How will you weather the next economic downturn?
— 12 C-Suite executives shared their view
Although an economic recession and hotel industry downturn are far from certain, economic indicators, investor and corporate sentiment, as well as the recent operating performance of hotels in various sectors, point to an impending slowdown.
The current cycle, according to data intelligence firm STR, has continued virtually unabated since March 2010 with year-on-year RevPAR increases occurring in 112 of these 115 months. However, September 2019 was the second month this year when RevPAR results turned negative in the US, as increased supply outpaced demand. Similarly, PWC reports deceleration in the USA, with, for example, Q3 RevPAR growth at less 1%, the lowest figure since the industry began to recover from the 2008 economic crisis.
Some investment analysts suggest that hotel companies may not be adequately prepared for the eventual downturn. Investors and the hotel owners who increasingly rely on firms to operate their hotels may be right to be concerned about what such companies learned from the banking crisis of 2008.
The question, therefore, is how have the strategies of hotel companies changed or evolved over the past decade to help firms survive or even prosper during the next downcycle that may soon be upon us?
Chief Executive Officer at NH Hotel Group
Although the macroeconomic climate and stability have contributed to shape a favourable environment for tourism companies in the past decade, at NH Hotel Group we have taken exponential advantage of these conditions to safeguard our future in a more competitive and complex context.
Since we embarked on the transformation of our Company, we have reoriented our strategy, getting rid of everything that was weighing us down and maximizing everything that could add value and set us apart from the other players. Having already made sizeable investments in prior years, segmented the brands, fully repositioned our key hotels and upgraded the equipment in all our rooms, the Company's positioning is currently oriented towards a more asset-light structure. We have undertaken a variabilization of our cost structure, not only in terms of new hotel flexible lease agreements but also in terms of our operating expenses, such as maintenance and administration, among other back office support functions. We have exited hotels that did not fit our brand and portfolio standards, and from 2013 to 2019 we have more than doubled our EBITDA albeit having a similar number rooms due to the higher quality of our assets, better customer experience and a more profitable business. Also and once the transformation of our business concluded, the company has focused for the past two years on reducing the financial leverage, which is now at a very low level.
The successful performance of NH Hotel Group is in fact the reason for the international interest that we have received, an interest that materialised last year with the acquisition of 94.1% of the Company by Minor International. I believe that being part of a more global and international group allows us to be in a better position to face new challenges ahead and potential changes in the cycle.