Mergers between behemoths to revive paralysed tourism market

09:27 | 09/09/2020
The widespread effects of the ongoing health crisis have left a deep dent in Vietnam’s hospitality industry, almost entirely numbing hotel groups by decreasing their occupancy rates. Amid this scenario, possible mergers between long-standing competitors could revive the market once travelling becomes feasible again.
mergers between behemoths to revive paralysed tourism market
Mergers between behemoths to revive paralysed tourism market

The pandemic has disrupted numerous travel plans worldwide, resulting in weaker hotel performances across the country. As such, average revenue per available room in the first half of 2020 went down significantly by 56 and 64 per cent for Hanoi and Ho Chi Minh City, respectively.

Occupancy rates reached the lowest point in April when nationwide social isolation was imposed, then slowly recovered in May and June as local tourists started to hit the road again.

Zurab Pololikashvili, secretary general at the United Nations World Tourism Organisation, stated on the organisation’s website that the rapid fall in tourist arrivals between January and May has cost the sector an estimated $320 billion – an impact three times greater than the global recession of 2007-2009.

Large hoteliers like Accor and InterContinental Hospitality Group (IHG) also suffered heavy losses from the pandemic, which was the main reason for the emergence of the rumour that both brands would merge.

Patrick Basset, Accor’s COO for Upper Southeast & Northeast Asia and the Maldives, told Timeout that even if more than 4,200 of the group’s hotels are currently operational, the group still suffered under the pandemic with revenue per available room down by 59.3 per cent in the first half of 2020, which resulted in a net loss of €1.5 billion ($1.8 billion).

Despite declining to reveal his group’s losses, Rajit Sukumaran, IHG’s managing director for Southeast Asia & South Korea, admitted that it’s a challenging time for the hotel industry. “We’ve been focusing on responding to COVID-19 in the best way we can on every front.

Trading is tough globally since we saw demand fall quickly in March. We are now seeing progress with the reopening of our hotels around the world and we’re doing everything we can to emerge from this period in the strongest possible position,” Sukumaran said.

A Giant Union?

If the deal is done, the combination of Accor and IHG would create the largest hospitality corporation in the world’s history with more 1.6 million rooms, around 200,000 rooms more than Marriott International, which is now on top of the industry.

Up to now, the news of a possible merger between Accor and IHG remains speculation but with both groups’ huge scale of operations globally, it also raises the attention of global investors and loyal customers, including in the Vietnamese market.

Based in France, Accor currently runs around 5,000 hotels in 110 countries, with 60 per cent of its portfolio in Asia. Accor was one of the first international brands to step foot in Vietnam with the first involvement being the Sofitel Legend Metropole Hanoi.

Now, Accor manages nearly 30 hotels nationwide with outstanding brands such as Sofitel, Pullman, MGallery, Novotel, Mercure, and the Premier Village Danang Resort.

Accor’s strategy is to accelerate hotel development through both organic growth and acquisition. The expansion of its hotel network continues at a rapid pace, with a record 52,000 rooms opened last year. The group is focused on reinforcing its positions in Europe, the Americas, and Asia-Pacific, but faces stiff competition from Hilton and Marriott in the US. Across 2018 and 2019, Accor was opening a hotel in Asia-Pacific every three days.

Meanwhile, IHG currently has nearly 6,000 hotels worldwide, offering some 883,000 rooms. In Vietnam, it is now operating 14 hotels with the four brands (Six Senses, InterContinental, Crowne Plaza, and Holiday Inn) with more than half of them carrying the InterContinental name.

In its development strategy, IHG aims to set out a centralised approach to delivering long-term high-quality and sustainable growth.

The group also focuses on building preferred brands, delivering a superior owner proposition, leveraging scale, and generating revenue through direct channels.

Payment Issues

On August 25, Service Properties Trust (SVC), a real estate investment trust which owns a diverse portfolio of 149 distinct brands across 23 industries, announced that it would transfer the branding and management of 103 IHG hotels to Sonesta International Hotels Corporation. Previously, SVC sent notice of termination to IHG for failure to pay minimum returns and rents due for July and August totalling $26.4 million plus interest, and IHG had until August 24 to make payments.

SVC did not receive any payment from IHG by August 24, nor does it expect any in the future. After a period of negotiations with IHG, SVC is determined to terminate contracts and rebrand these hotels with Sonesta.

IHG explained that since August, SVC has indicated its intent to terminate the management agreement with IHG, effective November.

By Bich Ngoc

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