Leaders Downplay Recession Talk
Brand Execs Tout Pent-Up Demand, Tailwinds As Key Factors For Future Growth
Brand leaders downplayed the impact of any potential economic recession on the lodging industry emphasizing pent-up demand and other positive performance trends during a panel discussion earlier this week at the New York University international Hospitality Industry Investment Conference.
During the panel, entitled “The Leaders Check In—Part Two: Consolidation, Scale, And The Structure Of The Hospitality Industry,” executives also offered some projections for the year ahead and addressed progress on the diversity front, among other topics.
Elie Maalouf, CEO, Americas, IHG Hotels & Resorts, weighed in on what a recession could mean.
“I don’t think a slowdown in the general economy necessarily means a complete slowdown in our industry. If you look at the pandemic the travel industry got crushed, while many other industries and sectors did very well. You might see a slowdown in major economies but ours has tailwinds. The consumer is in decent shape and there is more pent-up demand coming from groups and meetings and international [business]. So I think our industry could recover in the next couple of years what it lost in the last two years,” he said.
Geoff Ballotti, President/CEO, Wyndham Hotels & Resorts, also dismissed the impact of a potential downturn on the company’s franchisees while expressing overall optimism.
“I think our owners have never been better prepared. We’re coming off the longest running cycle and their balance sheets are in great shape. We’re doing everything we can as a company to just make sure that we’re driving as much contribution to our owners as we possibly can. I think demand is off the charts and we feel pretty good that pre post-pandemic days are ahead,” he noted.
And while Stephanie Linnartz, President, Marriott International, acknowledged some cause for concern such as inflation, supply chain challenges, labor and geopolitical issues, but she too remains generally bullish.
“There are a lot of headwinds that lead to concern about as a recession. That being said I also think we have to look at the other side of the ledger. There’s a lot of consumer savings, there’s a shift from goods to services, there’s a ton of pent-up demand for travel. So there are a lot of positive statistics towards keeping things going in the travel space. But I think we’d all be naïve to not to be cautiously optimistic and be prepared. However, I remain very optimistic if you can get through the pandemic like we have the last couple years we can get through anything,” she stated.
Kevin Jacobs, CFO and President, global development, Hilton, meanwhile, noted “there’s always a recession coming by definition” but he pointed to another positive long-term trend.
“There is some period of time where we can be desegregated from the broader economy because of pent-up demand, but over longer periods of time that’s not going to be the case. However, we’re setting up our companies to take advantage of this massive mega trend, the middle class formation, which has doubled over the last 20 years and is expected to double again over the next 20 years. What do middle class people do when they have the means? They travel,” he noted.
The panelists further reinforced their collective optimism when discussing what the conversation will be at this time next year during the event.
Larry Cuculic, President/CEO, Best Western Hotels & Resorts, commented.
“My prognostication for next year is that we will no longer use 2019 as a benchmark for performance. What’s problematic about that is we’ll have to use 2022 as the baseline, which is going to be a terrific year and summer. So good luck to all of us, but 2019 is history,” he said.
“I think at this time next year we’ll be talking about how things have even got better faster than we anticipated when we sat on the stage in 2022,” said Linnartz.
“Instead of talking about reserves we’ll be taking about returns. And I think that we’ll be in a place where people will acknowledge the good returns they get from hotels, especially in an inflationary market, and among other real estate asset classes. Hotels will have separated themselves as a differentiated and highly attractive investment,” noted Maalouf.
“Next year probably we’ll be talking about the next presidential election to some degree,” said Jacobs.
Patrick Pacious, President/CEO, Choice Hotels International, shifted the focus to diversity.
“I think what we’ll talk about the most is the actual coming to fruition of underrepresented entrepreneurs, who are really getting projects moving and are moving down the path of hotel ownership. I think all of the attention that’s being put on it today is going to start to result in real live hotel owners and people moving up in our industry. That’s going to be the future for the next 50 years in our business so I think it’s real positive to see what’s happening at the ground level on that front,” he said.
Panelists agreed there’s been progress, but emphasized that more needs to be done, particularly at the executive levels of the industry.
“We’ve got to continue to work on more diversity in every industry, but particularly in ours. While we have a lot of diversity in our industry we still don’t have enough diversity at the highest levels and most senior leadership roles in companies. We don’t have enough diversity on the ownership front,” said Linnartz.
“It takes a level of intentionality too to get to top of the organizations in our industry or on the ownership side, where there’s an even larger deficit of diversity. It’s not every career path that gets you there. Let’s be realistic, exposure to some of the key experiences in finance and in development tend to be really important. We need to intentional efforts to bring females and minorities into those experiences that then have a higher likelihood of getting you to the top,” noted Maalouf.
“We’ve sold over 300 contracts in the last 15 years specifically to underrepresented minorities, that’s the beginning. The challenge is we have to get the lender and equity community to allow for more of that access because the first question that entrepreneur gets asked is ‘what’s your net worth, show me your experience?’ If you don’t have it it’s how do you get that leg up?” asked Pacious.