith Travel
Research/The Bench
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Most key global cites are also seeing substantial
rate growth
RevPAR Change by Market May YTD
Source HotelBenchmark Smith Travel Research
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In Europe, demand grew at a slightly lower rate
in the first quarter while supply growth remained
flat
European Supply Demand Monthly Change
Source Smith Travel Research/The Bench
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U.S. demand growth has slowed while supply is on
the increase
U.S. Supply Demand Monthly Change
Source Smith Travel Research
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Recognise Where We Are!
Source PKF
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Industry Performance Summary

• Sound global fundamentals are driving demand
• Industry is doing well and will continue to
  through Qtr 3 of 2008
• Supply has started to grow, but remains at modest
  levels
• Supply and Demand forecasted to intersect in late
  2008
• Demand growth in most markets is unprecedented
• High occupancies supporting continued rate growth
• Rate growth is beginning to slow down in many
  markets
• RevPar growth driven by rate rather than
  occupancy
• 2008 looks positive for the industry, but growth
  will continue to decline

Continued Strength of Global Lodging Market
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Mergers/Acquisitions/Consolidation

• Hilton Deal
• Blackstone buys Hilton for 26bn
• Purchase price exceeds stock value by 40
• 15x Multiple EBIT for Hilton vs. 7-12x Multiple
• Blackstone claims strategic vs. financial
  investment
• Comments from the financial analysts
• Too much capital for too few assets
• Assets yield cash
• More purchase opportunities in the industry
• Starwood, Marriott, IHG and others are appealing
  to investors

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Key Growth Areas

• China
• All major brands represented
• 88,000 rooms added by 2009
• India
• All major brands represented
• 45,000 rooms added by 2009
• North America
• Lodging Supply Growth 1.1 to 3.5 from 2006 to
  2009
• United Kingdom
• Middle East

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Growth by Segment

• Balanced Growth Globally
• Luxury/Upscale to Midscale to Budget
• Number of Hotels
• Indexes to limited service
• Number of Rooms
• Indexes to Upscale (larger room inventory)
• Urban growth
• Suburban growth outpaces CBD development

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Outlook for 2009

• Supply Begins to Meet Demand
• Rate growth begins to decline
• Occupancy growth declines
• Pressure on profit margins
• Pressure for improved hotel performance from
  those owners that paid high multiples for the
  asset
• Some hotels preparing now by optimising levers
  and adjusting overheads

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Current Pricing StrategiesThe Impact on the
Convention Market

• Corporate Transient Demand
• Pricing Strategies
• Preference for Corporate Transient
• Rate Yield
• Drives Less Flexibility
• Internet Drives Transparent Pricing
• Connectivity Less Allocations
• Real time availability and pricing

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Corporate Transient vs. Meetings
Sunday
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
Price Point 1
350
Price Point 2
280
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Future Pricing Strategies The Impact on the
Convention Market

• Dynamic Pricing (Flex Rates)
• Value to the Customer
• Discount rather than Fixed Discount Rate
• Discount from BAR (Best Available Rate or
  Market Rate)
• Supply and Demand Pricing
• Customer Protection BAR must be competitive in
  the market
• Confluence of Negotiated Corporate Transient Rate
  Programs with Volume Meeting Rate

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Hotels and Convention CentresThe Relationship

• What are the Key Performance Drivers?
• For the Convention Centre?
• For the Hotel?
• Marketing and Sales Plan Alignment?
• Local Trade Events or Meetings/Exhibitions with
  inbound travelling delegates?
• Focus on destination marketing
• Price Sensitivity in Peak and Off-Peak
• Real Estate? What is the primary focus?
• Guest Rooms or Function/Exhibition Space?
• Or
• Delicate Balance of Both?

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Hotels and Convention CentresFuture Development

• Increasing preference for branded hotels in the
  business segment
• Brand alignment and distribution with meetings
  market
• Brand fit with the destination
• Luxury, Upscale, Midscale
• New property inventories decreasing
• Asset-light branded hotel companies
• Major branded hotels companies prefer NOT to own
• Investor Concerns
• Can hotel stand alone and achieve financial
  performance targets?
• Accessibility of the destination?
• Preference for mixed use development exhibition
  space, office, retail, hotel, etc.
• Land prices
• Local planning agreed planning and parking
  regulations, local government support, tax
  incentives or inducements

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Hotel IndustryKey Trends That Impact Congress
Centres

• International Association of Congress Centres
• Graz, Austria
• 17 July 2007