For the 2006 bid season, Hyatt for the first time will negotiate with travel buyers as a vertically integrated, multi-brand hotel company, following its January acquisition of midprice AmeriSuites (BTN, Jan. 17). Global Hyatt president Douglas Geoga last month briefed BTN hotel editor Bruce Serlen on the acqusition's impact on corporate travel buyers.BTN: The acquisition of AmeriSuites gives Hyatt an entirely new price point to offer. How important to the new strategy is a midprice product?
Douglas Geoga: We now can sit down with a corporate travel department with prices that serve a broader array of their travelers. Plus, the acquisition gives us representation in a large number of markets where Hyatt isn't otherwise represented with any product, because it's uneconomic to build full-service hotels in these markets. At the same time, we can offer access to the Hyatt system through all the standard portals and participation in the frequency program.
BTN: How does this change the way Hyatt approaches corporate travel buyers?
Geoga: We know corporate customers want two capabilities from us. First, they want to be able to book a multi-brand portfolio and secondly, they want one-stop shopping worldwide. Under the new system, travel managers will be able to meet with one salesperson who can sell them all Hyatt properties across brands worldwide. This is a change from past years when salespeople, both domestic and international, representing different brands, would call on the same buyer.
BTN: When AmeriSuites was part of Prime Hospitality, it was positioned as a midprice without food and beverage chain. Will that change?
Geoga: It's going to be repositioned as an upper-end limited service product where it will compete against Courtyard by Marriott and Hilton Garden Inn. The brand is about to experience a major upgrade in its physical product and service standards. Ultimately, the hotels will be branded with a Hyatt co-brand to be determined. If there's upscale limited service and midprice limited service, this will be a high-end product. AmeriSuites in April already began participating in our Gold Passport frequency program.
BTN: What is the timeframe for upgrading AmeriSuites?
Geoga: We're looking to begin the renovation program in most hotels before this year is out and for the rebranding to occur in early 2006. We're in the process now of shifting to a unified central reservation system to be completed by this summer. It's still an open question whether the AmeriSuites name will remain. Right now, it's strictly a U.S. brand, but as we look down the road there are variations that are possible for Europe and Asia. This isn't one size fits all. There also may be some different measures of product services.
BTN: The midprice sector is a crowded category. Do you see much growth potential for AmeriSuites?
Geoga: There are approximately 150 now. It's easy to imagine that over the next five years that number will double or triple. Given the economics of these hotels, there are opportunities in suburban areas of larger cities and in secondary cities and other markets.
BTN: Before the acquisition, AmeriSuites was partly a franchised brand. How have the owners reacted to your plans?
Geoga: Through direct ownership or leasing, we effectively own and manage about 100 of the 150 hotels. The remaining hotels are franchises. We expect the brand will grow through both franchising and additional units we own and manage. We like owning most of the chain because we believe the economics of ownership are very promising. One of the first things we did was to get together with the franchisees and ask their advice in terms of where we're taking the brand. We were well-received. The group is looking forward to being fully part of the Hyatt system. They see the potential of this brand to perform at levels equal to or greater than the competition. The brand to date hasn't done that, which is a situation we intend to fix.
BTN: As part of the new Global Hyatt, can buyers expect to see greater differentiation in marketing Hyatt Regency, Grand and Park?
Geoga: Not necessarily. We've always been interested in distinguishing the brands. Perhaps we'll have greater clarity between the brands, more emphasis on brand-specific as opposed to Hyatt enterprisewide marketing activities.
BTN: Among buyers, would you agree Park Hyatt at the deluxe tier is probably the least-known brand?
Geoga: From our perspective, Park is growing explosively and is more effective competing at the luxury level. As it grows, travel buyers—and travelers—are more likely to recognize it as being distinct from other parts of Hyatt. There are now 22 open, six or seven under construction and another half-dozen that are about to begin construction, all in gateway cities worldwide. As the brand reaches a larger scale, it'll have a stronger identity.
BTN: Hyatt International always has been distinct from Hyatt domestic. Will that change?
Geoga: No. Hyatt International is a subsidiary of Global Hyatt Corp. as is Hyatt Corp., the domestic management company. Global Hyatt permits a number of functions that are best handled on an enterprise-wide basis to be conducted that way. A single department, for example, will be responsible for development on a global basis; we'll have a global finance department and so on. As a result, travel buyers should be able to access the entire system with greater ease.
Meanwhile, some areas of operations continue to be done best geographically. Operating a hotel in Dubai is a somewhat different experience from running one in Shanghai or Baltimore. Hyatt has been good at delivering a high-quality product that is culturally and market adaptive and functions well in that marketplace. Hyatt International manages the hotels outside the United States, while Hyatt domestic continues to manage its hotels because the operation of them is a market-specific enterprise.
BTN: Marriott International, Hilton Hotels Corp. and InterContinental Hotels Group each have pursued the vertically integrated model. Buyers can benefit as you've described. As an owner/manager, is there a potential downside to adopting that model?
Geoga: If you're not careful about the market served by your various brands, then you could end up in a position where some of your brands compete with each other. That raises a series of issues we're hoping to avoid. We think we have the opportunity to grow each brand substantially without venturing into that dangerous territory. Whether you successfully can operate a series of products that largely compete with each other, I don't know. That's not something we're aiming to find out.
BTN: There must be challenges operationally that would affect travelers' experience.
Geoga: Not insurmountable ones. In the case of AmeriSuites, we've built a segment-specific team to implement our strategy. That team is composed of people new to Hyatt who bring expertise in that particular segment, but it also includes people who are old Hyatt hands. They have new responsibilities, but bring with them a level of familiarity with the overall resources of the enterprise.
BTN: Buyers' first point of contact is with your salespeople. How has the salesforce reacted to the new structure?
Geoga: Sales managers so far have found it to be an invigorating opportunity. First, they have a broader range of solutions they can offer to customers. Plus, the AmeriSuites account base has opened up interesting new account possibilities for Hyatt.
BTN: Hyatt's owners a few years ago took a majority stake in Hawthorn Suites' parent, U.S. Franchise Systems, but USFS continued to manage the extended-stay chain. Has that changed?
Geoga: At the time we invested in USFS, it was intended to be an independent investment in that these brands would flourish outside the Hyatt system. As part of the process of determining AmeriSuites' exact nature as a Hyatt brand, we'll look at Hawthorn again. The best execution might be that Hawthorn remains independent. If a better execution turns out to be a different kind of connection with Hyatt, we're open to that.
BTN: Wouldn't being able to offer buyers an extended stay option as part of a Hyatt-wide negotiation further enhance the one-stop shop approach?
Geoga: Whether Hawthorn Suites ultimately joins the Hyatt system or remains independent, it will remain an extended stay brand. As a segment, extended stay has tremendous potential. We are very happy with the prospects of that market segment.
BTN: What about the future of USFS's economy and budget brands, America's Best Inns and Microtel?
Geoga: America's Best Inns and Microtel will remain part of USFS, a Hyatt subsidiary. Both products continue to participate in the resurgence of their price points. There's no need to market them under the Hyatt umbrella. We'd consider adding them to Hyatt if that meant helping them perform better and, by extension, they would help the rest of the Hyatt network perform better. In the case of America's Best Inns and Microtel, that's not the case.