Gurgaon: Frits van Paasschen, 50, president and chief executive officer of US-based Starwood Hotels and Resorts Worldwide Inc., joined the hospitality firm in 2007. With upscale hotel brands St Regis, W, The Luxury Collection, Sheraton and Westin and others such as Four Points by Sheraton, Le Meridien, Aloft and Element in its portfolio, Paasschen set about expanding in “rapidly developing” countries such as China and India. Starwood now has 100 hotels in China. India has fewer properties, several of them in partnership with the ITC group under The Luxury Collection and Sheraton brands. Paasschen, who is from the Netherlands and is a marathon runner, is ready to introduce the top-end St Regis and W brands in India. He spoke in an interview in Gurgaon about the Indian opportunity. Edited excerpts:
You spent a month in China last year to understand the market. Do you have a similar plan for India?
One of our senior executives was recently asked if Starwood was moving its headquarters to India. That day may come. As you alluded to, we spent a month in China last June. Next March we will be spending a month in Dubai. We felt that the exercise was important enough. It is quite possible that we do that in India, which is so dynamic...but there are no definite plans, yet.
Do such extended stays help, considering local executives are already running those businesses?
One of the things I think typifies the idea is that you don’t really know a market till you buy groceries there and it’s difficult to go buy groceries on a business trip. Of course, it is metaphorical. Our reason to go was not to oversee our business in China. It was to do a few things: To draw attention within our organization to the importance of the growth opportunity, to emphasize the notion of being a global company and to learn from our team on the ground.
If we look at our China experience, we are coping with extreme growth—we have 100 hotels and another 100 under construction. We have also launched a China personalized travel programme. Many of the things we learnt in China will make us stronger here. We are about to launch the Indian travellers programme globally in Starwood because we have about 13 million Indians travelling out. The latest statistics from the World Travel and Tourism Council (are) that will be 50 million by 2020.
Priority area : Frits van Paasschen says his firm’s corporate strategy is to manage higher-end hospitality brands, not to be real estate investors. Pradeep Gaur/Mint
Has your view of India as an investment destination changed as it grapples with a host of issues?
There are a lot of issues in China, the US, Latin America and, for that matter, in Europe today. We know that there will be fits and starts and there will be supply and demand imbalances, crises and disruptions. That’s part of the haphazard process by which countries develop and India may be more extreme than others, but it is not unique.
The influence of globalization on the Indian market in terms of creating travel demand is almost inexorable at this point. Ten million people per year will be moving to cities in India and the ranks of affluent and those that can afford higher-end brands will increase exponentially. Not being here is a bigger risk and a bigger downside than being here.
Will you grow through the franchise route or own properties?
Our corporate strategy is to manage higher-end hospitality brands and not be real estate investors. There is no one today including ourselves that could be a great real estate investor in the 100 countries that we operate in. Five years ago, our business was 20% driven by the management and the franchise business and 80% owned by real estate. Today, we are about 60:40 management and franchise versus real estate. What we say to our investors is we are on course to be 80:20. So, the investment we are making is not in real estate, but in a business model that serves us well around the world.
You seem to have sold several properties in the last five years.
We’ve continued to sell off hotels. That’s the way we have got from 20% franchise and management to 60%... We have adopted a one-off approach to selling hotel assets as opposed to box sales. We sold W in Chicago and Westin in San Diego at attractive prices to buyers who were committed to re-investing in those properties. We sold St Regis in Aspen to a high net worth Asian investor, again, with a commitment to make significant renovation. So, we convert from owning a hotel to having a management contract for that hotel and a commitment on the part of the new owner to have a renovation typically as well.
Frits Van Paasschen, talks about his chain’s new projects in India and the outlook for hotel companies like his in India
How do you manage growth in a downturn? Do you tap existing customers?
We had the most defining downturn of our careers in 2009. It was difficult. We saw a 10% drop in the number of room nights. But we saw a 2% increase from members of our loyalty programmes. The best insurance against a downturn is for strong global brands to have a system that delivers guests.
What we learnt from that experience are a few things. First, no matter what changes, we had to stay focused on things we could control and not to compromise the fundamental aspect of who we are. We also learnt the importance of clear communication about the state of the world and its implications for the company overall. What we also learnt during the downturn, which struck people as paradoxical at that time, (was) that a downturn is a great time to be developing and opening hotels and it’s a great time to be renovating your properties.
Do western travellers expect more service in emerging markets or is it the other way round?
Staffing levels in emerging markets as you say or rapidly growing markets are generally higher so as a result service is correspondingly more pervasive and, in some respects, better. The challenge to us in a way is to make sure to deliver on those experiences to brand loyalists from markets that enjoy that capability.
The 75-year-old Sheraton was lagging behind in North America because of its age. We upgraded it to meet the expectation of the global traveller. It is stronger because of what we have done around the world.
Any lessons that you can apply from your stints in companies such as Disney and Nike to a services company?
Sure. The branding proposition in this industry is unique. The brand itself is about experience as opposed to image or personal identification. In a consumer business, you can redefine your product mix season by season. It is pretty hard to do when you have literally billions of dollars of real estate to try to move. The challenge is to be nimble in some ways and yet to be patient in others.
Do you think multinational companies are facing corporate governance issues in their India businesses? Are expatriates coming back to head Indian operations?
It is important in any market to have the right local representation, to have people who both understand your company and the local market. The era of the expatriate leader who rotates through two or three years is long past.
Whether there is a governance issue in India today or challenging partner relations in Brazil tomorrow, whether there is a tax situation anywhere in the world as governments become more desperate to balance their fiscal situation, those are the things they are better at dealing with and not the novices in the market.
Do you manage to run when you come to India?
This morning I ran on the treadmill, I have to confess. I am thinking if I ran outdoors in my previous visits. However, I trekked in Bhutan recently. We are looking at opportunities there. The development in luxury today follows travellers in search of new and more interesting places. The fact that we launched St Regis in Tibet is an example.