CEO Interview: KLM CEO on Why His Airline Still Feeds Passengers for Free

Air France-KLM

KLM CEO Pieter Elbers. He is charged with ensuring the Dutch airline remains innovative, even though it is part of a much larger company. Air France-KLM

Skift Take: KLM may not be a perfect airline, but it’s surprisingly spunky considering it’s owned by a giant French company that also controls Air France. The two airlines couldn’t be more different.

— Brian Sumers

Editor’s Note: Following our previous CEO interview series in online travelhospitality, and destinations, as well as our CMO series across verticals, we’ve launched another series, this time focused on the CEOs of leading airlines outside of the United States.

Airlines_CEO_logo2To better understand the challenges facing airlines in an age of fluctuating oil prices, rapid growth, and changing passenger expectations, our Future of Passenger Experience series will allow leaders in the industry to explain their best practices and insights. Read the rest of the series here.

This is the latest interview in the series.

KLM CEO Pieter Elbers reached the top the hard way, climbing the corporate ladder for more than two decades, starting in 1992 supervising aircraft loading at the carrier’s Amsterdam hub.

Since 2014, he has led one of Europe’s quirkiest — and most profitable— airlines, managing 33,000 employees. In part because of its robust long-haul network and its trans-Atlantic partnership with Delta Air Lines, KLM made 681 million Euros (about $764.1 million) in operating profit last year, 300 million ($336.6 million) more than in the previous year.

But not all is perfect at KLM because the Dutch carrier is not an independent company. In 2004, it merged with Air France, and the combined company is called Air France-KLM. The full company is profitable, but KLM far outperformed its French cousin last year, with France’s flag carrier earning about 372 million Euros ($417.4 million). This happened even though Air France has about twice as many aircraft as KLM.

KLM has fewer labor troubles than its French partner, and it has a robust Dutch low cost carrier called Transavia that helps it fend off challenges in Amsterdam from discount airlines. KLM is also a spunkier brand than its French counterpart, and it’s more willing to take chances than Air France on technology and innovation. (Air France-KLM CEO Jean-Marc Janaillac recently told Reuters that millennials view Air France as “too stiff.”)

We spoke with KLM’s Elbers last week at the IATA Annual General Meeting in Cancun, a two-day global conference for airline executives. We asked him how his airline retains its independence, despite being part of a much larger company. We also asked about KLM’s long-term focus on innovation.

Note: This interview has been edited for clarity. 

Skift: For years, KLM has been more focused on innovation than other legacy airlines. Why is this a major part of the airline’s ethos?

Pieter Elbers: I think it’s deeply rooted in our company. Our company was founded in 1919. It’s 98 years old. And we’re coming from a country with an airport below sea level, with a population in relative terms which is very small. And we’re probably one of the few, if not the only airline, which right from the start didn’t have any domestic flights. Because [The Netherlands] is just so small. And in order to sort of overcome this disadvantage, we had to be more innovative.

I think we have cherished innovation through the company all these years. We were the first [airline] really making use of the sixth freedom traffic. And we were the first ones, with our partnership with Northwest [Airlines], to do a transatlantic joint venture [in 1997]. Then, we were the first [airline] in the [current wave of] European consolidation with Air France back in 2004. And then the use of social media. From 2009, we took it up.

It’s deeply rooted in the company, and my view is also that this really differentiates us from the competition.

Skift:  Sometimes innovation is expensive. And your parent company has prioritized cost-cutting. How do you weigh being innovative and cutting costs?

Elbers: It’s a very good point. I started as a CEO at the end of ’14, and … we had been sort of belt-tightening for the past years. A company cannot have a strategy just based on belt-tightening. Belt-tightening could be good for a short time, but there should be a vision towards what we want to be and what’s our place in the industry and in the landscape.

So [I said,] ‘We’re going to do two things.’ We’re going to do cost-cutting on the one hand, and we’re going to do investments on the other. And the investments are in our product, in digital, in equipment, in stuff on board. And I found it ridiculous that our cabin crew staff did not have iPads. So we ordered 9,000 iPads for all of them. And, of course there was discussion, ‘Yeah, what about the money?’ and ‘Is it good?’

We should invest. And by coming into a sort of positive cycle of cost reductions, investments, good results, more investments etc, we have been able as KLM to make a very good contribution to our parent group in 2016. So the margin of KLM was [roughly] 690 million [Euros]. Total group was about a billion [Euros, or $1.12 billion]. I think, by this innovation, and by this strategy, we can make a good and meaningful contribution.

Skift: You’re well-known in Europe, but not as much in the United States. Last year, your team told The New York Times market research showed Americans thought you were a radio station or a milk brand. You used an ad campaign to poke fun at this. Why try this approach?

Elbers: I think this is partly what is strong about KLM. And I credit our team in New York. It was not a central, head office thing where some guys in the head office thought about it and said, ‘This is how we’re going to approach the U.S. market.’ It was done by our team in the U.S. And this is also something I would really underline — operate globally but act locally. And this ‘act locally’ was done by the team with this ad.

The first time I saw it, I said, ‘What is this? What are we going to do?’ We should say, ‘We are big and we are good.’ And not make fun of ourselves. But the effect I think has been enormous, and very, very positive.

We did it in combination with some popup stores in New York, in San Francisco and some other places, and it worked out pretty well. We want to be … an airline that stands out.

Skift: Why is the U.S. market so important for KLM?

Elbers: Well, our geographical position, and our pioneering experience with Northwest Airlines, makes it for us a very good market. We started the operation right after the war in 1946. Last year we celebrated 70 years of operations to New York. And, I think this sort of natural connection has helped us through the years to grow.

Then, obviously with the joint venture with Northwest we made the next step. Then it became the joint venture with Delta and Air France/KLM and Alitalia, which for industry standards is the most advanced and the most developed joint venture. And with that, a quarter of our long-haul seats go to the North Atlantic.

[Editors note: In joint ventures, airlines share profits on all flights, regardless of which airline operates them. On the transatlantic sector, KLM’s group competes with two other major ones— British Airways/Iberia/American/Finnair and United/Air Canada/Lufthansa Group. The three joint ventures control most transatlantic market share.]

[The U.S.] is still the single largest market in our network, and it has naturally grown. Delta flies 18 flights a day from their points in the U.S. to Amsterdam. We said, ‘These guys are not coming for the good weather in the Netherlands.’ They come to connect. They come to explore Europe right from that point.

Skift: Are you seeing any decreased demand from Europeans because of the new president of the United States? Could Europeans say, ‘I don’t want to come to the United States this summer, it’s not worth it’?

Elbers: No. We see pretty robust outlook. What we do see is a little bit of insecurity when it comes to security measures, when it comes to, ‘OK what are policies and, how will they be developed?’

Skift: And what about Americans? Are they fearful of terrorism in Europe?

Elbers: Well, we have seen that, especially after the Paris attacks at the end of ’15. We have seen the demand also from the U.S. has gone down. With the recent incidents in Manchester and London, it is probably a bit too early to judge.

Skift: What about a possible laptop ban? Does KLM expect the U.S. government eventually will implement one covering flights from Europe?

Elbers: Right now my understanding is there’s no laptop ban but there are still security concerns by the U.S. administration. I think it’s critically important that the U.S. administration goes into a dialog with bodies like IATA, [an ailrine-funded trade group] who are representing the airlines. [But] there’s no different viewpoint between the administration and the airlines on the relevance and the importance of security. We share that same commitment, and we share that same view that we should do whatever it takes to get the level of security better all the time.

But with that, we should only take measures which are having sort of positive effect, and which can be substantiated in terms of having a positive effect. [We need to strike a] balance between the impact for the customers and the security levels … in an adequate way.”

Skift: Let’s talk more about innovation. You have been testing facial recognition for boarding in Amsterdam. Is this the future of airline boarding?

Elbers: Well, it is starting to work. I think there is a real technology challenge. With your eyes close to it, it works.

I think the next step … is technology that will disrupt our industry much more than it did over the last decade. Once the technology is there, [you’ll be able to] walk 10 meters [away] and technology will scan your eyes. A gate will open automatically. It would really be applicable. Today, you still need to come with your eye to the camera, and the gain of time is still relatively limited.

Skift: So you’re not going to be putting it at every gate in Amsterdam?

Elbers: No. We did some experiments in Aruba. We did some experiments in Amsterdam. Again, technology is not ready for it yet on a massive scale. But it will be.

Skift: Here’s another fun question. Why did you decide to put a beer keg on some flights? You say you’re the first airline to do this. 

Elbers: Well, part of our philosophy is actually two elements. One, we say we are Dutch at heart. And we stand out by being innovative, and by being Dutch. There’s so many similarities between airlines that we really feel we should stand out. And our national identity and our staff makes us different. Ice cold Heineken beer is a good Dutch treat.

Two, our philosophy is to surprise customers. To [have them] say, ‘Hey, I’m touched, I’m surprised.’ And we thought about how to bring together these two elements. [It required] a touch of innovation, because it’s not so easy to have the pressure of beer on the 30,000-feet level. We worked with Heineken on some of the technology.

We only had one problem. [On one flight] I think there was like three cans of beer of 30 liters each, and halfway between Amsterdam and Curacao it was finished already. So the amount of beer was really the challenging part.

Skift: So you have to put more beer on board?

Elbers: We would like to keep it orderly on board the aircraft, so it’s a balancing act there again. And, we are not having it standard. We do it on some special flights, or dedicated flights. But it is a good way to show to our customers, ‘Hey, we care about you and we want to surprise you.” And we do something Dutch.

Skift: You have free food and alcohol even on short flights within Europe. We never see that in the United States, and many European carriers have stopped it. Why do you continue?

Elbers: I think the U.S. is a bit of a different market. U.S. airports are also different in terms of layout, and food courts and all that stuff. So all the perceptions in terms of how do we deal with food onboard the aircraft is different. Again, for me, the philosophy is we should link it to who we want to be as an airline. And with that, we concluded that we want to offer a product for our customers where yes, they can have their beer and yes they can have their wine.

Skift: Will you keep the food, even as your competitors give it up?

Elbers: Yes.

Skift: That’s crazy. We haven’t had much free food in the United States for a long time.

Elbers: But it will come back in the United States. Watch my words.

Skift: Really?

Elbers: I think so. I think I saw some announcements already.

Ryan Wolkov

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Author: Ryan Wolkov

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Interview: Ian Schrager on the Next Generation of Boutique Hotels

Deanna Ting  / Skift

Ian Schrager just opened his second Public hotel, this one in New York City. Deanna Ting / Skift

Skift Take: The next generation of boutique hotels, according to Ian Schrager, is about adding technology and business smarts to the tried-and-true formula that he and other boutique pioneers perfected nearly 40 years ago.

— Deanna Ting

Ian Schrager is elated and justifiably so.

Just the night before, on June 6, the man often credited with being the pioneer of the boutique hotels movement in the U.S. opened his latest hotel: the 370-room Public in New York City’s Lower East Side neighborhood, complete with nearly 1,500 revelers and featuring a performance from Patti Smith.

“This morning was magical for me,” Schrager said. “It’s like all hell breaks loose, and the next morning you’re anticipating all this damage, but nope, everything is perfect.”

Indeed, from the looks of it, there are hardly any signs of the opening party from the night before throughout the hotel, which was still bustling with activity on a sunny afternoon.

The Public New York, located on Chrystie Street, was four years in the making, and it marks the first hotel Schrager has opened on his own since he opened the first Public Hotel in Chicago, back in 2011.

That hotel, which Schrager and his investment partner, Morgan Stanley, sold for approximately $60 million in 2016, retains the rights to the name “Public Chicago” until next month. It was Schrager’s initial attempt to redefine “affordable luxury” in the modern age.

But with the New York property, a new build, it’s clear Schrager feels he’s finally been able to execute the vision he’s held all along for the Public Hotels brand as a reinvention of the boutique hotel into something that can offer “luxury for all.” It’s a tagline that might seem at odds with the velvet-rope driven scenes he once created with his business partner, Steve Rubell, long ago in the early 1980s, first with Studio 54 and later with his hotels.

“The one in Chicago is a renovation, Schrager explained. “It started out originally to be a luxury hotel, but then, when I got to know Chicago, I realized that a hotel in that section would never be able to compete with the luxury hotels on North Michigan Avenue like The Ritz-Carlton, like the Four Seasons … So I thought the only way we’d be successful would be if the hotel offered great value built with great style, and there were a couple of the embryonic ideas there, but they didn’t really get truly refined, and the development process continued from there on to here.”

This isn’t the first time that Schrager has opened a hotel that catered to value-driven guests but he believes that this is a space the hospitality industry should be paying more attention to, and reinventing.

“I had done, in 1990, the Paramount Hotel,” Schrager said. “That was cheap chic. Then in 2000, I did the Hudson Hotel and that was also a less-expensive hotel, so this space is not new to me. I think it’s always been traditionally the most profitable space in the industry. I think the most successful brands in the industry have been Courtyard by Marriott, Hilton Garden Inn, and Residence Inn.

“But I find the same inefficiencies there that I found in the boutique hotel space 25 years ago, where they stripped down services. It was less expensive, but it had close to a 50 percent profit margin. So, I thought very simply put, if you can add some exciting food and beverage, which we can do, if you can add some great style and be visually provocative and you can add great service — which is critical to the whole idea — and you could all make that available at a very accessible price that anybody could afford, it was just a great idea.”

This idea for a “people’s hotel,’ Schrager said, could easily scale to 1,000 or 2,000 hotels worldwide, while with the traditional boutique hotel, the expectations for scale would be closer to 75 or 100 properties. Even with its glowing escalators, luxurious public areas, and sophisticated stylings, Public New York’s starting room rates are only $150 per night — a rarity in Manhattan for such a prime location. Whether those starting rates will always remain $150 a night, however, remains to be seen.

The lobby of the Public New York. Photo: Nikolas Koenig/Public Hotels

A New Kind of High-Tech with High-Touch

The secret to scaling the Public brand, and keeping its rates so low, lies in its disruptive, tech-reliant business model.

There is no formal front desk. Guests check in on their own using an iPad in the lobby, or they can be assisted by a “public advisor.” Checking in includes activating your own room key at the iPod kiosk.

The majority of rooms range in size from 205 to 220 square feet. “It allows us to make booking of the rooms over the Internet and through technology, rather than to a reservationist, very easy,” he said.

Instead of charging fees for things such as room service and Wi-Fi, Schrager said he’s using technology to streamline the process and cut down on labor costs in the process. He estimated that the number of staff is only 50 for the 370-room hotel.

“We outsource a lot,” Schrager said. “We kept inside the brains and outsourced the brawn. When you call on your telephone, you’re speaking to an outsourced person — not a robot, which to me is contrived — but it’s really taking advantage of this sharing economy, and outsourcing economy that’s happening right now. Everything’s being changed because of it. Why aren’t hotels doing it?”

Schrager isn’t alone among hoteliers concerned about the rising costs of labor. R. Mark Woodworth, senior managing director of CBRE Hotels Americas Research said that among hotel companies, “the cost of labor is, by far, the No. 1 area of concern.”

Room service, for example, involves messaging the hotel with your order, and picking up your food from a shelf located near the lobby-level elevator bank — something Schrager said was inspired by UberEATS, Sweetgreen, and Starbucks, as well as a viewing of the film “The Founder,” which chronicled the development of McDonald’s fast-food business model.

“We also used to charge for Wi-Fi, and people started getting aggravated about it, and you would have a net loss of customers because they would be aggravated by it,” Schrader said. “So nobody charges, or at least we don’t charge for Wi-Fi, and we have super, super-fast Wi-Fi.

“You can have room service if you’re willing to pay a $5 or $6 of $7 delivery charge. If you’re willing to wait 45 minutes to get it for breakfast, and you’re willing to pay $30, $35, or $20 for a pot of coffee, I think people get pissed off at that. … So, we thought, one, wouldn’t it be better if you then get your food quick, within 5 minutes. Two, you’re not paying a delivery charge, and three you’re not paying exorbitant prices. It just makes sense to me. I also cut out and changed all those services I don’t feel people care about.”

Guests who need an extra towel or amenity simply message the hotel to find the location of a designated “amenity room” where they can pick up what they need themselves, or ask a staff member to deliver it to their room.

Instead of asking guests to download an app to communicate with the hotel, Schrager said he developed a proprietary chatbot messaging platform through which guests can text using iMessage, SMS, WhatsApp, and Facebook.

“We find, statistically, maybe [hotel] apps will be more [downloaded] in the future, but right now less than 5 percent of the people in the hotels use them,” Schrager said. “So when they do download them, they usually delete them after they leave, so a chatbot is something on texting where you can instantly use it, and it’s the way we’re trying to make the technology make the stay without hassle, and quick, make everything done quickly.”

Schrager said the chatbot platform will also communicate with guests at the time of booking, as well as prior to arrival, and will keep the guest informed of the activities and programming taking place throughout the hotel.

Schrager asked, at one point, “Did you see the movie The Founder? … You know what McDonald’s did to the food industry? Why can’t we automate the execution in the hotel business, but bring back the amenities through the services and the visuals of food and beverage and the entertainment factor, but automate the rest of the stuff? Make it as efficient as possible so you can pass those savings on to the guests.”

But, and especially in such a service-oriented industry such as hospitality, can hoteliers really afford to automate processes to a point where they diminish the human element? Will guests find it hard to get a hold of a Public Advisor if there are only 50 spread out throughout the hotel? That’s something the industry will be paying very close attention to over time.

The Public New York Diego Tequila Bar. Photo: Nikolas Koenig/Public Hotels

Offering What Airbnb Can’t: True Social Spaces

Earlier this year, Schrager told Skift he believes the hospitality industry is “a me-too industry” and he still believes much of the industry is still “in denial” about the homogenization of hotels, as well as the looming threat of Airbnb, which many of his hotel peers often won’t publicly accept.

He compared what’s happening with hotels and Airbnb to what’s happening in retail with brick-and-mortar stores increasingly competing with e-commerce retailers, as well as the current struggle between hotels and online travel agencies (OTAs) like Expedia and Priceline.

“You have Airbnb that aspires to be in our business, that had hotel people working for them, and advising them, that offers a good value and tries to say ‘We’re offering a manifestation of the city that you happen to be visiting,’” he said. “So, to me, I think they are a mortal threat to our business model. Mortal. And I think that the hotel companies were also in denial about the OTAs 15 or 18 years ago. This is the same thing, and I think the fact that they’re [the hotels] trying to prevent them [Airbnb] from expanding through politics and laws and the court says it all to me.

“Why are they doing that then, if it’s not a threat? So, I think it’s just so obvious to me. Maybe they can’t say it for whatever reason, and you’re a lot smarter than I am. I’m just telling you, I know it’s [e-commerce is] a threat to the retail industry, and I know Airbnb is a threat to the hotel industry. What we should be doing, instead of trying to slow them down, is to fight a strong idea with a very, very strong idea.”

Schrager’s strong idea is — you guessed it — something like Public, and he credits being an independent hotelier with allowing him to take risks where other larger companies like Marriott cannot.

“Now to me, I have no interest in being the biggest hotel company in the world,” he said. “There are big companies out there run by really brilliant guys. Marriott is a really good example, and I have nothing but the utmost respect and admiration and affection for Arne Sorenson [Marriott CEO], and all the guys. They’re really the best and the brightest, but they own a big company and they have profit shareholders, and they do everything by consensus, and I don’t do it that way. I can afford to really say what I think, and I can afford to make a mistake. A big public company can’t, you know? So, I appreciate that now and respect that.”

Drawing on his experience as the co-founder of New York’s iconic Studio 54 nightclub, Schrager said he’s learned that focusing on communal spaces, entertainment, cuisine, and other programming is absolutely essential, which is why Public New York has five different food-and-beverage outlets, including a panoramic rooftop bar, and a multi-purpose space called Public Arts where you can attend screenings, art exhibitions, performances, or dance the night away.

Speaking of Public Arts, Schrager said, “it gives it longevity. It gives it a depth and dimension, so you can have that but have that evolve into a night club later on, and not have to move. An Airbnb can’t do that.”

He added, “It [Airbnb] used to frustrate me, but I think, hey, you know how you want to compete with Airbnb? Forget about lobbying to change the laws. Why don’t you come up with something that provides what they can’t provide, like a huge social communal space? They can’t do that. That’s where you should be focusing on, and by the way why not come up and do a hotel that manifests the city that it’s in, because that’s what they’re trying to do. That’s what we always try to do.”

Schrager described the bars and eateries at Public New York as a “microcosm of the best that New York has to offer.” The hotel’s main, all-day restaurant, Public Kitchen, and its grab-and-go kitchen, Louis, are both helmed by famed chef Jean-Georges Vongerichten.

There’s also a clear emphasis on offering public spaces that you might otherwise find in a co-working space: stadium seats where you can sit and talk or work on your laptop, and large communal desks with electrical outlets in the very center.

Schrager called it “distinctive networking” for a “new kind of business hotel.” For example, he said, “You don’t only go to a country club to play golf. You go there to network, so the co-working brings a network in the area, in the social area, that I think is the next generation business hotel.”

Schrager added that should he ever pursue an extended stay project, he would also incorporate aspects of co-living, or group-style living arrangements.

“I love the co-living … I think it’s a modern way of living, and I think young people appreciate it, but I think everybody appreciates it,” he said.

The Roof at Public New York. Photo: Nikolas Koenig/Public Hotels

Boutique 2.0

Public New York’s blend of technology and social spaces inspired by co-working and co-living makes it an affordable — and attractive — business model for hoteliers, developers, and guests alike. But what keeps their interest is the fact that all of this is done in a way that’s “not stripped down and dumbed down. It’s sophisticated. That to me is the future,” said Schrager.

To hear Schrager summarize what he’s doing with Public, it’s seemingly a reinvention of what he did long ago with his first boutique hotels in New York City.

“If I strip out the enthusiasm that I have, it’s nothing more than the same thing I did with a boutique space 25 years ago,” he said. “I went into a three-and-a-half to four-and-a-half-star space. I brought great design and style, exciting bars, exciting restaurants, and I brought that kind of razzle dazzle pizzazz into that sleepy space. That brought skepticism. Well now, I think it changed the whole industry. It took 20 years for the skepticism to wear off, but it’s changed the whole industry, not only by them doing lifestyle hotels, but because it’s affected their other brands as well. Now, I want to go and do that exact same thing, but I want to do it in the three-star space.”

Unlike the predominant three-star, midscale, or select-service hotels we see today, Schrager says the new boutique hotel of the future can’t just offer limited services and a good price.

Of those hotels, Schrager said, “They don’t do food and beverage if they can’t make money at it. They don’t gotta be this kind of really sophisticated design that will attract the kind of people that this will attract. They’re not going to offer the kind of great service that I think we’re going to … Their version of a three-star hotel is a stripped down, dumbed down, one-size-fits-all service, and I’m very reluctant to give that ‘three-star’ thing [here] because I don’t want people to misunderstand what this is. Because this is as sophisticated as any luxury hotel out there, and I feel the service is as good or better than any hotel out there, but it happens to be less expensive because of the business model.”

He said that while most people thought boutique hotels were so disruptive primarily because of their eccentric designs, their true power was in their cost-efficient business model.

“Everyone liked to talk about the design and the celebrities that came there, but people didn’t talk about the business model, or the fact that you don’t change your room every five years … Nobody ever realized that there were business benefits to it, it wasn’t just the color of the carpet.”

When asked about his peers’ latest forays into the midscale market, including InterContinental Hotel Group’s soon-to-be-announced brand and Trump Hotels’ latest, called American Idea, he said, “Look, they may do it well, but it won’t be like this. I’m not looking to bargain hunt. I’m looking for people that want to pay less and get good value for their money. There’s a difference. I think the traditional three-star space, the traditional select service is looking for a bargain hunter. I’m not looking for bargain hunters. I’m looking for people like myself that don’t want to get ripped off.”

In some ways, what Schrager has done with Public is a more modern and elegant take on what the original founders of the Ace Hotel — Alex Calderwood and his close friends and business partners Wade Weigel and Douglas Herrick — did back in 1999 in Seattle, and 10 years later in New York City.

With Ace, Calderwood, Weigel, and Herrick were opening hotels that weren’t known for being expensive, but that made you feel like a part of the community. The New York property’s lobby, in particular, was an early model of today’s co-working spaces.

The Lobby Bar at Public New York. Photo: Nikolas Koenig/Public Hotels

Learning From Marriott and the Big Brands

If you walk into the Public New York and see some similar design echoes from the Edition New York, you’re probably not alone. One of the biggest telltale signs? The caramel-colored faux-fur throws that grace the guest rooms of both hotels.

The Edition, located near Madison Square Park, is the product of Schrager’s 10-year-long working relationship with Marriott. The plan is that partnership will continue as is, even as Schrager pursues growth of his own Public brand.

“Marriott is a more traditional model,” he said. “I don’t run that. I don’t run that, they run it. They operate it. It’s a much higher price point. It provides a more traditional notion of luxury, though I think they made a lot of great headway there with that, because we have a lot of exciting food and beverage there and I think it is visually provocative, but it’s not a paradigm shift.

“No. It’s a further refinement of the lifestyle hotel with better service, and in a partnership with somebody that has a global reach. That’s that. Every other big company is running into that space, which is why I’m with Marriott. … I’m working on 22 of them now. With Marriott I conceptualize, program, design, and help market. I don’t build it. I don’t make the acquisition, and I don’t run it.”

Not only that, but Schrager said, “I learned a lot from Marriott. I learned I can do a lot more. I’m not sure how much to attribute that to Marriott, or how much I attribute that to being rogue. But I know, I kind of get an idea now of what the universe of possibilities are, and so I don’t agonize over every single little detail.”

He credited learning from players like Marriott, Hilton, and others in knowing not only how to scale up, but also how to contend with the online travel agencies, and how to do loyalty. In fact, this is the first time the hotelier is launching his own loyalty program, Friends and Family.

“I never had one before,” Schrager said. “But we have one here.” He described the loyalty program as being points-based and inspired both by traditional hotel loyalty programs as well as those used by the gaming companies in Vegas.

While a loyalty program for a single property may seem a bit premature, Schrager said he hopes to eventually oversee the openings of at least four or five more Public hotels over the next few years, including a midtown Manhattan hotel scheduled to open in 2019.

The motivation for a loyalty program for Public stems from a desire to also get more bookings, especially direct bookings. “I know we used to be dismissive of the loyalty program, but we’re a small company,” he said. “We rely on the product distinction to drive a lot of the business and the food and beverage drive a lot of the business.”

Schrager also formed an exclusive deal with Expedia, and solely Expedia.com, to be Public’s only online travel agency partner.

“I’m not in the distribution business, he said. “I’m in the product distinction business. But we thought, we’re opening up in the summer, and summer is not as robust in the area as normal in New York City, and so I would love not to work with an OTA, frankly, but when we evaluated all our options, when we thought back, maybe we could make it in our interest and maybe it will be in the interest of the OTA if we did some kind of exclusive with them. So, I think that was of interest to Expedia, and they may want to, like the hotels have those soft brands, they may want to have an independent hotel and they might find it interesting starting that with us.”

Another added benefit of forming a loyalty program, Schrager said, was then having more direct access to customer data that can help personalize the guest experience, as well as give Public the opportunity to offer loyalty member rates to entice direct bookings.

“It’s [loyalty] one of the tools that you have use with the way that business is today,” he said. “It’s inescapable, and I said this, during the Marriott merger [with Starwood], that there were so many issues between the Starwood Preferred Guest and the Marriott Rewards guests and how the loyalty programs would be merged. It was an eye opener for me. I didn’t realize there was so much value in it.”

A King guest room at Public New York. Photo: Skift

Ever the Disruptor and Innovator

At age 70, Schrager isn’t slowing down at all in terms of what he wants to do in the hotel business and Public New York is a testament to that continual pursuit of reinvention.

His one piece of advice for his fellow hoteliers?

“Do not be forgetful we’re in the product distinction business,” he said. “You know, I love what I do, I’m lucky and I used to think I wanted to blow customers away. Now I kind of think, because, see, I was in the entertainment business, now I’m more inspired by the technology business. I like the disrupting things. I enjoy it. You know, so for me to come in here and shake things up again, shake the sacred cows, I enjoy it.”

Skift Editor’s Note: For more of the backstory on how Ian Schrager and his business partner, Steve Rubell, played a pivotal role in the invention of the boutique hotel, check out Skift’s Complete Oral History of Boutique Hotels.

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Royal Caribbean Had the Most Highly Compensated Cruise CEO of 2016

JD Lasica  / Flickr

Royal Caribbean Cruises CEO Richard Fain was the most highly compensated CEO among publicly traded cruise companies in 2016. In this photo, he is shown at a cruise industry conference. JD Lasica / Flickr

Skift Take: Passengers may not care much what executives at cruise companies earn, but it’s instructive to realize what goals those CEOs are driven to reach.

— Hannah Sampson

It’s not the biggest cruise operator in the world, but Royal Caribbean Cruises can boast  plenty of superlatives: It operates the largest individual cruise line by passenger capacity, sails the world’s largest cruise ships, and — last year at least — employed the most highly compensated CEO.

Richard Fain, chairman and CEO of the Miami-based company, received $10.4 million in total compensation in 2016. That puts him at the top of the list of chief executives at publicly traded cruise companies. Arnold Donald, president and CEO of cruise giant Carnival Corp., made nearly $9.9 million. And the third-highest earner with more than $4.6 million was Stein Kruse, CEO of Holland America Group, a unit within Carnival Corp.

Frank Del Rio, chairman and CEO of Norwegian Cruise Line Holdings, came in closer to the bottom of the 2016 list with total compensation of $2.9 million after hefty stock and option awards brought his total in 2015 to nearly $32 million.

Total compensation includes base salary, which is usually a small percent of the package, as well as stock awards, bonuses, incentive pay, and additional compensation such as coverage of an auto allowance, health insurance costs, and tax preparation.

The cruise industry saw record-breaking numbers last year, with 24.7 million people sailing and the three biggest operators — Royal Caribbean Cruises, Carnival Corp., and Norwegian Cruise Line Holdings — posting increases in revenues and profits.

But the stock price didn’t always move with the results. Luis Navas, head of the U.S. practice at Global Governance Advisors and a senior partner in the professional advisory firm, said total shareholder returns were down 27 percent at Norwegian and 17 percent at Royal Caribbean for the year. At Carnival, the stock was up about 5 percent.

Navas said more cruise passengers don’t necessarily translate to Wall Street success. Analysts, he said are looking forward, not backwards.

“It’s tough being a public company in the sense that, taking the cruise line business, you think it’s all about tourism,” Navas said. “It’s not just tourism. Is there war breaking out in areas that we cruise in? What’s happening to oil prices? What’s happening to the cost of production of a cruise boat. Frankly, what’s Trump saying today?”

Cruise companies have also faced questions from analysts about their growing presence in China, where pricing stumbled last year amid increased supply.

“Being a publicly traded company, you are impacted by so many different variables, many of which they have no control over,” Navas said.

Skift examined filings with the U.S. Securities and Exchange Commission for the three major publicly traded cruise companies — Carnival Corp., Royal Caribbean Cruises, and Norwegian Cruise Line Holdings. Included are CEOs of parent companies, groups within those companies, or individual brands as long as the operators include their salaries on regulatory documents.

Royal Caribbean Cruises

Royal Caribbean Cruises, the world’s second-largest cruise operator, saw revenues increase from $8.3 billion to $8.5 billion in 2016, while profits jumped from $665 million to $1.3 billion. In the filing, the company names other highlights, including record adjusted earnings per share; a ratings outlook improvement to positive from stable; and the sale of 51 percent of the Pullmantur brand and formation of a joint venture to operate it.

“2016 was a strong year for the company both operationally and financially, culminating in another consecutive year of record earnings despite a challenging geopolitical and foreign currency environment,” the filing said.

Base salaries for Fain and two other CEOs in the company — Michael Bayley at the Royal Caribbean International brand and Lisa Lutoff-Perlo at Celebrity Cruises — increased as the company tried to move them closer to the market median. Fain’s salary increased about 10 percent to $1.1 million.

Performance-based incentives were tied to financial metrics — adjusted earnings per share and operating income for brands — as well as indicators including yields; costs; guest satisfaction; employee engagement; safety security, health, and environment; and customer centricity. Executives generally were paid above the target for performance-based incentives.

Fain’s total compensation for 2016 was about 11 percent higher than in 2015 and included increases in every category. He has been in his job since 1988, and Navas said executives are often rewarded for years of service. The company also says that tenure is a factor in adjusting base salaries.

“You will find that right or wrong, individuals that are in positions for a longer tenure usually will have higher pay,” Navas said. “And I think that’s kind of a changing paradigm going forward. I think nowadays, regardless if you’ve been there 10, 15, [or] one year, it’s more related to what’s the market and how have you performed.

In a statement, Royal Caribbean Cruises global chief communications officer Rob Zeiger said executive compensation was based on measured performance and the approach was validated with the board, its compensation committee, outside experts, and shareholders.

“RCL’s management team has delivered results that have exceeded targets, contributing to long-term stock performance that outpaces both the travel sector and the S&P 500,” he said. “We’re proud of Richard’s leadership. He earns his paycheck.”

Carnival Corporation

Carnival Corp. is a much larger company than Royal Caribbean. Carnival includes nine brands, more than 100 ships, and has a market capitalization of  $46.7 billion, compared to Royal Caribbean’s market cap of about $24 billion.

Revenues grew from $15.7 billion in fiscal 2015 to $16.3 billion in fiscal 2016, with profits up from $1.75 billion to $2.8 billion.

The operator said other successes included receiving credit rating upgrades, returning $3.3 billion to shareholders, and increasing operating income by 20 percent to more than  $3 billion.

That increase in operating income is important for compensation: Bonuses are tied to corporation-wide operating income and brand-specific operating income, depending on the executive, as well as health, environment, safety, and security objectives.

The salary for Donald, CEO since 2013, stayed the same at $1 million. Total direct compensation — salary, bonus, and equity grants combined — dropped slightly, but Donald’s total compensation package was up 5.4 percent to almost $9.9 million.

“Mr. Donald’s total direct compensation decreased slightly by 0.3% in fiscal 2016, due to a lower bonus pay-out in fiscal 2016 driven by more challenging performance targets and payout curve under the Management Incentive Plan,” the SEC filing says.

Stein Kruse, CEO of Holland America Group, was an exception at the company: his annual bonus increased 9.5 percent in fiscal 2016 “driven by improved relative performance to target” from the previous year. His total compensation increased 16 percent to $4.65 million, though his base salary of $825,000 was unchanged.

Costa Group CEO Michael Thamm, who is paid in euros, also made the same base salary as the previous year. Because of exchange rate fluctuations, the U.S. dollar amount was slightly lower this year, $777,000. Because of higher stock awards, his total compensation increased slightly to $3.5 million.

Those groups include multiple cruise lines; individual brands have presidents at the top but not CEOs.

Navas said that at Carnival, total shareholder returns of nearly 5 percent are nicely in line with the bump in total compensation for the parent company’s chief executive.

“People will look at that and say they really tried to mimic the health of the company,” he said. “I don’t think you’re going to have any shareholders who would be upset with that.”

Carnival Corp. chief communications officer Roger Frizzell said in an email that the company has been working “diligently” during the last four years to better tie executive pay to shareholders based on performance.

“So we expected alignment between [total shareholder return] and our senior executives’ total comp over the last term — but not the exact percentages,” he said.

Norwegian Cruise Line Holdings

Frank Del Rio, the chairman and CEO of Norwegian Cruise Line Holdings, has the highest base salary among his peers at $1.5 million. But his total compensation is among the lowest of all nine executives included in the ranking. The company is the smallest of the three publicly traded lines, with three brands and a market cap of $11.6 billion.

Somewhat unusually, Del Rio’s salary was actually cut, from more than $1.8 million in 2015. That cut came as part of his renegotiated employment agreement in August 2015; he unexpectedly became president and CEO in January of 2015.

Del Rio also has the largest drop in total compensation from 2015 to 2016 — almost $32 million to $2.9 million — because of a “special one-time, front-loaded, performance-based equity award” in 2015. He received $10.2 million in stock awards and $17.7 million in option awards.

Shareholders told the company the amount of equity was too large; Del Rio was not awarded any new equity last year.

Navas said that decision was sound, especially considering the stock was down.

“That’s pretty good governance practice,” he said. A spokeswoman declined to comment on compensation.

Executives also did not receive cash bonuses because the company did not meet “rigorous” targets tied to adjust earnings per share and adjusted return on invested capital metrics.

Still, Norwegian had a profitable year: Revenue was up 12 percent to $4.9 billion and profits increased from $427 million to $633 million in 2016. Diluted earnings per share jumped from $1.86 to $2.78.

Within the company, Robert Binder saw his salary increased from $500,000 to $650,000 late in the year when he was promoted to president and CEO of Oceania Cruises.  He is also vice chairman of Oceania Cruises and Regent Seven Seas Cruises. His total compensation grew significantly to almost $3.8 million.

Andy Stuart, president and CEO of Norwegian Cruise Line, also earned a salary of $650,000; that was unchanged from the previous year. His total compensation fell more than 14 percent to $2.8 million.

BEST-PAID CEOS OF PUBLIC CRUISE COMPANIES

CEO CRUISE COMPANY 2014 Compensation 2015 Compensation 2016 Compensation
Richard Fain Royal Caribbean Cruises $12,013,878 $9,388,569 $10,405,684
Arnold Donald Carnival Corporation $8,730,512 $9,373,908 $9,881,820
Stein Kruse Holland America Group** N/A $4,001,725 $4,659,159
Michael Bayley Royal Caribbean International* $4,408,650 $3,213,305 $3,866,773
Robert Binder Oceania Cruises*** N/A $1,760,457 $3,797,269
Michael Thamm Costa Group** $6,484,683 $3,393,801 $3,524,340
Frank Del Rio Norwegian Cruise Line Holdings $2,130,906 $31,910,348 $2,917,824
Andrew Stuart Norwegian Cruise Line**** $1,830,164 $3,307,267 $2,824,328
Lisa Lutoff-Perlo Celebrity Cruises* N/A N/A $2,310,898

Source: U.S. Securities and Exchange Commission Filings
* Royal Caribbean International and Celebrity Cruises are part of Royal Caribbean Cruises.
** Holland America Group and Costa Group are part of Carnival Corp. Thamm was paid in euros; the amount was converted to U.S. dollars at the exchange rate of 1 euro per $1.11.

*** Binder is also vice chairman of Oceania Cruises and Regent Seven Seas Cruises, part of Norwegian Cruise Line Holdings.

**** Norwegian Cruise Line is part of Norwegian Cruise Line Holdings.

 

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Educator Pricing For Skift Global Forum Announced

Skift Take: Attention professionals inspiring the next generation of travel leaders: We’ve got a discount for you.

— Rafat Ali

Our fourth annual Skift Global Forum, happening September 26-27 in New York City, is shaping up to be the best yet.

Each year, a number of professors and educators reach out to us, impassioned about our conference and speaker lineup but not as excited about the price point.

We at Skift know that travel is at the epicenter of the geopolitical world, and we want to arm those educators who are shaping the next generation of travel leaders with the latest insights into travel’s top trends.

That’s why today we’re excited to announce that for the first time ever, we are offering educators the opportunity to attend Skift Global Forum at the reduced price of $1295 —that’s a $2200 discount on a full price ticket.

To apply, fill out this short application form. We’ll want to know what university you’re coming from and how attending Forum will benefit your classroom and curriculum. If you qualify, we’ll send you a discount code to use for the low price tickets.

APPLY NOW

Act fast! We only have 25 discounted educator tickets available and we’d love to see you there.

And as always, we couldn’t bring this event to life without our incredible sponsors: Button, Criteo, FareportalMapboxSmartlingSojern, and The Points Guy.

Email us at forum@skift.com for any questions or if you’re interested in sponsoring our event.

Educator rate cannot be retroactively applied to ticket holders. 

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Amadeus Hospitality Is Making Bigger Hotel Deals as It Chases a Breakthrough

Crowne Plaza

Crowne Plaza is among the InterContinental Hotels Group brands that are slated to get a new guest reservation system from Amadeus Hospitality in 2018. Pictured are patrons at a Crowne Plaza property. Crowne Plaza

Skift Take: Amadeus’ hospitality division is creating a back-end booking system for InterContinental Hotels Group. But it’s not a foregone conclusion that the tech colossus will win over a swath of other hotels.

— Sean O’Neill

In 1992, then-college sophomore Lee Horgan did an internship at a hospitality services company, Newmarket Software, that his uncle had created in Maine in the mid-1980s.

After college, Horgan returned to what later was called Newmarket International and began doing work in sales and rose up the ranks to become chief executive. In late 2013, he helped to sell the company for $500 million to Amadeus, the travel technology colossus based in Madrid.

Since 2016, Horgan has been chief executive of Amadeus Hospitality, the hotel software division — a collection of businesses, such as Hotel SystemsPro, Itesso, Libra, MeetingMatrix, and MTech, that Amadeus has acquired in the past half-dozen years.

Horgan is aiming to do for hotels what Amadeus has done for airlines in providing a full suite of solutions for running their operations.

But he and his team face potential pitfalls. The type of platform Amadeus Hospitality hopes to sell to the industry hasn’t necessarily been successful before. Horgan’s background has been in only one segment of the hotel industry, while the strategy requires an appeal to hotels of all types.

Critics also say there are also still several gaps in Amadeus Hospitality’s software suite.

Skift spoke with Horgan last week to get an update on the status of Amadeus Hospitality, a year on from its debut as a new platform.

IHG switch is on track

The most visible brand that Horgan’s team has signed up has been InterContinental Hotels Group, which is Amadeus Hospitality’s first customer for a new guest reservation system.

In the third quarter of this year, IHG will begin testing a multi-year move away from its in-house system, Holidex, to Amadeus’s new one. IHG says the rollout would happen in 2018.

Horgan says things are on track to meet the target date.

“Our team and the IHG teams are working well together. I think as far as where we are right now. I couldn’t be happier,” Horgan says.

That would be welcome news for management at Amadeus headquarters in Madrid.

In May, Amadeus IT Group CEO Luis Maroto told Skift, “IHG is admired in the industry. The moment we implement this reservation solution for IHG, it will represent a breakthrough. It will become our reference customer.”

The new platform is designed to make it easier for IHG to upsell customers based on their profiles and past behavior throughout a trip and would help the company get more adept at “yield management,” or getting top dollar from a potential guest.

Today, IHG’s IT systems have data scattered across databases that can’t communicate with each other. This “siloed” approach to data hampers the hotel group’s ability to make offers that are personal and relevant to guests.

In theory, Amadeus’s new reservation system would be able to recognize if a customer is a millennial who is a member of the loyalty program. If based on IHG’s research, such a person would be more likely to pay a premium for a particular hotel chain brand, then IHG can offer a promotion that may be more relevant to the customer.

IHG anticipates that the new reservations system would make it easier for its staff to categorize its inventory better, such as by describing rooms that have different configurations more helpfully — what is a “deluxe” room, anyway?

These categorizations matter in that they allow accurate searching by online and corporate travel agencies. IHG brands currently lose some business because computer filters don’t know that the chain has the amenities that some shoppers are looking for.

First of more deals?

For Amadeus, a follow-up reservations systems deal in due course with a big name hotel group such as Marriott, Hilton, or AccorHotels would raise confidence in Amadeus Hospitality’s strategy.

Investors seem to think it will take up to a year from now to sign another global deal.

Horgan says it’s hard to gauge when another major chain would be ready to replace one of its major IT systems. All Horgan would coyly say is: “The engagement level with prospects has been high for us.”

Given that IHG was the first chain to create a guest reservation system in 1965 and took a half-century to look for a new version, the sales cycle can be long.

IT replacements can be expensive for hotels. Controlling costs is why Marriott is downgrading newly acquired Starwood to its old customer relationship management system instead of upgrading its portfolio to Starwood’s more up-to-date one.

Guilain Denisselle, the Paris-based editor of hotel technology trade publication
TendanceHotellerie.fr, says: “Oracle Hospitality, formerly Micros, is the leader in property management systems in North America and Europe, and when you see how deeply it is implemented in hotel chains, you realize that it will take ages to take Oracle out of hotel chains.”

Denisselle adds: “The only chance Amadeus has to convince hotel CFOs is to cut the price significantly on all parts of its offering, and if they do that Amadeus will have to cut costs on R&D and profitability.”

If Denisselle’s argument is prescient, then Amadeus Hospitality’s forecasts for revenue growth may be ambitious.

Long-term bet

The long-term Amadeus bet is that over the next ten years, hotels will gravitate toward grouping more of their technology elements together with a single vendor because it is easier to deal with just one company.

That’s a risk, as historically hotel chains have not bought their technology that way.

Until now, reservations systems have been separate from property management systems and customer relationship management systems and other operational systems.

Some hotels prefer an a la carte approach to tech solutions, says Michael Levie, who is in charge of operations at the Amsterdam-based CitizenM chain of boutique hotels.

Levie explains: “Hospitality tech systems — like a central reservations system, a property management system, and customer relationship management system — have been separate buys mostly, as the combined offer has never quite able to deliver the level of expertise offered alone by specialists in each of the categories.”

But Amadeus is betting that hotels want to move away from having to spend a lot of up-front capital on their tech systems.

It believes hotels will increasingly prefer a commercial model where they pay a consistent, ongoing fee, either via monthly subscriptions or on a cost-per-transaction-serviced basis. That model makes hotel group balance sheets look more predictable for investors, among other advantages.

Horgan says that subscription- and transaction-based models also incentivize companies like Amadeus Hospitality to maintain a steady growth in transactions for a hotel because their compensation depends on that ongoing growth and not on just a one-time sale of hardware.

Cloud-based services also allow for more constant improvements in service, just as an iPhone gets regular software updates.

In the past, hotels had to buy a server and other equipment that required on-site work to update. In contrast, cloud-based systems minimize the on-site work that’s needed.

Levie of CitizenM agrees with the argument that new and more flexible technologies are making a platform offer more appealing than in the past. He says, “The benefits of centralized data are making that combined buy extremely interesting.”

But Levie notes that he is only making a general statement and not a specifical comment on Amadeus Hospitality’s combined system offer as CitizenM doesn’t use a combined system offer.

In fact, CitizenM has continued to experiment with one-off, next-generation technologies, such as a test of the startup IreckonU’s operations and finance dashboard and revenue management system.

Such startups are among the competitors Amadeus Hospitality faces, not just giants like Oracle.

The fragmented structure of the hotel industry — split among the various interests of property owners, brands, and operators — is the biggest challenge Amadeus Hospitality faces, according to Ellen Keszler, who runs the Texas-based consultancy Clear Sky Associates and was formerly president of Travelocity and a one-time executive at Amadeus rival Sabre.

Keszler says, “In a perfect world, from a brand’s perspective, hotel groups could dictate the technology used at their flagged properties to ensure consistency of guest experience. However, the hotel ownership structure, where one company might own properties that fly multiple flags, is where most of these decisions are made.”

In short, Amadeus’ success depends not just on the quality of their new products, but also the receptiveness of their customers to significant technology and process changes, she says.

For his part, Horgan says he isn’t worried.

He acknowledges that the key decision for hotels in changing their core technology systems varies by company. For some, it is “Can they increase revenue?” For others, it is “Can they remove a cost, or can they improve productivity?” For still others, it is about managing risk and complying with privacy regulations worldwide as they enter new markets.

He concedes that most hotels today are not going to change out all of their core back-end systems at once. But he says the conversations his teams have had with hotel executives suggest that hotel groups are alive to the promise of platform-based technology.

“It’s hard to judge how long the sales cycle will take for a new product, which the cloud-based, platform approach is,” he says.

“But we believe hotels are coming around to the idea of integrating their PMS [property management system] with their sales and catering tools and with their service optimization tools for front desk and housekeeping and their reservation systems.”

“We think they’re starting looking at some of these solutions coming together as a platform, which is our sweet spot.”

Product gaps and delays

Since its formal branding launch a year ago, which saw Amadeus Hospitality replace the previous Hotel IT division name, the hospitality unit has focused on four elements: providing central reservation systems, property management systems, sales and catering tools, and hotel operations software.

One knock against Amadeus Hospitality has been its slowness to roll out a next-generation property management system that has broad appeal. It did acquire one when it bought Itesso. But both the work on it and the sales of it have been relatively quiet.

Selling a new property management system is ambitious because most hotels already have one. Amadeus has to make a case that its alternative justifies the time and cost of a replacement.

“From a future functionality standpoint, we’re spending a lot of time on the usability of the system,” Horgan says. “Making sure that we can cut down on the amount of training for the various folks that are users in the hotel.”

He adds that, unlike some legacy systems, Amadeus’s solution is cloud-based, which allows more flexibility in moving across connected devices. A hotel would link up all of the technology in the lobby, for example, such as a front desk PC, a tablet held in the hand of an employee, and a self-check-in kiosk.

“If a hotel customer wants to build their app or offer a digital checkout, we can do that while some legacy products can’t. These mobile-first approaches give new ways for hotel staff to engage with their guests.”

He adds: “We don’t think that the legacy systems will be able to move at the same pace we can because we are on the cloud system.”

That may be true, but companies like market leader Oracle have also been embracing the cloud with apparent fervor.

Another gap in the Amadeus Hospitality product suite is revenue management. Amadeus Hospitality doesn’t have a full-service revenue management solution for hotels like the kind provided by IDeaS, Duetto, Rainmaker, and LodgIQ.

That gap doesn’t bother Horgan.

He says: “The market is pretty well-served right now from a lot of different revenue management players. Depending on what somebody may be looking for, there are folks more focused on full-service hotels, ones on the mid-level, and also sole proprietors.”

“We’ve decided that a partner approach is where we want to be right now.”

As context, some hotels do revenue management in-house because they feel their competitive advantage is in how they skillfully package and price their products.

Horgan says, “That’s not something that we necessarily thought we would be in a position to displace and so that comes down to more of a partner and open integration versus trying to come out with our system that would have to be part of the core platform.”

Other gaps in the Amadeus Hospitality suite appear to be channel management and digital marketing.

Companies ranging in size from TravelClick to smaller digital shops help hotels optimize their websites, email communications with customers, mobile apps, and search engine marketing.

Given the importance to hotels of increasing direct bookings and loyalty program engagement, some might think Amadeus Hospitality would have more services more prominently addressing that.

Horgan says, “Certainly digital marketing is something that is an absolutely hot topic right now. Our approach is really making sure that we enable a hotel customer to interact with their guests in the way they want.”

“We don’t have to own the end-to-end process that supports direct booking. We don’t necessarily have to create that front end experience for a hotel group to feel like we’re adding value there.”

He adds: “From our standpoint, it may be, ‘How do we enable that direct booking to happen?’ So it could be by allowing somebody to book meetings online. Or it may be where we’re revamping the tech to allow a hotel to offer special pricing or packaging online.”

“Even though we may not be the final mile, if you will, out to digital search and book and marketing, we’re doing a lot as a partnership that supports a hotel’s digital strategy.”

While Horgan isn’t worried about the gaps, other professionals express a measure of skepticism.

Max Starkov, president and CEO of New York-based hospitality digital services firm HeBS Digital, says that hotel technology consists of three silos.

Amadeus Hospitality has focused on one silo that includes inventory management, distribution, and pricing. Its portfolio includes software for hotel operations, including a new property management system, some point-of-sales tools, and some sales and catering tools.

Starkov says, “What they are missing in this silo is revenue management tools and expanded connectivity capabilities with a better channel manager tool to help hotels with distribution.”

“Due to the complexity of today’s traveler digital planning journey, I envision that in the future there will be a single integrated customer relationship system, revenue management system, and a channel manager,” Starkov adds. He notes that these tools today are typically sold separately or are built in-house without much inter-operability.

If Starkov’s prediction of overall trends proves true, then he says Amadeus Hospitality has a decision to make: “Do they venture deeper into hotel operations by building such an integrated platform, or do they master inventory management, distribution, and pricing — which is their core competency to begin with.”

Rivals with first-mover advantage

Some skeptics may say that Amadeus Hospitality is coming a little late to the hospitality IT game. In 2014, Oracle paid $4.6 billion to acquire Micros, the leading IT provider for hotels in North America and parts of Europe, and it has since kept investing in it.

Sabre Hospitality has been offering software solutions to hotels for a long time, claiming to have about 30,000 properties on its reservation system SynXis, in particular.

Horgan says he isn’t worried about playing a catch-up game. He notes the company has “25,000 unique installs, and we support more than 750,000 users across the various solutions we offer.”

He adds: “When we talk to customers, we hear that they have pain points not being solved today. What we’re hearing is a lot about wanting greater flexibility and about wanting to simplify the tech footprint.”

The company says that one of the ways it stands out from competitors is the emphasis it has put in helping hotels maximize their event space, which at some hotel groups can account for a third of revenue, on average.

“We excel at making sure that they are optimizing their meeting space by analyzing the patterns of historical demand and studying actually what’s happening in the marketplace.”

He adds: “We also can help in giving insight into their local market trends and giving actionable insight into how they may want to respond to those different requests for proposal from meetings and events organizers.”

Horgan says, “One trend we’ve seen lately is where event organizers want to have that different, almost an experiential, meeting. They want the room set in a different way than is traditional.”

“With the Amadeus diagramming solution, we’re able to help the customer and the hotelier partner on the vision of the meeting and to come up with a plan that is more creative and collaborative way with the hoteliers.

“It’s a really big focus of ours to enable ‘the next-gen of meetings’, if you will.”

Risks ahead

One of Horgan’s biggest tests will be showing he can lead the company to a broader customer base than what Newmarket had.

Traditionally Newmarket did best in what was considered the larger hotel group, or the top mid-tier. Can it successfully sell to bigger global chains? And what about to somewhat smaller companies in the mid-tier with simpler needs?

Newmarket focused particularly on helping hotels with maximizing the sales of their meetings and events spaces, including services for optimizing sales of catering, conferencing, and banqueting.

Horgan says he’s especially excited about tackling the focused-service market, which doesn’t have much of an events business, but is growing comparatively faster than other segments domestically in the US but also internationally.

His approach is to follow a customer service emphasis. He has clients take satisfaction surveys via a third party provider, ConfirmIt, to make sure customers are happy.

“We also really invest a lot in the training of our employees,” he adds, “to make sure that they can be helpful on those sales and follow-up support calls. That’s a critical point to our go forward strategy as well, is never to take our eye off the importance of customer service.”

Another risk facing Horgan is, with so many different products, can he and his team maintain a high-level of execution.

The related point is that Amadeus Hospitality recently has been looking beyond hotels for sales opportunities in casinos, stadiums, golf clubs, restaurants, and amusement parks. Is there a risk that it will dilute its effort if it doesn’t focus on hotels?

Horgan says no. “From our standpoint, it starts with the fact that we’re building flexibility at the core of the systems. A lot of times where we may be going into an entertainment center like a casino, those transactions are very similar to when somebody’s selling a ballroom in a hotel.”

“We let customers customize their workflow to their unique venue. This is relevant because a lot of hotel groups have branched out into different adjacent markets.”

“Hoteliers have called us to say, ‘Look, I’m doing something fairly similar here from a sales standpoint, from a booking standpoint. I’d like to leverage this technology.’ And we’re able to go in and identify what their needs are and if we can meet them, we generally have a pretty good match.”

Horgan adds, “I would also say that some of our event customers have pushed us in new ways that we’ve been able to bring back improved functionality to our hotel customers because we’ve had to think through adjacent and similar problems in fresh ways.”

On a more personal note, he says the biggest surprise about life post-acquisition is that his workforce has become more global.

“We’ve got people in Europe that are coming over to Portsmouth,” Horgan says, “And one of my managers is very interested in moving to Europe, and we may have an opening for him. It’s really neat and not something that was happening to a Maine-based company before.”

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Tourism Industry Could be A Beneficiary of UK Election Chaos

Alastair Grant  / Associated Press

Prime Minister Theresa May listens as the declaration for her constituency is made for in the general election in Maidenhead, England. Her gamble in calling an early election has backfired spectacularly. Alastair Grant / Associated Press

Skift Take: Prime Minister Theresa May’s reputation has been shattered by her own hubristic behaviour and she is only clinging on to power through a loose alliance with another party. The UK is in a much weakened position as it prepares to start Brexit negotiations.

— Patrick Whyte

Prime Minister Theresa May’s gamble on calling an early election to shore up her mandate for Brexit failed spectacularly after her right wing Conservative Party actually lost seats in the UK general election.

Jeremy Corbyn – the UK’s answer to Bernie Sanders, in some ways – did much better than expected, leaving the country with a hung parliament just10 days before Brexit negotiations are set to begin.

May is determined to cling to power and has already said she will look to form a minority government but after her humiliating defeat she will now have to rely on Northern Ireland’s Democratic Unionist Party (DUP), which won 10 seats, to get anything done. Even with the DUP’s help her position looks precarious and to get any support she will need to offer something in return.

This is where it gets interesting for the travel industry. While tourism merited precisely zero mentions in the Conservative manifesto, it is a big economic driver in Northern Ireland.

The DUP’s manifesto lists “making tourism a £1 billion industry” as one of its pillars for improving Northern Ireland’s economy and improving the industry could be one of the concessions that the DUP looks for as part of any deal with the Conservatives.

“The DUP supports the development of a new Tourism Strategy for Northern Ireland to take the industry here to a new level and reach our full potential,” the party said in its manifesto.

The DUP might look for cash to help look for new tourism products but it also has two specific policies in mind: the abolition of Air Passenger Duty and a cut in the VAT rate for tourism businesses.

The Air Passenger Duty issue has been a bugbear of the travel industry for the last couple of years. Effectively it is a tax on air travel, which is then passed on to the consumer. Trade Group A Fair Tax on Flying has tried for years to get it abolished but has only had very limited success. The government still regards it as a reliable money maker.

Similarly, the Cut Tourism VAT (value added tax) organization has lobbied for a reduction in the levy from 20 percent. Hotels and attractions in the UK currently pay a substantially higher rate than elsewhere in the European Union. Critics say that reducing tourism VAT would stimulate demand.

The reason why these are big issues for the DUP is that across the border, the Republic of Ireland scrapped the Air Passenger Duty in 2014 and has a VAT rate on tourism of just 9 percent.

“Levels of VAT and Air Passenger Duty (APD) are making businesses less competitive than their equivalents in the Republic of Ireland,” said the then-Northern Ireland Affairs Committee chairman Laurence Robertson in March.

The DUP might see this as an opportunity to level the tourism playing field by securing a couple of tax cuts that would likely prove popular with voters, something that might end up impacting the whole UK.

“It remains to be seen how the Conservatives and DUP will work together. The DUP stated in its manifesto that it supports the abolition of Air Passenger Duty and we welcome any developments towards reducing this punitive tax,” said Alan Wardle, director of public affairs, at UK travel association ABTA.

A softer Brexit?

Alongside specific tourism initiatives there is also the possibility that the type of Brexit the UK achieves might be different.

Before the election, May was pushing for a “hard” Brexit i.e. the total removal of the UK from all forms of European integration and she had intimated an unwillingness to compromise on anything with her EU counterparts. Now that she is considerably weakened there is some hope that a so-called soft Brexit may be achieved.

The tourism and hospitality industry is particularly reliant on EU workers and has repeatedly warned of dire consequences should there not be some sort of phased approach to cutting immigration — one of the big drivers of the entire Brexit campaign.

“There is an expectation perhaps that such a hard Brexit will no longer be viable,” said Ufi Ibrahim, chief executive of the British Hospitality Association.

The difficulty for the hospitality association and for those that voted “remain” is that both the Conservatives and Labour are committed to Brexit and the idea that free movement of people will end and will be replaced by some form of managed immigration.

“We cannot and will not rest on our laurels in terms of ensuring that any immigration controls will not be pushing our industry to a cliff edge and will not be detrimental to us going forward,” Ibrahim said.

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Airline Winners and Losers in Qatar Impasse

FC Media

Qatar Airways is the biggest loser in its dispute with Saudi Arabia and the U.A.E. Pictured is a view of Qatar’s A350XWB sharklet parked next to Qatar’s second A380. FC Media

Skift Take: One thing to watch is whether the move to isolate Qatar Airways will have the unintended consequence of a spillover effect that would see many of the region’s carriers face an adverse impacts on their brands.

— Dennis Schaal

With Qatar increasingly isolated from its Gulf neighbors in an escalating geopolitical crisis, the economic and financial implications are starting to emerge.

The country — which has been accused of supporting Islamist militant groups by Saudi Arabia, Bahrain, the United Arab Emirates and Egypt — relies on other Gulf states for about 20 percent of its imports and almost half of its tourists, according to Dubai-based Arqaam Capital Ltd. Billions of dollars of infrastructure projects are also at stake as it prepares to host the 2022 soccer World Cup.

“We expect the move to cut diplomatic ties with Qatar could have significant economic ramifications for its economy, but to have barely an effect on the rest of the GCC (Gulf Cooperation Council),” said Arqaam’s head of equity research Jaap Meijer. “We expect consumer prices in Qatar to be affected first, though economic growth and government projects should also be affected.”

Here’s a look at how the crisis could impact transport in the region:

Possible Winners: Gulf Air and Singapore Airlines Ltd, which compete with Qatar Airways on its top routes, are the main carriers that stand to benefit.

“If we also take into account the possible negative branding impact across all GCC carriers, then the real beneficiaries are Singapore Air, Lufthansa and the key local airlines from top routes such as Malaysia Airlines, Philippine Airlines, Thai and Sri Lankan,” said Diogenis Papiomytis, director of aerospace at Frost & Sullivan.

Other airlines on these routes such as Kuwait Airways, Saudia and Air France-KLM are also likely to see increased demand.

Omani and Iranian ports could stand to benefit, according to Neil Davidson, senior analyst at Drewry Shipping Consultants Holdings Ltd. Existing container trade to Qatar mostly goes through the U.A.E. and Saudi Arabia.

The alternative could be operating feeder vessels from hub ports in countries that aren’t part of the boycott. Kuwaiti ports are also an option but would result in a big diversion.

Potential Loser: State-owned Qatar Airways is set to be one of the biggest losers of the crisis. It operates 52 daily flights to the four Arab countries, according to data from scheduling firm OAG. About 30 percent of the carrier’s revenue could be affected, said Frost & Sullivan’s Papiomytis.

The network impact is huge; the financial impact depends on the length of closures, he said.

— With assistance from Mahmoud Habboush, Claudia Carpenter, Deena Kamel, Anthony DiPaola and Tugce Ozsoy.

©2017 Bloomberg L.P.

This article was written by Filipe Pacheco and Ahmed A Namatalla from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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Hotel CEOs Push Back on Trump And 5 Other Hospitality Trends This Week

Mark McQueen  / NYUSPS

Marriott CEO Arne Sorenson (right) was interviewed on stage by ABC News correspondent Rebecca Jarvis at the NYU Hospitality Industry Investment Conference on June 5. Mark McQueen / NYUSPS

Skift Take: These are the hospitality trends we were talking about this week.

— Dan Peltier

Throughout the week we post dozens of original stories, connecting the dots across the travel industry, and every weekend we sum it all up. This weekend roundup examines hospitality.

For all of our weekend roundups, go here.

>>Count Stephen P. Joyce as yet another hotel CEO determined to make travel and tourism a priority for the Trump Administration: Choice Hotels CEO to Trump: Travel Rhetoric Is ‘Offensive’ and ‘Incongruent’

>>Big brand names still matter, but as consumers become more sophisticated labels are not the only marker of success: Chinese Outbound Luxury Travelers Look to Smaller Hotel Chains

>>Best Western Is Testing Voice-Activated Rooms: Like Marriott and other hotel companies, Best Western is figuring out if there’s a home for Amazon’s Alexa in the hotel guest room.

>>Hotel CEOs realize that if tourism to the U.S. drops, it could have a significant adverse impact not only on their own businesses but the industry, and the economy, as a whole: Hotel CEOs Push Back Against Trump on Travel Ban, Brand USA and Cuba

>>Yet again, Wyndham Rewards isn’t missing out on any chance to capitalize on the opportunities opening up in the pending integration of SPG with Marriott Rewards: Wyndham Partners With Caesars on Loyalty Programs

>>Like everyone else in hospitality, Wyndham finally has its own soft brand collection to boot: Wyndham Launches a New Independent Lifestyle Brand: Trademark Hotel Collection

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Trump Expected to Roll Back Cuba Policies Next Week

Andrew Harnik  / Associated Press

In this June 9, 2017 photo, President Donald Trump speaks on infrastructure at the Department of Transportation in Washington. Trump is expected to outline his new policy with Cuba next week. Andrew Harnik / Associated Press

Skift Take: It isn’t a question of whether Trump will reverse Obama’s liberalization of U.S. policies toward Cuba — the issue is how far will Trump go. At risk is whether the country will revert to yesteryear where Americans can freely visit China but not Cuba 90 miles from Florida.

— Dennis Schaal

President Donald Trump is expected to outline his new policy with Cuba next week, announcing steps that could reverse some of the changes made by former President Barack Obama to open commerce and travel after a half-century standoff with the communist island.

The Trump administration has been discussing policy changes that include prohibiting business with the Cuban military while maintaining the full diplomatic relations restored by Obama. The White House has also been debating new restrictions on American leisure travel to Cuba, which has more than tripled since Obama’s 2014 announcement.

Trump is expected to announce the policy on Friday in Miami, according to a person familiar with the plan. The person spoke on condition of anonymity to discuss internal planning. The White House said the timing of the announcement had not yet been finalized.

Obama’s policy moves have led to extensive corporate investment on the island, including new, daily commercial flights, licenses for U.S. hotel operators and agricultural investment by U.S. companies. Trump will be under pressure from lawmakers and corporate interests to continue the U.S. engagement with Havana.

Tourism to Cuba remains illegal under U.S. law, but has become allowable under many circumstances. American travelers to the island must fall into one of 12 categories of justification for their travel, ranging from religious to educational activities meant to bring the traveler into contact with Cuban people.

But Obama eliminated restrictions on “people to people” travel, opening the door for tens of thousands of travelers to book their own independent trips to Cuba. Opponents of Obama’s changes said that allowed many Americans to engage in prohibited tourism on an island where the Castro government has driven exiles from their homes and businesses for decades.

The president, who was spending the weekend at his golf club in Bedminster, New Jersey, has been developing the policy changes in consultation with members of Congress, including Sen. Marco Rubio, R-Fla.

Rubio said in a statement he was confident Trump would “keep his commitment on Cuba policy by making changes that are targeted and strategic and advance the Cuban people’s aspirations for economic and political liberty.”

___

AP Congressional Correspondent Erica Werner in Washington contributed to this report.

This article was written by Ken Thomas from The Associated Press and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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Uber Board to Discuss CEO Leave of Absence and Report on Sexual Harassment

Adam Tinworth  / Flickr.com

Uber co-founder and CEO Travis Kalanick at Uber at LeWeb Paris on December 10, 2013. The Uber board may discuss a leave of absence for the embattled CEO. Adam Tinworth / Flickr.com

Skift Take: It’s clear that Travis Kalanick, the embattled Uber co-founder and CEO, needs to go. Whether the board can push him out, given Kalanick’s stake and leverage in the company, is another question.

— Dennis Schaal

The Uber board of directors is slated to meet Sunday to discuss the possible leave of absence of co-founder and CEO Travis Kalanick, other management changes and what is described as an ugly or bombshell report about a rash of sexual harassment incidents at the company and its culture, according to multiple published reports.

The report, conducted by former U.S. attorney general Eric Holder, has already been distributed to the board, Recode reports, and it follows the termination of dozens of Uber employees and the disciplining of others for incidents related to sexual harassment charges in recent months.

There have been a series of problems over the last year or more that have called Kalanick’s leadership of the ride-share company into question. One of the latest that Holder’s report uncovered, according to The New York Times, is that the head of Uber Asia, a close Kalanick association who was fired this week, shared medical records of a rape victim in India with Kalanick and other Uber executives.

An Uber driver in India had been convicted of raping the woman in 2015, but Uber’s boss in Asia, Eric Alexander, and other Uber executives became convinced that the driver was set up and shared her personal medical records.

It isn’t clear what the details of Holder’s report will contain or what actions the Uber board might take today, but the moment is shaping up as a critical one for Uber’s future.

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