Breaking Travel News

Accor presents strategy for the future

Accor is holding a two-day event for
institutional investors and financial analysts to present the new business
model for its Hotels division and measure its impact.The event is designed
to share Accor’s strategic vision of its Hotels division, and better
understand the different components that constitute “the Right Approach”
that will make Accor’s Hotels business more profitable, less cyclical and
well appreciated by its clients.
  Supply and demand: changes in the global marketplace
  Between 2006 and 2012, the number of overnight stays in chain hotels is
expected to rise by 5.7% a year, compared with an increase of 3.7%* a year
for the market as a whole. To optimize its positioning in an environment
shaped by deep-seated change in hotel supply and demand in both mature and
emerging markets, Accor has organized its strategy around five priorities:
  - Increase market share in the European Midscale segment through a more
segmented offering (Suitehotel and Adagio on top of Novotel and Mercure)
  - Increase market share in the European Economy segment through a more
segmented offering (All Seasons) and in the Budget segment with new-builds
  - Strengthen Motel 6’s position in North America through franchise
contracts by capitalizing on a new room concept and building
  - Grow Accor’s footprint in emerging countries, where demand for
standardized products is rapidly increasing, with Ibis in the Economy
segment and Novotel in the Midscale segment
  - Reposition and segment the Upscale (Pullman) and Luxury (Sofitel)
brands worldwide in order to cover more fragmented demand for products and

  To achieve these goals, five levers drive the “Right Approach”:
  - Align the brand portfolio with customer expectations (The Right Brands)
  - Redefine the networks around this brand portfolio (The Right Network)
  - Improve hotel operating performance in the reconfigured business base
(The Right Operating Performance)
  - Adapt hotel operating structures to improve return on capital
employed and reduce cash-flow volatility (The Right Asset Management)
  - Shift the corporate culture to deliver the best value-added services
to hotel owners (The Right Service Provider).
  The Right Brands
  To become the leader in the Economy and Midscale hotel segments and a
major player in the Luxury segment around the world, Accor has redefined
and expanded its brand portfolio to cover all segments-from Budget to
Luxury-with an offering of standardized and non-standardized products
designed to satisfy increasingly fragmented demand.
  This year has seen the launch of two new brands: All Seasons in the
non-standardized Economy segment and Pullman in the Upscale segment. At the
same time, Sofitel is being repositioned in the Luxury segment, leveraging
on its know-how and “French Touch” elegance, with the goal of meeting
demand from a growing international clientele, in particular from emerging
  Alongside these measures to create and reposition brands, Accor is
leveraging technological innovations and new product design to maintain its
leadership in its traditional brands. It is launching a new Formule 1 room
in France in 2007 and will roll out new room designs for the Suitehotel,
Ibis, Etap Hotel brands and for Motel 6 in the United States in 2008. The
Novotel and Mercure service portfolios are also being developed to enable
the chains to maintain their competitive advantages.
  The Right Network
  Accor intends to expand its network to a total of 5,000 hotels by 2010.
  The current network, which will comprise more than 4,000 hotels by
year-end 2007, will be optimized through divestments, re-brandings and
renovations, and revitalized with the addition of more than 1,500 hotels
over the period 2007-2010.
  This optimization process is expected to:
  - Increase average room rates at Sofitel (from EUR111 to EUR172 on a
worldwide basis by 2010) and at Pullman (to EUR130). An estimated EUR35
million marketing investment will be committed to market the two brands
over the next three years.
  - Improve return on capital employed through renovation programs. The
Novotel renovation program in France is expected to generate a ROCE of 13%
to 16%.
  - Improve profitability by divesting underperforming assets (a total of
129 hotels by 2008).
  In Germany, for example, profit before tax will total EUR31 million in
2007, compared with a EUR15-million loss in 2003. This represents an
improvement of EUR46 million, of which EUR15 million resulted from the
initiatives linked to the reconfiguration of 85 hotels over the period.
  The Right Operating Performance
  Reflecting the impact of the top-line initiatives, Accor hotels have
outperformed the competition in revenue growth over the past two years, by
0.7 points for the French market-leading Ibis and Etap Hotel brands and by
2.5 points for Novotel and Mercure.
  To optimize costs, a number of action plans have been deployed to
improve operating conditions. These actions are intended in particular to
drive a EUR65-million improvement in profit before tax at Group level by
2010 through more efficient purchasing management.
  In France, the battle for the top line and cost-saving initiatives are
expected to generate profit before tax of EUR261 million in 2007, a 28%
increase over the previous year.
  The Right Asset Management
  Accor is pursuing the asset-right policy launched in 2005 to improve
return on capital employed and reduce cash flow volatility by adapting
hotel operating structures to each segment’s profitability profile. In
addition to the program to modify the management structure of 350 hotels by
the end of 2008, some 600 hotels could change their operating structure in
2009 and 2010. Among them are 400 Motel 6 properties in the United States,
which are expected to improve their return on capital employed by four
points by 2010 and to increase their EBITDAR margin by three points
(excluding the impact of the hotel cycle).
  Once these programs to adapt hotel operating structures have been
completed at year-end 2010, 77% of the current portfolio (excluding new
expansion properties) will be operated under management contracts,
franchise agreements or variable-rent leases.
  The Right Service Provider
  The hotel management expertise developed by Accor over the past 40
years is now being offered to hotel owners through a change in corporate
culture. The high value-added skills and services provided by Accor via its
eight expertise platforms (Portals and Brand Websites, Technological
Support, Marketing and Sales, Management and Finance, Purchasing, Human
Resources and Training, Expansion, Construction and Maintenance) are
designed to support the rapid, efficient development of its hotel network
through franchise agreements and management contracts, both in France and
around the world. To implement the sense of Luxury and turn its know-how in
a professional manner, Sofitel put in place a dedicated worldwide
organization around five geographical areas.
  The new business model’s impact on the Group’s margins
  The impact of these action plans on margins could result in:
  - A 3-point improvement in operating margin, excluding the impact of
fluctuations in the business cycle
  - A 3.6-point improvement in return on capital employed, excluding
cyclical effects
  - A 45% reduction in EBIT volatility compared to the last cycle.
  Accor, the European leader and a major global group in hotels, the
global leader in services to corporate clients and public institutions,
operates in nearly 100 countries with 170,000 employees. It offers to its
clients over 40 years of expertise in its two core businesses:
  - - Hotels, with the Sofitel, Pullman, Novotel, Mercure, Suitehotel,
Ibis, All Seasons, Etap Hotel, Formule 1 and Motel 6 brands, representing
more than 4,000 hotels and nearly 500,000 rooms in 90 countries, as well as
strategically related activities, such as Lenotre.
  - - Services, with 23 million people in nearly 40 countries benefiting
from Accor Services products in human resources, marketing services and
expense management.