Europe is the new battleground for the world’s largest hotel companies as they look for sources of growth outside the U.S. market they already dominate.
Four Seasons Hotels Inc., Starwood Hotels & Resorts Worldwide Inc. and Marriott International Inc. are stepping up expansion efforts in Europe, where about 34 percent of hotels fly chain flags, Otus & Co. estimates. In the U.S., they already control about 70 percent of the market, according to Smith Travel Research Inc. of Hendersonville, Tennessee.
The chains can build market share in Europe by appealing to visitors from the U.S., China and India who are likely to seek out internationally recognized brands when traveling, said Rod Taylor, chairman and co-founder of hotel consultants Taylor Global Advisors Ltd. in London. Within the next five to 10 years, the branded chains may increase their market share in the region by 5 percentage points, according to Patrick Scholes, a New York-based analyst at Friedman Billings Ramsey & Co.
“The U.S. hotel chains have a high penetration rate in North America,” said Bernie Williams, who helps manage $44 billion for San Antonio-based USAA Investment Management Co. He didn’t specify which hotel shares he holds. “As the sector starts to recover, Europe’s very fragmented market offers far more opportunities.”
Hotel owners have struggled to attract customers in the past two years as the recession deterred vacationers and forced companies to cut travel budgets. A lodging industry recovery is occurring more quickly in Europe than in the U.S.
Hotel occupancy in Europe climbed in February to 57 percent from 54 percent a year earlier and average daily rates increased to $127 from $119, according to London-based STR Global. North American occupancy stayed little changed at 53 percent, while rates dropped 3 percent on average to $98.
Hyatt Hotels Corp., the chain controlled by Chicago’s Pritzker family, expects to have a higher percentage of rooms abroad than in the U.S. within 10 years, Chief Executive Officer Mark Hoplamazian said in January. He said the company was seeking acquisitions in Italy and Spain.
Four Seasons, based in Toronto, has 14 hotels in Europe and another seven slated to open in the next three to five years. Blackstone Group LP’s Hilton Worldwide operates about 184 hotels across Europe. It had 18 openings in the past year, which included takeovers of independent hotels and franchise agreements. That compares with 12 in both 2008 and 2007.
Starwood had 159 European hotels at the end of 2009 and 20 in the pipeline. The company, which reported higher first- quarter earnings today, said revenue per available room rose 3.7 percent in constant dollars at European properties it has operated for at least a year. That exceeded a 1.2 percent gain in North America.
Bethesda, Maryland-based Marriott said last month that it expects to double its 40,000 rooms in Europe by 2015 with such brands as the Ritz-Carlton and Bulgari Hotels & Resorts. It plans about 30 projects in the region, including in Moscow, Budapest and Ankara, Turkey.
“Europe overall may be still dominated by small independents, but in some markets chain operators are already having a much stronger presence,” said Jonathan Goldstein, deputy CEO at Heron International Ltd., a London-based real estate development company.
Heron is developing the Heron office tower in the U.K. capital and the adjacent Four Seasons hotel, slated to open in 2014. It will be the chain’s third hotel in the London metropolitan area.
1.8 Million Rooms
About 15,000 hotels with 1.8 million rooms spread through 49 European countries are run by chain brands, according to London-based Otus, which advises companies including Starwood, Marriott and Hilton.
Accor SA, based in Evry, France, is the largest chain operator in the region. The top 10 also include Windsor, England-based InterContinental Hotels Group Plc, and the Dubai- owned British hotel chain Travelodge.
The chains’ global reservation systems, marketing reach and loyalty programs give them an advantage over independent, “boutique” hotels and are helping them secure financing for expansion, company executives say.
“Right now, banks are more likely to back a Hilton brand, knowing it’s got wide distribution, than they are an independent brand,” said Simon Vincent, Hilton’s area president for Europe.
One hurdle for the chains is the limited amount of land available for building in Europe, analysts said. That is leading them to try to take over independent hotels or let them operate under a chain’s brand in exchange for a fee.
In the major European markets, “there are plenty of hotel rooms, and the challenge is to break into an existing market in a meaningful way,” said Ian Gamse, a director at Otus. “This can only really be done by doing big deals, either by acquisition or franchise.”
Hilton, based in McLean, Virginia, in the past year converted the Trianon Palace Versailles in France into one of its Waldorf Astoria properties. It has flagged seven independent hotels under its Doubletree brand across the U.K. since 2008. Hilton also converted three U.K. hotels formerly operated by Real Hotel Group, whose business went into administration last year, into its Hampton economy brand.
Not all independent hotels are eager to strike deals with the global brands. Investors in London’s 3 1/2-year-old Hoxton Hotel, including Pret A Manger co-founder Sinclair Beecham, are confident they will be able to open other locations in the U.K. and wouldn’t consider selling to a chain, General Manager David Taylor said.
Starhotels, a Florence, Italy-based group of 22 four-star hotels in Italy, Paris and New York, has rebuffed approaches from U.S. chains to manage its properties, said CEO Elisabetta Fabri.
Ultimately, the quality of service will determine a hotel’s success, regardless of whether it’s an internationally recognized brand, said Taylor from Taylor Global.
“Many independent, boutique owner-operators provide a guest experience that is second to none,” said the consultant, a former head of Barclays Plc’s hospitality & leisure finance team. “Branded or unbranded, let your customer down and they are unforgiving. Get it right and they’ll keep coming back.”