Worldhotels buy aims to alleviate pressure from scale, soft brands

ORLANDO, FL—In the current hotel environment, most companies are betting on scale, with hospitality mergers and acquisitions the new norm. But while most of the action is occurring in the branded world, companies that cater to independents also see the benefits of being bigger—and are taking action.

Established as a parent company for 30-year-old Associated Luxury Hotels International (ALHI) earlier this year, Associated Luxury Hotels now has Frankfurt, Germany-based Worldhotels in its portfolio.

Tom Santora, Associated Luxury Hotels’ chief commercial officer and executive chairman of Worldhotels, explained, “As solutions keep developing for independent hotels, whether it’s the likes of a Worldhotels or some of the soft brands like Autograph, Curio or Tapestry, ALHI was really more of this one-legged stool. We wanted to offer more solutions and more services for independent hotels and resorts and independent brands.”

Enter the partnership with Worldhotels. “This acquisition was a perfect marriage with this complementary portfolio,” Santora said. “Worldhotels, unlike ALHI, has a plethora of services—business travel, loyalty, distribution, training, revenue strategy. The list goes on with what they offer independent hotels and independent groups. We felt it was a really nice balance.”

And, while both groups cater to independents, the portfolios and business mix are complementary but discrete. Worldhotels focuses on the individual business traveler, leisure and meeting sector solutions for some 350 member hotels and resorts (75,000 rooms), while ALHI focuses on North American meetings, incentives, conventions and exhibitions (MICE) marketplace for its 250 hotels (138,500 rooms).

“When you look at the portfolio, most Worldhotels are in Europe or Asia, with only 20 or so in the States, whereas ALHI’s portfolio was the opposite with 175 or so in the Americas and an international portfolio of about 75,” Santora said. “It was a nice synergy there.”

Associated Luxury Hotels will run ALHI and Worldhotels separately. Citing the different focus and portfolio mix for the separation, Santora said, “There will be synergies we’re working on behind the scenes as it relates to finance, marketing support and loyalty. From a portfolio perspective and offering, there will be some members—and we’ve already identified about 45 of the Worldhotels portfolio that will become part of what we’re calling the Global Luxury Alliance—that’ll be represented also by ALHI, but not the entire portfolio.”

So why was now the right time for this acquisition? According to Santora and Worldhotels CEO Geoff Andrew, scale and soft brands had everything to do with it. “Independent hotels in the ALHI portfolio are constantly looking for solutions. We had a couple cases where some members basically said that we have to make a move or they’re going to go to Autograph or become Unbound by Hyatt,” Santora said. “Once they go to a bigger brand, even though they want to stay with ALHI from a MICE perspective, we unfortunately won’t be able to represent them on a go-forward basis. We wanted to a) stop that and b) really leverage these resources to be more of a full-service soft brand.”

Andrew added, “Independent hotels are facing an unprecedented number of pressures. There’s the challenge coming in from the big chains and their so-called independent brands, and you’ve got a huge amount of pressure coming in from OTAs and their footprint in the business. Hotels are experiencing acquisition costs in their business and they’re going up faster than room rates. You have a whole new wave coming in of disruption from the shared economy. It’s a challenging place to be right now as an authentic independent.”

In business for more than 45 years, Andrew noted that Worldhotels’ stated mission is to empower true independents. “That is about recognizing the value of a really authentic independent product in the market. We believe it’s worth fighting for,” he said. “These pressures are resistible if we do the right things with the right partners. Some of that is about scale and services…because this is not a market in which to be a small fish. There are some big forces and in order to be effective, having the kind of scale and footprint our combined organizations now represent, that’s the way to go. We consider this to be a big step forward in what we can do as Worldhotels for our members and future members to protect them from having to go down any of the roads and stay as a quality independent.”

“We’re reaching 200,000 rooms, nearly 600 hotels,” Santora said. “As these bigger chains get bigger, these independent hotels, it’s a difficult road to hoe. One of the things we like to look at is Net RevPAR. The folks at the big brands are smart people and by creating these soft brands, it’s an offering, but it’s an expensive offering. It’s a long-term contract, there are fees every which way, but sometimes from a financial perspective, they might need to do it for a loan or bank. We want to be able to offer an alternative solution.”

How do they propose to do that? Andrew explained, “It’s really looking at what services are valuable, what’s going to really drive business. It’ll be a combination of services and support in the sense of expertise and advice, plus products and the ability to drive more sales through more segments.”

For instance, Worldhotels offers World Online, in recognition that hotels need help rebalancing distribution. “The OTAs are not the enemy, but they are a big pressure in the market and potentially a threat if they become overly important in a hotel’s overall distribution mix,” Andrew said. “World Online is about helping hotels to rebalance that by driving more business through their own website. We have a team who will do a full audit of the hotel’s existing online presence, their website, their booking engine, and we talk to them about how they can improve traffic into their site, how they can improve the conversion on their site, and in general by looking at the overall health. In the end, it’s not just about a website—it’s a combination of your web presence, your booking engine and your overall underlying revenue strategy. How can you maximize that to full effect and ensure you’re driving enough business through your own site that you can balance what’s happening on the OTA? It’s providing a great deal of insight to our hotels and giving them the tools, support and service to be able to help to redistribute their bookings.”

Worldhotels also created another program: Start with Why. “We get all of our members to ask the question of themselves: Why do you exist? Why should somebody stay in your hotel?” Andrew said. “We really explore what their real mission is. They come up with a ‘why’ statement that then informs the way they position themselves in the market through their promotional material, but also, more importantly, how to develop their service delivery in the hotel to live up to the promise.

“One of the things that’s resulting from that is hard results,” Andrew continued. “The hotels that really embrace this process are already finding—because we launched this 14 or 15 months ago—through review sites and some of the bigger OTAs, their rankings and ratings are all beginning to go north. That’s great news because it’s very clear from research that if you can drive your positioning up on the OTAs, you can support a higher rate without losing volume. This is part of our overall message to the hotels. We want to ensure you don’t rely entirely on the OTAs so we’re going to help you drive more business through your own channels, but at the same time, we want to make sure that you’re maximizing the opportunity from all channels that exist. In the end, all of these programs are really about driving Net RevPAR. It’s all about trying to get more business at the optimum price into our properties.”

Going forward, Worldhotels is also looking to add properties. Santora said, “In the next 18-24 months, we’d like to be at 500 hotels. It’s really about finding the hotels we believe we can provide value for.”

Would Associated Luxury Hotels consider another acquisition like Worldhotels to become an even bigger fish? Maybe. “From Associated Luxury Hotels’ perspective, it’s looking for other opportunities to continue to evolve these solutions,” Santora said. “There could be another soft brand that could come into the fold, but I wouldn’t say there’s anything in the immediate sights—but definitely open to those opportunities.” HB