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HOTEL
Scenarios for the year ahead

2013

Puneet Chhatwal, Steigenbergers new CEO, shares his thoughts on the challenges in the year ahead Dorchester Collection CEO Chris Cowdray on leadership How will 2013 shape up for the key hotel markets worldwide? 30 exclusive country reports from Horwath HTL Special section: Spa 2020 Leading experts explore the next decade in the spa industry How is your company visualizing its future business landscape? Woody Wade on scenario planning in the hotel industry

This excerpt from the Hotel Yearbook 2013 is brought to you by:

WADE & COMPANY

Wade & Company is a Lausanne-based consultancy that helps senior managers in the hospitality industry better understand how their future business landscape could change, affecting their competitiveness and creating new opportunities and challenges. Its scenario planning workshops give management teams a creative yet structured approach for envisaging alternative ways their future operating environment could realistically unfold over the next few years, depending on how current uncertainties develop. With these eye-opening insights, Wade & Companys clients can maximize the flexibility of their strategic plans and be better prepared for whatever future dies arise. More info is at www.11changes.com.

Horwath HTL

Horwath Hotel, Tourism and Leisure consulting are the worlds number one hospitality consulting organisation, operating since 1915. Horwath HTL are the industry choice ; a global network offering complete solutions in markets both local and international. Through involvement in thousands of projects
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over many years, Horwath HTL have amassed extensive, in-depth knowledge and understanding of the needs of hotel & real estate companies and financial institutions. Horwath HTL are the worlds largest consulting organisation specialised in the hospitality industry, with 50 offices in 39 countries. They are recognised as the pre-eminent specialist in Hotels, Tourism and Leisure, providing solutions through a combination of international experience and expert local knowledge.

Hotel, Tourism and Leisure

Hsyndicate

With an exclusive focus on global hospitality and tourism, Hsyndicate.org (the Hospitality Syndicate) provides electronic news publication, syndication and distribution on behalf of some 750 organizations in the hospitality vertical. Hsyndicate helps its members to reach highly targeted audience-segments in the exploding new-media landscape within hospitality. With the central idea ONE Industry, ONE Network, Hsyndicate merges historically fragmented industry intelligence into a single online information and knowledge resource serving the information-needs of targeted audience-groups throughout the hospitality, travel & tourism industries serving professionals relying on Hsyndicates specific and context-relevant intelligence delivered to them when they need it and how they need it.

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Sustainability: the value proposition

The times they are a-changing, sang Bob Dylan and Richard Garland, principal at London-based RGA Hotel and Leisure Consultants, certainly agrees. The Hotel Yearbook asked Richard for his take on the key design and development issues for 2013 and beyond. His analysis comes down to one thing: the need for sustainability in the face of increasingly dire climatic threats.

Before the turn of the millennium, climate change was a phrase you might only have found in an article published in some obscure scientific magazine. Fifteen to twenty years later, it represents the single greatest challenge to the survival of mankind and is uppermost in our thinking and decision making in shaping our lifestyle, future existence and prosperity. While the scope and speed of change is a cause of much debate with its uncertainty and contradictions, as governments fiddle, the scientific community is increasingly speaking with one voice that change is not only underway and becoming more extreme but, in some areas, irreversible. There is irrefutable evidence that similar climate and environmental changes have taken place several times over millions of years but, this time, there are a number of major differences: rising total population; rising consumption levels as one half of the population aspires to the lifestyle, housing and possessions of the other half; diminishing natural resources; rising carbon emissions leading to global warming and dangerous levels of toxic pollution which are producing huge economic and commercial challenges across the globe. If life as we know it is to be maintained, the current scenarios many of which man has created and continues to contribute to are unsustainable. With the exception of a few farsighted environmentally concerned independent owner/operators, it was with the emergence and rapid global growth of the budget sector hotel brands some 15 years ago that the value and benefits of sustainable design and development, coupled with a focus on energy conservation, surfaced as a vital contributor to increasing the commercial viability of hotel projects and services. With the budget financial model only offering limited revenue and income streams, and with development budgets required to be tightly controlled, every dollar saved in design, development and operating is carried to the bottom line optimizing profit potential. Despite becoming the fastest growing sector and outperforming all other categories, both developers and the industry have been slow to pick up on the wider commercial benefits, and in many countries around the world, in contrast, the higher the star rating and the more
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prestigious the project, the priorities and criteria for return on investment vary significantly, with some investors seemingly ignoring options for more economic and potentially profitable development and operating efficiencies. That is the bad news, much of which is self evident. The good news is that real estate investment, across the entire spectrum of property development and management around the world by those institutional investors who have signed up to the United Nations Principles for Responsible Investment (PRI), has a value in excess of thirty trillion dollars and is rising every year. Funds like these are seeking investment opportunities, including the hospitality sector, which meet certain minimum sustainability, environmental, governance and social criteria. This is evidenced by the fast emerging realization by communities and businesses around the world, with the exception of some blinkered politicians, that sustainability, the word now on everyones lips, represents a significant part of the solution to slowing change, helps maintain our way of life and ultimately, contributes to mans survival. In the last decade, climate change has touched us all and, while the real estate industry and general property development have embraced sustainability as the way forward, with a few notable exceptions, the hospitality sector is only now coming to terms with both the regulatory requirements and commercial benefits, and adapting the rules under which it operates.
Where are we now and where do we go from here?

Until recently, mature industrialized economies often ignored consequences of their inaction, while the growth of economies in emerging countries was frequently linked to eco-tourism and the development of environmentally sensitive locations with decisions governed solely by financial and political considerations. With no global regulatory body, universally accepted standards or cohesive benchmarking practice, the industry, with the exception of those who signed up to the United Nations PRI, has largely been relying on voluntary codes of practice or local building codes. This is not due to lack of information or

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Sustainability: the value proposition

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awareness, but is driven by short-term gain. Such a strategy is usually justified, across all categories of hotel development, as being the most effective way of leveraging the investment. And with the advent of branding as the industrys most effective marketing tool, formulaic development and design concepts for creating homogenized products that can offer a measurable return on investment for all the stakeholders, the industry has, over the years, developed a winning formula. Any adjustment or challenge to this, such as upgrading the physical asset through design, adjustment, improved construction standards and practices, technological upgrades, or improving the efficiency and intelligence of buildings and the built environment, is often rejected out of hand, as any such change disturbs the predictability and certainty of the financial model. But now this accepted formula is being challenged on several fronts. For many years, designers, architects and other members of the design team appointed to interpret the vision and develop the product in adherence with the brief, budget and program have been constrained by operators and their investment partners, whose understanding of conservation was often restricted to the use of low wattage light bulbs and not changing the towels and sheets on a daily basis, or putting half a brick in the cistern to save water. Investment in sustainability generally was considered too expensive, as it reduced the profit potential and might unnecessarily extend the return on investment program. But with the convergence of the global financial crash, mounting evidence of the accelerating risks associated with climate change, and emerging changes in consumer/guest expectations, many established design practices and hotel companies formed R&D teams to focus on the expanding impact of regulation and compliance issues in different countries and environments around the world. This includes Green Building Rating Assessment tools for new and renovation projects that address standards, incentives and certification schemes, country by country, focusing on wide-ranging environmental and sustainability options that make specification easier, more compliant and environmentally friendly. They
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also ensure that the use of natural materials is a priority where appropriate, that they are biodegradable, where possible, and come from a renewable source rather than a vulnerable or endangered species. While such information is readily available to all stakeholders and members of the development team throughout the design process, if the specification is considered too high or too expensive and exceeds the budget, a cheaper alternative is used. This may not only compromise the design intent and integrity but, ultimately, can diminish the guest experience and depress the value of the asset. However, with the changes in investor criteria, corporate development strategies and rapid advances in technology, this approach is also being challenged to keep pace with consumer demand and expectations.
What will drive such changes in 2013?

First, investor attitude and behavior, particularly since the global financial crash of 2008, has altered radically. In support of PRI, prime lenders are demanding greater in-depth analysis and more detailed information to ascertain that any project is not only financially viable, but that the design and development processes are sustainable and fully compliant. An increasing number of international banks and other institutional investors, including the Hong Kong Stock Exchange, have departments led by a Director of Climate Change Strategy which develop guidelines for environmental, social and governance criteria side by side with their development financial models. Their main focus is to assess and analyze their exposure, and make recommendations to their lending committees, especially in locations that are, or could be in the future, at risk from natural disasters, subject to change in continuity of availability of natural resources and with restricted or difficult accessibility. Second is the huge technological advances made in harnessing the supply of solar, wind and tidal power as optional renewable energy sources which are cleaner, more reliable, and safer than some existing alternatives, and are becoming more

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financially competitive. With the urgent need to lessen industrys dependence on fossil fuels for energy and power generation, many lenders are demanding full compliance and commitment from borrowers and are likely to look more favorably on projects where investors take such criteria into account voluntarily. Third, consumers and stakeholders are increasingly only willing to support organizations and businesses many of whom touch most parts of our daily lives that operate and promote an integrated and transparent Corporate Social Responsibility (CSR) policy as part of their company philosophy and business strategy. Consumers want to be able to sign up to, influence and, if needed, hold these companies to account. While many corporations across the spectrum of business activity are already reaping the benefits of fully engaging with the shifts in consumer thinking, attitudes and behavior through CSR, for a people-centric industry, the hospitality sector has responded surprisingly slowly. But it is now raising the bar to

align with others. As we are seeing on an increasingly regular basis, the power of social media in influencing public perception and mobilizing opinion is immeasurable and being used by shareholder and consumer pressure groups with increasing effect. If dissatisfied, they can quickly bring pressure to bear for change or, in extreme cases, withdraw their support, boycott products and services or lobby through the legal process for suspension or termination of trading. However, if developed sensitively and implemented with common objectives and a shared vision, the benefits of a truly transparent dynamic CSR policy are far wider than providing consumers, stakeholders and shareholders with a voice and a platform, as it can support and promote sustainability in a practical and measurable way. Some of the positives that hospitality can create include local sourcing, supporting businesses in the local community, reducing logistical needs, creating and developing employment, training and personal development while striving to provide and deliver an authentic

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satisfying guest experience. While successfully tackling environmental and sustainability issues is crucial to mankinds future, as illustrated above, the social impact and benefits CSR generates for local businesses and the community are equally as important.
So what does the future hold?

controlled and offered by institutions who have signed up to PRI. Those organizations who get it right can enjoy lower cost of capital, lower risk profile, increases in profitability and a potential share price premium. With growing pressure from tougher regulation, increasingly vocal stakeholder groups and more sophisticated and affordable technology, hospitality investors and operators are now able to promote their green credentials on a wider scale. In order to shore up and grow market share in a fast-changing market with expectations continuing to rise and evolve, both independent and chain operators are developing CSR strategies, green carbon-neutral hotel products and brands to match growing consumer demand. In conclusion, although seemingly slow on the uptake, in 2013 the hospitality sector often in countries where tourism and the hard currency it generates is either the only or major source of income and employment will be rapidly catching up and even overtaking other sectors in some countries. Standards of sustainable design and development are underpinned by advances in technology focusing on energy conservation and efficiency and improvements in construction standards and techniques, and a deeper awareness and understanding through scientific research of how negligence and noncompliance will engulf us. Hospitality has an advantage; as an industry created and managed by people for people that operates in some capacity 24/7, it can be both humanizing and inspiring. However, service that meets and occasionally exceeds expectations is only one part of the experience the industry offers, and to succeed and be profitable, its products and services must be planned and designed appropriately to meet and deliver all of the criteria that owner, investor, operator and, ultimately the guest, demand. In the decades ahead, as climate change tightens its grip on the planet and poses mankind with ever tougher challenges, sustainability will play an increasingly integral and invaluable role in finding and offering solutions that can meet and defeat the challenges that lie ahead for our industry.

Looking at 2013 and beyond: Climate change is here to stay. Without any international political agreement on targets, program and timetable to reduce carbon emissions, there will be worse to come. Extreme weather and natural disasters are expected to spread and become more frequent, including countries and regions that historically have enjoyed a stable and temperate climate. The threat to natural resources will continue to grow. Without a cataclysmic catastrophe, the political agendas between rich and poor, developed and undeveloped countries are unlikely to merge in the short and medium term, with the possibility of consensus remaining remote. With little political commitment and effective cohesion, regulation between the diverse groups supporting differing agendas will remain disjointed and un-coordinated. In countries where regulation is already in place as global warming issues become more widespread, compliance will become stricter, with tougher penalties for failure to meet targets or conform to published standards. While solutions to global warming will be left to scientists, technocrats and visionaries in the private sector supported by a variety of charitable trusts, designers and architects will continue to develop more efficient, robust and affordable options to improve sustainability and reduce maintenance and replacement costs. In 2013, as well as the rest of the coming decade, any investment in the development of products and services to expand the green economy, with the exception of investment incentives and some tax breaks, is likely to come from the private sector rather than governments in most regions of the world. Hotel owners and developers, provided they can satisfy the requirements, have the opportunity to tap into funds
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