LUXURY FOCUS
The luxury & lifestyle segment is doing well. What is aiding this growth? Can it sustain?
What led to recovery was revenge travel. For two-and-a-half years, a lot of people were unable to travel because of Covid. A lot of them were afraid of dying. They promised themselves and their loved ones that they are going to discover the world and enjoy themselves the minute it ends. The money saved in Covid was spent in 2021, 2022 and 2023. That revenge travel has probably halted now but a lot of people want to see more. Also, as many people were not going to office, a new trend emerged — staycation. Even now, people don’t go to office more than two or three days a week. A lot of people in U.S. and Europe leave home on Thursday night by car or train; 90% travel to a town next to theirs that they have never seen and work on wi-fi from the hotel on Friday and Monday. We call it Bleisure because we don’t know if it’s leisure or business. And they are repeat customers. Travel and tourism, the planet’s second-largest industry — roughly 12% of GDP and 12% employment — has been doing great for 50 years by growing 3-5% per year except during Covid and after 9/11. But number of hotels has been increasing by only 2%. Emergence of middle class and growth of demography mean that for 20 years, demand will probably grow at 6% while supply will grow at 2%.
Has bullishness in luxury segment made you realign strategy?
Hundred per cent. We decided seven years ago that we need to be stronger in luxury brands. We’ve spent $6 billion on acquisitions. When I started at Accor 10 years ago, we had 12 brands. Now, we have 46, and 80% of these new brands are in luxury & lifestyle. While luxury & lifestyle has been growing at 12-15%, the medium segment has been growing at 5-6%. It’s a high-risk segment, more difficult to execute, as the brand has to offer greater promise and experience. You can’t fail when people are paying you $500 per room. But it is more rewarding. You get better value as in the fashion industry. Whether it’s Hermes or LVMH or Kering or Cartier, they’ve been growing steadily for 30 years, but with a lot of investments.
Does luxury give better margins?
Luxury margins are not higher than in the medium category. Pricing is better but you need more personnel, more services and more food and beverage. So, margins are the same, even though you have an advantage in terms of dollar revenue per room.
INDIA & CHINA
You talk about growing middle-income segments in India and China and at the same time are bullish on luxury. Can you help us understand this dichotomy? Will this segment (mid-income) move to luxury?
We are looking at what is aspirational. India has 32% of what is called the emerging middle class. Of course, within this, you have somebody with a $5,000 income and somebody with a $10,000 income. If you are on the lower end of the emerging middle class, you will be into Ibis, Novotel. If you are on the upper side, you will go to Swissotel, Pullman and Sofitel, and even Raffles and Fairmont. The emerging middle class in India will probably double to 60% of the population within 20 years. That will have a huge impact on demand for hotels. My job is to seduce you to be in the Accor family.
Given the sentiment around China, how do you see the market there? How is India in comparison?
There are a lot of differences but we have a common attitude towards both — never ever bet against China and India. It’s all about leadership. The current leaders of both countries, whether it’s Xi Jinping or Prime Minister Narendra Modi, have a vision. They have a plan. They have a firm hand and are guiding their countries to a better world. And if you have a leader, a plan and a vision, people usually follow. I have met a lot of businessmen from various sectors and they have told me that this is the time of India. The positive energy of the Indian business community is flabbergasting.
What does FY24 hold for the group? What are your plans for India and China?
China is taken care of. We have over 500 hotels in China. We’re growing at 20% per annum. We have the best partners ever. We’re partnering with Chinese operators as they will control China. Americans will control America. Maybe a notable exception will be India. It’s impossible to control India. It is probably the fastest-growing market by far. I need to be an actor. I hate being a spectator. So, to be an actor in India, we probably have to do what we’ve done in China, that is, pick a horse. It could take different forms, co-venture, master franchise. But India is so diverse. You need different partnerships in different regions. That means a lot of non-Indians will fail. I hope I’ll be in the winning category.
TECH & ESG
How are you leveraging tech? How mindful are you of carbon footprint and ESG goals?
We use quite a bit of technology in customer regulation, property management and pricing. We are outsourcing more and more technology as we are not experts. But I am looking at my business as the opposite. It’s all about human capital, human interaction, the way you say bonjour or thank you, the way you serve coffee. What I’m more troubled about is my (carbon) footprint.
We open almost one hotel a day. Last year, we opened 300. I know I will impact the place where I am going. I will emit carbon, I will take water from where, maybe, there’s water scarcity. I am going to use energy where there may be an energy shortage. That is the negative column I need to be candid about. Then there’s the positive column, the ability to offer a job to somebody who has never gone to a university. You need a net positive between the two columns. The one thing I’m most proud about is Accor’s ability to hire more than 1,00,000 new people every year for last 20 years. And 60% of them never went to university or had a job before.
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