“The [hospitality] industry is consolidating, and we want to be the consolidator of choice.”
By Russ Banham
CFO
Thomas Song may have gone from the frying pan into the fire when he left the restaurant industry in February 2021 to become finance chief of Aimbridge Hospitality. Aimbridge manages hotel properties for famous brands like Marriott, Hilton, and Hyatt but did not go unscathed by the pandemic. The global lodging industry reported $125 billion in losses in 2020, its worst year ever. “Nobody had ever seen anything like this,” Aimbridge’s former finance chief told CFO a year ago. “We were shell-shocked.”
Fortunately, travel rebounded in the second half of 2021, partially as people became tired of staying home. The pandemic halved Aimbridge’s revenues in 2020, but then in the third quarter of 2021, quarterly revenue rose to 80% of what it was in 2019. In mid-December, CFO’s Russ Banham asked Song for an update on industry conditions and how Aimbridge has adjusted.
RUSS BANHAM: An April 2021 report by the Hospitality Asset Managers Association (HAMA) suggests the industry’s revenue per available room (RevPAR) will not return to 2019 levels until 2023. Then in October, HAMA adjusted the recovery expectations to 2024. What’s standing in the way of a faster recovery?
THOMAS SONG: The leisure side of the hotel business is up tremendously, due to pent-up demand. The demand from `group business’ is also robust — not big conventions per se but smaller social groups, like religious, fraternal, sports, military, education. Levels are on par with pre-pandemic norms.
While the omicron variant temporarily slowed demand for some segments after the holidays, we anticipate a short term impact with February and March demand building momentum again.
What’s not on par, then?
SONG: Business travel, what we call “transient travelers.” It’s down, and our theory is it will remain down for the foreseeable future. The reason is the “work from anywhere” model that emerged in the pandemic’s aftermath.
“It’s my gut feeling that nothing replaces an in-person meeting.” – Thomas Song, Aimbridge
Business people are traveling less and communicating over Zoom. However, it’s my gut feeling that nothing replaces an in-person meeting. … Many hotel owners, partners, advisers, and others who’ve come to our new headquarters in Plano, Texas, for meetings comment on how productive they are.
What about business travel long-term?
SONG: Long-term is anybody’s guess, but I think we’ll return closer to pre-pandemic norms when CFOs increase their T&E [travel and entertainment] budgets. We all slashed our T&E budgets because of the lockdowns. In our case, we incrementally moved it up and will return to normal in 2022. Interestingly, the same people that may be dialing back business travel have been dialing up their leisure travel. But those are individual decisions and not corporate ones.
We were on a podcast a year ago talking about rising occupancy rates, one of the two data elements making up RevPAR. The other is average daily rates (ADR). Is ADR holding down the fort, revenue-wise?
SONG: When we last talked, occupancy was surprisingly good, that’s true, but ADRs were low. Everyone was discounting to attract leisure travelers. In the second and third quarters of 2021, as leisure demand exploded, hotels abandoned their discounts. ADRs were surprisingly higher. Both elements contributed to higher RevPAR.
The hotel industry shed 1.1 million people between 2019 and mid-2020, employing just over a million workers. In mid-2021, though, employment levels rose to 1.8 million. Has the industry rightsized employment or will it grow further?
SONG: There’s a war for talent, which we’ve countered with some creative alternatives like non-salaried gig workers. We’ve just launched `daily pay’ — we pay people the day they work as opposed to [them] waiting two weeks.
We also allow the hotel crew to post the hours they want to work, nighttime or daytime. And we’re offering benefits to gig workers that put in a minimum number of hours. That’s helped us attract talent at competitive rates without hiring more full-time employees.
Is gig work new to the industry?
SONG: For us it is. People got accustomed to working from home and setting their own hours, and we’re capitalizing on that.
In December 2020, Aimbridge said it planned to parlay the firm’s expertise in property management in adjacent industries like senior living and student housing. Was that venture successful?
SONG: We put those plans on hold. The short-term opportunities were so robust in our own industry, it was hard not to focus on them. But we think the plans are still valid and we are building up capabilities that eventually may cross over into adjacent industries.
“The industry is consolidating, and we want to be the consolidator of choice.” – Thomas Song, Aimbridge
Several projects like hotel renovations and other improvements were put on the back burner a year ago. Is that still the case?
SONG: No, they’re moving forward. We have a dozen new hotels under construction going into 2022. We also reopened our pipeline of acquisitions, which isn’t surprising given the number of firms struggling to come out of the pandemic. The industry is consolidating, and we want to be the consolidator of choice.
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Russ Banham is a Pulitzer-nominated financial journalist and best-selling author.