New Delhi: French hotel group AccorHotels is on an expansion drive. In July, the group launched a $1 billion African hotel development fund with Katara Hospitality of Qatar. In May, it completed the acquisition of Mantra Group, the largest Australia-based hotel and resort operator, for 1.2 billion Australian dollars, the biggest such acquisition since 2016, when it bought the Fairmont Raffles Hotels International, the Toronto-based parent company to the Fairmont, Raffles and Swissôtel brands, for $2.7 billion.
The acquisition drive is not over, says Michael Issenberg, chief executive officer (Asia-Pacific) at AccorHotels. Issenberg was in India recently to celebrate the 10th anniversary of the ibis brand and spoke about the group’s plans for India and the challenges that the hospitality industry is facing today. Edited excerpts from an interview:
What are the biggest challenges that the hospitality industry is facing? Are these challenges different in India from other, even Asian, markets?
There are similar challenges and then there are some more India-specific things. If you ask me what’s most specific, it is that when it comes to the development phase, India is more challenging than the rest of the world. The number of approvals that you need to open a hotel here are more than anywhere else. Though it is getting better, it still is the single biggest difference between India and the rest of the world.
Beyond that the challenges are mostly similar, which come with growth.
The good news is that we are in a growth industry—in India, certainly in the Asia-Pacific, and, to an extent, in the rest of the world. I keep saying that if you ask most people what they would want to do if they had more time and money, the invariable answer is travel. In the day and age of social media, it’s becoming aspirational. If you look at what people post on social media, whether it’s Facebook or Instagram, it is usually a lot about travel directly. Or it is about dining out which, again, is most often related to travel. If you add to that the access to information that people have about all the destinations in the world and the continuing proliferation of the low-cost carriers, all these things fuel the desire to travel.
So this is the good news. But the challenge with this continuous growth is to retain good employees. We are growing and so are our competitors. So attracting and training people fast enough and then retaining them is probably the biggest challenge for us in India and Asia.
You recently completed the acquisition of the Mantra Group. Do you remain acquisitive in the near term? Any plans for India?
We can’t tell you about future acquisitions but what I can say is that we remain acquisitive. We’ve recently completed a major real estate transaction in May for €4.4 billion, which has given us the funds to continue our expansion. So we are in a strong position right now and are looking for more acquisitions as and when the right opportunity comes.
What are the changes that you have noticed in the Indian hospitality industry?
I’ve been coming here since 2003 or 2004, and India continues to surprise me. The infrastructure is developing. Leisure travel is still at its nascent stage and that’s where the growth is exponential. As crazy as it may sound, India is a barely discovered country in terms of true tourism. When that inflection point comes, and it will—I can’t say when, but when it does come—you’ll see exponential growth in the industry. That will bring in more opportunities for everyone. So, in many terms, I see more potential in this market than many other markets because of the low base and what the country has to offer. So it is a great time for India.
How serious is the challenge from concepts such as Airbnb or homestays? And low occupancy?
India traditionally has been a market with a lower annualized occupancy compared with many other markets. There is less leisure travel and more corporate-type travel. If you don’t have a balanced market, you will have a lower annual occupancy. Occupancy levels haven’t really changed here much, though there was a peak before 2008 in terms of room rates that came off significantly after the economic crisis and haven’t climbed back to the pre-2008 levels yet, but they are certainly rising.
Private rentals have been around for ages, it is just that technology has enabled it to be more effective today. There’s no denying the increasing competition but again that’s not specific to India. But going back to what I said, because we are in a growth industry, the demand is huge. So is the competition, be it from other hotels or private rentals.
What we have to do is ensure great value for money, which is a combination of decor, security, service and the overall experience. If we are able to deliver on those, we will score over our competitors.
What we have also realized is that private rentals is more about the price than a desire. During some days of the year when the business is strong, around holidays when it is the busiest time for the industry, the prices go up across hotels. When that happens, people will naturally look for cheaper alternatives. It is a lot about the value that they get and at what price they think that value is desirable. So it is less about preference and more about the prices.
So it all comes down to the value we deliver.
You have always said that China is the hotel industry story of the century. Where does India stand?
I am talking about outbound travel here. I think there are opportunities in each country to grow their domestic travel market. But last year alone, there were about 120 million outbound travellers from China. Outbound travel from Asean (Association of Southeast Asian Nations) countries was about 80 million. For India, that number is about 20 million.
So in terms of the impact on the rest of the world, it is significantly low. But having said that, the population of India is over one billion, so the opportunity for growth in domestic travel is pretty significant.
How big a market is India for Accor?
Let’s put it this way. We have about 1,000 hotels in the Asia-Pacific. In China alone, we have more than 250, in Indonesia, above 100. And in India, we have about 50 hotels.
But India is becoming increasingly important. The economy continues to do well. The aviation industry continues to grow. Outbound travel numbers, though not great, are also growing steadily.
But will it ever beat China? The answer is no. It won’t be able to catch up.
The priority for us in India in the economy hotel space is the ibis and then the Novotel. We have nine brands here from our overall 30. So we would love to bring some of those brands such as Raffles, Fairmont to India but that brings me back to the questions of approvals.
But 2018 has been important for us in India. We have opened five hotels here. Over the next few years, we plan to expand our India network by 25%.
What is the future of the hospitality sector?
One thing I often say is that in our industry, before you check into a hotel and after you leave, the industry has changed a lot but when you’re actually in a hotel, the experience hasn’t changed that much. It will stay that way. Everything around it, how you book the hotel, how you find out about a hotel will continue to change because that is technology based. But the experience, the personnel won’t change much.
One thing that is happening is increasing segmentation. The same traveller will change the type of accommodation depending on why they travel. I am probably one of the best examples of a frequent traveller. I travel about 250 days a year. Sometimes I arrive in a city at 10 at night and leave the next morning at 6. Any hotel will work fine. But if I am on a holiday with my family, everything is not going to suit me because for those four-five days, I want space, I want to have more facilities. So I’m going to choose a bigger and better hotel.
How are millennials shaping the hospitality industry?
Millennials are earning more today and that brings me back to one of my previous answers about people with more money. They would want to travel more. Also, millennials are one of the biggest exponents of social media. And that drives your aspirations for travel. So I think millennials probably have more aspiration to travel. Ironically this obsession to travel is there so they can post beautiful pictures on social media. So there is a peer pressure. I think that trend will continue.