Originally Posted by
The Road Goes On Forever
The big three have been aggressively moving for many years towards budget/limited service brands and away from full service properties. The top brands in the North American Pipeline for the past few years have consistently been Avid, TPS, Home2, FFI, Tru and HIE. No other brands in any of their portfolios come close. The big reason is cost. You could build multiple locations of those types of properties and you can comparatively put them anywhere versus one full service/upscale/luxury/lifestyle brands which are far more niche and far more expensive to open especially when the entire industry right now is chasing the leisure market that travels irregularly.
Sure, it is no secret that limited service properties are generally the most profitable. I honestly think Hyatt’s move towards limited service is sensible for them as a business (but obviously disappointing for customers). Hyatt clearly needed to make a change from a business perspective so I understand why they are running toward the lower end. Furthermore, I sincerely deeply respect Hilton as a business. They have some of the most profitable hotel flags for developers (home2, Hampton inn, etc) and have done a great job at creating a highly efficient hotel machine that just works.
However, I disagree with the idea that the big hotel chains have unilaterally shifted focus away from higher end properties (IHG market cap is almost the same as Hyatt’s). I think it is possible to continue to invest in these higher margin limited service properties while still focusing on high-end properties as well. Marriott’s purchase of Starwood alone was a large investment in nicer properties and the reason why they are so far ahead of the rest of the pack in this regard today. As mentioned above, IHG went out of their way to purchase Kimpton and especially Six Senses. They have also worked to revive Regent (with fine properties such as the Four Seasons Shanghai Pudong reflagging to Regent) and have created their Vignette collection soft flag. Even Hilton launched their LXR soft flag relatively recently.
Base top line revenue aside, I think there is a material benefit to having nicer properties that creates a halo effect for the entire chain. It just so happens that Hyatt and Hilton don’t seem to care about this whereas Marriott and (increasingly) IHG do. The late Arne Sorenson spoke about the idea of Marriott’s nicer flags “pulling up” the perception of their cheaper flags frequently. Only time will reveal if this approach is worthwhile in the long run. Personally, this tactic definitely works on my specifically. I am far more interested in IHG for having Six Senses and Regent than I am in Hilton (which seems fine to leave their flagship Waldorf Astoria closed indefinitely).