Mike Fegley
Amid reports of a looming decline in hotel room demand, InterContinental Hotels Group vice president of global sales for the Americas Mike Fegley this week spoke with The Transnationalabout IHG's current state and whether supply growth is outpacing demand growth. With 200,000 rooms in its global pipeline, IHG plans to become a stronger force in the market. Despite flat revenue per available room growth for the Americas in August, IHG remains confident that it will weather the storm. A portion of the conversation follows.
Are hoteliers now saying it is a buyer's or a seller's market?
I am basically saying the same thing I have been: The hotel community should not panic. Each market is different from another market, so the secondary and tertiary markets look different from some of the primary and key markets. Each market and client has to be looked at individually: You may have a customer who feels like it is a buyer's market, but they want to do business in a market that is relatively still a seller's market. If you were looking at Detroit, does it look differently than Washington, D.C.? Of course it does, as far as supply and demand goes. So what we would see in New York, San Diego, Washington, D.C., Miami or San Francisco is a lot different than what you would see in other markets. I don't like to say it is a buyer's or seller's market because so many of our customers are doing business in so many places, like in the Middle East and Asia or Europe, where there are totally different business environments.
Is there nervousness around the economic situation right now?
There are a lot of reasons for August [showing flat revenue trends]. Of course, gasoline was certainly an issue for a lot of leisure travelers this year. This summer, some people didn't take their vacations like they expected, but, from all indications I have heard, everyone is having a fairly good September. With all the news we have had in the last week regarding the financial situation, it is causing some additional challenges for us, but we see them in the short term. There is some nervousness right now with the financial institutions: today was Wachovia; last week it was Washington Mutual. The news can be challenging for us, but when you go to the airports and you look at hotels, you know there is still so much out there, and our business model is quite different than many others. We are going to be just fine through what seems to be more challenging times.
From 2001, the hotel industry experienced declining demand. Some travel managers compare this current downturn to that one. Is it a fair comparison, and what is different this time?
You can't compare today's business with what we experienced in 2002 and 2003. In the United States, the hotel community was turned upside down, and it did take us a couple of years to recover, but our business came back strong in 2004 through 2007 and it wasn't until 2008 when it looked like, from a consumer standpoint, that the United States went into a recession. But a true recession is when you have negative gross domestic product growth two quarters in a row, and the U.S. didn't experience that. If you were to ask consumers if we're in a recession, there are many people that certainly feel like the U.S. has gone into a recession. Unemployment is now in the 6 percent range, and that is something to be concerned about. But if you ask some, they will tell you there are more millionaires in the U.S. than people unemployed. So, in many instances, it is all relative. We have 3,000 hotels in this market [the Americas], and our brands tend to do very well when other brands don't. Our business model seems to do very well, so I will continue to say that there are certain markets that are softer than others. When we sit down and talk with our key corporate customers--about 270 key corporate customers--we treat each customer individually and look at each hotel individually.
Some buyers said they expected their 2009 rates to be more favorabledue to softness in demand. How are negotiations going, and what can travel managers expect to see from IHG?
There are probably some markets that have double-digit increases, and there are some markets that are single digits and there may be some markets where you will see flatness, but that has been the case for the past couple of years. Smith Travel Research is going to tell you that demand is going to soften, and that the hotel community will probably not be able to get the types of rate increases that they have seen in the past two or three years. If I was going to disagree with that, it would probably look like I live under a rock and that I don't understand what is going on out there. But I do know there is some softening in demand. There is no question about it. And there is some softening on pricing, but the thing that we keep considering here is that there still is an awful lot of business out there. There are some companies that are buying down on their purchasing, and there are [organizations] that can also buy up, like the U.S. government. There are more hotels and hotel companies that are trying to do business with the U.S. government than ever before. We are one of the leaders in doing business with the U.S. government because our brands are very attractive to U.S. government travelers and a lot of corporations when times get tough and they are trying to cut back on spending.
Are you holding off a bit to respond to requests for proposals this year because of the economic uncertainty?
There are hundreds of clients and thousands of hotels. We are meeting customers' deadlines and we aren't holding off to speculate. We are treating each RFP separately, and everyone is different. Our customers have their own business models, where they do business and where they have high concentrations of business, and a lot of it centers on where their headquarters are or where they have other facilities, and that doesn't change very often. We are right on schedule with all of our RFPs, and we have increased our staff to handle RFPs, and we hope to increase the size of our team for 2009. There may be people in the industry that are cutting back on their resources, but right now all indications say we are going to increase our resources to better serve the marketplace. As a company, we are probably going to hire 120,000 people around the world because we are going to open more hotels in the next two to three years than anyone else in the industry. We have a very large pipeline of over 1,700 hotels and our brands are growing in areas around the world, whether it be Asia, Europe or the Americas.