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Fri 13 Jan 2017 01:10 AM

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Room for change: AccorHotels CEO Sébastien Bazin

A few months after buying FRHI Hotels & Resorts from investors including Qatar Investment Authority and Kingdom Holding, AccorHotels CEO Sébastien Bazin denies the hotel management firm is growing too fast. In fact, he intends to pick up the pace – especially in the GCC

Room for change: AccorHotels CEO Sébastien Bazin
Sébasitien Bazin was appointed chairman and CEO in August 2013 after eight years as an Accor board member and previous posts in investment firms.

“We open a new hotel every 36 hours,” Sébastien Bazin remarks, after outlining the impressive portfolio of French hospitality chain AccorHotels, with 4,100 hotels spread across 95 countries and employing 240,000 people.

The significant sum includes properties gained through the recent acquisition of FRHI, a hotel management company formerly owned by Qatar Investment Authority, billionaire Saudi Prince Alwaleed bin Talal’s private investment arm Kingdom Holding and Oxford Properties Group. The purchase added a bona fide luxury arm to the AccorHotels collection, which had been lacking in the top tiers.

One such hotel is the Fairmont The Palm in Dubai. Running late, Bazin breezes into the hotel’s suite with his entourage. When you are managing an $11.2bn company, time can be precious.

While the Frenchman describes the pace of AccorHotels’ development as “fascinating”, he concedes there are a number of outstanding transformations needed to take the firm to the next phase. The toughest part, he says, is explaining the need for change.

This included divesting of the real estate ownership in its HotelInvest to new investors - pension funds, sovereign funds and family offices – which he expects will yield $5bn-plus in proceeds when the process is completed “at the end of the first semester 2017”.

Bazin, a private equity specialist who took over at AccorHotels in August 2013, says the funds will give AccorHotels greater financial resources to speed up growth and diversify the mix and geography of the brands network.

The French group made its name with brands such as Ibis and Mercure.

The acquisition of FRHI Hotels & Resorts gives AccorHotels breadth in a segment it really only dabbled in heretofore.

“They bring me exceptional luxury brands and a lot of luxury talents that we didn’t have,” says Bazin.

While he says the merger “is going very smoothly” thanks to a five-month lead-in time after it received shareholder approval, he admits “it’s going to take time”.

“Any integration of that sort is probably going to be an 18-month process,” he says.

“I was here [in Fairmont The Palm] with them for the last couple of hours. There’s a common ambition and true will from the FHRI people to be integrated because they’ve been missing skills in terms of distribution and traffic, and loyalty system.”

He describes FRHI has extremely complementary to AccorHotel’s offering. Both companies are strong in Asia Pacific and Dubai, but a FHRI’s strong presence in North America is something that AccorHotels didn’t have – 16 hotels, as opposed to the 45 that FRHI brings.

The merger also brought two significant shareholders as part of the deal – Kingdom Holdings and Qatar Investment Authority.

“It brings a stable and very strong shareholder base because we inherited as part of the purchase price of Fairmont Raffles 11.5 percent for QIA, and 5.5 percent for Kingdom Hotels, which for me is formidable because they have so much awareness of the hotel industry and they’re long-term investors and they really want Accor to further grow. It’s great financial backers and value-added ones,” he explains.

Saudi Prince Alwaleed sold his stake in FRHI Hotels & Resorts in 2016.

“It’s also extremely key because they end up also being asset owners and many of the Fairmont owned by Qatar, or QIA and or Kingdom. Since 98 percent of the new openings is done asset light, with other people’s money, they could and likely would offer me opportunities in terms of them investing and me managing on their behalf.”

It leads Bazin straight into his next point about investors and how AccorHotels opens a new hotel every 36 hours – it was two every three days.

“That’s a pure demonstration of the value of the brand and the network because when you think of it and pause a minute, and I was doing the maths some weeks ago: we have 4,100 hotels today and we only own less than a 1,000, but the numbers of dollars behind this network is $120 billion of investment made by investors of which they gave management arms to Accor. It’s enormous,” he says.

“People don’t realise what’s behind this company. It’s not only capital and labour intensive, but there’s a lot of risk taken from very wise, sophisticated people for very significant, large sums of money.”

The return on investment continues to be there, he insists. “If they don’t they are going to throw me out,” he quips.

“The hotel industry is a blessed industry. It’s one of those very rare industries in which you have scale,” he says.

“That industry has been growing at 5 percent per annum over the last ten years. And will grow by 5 in the next year, while hotel supply will only grow at 2 percent. You have an excess demand over supply - very rare to have a sizeable industry in which you have so much visibility on the future, which is why Airbnb exists, because they see that extra demand.”

The luxury Marjan Island Resort and Spa is located in Ras Al Khaimah.

Dubai has more luxury and high-end hotels than most - 32 percent of total available rooms are in five-star outlets, while 22% are in four-star. The RevPar has therefore been historically high – currently AED380 and a major factor in why the city has 676 establishments (including hotel apartments). The temptation for developers, therefore has been to embrace the luxury sector in Dubai.

“It’s not an amateur game. It requires very difficult skills, from wellness to F&B to concierge. You need a lot of manpower behind it and experience. There’s lot of exigence being asked form the owners because they put a lot of dollars at work,” he says.

Bazin says there’s more than enough supply when it comes to luxury segment in Dubai, and investors need to turn to where the future demand is coming.

“I think Dubai, the emirates and the GCC countries need much more to be better equipped into the two and three star category than they need to be equipped in the luxury segment,” he says.

“We’re not here to add new capacity, we’re here add additional breadth through the acquisitions we have made. We will continue to deliver the pipeline, but I’m spending as much time, if not more on Novotel, Mercure, Sofitel, Pullman, Ibis than I am spending time on Fairmont Raffles.”

He insists there are plans to add to the portfolio in the region, but it will be done “on a very disciplined basis”.

“Accor is not size driven or ego driven,” he says. “Since it’s not my money, I want to be able to pay for the risk investors are taking.”

The 251-room Ibis Styles at Dragon Mart, Dubai, opened last February.

AccorHotels last year opened one of its largest Ibis hotels in the region, One Central by the Dubai World Trade Centre, with 588 rooms.

While he’s initially coy about revealing plans for new brands in region, Bazin says there are plans to bring its lifestyle brand Mama Shelter to Dubai.

“We would love to have a Mama Shelter in the Dubai market to complete the existing offering and to bring something that it not additional room inventory on what already exists,” he says.

There are also tentative plans to bring its newly launched brand Jo&Joe to Dubai – AccorHotels’ most recent answer to Airbnb.

“It’s (Airbnb) a formidable concept; I said that from the first day I joined,” says Bazin.

“They’re growing fast. You also have to go a bit granular - Airbnb is a 90%-plus leisure market, mine is 70% non-leisure market. They’re very efficient when it comes to big, targeted cities and gateway cities. They’re not that important on secondary, tertiary cities.”

The growth of Airbnb is something that he says he has studied closely, assessing why people use the online portal.

“My assumption is they use it for three good reasons - usually a third cheaper than a hotel room; usually 50% more spacious than a typical hotel room of that segmentation; and it’s perceived as being a better local experience,” he says.

Dubai’s Ibis One Central and the Pullman JLT target business tourists.

Jo&Joe is a brand that blends the best of private-rental, hostel and hotel formats. The first two will open in Paris and Bordeaux in 2018, but there are plans to open 50 worldwide by 2020, with Dubai very much on the planned list.

“It’s targeted at the millennials, where we’re no longer selling a room,” Bazin explains. “We’re selling a bed. There’s no partitioning any more. Everything is on wheels.

“People are going to be paying $20 or 22 euro a head, as opposed to a 60 euro room. An entire floor can be reconfigured from 2 to 10 beds.

“Dubai is going to be a perfect positioning for this, and so would Berlin, Bangkok, Sydney,” he reveals.

One market that won’t be on the initial launch list is Saudi Arabia, but Bazin says AccorHotels has exciting plans to grow its offering in the kingdom, and he’s basing it on experience.

While he has just visited both Riyadh and Jeddah, Bazin says they’re not the primary focus for AccorHotels’ growth plans.

“While we have 20 hotels, we are looking to at least double if not triple the network in Saudi Arabia,” he says.

Dubai’s Ibis One Central and the Pullman JLT target business tourists.

“There’s clearly a need in secondary, tertiary cities in Saudi Arabia, and [there’s] a true will from the government to help fulfilling hospitality and new services demand because of diversifying from the oil industry.

“The stars are totally aligned. We are the leader, we have the brands, we have the connection, and I hope we have the trust of the big families in Saudi Arabia, and we have the expertise on how to build a network in secondary, tertiary cities because we’ve done it in enormous scale in Brazil, Chile, Malaysia, Indonesia and in many countries in Africa.”

He says having identified the need, it’s now a question of spending the time, defining the right location, the right partner and the right brand.

“I went there because I purposely wanted to make sure we had everything checking the box. Now it’s a question of launching,” he says.

The launch plans will see the kingdom have another 40 AccorHotels-branded properties in the next five years, and will include the holy cities Medinah, Makkah, and also Taif.

“It’s not something we do on our own. Since it is being done with other people’s money, we went there and met the big family offices and the Minister of Tourism to make embark hand to hand. We’re not imposing anything on anyone, certainly not in any local geography,” he says.

“We’ve been in the Middle East for over 35 years. If anything for me, I want AccorHotels to be market leader wherever we are, but it has nothing to do with size. It has to do with what’s happening in the industry.”

The Novotel Yanbu is one of AccorHotels’ 15 hotels in Saudi Arabia.

In Qatar, he says AccorHotels will approach the build-up to 2022 in a disciplined manner, with Ibis and Adagio hotels set to open this year. While the World Cup will have largescale accommodation needs, he insists that the tournament “only last eight weeks”.

“It’s a country that it developing very fast with a lot of new capacity in Doha in all segments. I’ve been going to Qatar since 1987, so I have seen the evolution. You probably understand Qatar now best when you see the airport. People would have said six years ago ‘don’t build it because Dubai has won it’, well now Qatar is becoming a hub,” he says.

“They are my second largest shareholders, but it’s a country in which you also have to say ‘no’. We cannot go too fast. It’s different in Saudi Arabia - it has the demography and population. Qatar has many other tools but they don’t actually have that same kind of size of population.”

One of the other significant reasons for Bazin’s visit to the region is to get across the company’s shift in strategy that will target what he sees as AccorHotels’ best growth prospect across its business in the Middle East.

Instead of marketing hotels to travellers, which he says have been “100 percent of the business [for Accor] over the last 50 years”, he says they will target local people – a market that he says is five times larger than the travellers’ market.

“If you pause a minute, I have $120 billion worth of real estate, of which I have the asset management and servicing side of things. I have 240,000 experts (employees) locally, and all the start-ups existing in the world for the last 20 years have one thing in common - they’re creating a purpose and easing the quality of life,” he says.

“I’ve never offered anything to the local guys (population), even though 90% of them know of my existence and pass through my hotels. They need many services that could be provided by the physical space of our hotel to ease their day to day quality of life. It’s called ‘Project Nest’.”

AccorHotels is competing with emerging hospitality players such as Airbnb, especially in Dubai, where residents often rent out spare rooms to travellers.

Bazin says the 240,000 employees around the world, along with the company’s digital concierges and the data scientific business intelligence, will offer services for people who probably will never travel.

“This is the area of growth where I’m forcing the company to go to,” he says. “It’s likely to be a solid third of my revenues in less than five years.”

Looking towards the next 12 months, he says, is almost impossible to predict.

“Half of what we have done in the last 12 months, I did not think of it last year and it was the same the year before. So I’m afraid the next 12 months, I’m going to another half that I haven’t even thought of now,” he says.

“People believe Accor is growing too fast; I am saying we’re not growing fast enough. I’m pushing this company up to its limit so that people understand: we have time to think, we don’t have time to act.”

When will he know he’s hit the limit?

“It’s a question of management. Limit is reached when people don’t have time to think and want to do something only to please me.”

The group is targeting Haj and Umrah pilgrims with properties such as the Pullman Zamzam Madina in Saudi Arabia.

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Phillip 3 years ago

While I do agree that FRHI was an amazing acquisition for Accor Hotels, I question whether they will be successful into the venture of Luxury Hotels. It was creative to set up an entire "Luxury" team to look after that portfolio of properties, however, I don't believe the setup is sustainable long-term. Additionally, FRHI and Accor Hotels have drastically different styles of leadership and unfortunately I believe this will in effect lower the service level standards of FRHI's (former) brands: Raffles, Fairmont, and Swissotel. The difficult part is when you place senior leadership at the helm of a major hospitality company that is looking to break into the luxury segment, but have very little luxury experience themselves. The departure of FRHI's key leadership team will result in a diminishing of their brands, I have no question about this what-so-ever. And it will certainly be a shame once brands such as Fairmont become similar to the likes of a Marriott or Westin and lose identity