On the horizon13 April 2019
In February 2019, Meliá Hotel International revealed its annual results for 2018, marking the end of a three-year strategic plan that had seen a 250% increase in earnings per share, nearly 15,000 rooms added to its portfolio, and an intense period of investment and repositioning. Global development managing director Maria Zarraluqui speaks to Hotel Management International about the impact this has had upon development strategy and where the group is looking to go next.
In your annual results for 2018, Meliá put a 13% increase in earnings down to “a more resilient and diversified business model”. Can you expand on this strategy and how it has fed into your development plans?
Maria Zarraluqui: 2018 registered a slowdown in the business cycle, especially evident in certain regions and destinations in the western Mediterranean and the Caribbean. However, Meliá was able to grow within this environment, thanks to decisions taken since 2016 to boost our international expansion, digital transformation and to optimise our financial performance.
Regarding finances, for the third consecutive year we met our commitment to keep the net debt/EBITDA ratio below 2:1. The company is particularly satisfied with the value generated for shareholders, with earnings-per-share having increased by 250% in the past three years.
When it comes to digitalisation, the consumerfocused melia.com has increased global sales by 9.7%, while MeliáPro, the channel created to optimise relationships with travel professionals, increased sales by 34.7%. Another highlight was the growing penetration of melia.com in regions such as Asia- Pacific, which saw a 35.7% increase in sales, Spanish cities, a 20% increase, and the US, Mediterranean and Cuba, where sales grew by around 12% in 2018.
Our strategic focus on a business model that prioritises management agreements and asset-light formulas, which currently generate 30% of EBITDA, also facilitated more agile and sustainable growth, generating higher margins with lower financial and real-estate leverage.
Finally, to your point on our development model, our development strategy has been key to diversifying our markets and the risk we take, focusing both on emerging destinations and markets, such as China and Asian-Pacific countries such as Vietnam, Indonesia, Malaysia or Myanmar, which increased their international arrivals by 7% in 2018, and on the more traditional markets such as the Mediterranean, the European capitals and the Caribbean, where we enjoy a greater brand awareness and certain competitive advantage due to economies of scale.
What parts have product renewal and repositioning had to play?
During the past three years, we have invested more than €100 million in the digital transformation of the aforementioned distribution channels, online marketing and sales.
We have also driven a huge renewal process of many of our hotels, investing over €600 million and boosting the repositioning of our brands and hotels, to cater to the different demographic and psychographic customer segments. We evolved our most traditional and flagship resorts brand, Sol by Meliá, into a modern, leisure-inspired lifestyle hotel brand. We have repositioned our Innside by Meliá brand into a fully ‘bleisure’ brand of both city hotels and resorts. And we have reinvented our principal brand, Meliá, setting new sustainable and wellness standards to enable the properties to remain a leading choice within the upscale segment. Finally, we have also updated our premium brands – Gran Meliá, ME by Meliá and Paradisus by Meliá – creating three different visions of luxury for the most demanding customers.
The Meliá Group’s value proposition is highly influenced by our leadership in the resorts sector worldwide, which also allows us to be a prominent player in the increasingly leisure-inspired business hotels segment, and by our management system. This dual positioning is captured in our new corporate slogan – ‘Leisure at heart, business in mind’.
Along the last strategic plan, we have certainly improved this value proposal with our renovated brands, and a system that offers what we believe is a unique brand portfolio, the best distribution and sales channels both for B2B and B2C, efficient marketing and social media strategies and channels, a largely renovated hotel portfolio with the best premium locations and the most demanding design and architecture standards, and a company certified as the third most sustainable hotel group worldwide.
Are you able to define the right development partner for Meliá, and to what extent does it differ by brand and region?
We continue to promote a corporate governance model that drives our performance guided by the criteria of transparency, rigour and responsible behaviour, to strengthen our sustainable growth and increase the trust of all our stakeholders. We have fulfilled our growth strategy by identifying the right type of partners and contributors per region, investors as family offices, owners, and private funds and developers in the south of Europe, or consultants, family offices or other funds in South East Asia, for instance. We are a family-run company – although listed in the Spanish stock market – which ensures that, besides being financially sound, we keep strong family values, and a long-term vision to create value for our owners and all our stakeholders.
How do you feel investor and owner expectations and demands have evolved?
More and more, in mature markets the figure of the investor is becoming more sophisticated and involved in the management of the hotels. The reporting system, big data and the figure of the asset manager have become crucial to the hotel owners to maximise their values. In 2018, we launched a new corporate website, meliahotelsint.com, which hosts a new owner-specific site, as well as a new development site, in recognition of this shift.
What makes for the perfect owner-operator relationship?
It comes down to mutual trust. You need to have a willingness to negotiate agreements with owners under a ‘win-win’ principle, where both parties feel that their own interests are reached. In Meliá Hotels International we also have a transparency system, having reporting systems addressed to each owner so they can be aware of our know-how at the level of each owners’ needs. We are hoteliers and hotelmanagers by heart, with a 64-year track record and an even more promising future.
What is the mix between single and multi-asset owner partners, and what efforts are being made to increase the proportion of the latter group?
We always aim for long-term relationships with our partners, but that can only be achieved through promoting an operating model that provides continuous trust. In 1980, Meliá opened its first international hotel in Bali. To this day, we are still partners with that owner. On the other hand, the signature of Meliá Zanzibar in 2011, and the trust placed in us by its owner, led to new opportunities. These days, Meliá Hotels International is managing 10 hotels of the aforementioned owner, including pipeline.
90% of that pipeline is under management and franchise agreements. To what extent is there still appetite for providing sliver equity for the right project?
For the past few years, Meliá Hotels International has been strengthening its asset-light strategy, having diversified its capital investment in the widely acclaimed tools operators are known for, such as brands, distribution, management services and so on. However, no doors are closed when considering asset-heavy investments, but the focus is set in leisure destinations in the Caribbean and South East Asia.
How do you feel your brand mix positions Meliá for fully leveraging growth opportunities worldwide?
Our brand portfolio has the perfect mix to position both leisure and bleisure hotels. This is especially important considering that 52% of our hotels are resorts, while the remaining 48% are in the urban segment. However, we are blurring the lines between business and leisure, and thanks to our bleisureoriented brands, 70% of the room portfolio is in resort and urban-leisure products, with the remaining 30% in pure resorts.
From a cultural as well as an operational perspective, what do you think differentiates Meliá from its competition when it comes to selling itself to potential investment partners?
Being listed in the Spanish stock and exchange since 1996, Meliá Hotels International joined the IBEX 35 Index in 2016. This public profile, which guarantees the highest level of professionalism, is combined with the deep-rooted values that only a family business is able to provide. The Escarrer family remains the main stakeholder of the company, holding 52% of the shares. This combination allows Meliá Hotels International to remain very close to its partners and investors.
Which regions in particular currently excite you in terms of growth, and why?
We want to focus on the best leisure and bleisure destinations worldwide, such as Latin Caribbean, where we already know the market; Anglo-Saxon Caribbean, mainly Aruba, Jamaica, Bahamas; southern Europe, in leisure and bleisure destinations; and the Balkans, Germany, the UK and several European capitals.
We are also focusing our growth on some of the best tourist destinations in South East Asia – Thailand, Indonesia, Vietnam, Korea, Philippines – and China, where we have quintupled our portfolio and pipeline in just seven years. It now represents 40% of our total pipeline.
Back in Europe, where do you feel we currently sit in the cycle?
Europe remains a tourism powerhouse, welcoming over 50% of all international worldwide arrivals, but the continent is facing some challenges in this new cycle, including Brexit, the sharing economy, profitability erosion, changing guest needs and overtourism. The industry, and the development strategy in Europe, needs to understand the emerging markets, such as Chinese travellers, and to be competitive, innovative and in line with today’s trends, and with the up and coming generations, to face these new challenges.
Away from challenges, what highlights do you see for 2019?
In 2019 we’ll launch a new strategic plan with the aim of continuing to deepen the digital transformation, with a special emphasis on optimising working processes and organisation models, as well as on training and providing human teams with digital capabilities. We’ll also keep working on improving our hotels and brands portfolio, seeking selective and strategic growth, and we’ll aim to further improve our position in the industry’s sustainability ranking.
More specifically, 2019 and 2020 will see over 50 new hotel openings in 26 countries, which will be a new challenge for our Meliá system, one that we are looking forward to.