In this tight lending market, lodging companies are seeking to convert independent properties into branded ones within their portfolios as a means to expand their global footprints without the financial burden of building new hotels. At the same time, deteriorating market conditions--especially in Europe--have unnerved owners of independent hotels, making affiliations with big chains attractive alternatives to going it alone, according to industry executives. As a result, travel buyers may benefit from streamlined request for proposals processes, added options within global distribution systems and easier monitoring of rate loading in the GDSs.
"For many properties, there is a manual bid process in place. They don't have the National Business Travel Association hotel RFP file set up and built. In some cases, it is a handwritten document," said International Monetary Fund transportation officer Kimberly Gardiner. "The real advantage to being a part of a chain is in the negotiations."
During the RFP process, "typically, the client reaches out to every hotel but is also coordinating through these chain representatives to act as a go-between," said Bob Brindley, vice president of BCD Travel's Advito consultancy. "The chains help to facilitate the process. The benefit to the corporation is that it makes the process more efficient and easier by giving them access to management support. It is a more streamlined process to deal with corporate RFPs because you are able to work with that one point person."
The conversion trend has been triggered by a 19-month lodging industry recession, which experts have described as the longest in recent history.
Speaking at the New York University International Hospitality Industry Investment Conferencein May, Choice Hotels International president and CEO Stephen Joyce said he expects many independent hotel owners within the next six months to start moving toward the bigger brands, resulting in a "tidal wave" of transactions.
"As transactions begin to occur, there's going to be a lot of hotels trading hands," he said. "There is going to be a lot of hotel branding going on; Europe is particularly attractive because it is so fragmented."
Hotel companies focused on the midscale and budget sectors are seeing the most opportunity for conversions, according to Joyce. Choice's midscale brands include Comfort Inn and Quality Inn.
"Because our product is in the economy and midscale segment, we are quite well-positioned and the opportunity to convince more owners to expand is there," said Gilles Pelisson, chairman of Accor Hotels, owner of the Motel 6 and Best Western brands. "Especially in Europe, some hotels are definitely looking for affiliation. When everything goes right, you can have your own little Internet site, but when things get tough you really need leaders who can represent you."
Accor is seeking to expand its presence in certain parts of Europe and the United States where it lags competitors, and has set aside €600 million (US$837 million) this year for that initiative, Pelisson said.
A Best Western International official told The Transnationalthat the company is "definitely seeing an uptick in interest from independent hotels around the world that seek the shelter of a brand flag," and that about 60 percent of the current portfolio represents conversions.
Holiday Inn brand owner InterContinental Hotels Group is "getting a look at more conversions, and we are starting to see potential deals come to the table," according to an official. "We expect this to continue. Owners of weaker brands and independents will look to improve their operating performance by converting to the certainty that a strong brand provides."
In the luxury segment, independent properties may seek to align with umbrella companies as a means to attract more customers by using a brand's GDS code while maintaining their "independent" status. For example, Small Luxury Hotels of the World received 30 percent more requests to join its brand during the first quarter compared with a year earlier, according to vice president of worldwide sales Jon Makhmaltchi. SLH affiliates maintain control of rates and value-adds, he added. "They are a part of a luxury brand, but they speak in their own words."
"There has been a record number of hotels that want to join," Makhmaltichi said. "Many of our hotels have been able to capitalize by getting involved in the corporate process" by gaining visibility in GDSs.
For some independent hotel owners, especially in the luxury segment, affiliation may be preferable to conversion. "We have not lost any European hotels that wanted to convert to a chain," said Preferred Hotels Group executive vice president Lindsey Ueberroth. "That is a sign that the independent market is holding strong in Europe and when it bounces back, it will be very strong."