By Sourish Bhattacharyya
WHAT IS it about India that causes shake-ups in international hotel chains?
Just as we were getting excited about the Starwood global leadership’s month-long ’immersion’ in India starting from March 3, the hospitality world on the other side of the international time zone woke up to the news that the man widely regarded as the rock star of his business, Frits van Paasschen, has quit as the company’s President and CEO.
The hospitality industry behemoth’s chairman, Bruce Duncan, made it abundantly clear later in a conference call with the media that resignation had been ’building over the past few months’. The board of directors was evidently unhappy with Starwood’s growth story under van Paasschen.
Apparently, the company wasn’t making big-ticket acquisitions, nor was it growing as fast as its rivals in the no-frills, or what the industry like to call ’select service’, segment of its business. Another matter of concern was the rate at which hotel owners were migrating from Starwood to other brands. In 2014, Starwood added 74 hotels and 15,000 rooms, but it also lost 28 hotels and 7,000 rooms during the year. Duncan said the departure was ’all about execution’ and didn’t represent a change in corporate strategy.
Starwood’s third-quarter revenue fell by 1 per cent from a year earlier, according to Bloomberg Business, compared with increases of 9.5 per cent at Marriott International and 8 per cent at Hilton Worldwide Holdings, Inc. (Check out http://www.bloomberg.com/news/articles/2015-02-17/starwood-s-new-ceo-faced-with-expansion-to-catch-rivals for more details)
The markets, significantly, greeted the announcement of van Paasschen’s resignation with a 2.7 per cent increase in the value of Starwood stock. It had, in fact, gained a mere 4.2 per cent in the 12 months through last week, trailing Marriott, which climbed 58 per cent, and Hilton, which showed a 30 per cent growth, according to Bloomberg Business.
Starwood owns nine high-visibility hotel brands, including St Regis, The Luxury Collection, W, Westin, Le Meridien, Sheraton, Four Points by Sheraton, Aloft and Element by Westin. All of these brands, barring St Regis and Element by Westin, have established an expanding Indian footprint. W is making its debut in Goa in November-December 2015 and it is believed, though not officially announced, that Mumbai’s Palladium Hotel is well on its way to becoming the country’s first St Regis.
Van Paaschen’s announcement reminded me of the resignation of Kempinski’s high-flying CEO Duncan O’Rourke, the industry’s boy wonder, hours before he was slated to deliver the concluding address of the Geneva-headquartered international hotel chain’s World Gourmet Summit at the Kempinski Ambience Hotel in East Delhi on October 30, 2014.
A change at the top in Starwood predictably will have global ripples, for the company operates more than 1,200 hotels and resorts across the world and employs in excess of 1,80,000 people. For India, Starwood is eyeing a century ’ 100 hotels in operation or under development ’ by 2016. The global behemoth seems to be well on its way to achieving the target ’ in the last seven months, it has signed 11 new deals across India.
An avid tri-athlete famous for his passion for fitness (he starts his day with a 10-mile run at 6 a.m.) and informal working style (he has an aversion to ties and prefers being addressed by his first name), van Paaschen, in his seven years as President and CEO, has aggressively pursued international expansion, which was why he initiated the practice of immersions in key markets. Starwood’s global leadership relocated first to China in 2011 and then to Dubai in 2013 to better understand these markets. The immersions, according to company insiders, have led to positive results.
In China, for instance, Starwood has nearly doubled its footprint, from 74 hotels in July 2011 to 136 today. It has doubled its Starwood Preferred Guest (SPG) membership base in China. And it has made significant investments in digital technology aimed at the mobile-centric Chinese market. The Chinese SPG mobile application has been downloaded more than one million times since 2011.
Clearly, all this wasn’t enough to save van Paasschen’s job. Under his leadership, according to Bloomberg Business, ’Starwood’s growth slowed compared with peers such as Hilton Worldwide Holdings Inc., Hyatt Hotels Corp. and Marriott International Inc.’
The business news agency quoted Nikhil Bhalla, an analyst at FBR & Co. in Arlington, Virginia, as saying, ’Starwood made a bet on expanding internationally at a time when international regions aren’t doing that well. There have also been several missteps in communicating a capital-return strategy to shareholders, which left people wondering what Starwood’s story was all about.’
The Wall Street Journal aptly commented: ’Mr van Paasschen’s sudden exit shows how hotel companies have little tolerance for mixed results at a time when the industry is booming, rising group and leisure travel are lifting revenue-per-available room to new highs, and hotels are fetching record sales prices.’ (Click on to http://www.wsj.com/articles/starwood-ceo-frits-van-paasschen-resigns-1424172767 for the full story)
Starwood has announced that Adam Aron, a director at the company since 2006, will act as interim CEO while the board searches for a permanent replacement for van Paasschen. ’The board believes now is the right time to take steps to accelerate Starwood’s growth, improve performance and sharpen our focus,’ Chairman Bruce Duncan said in the statement. Aron, he said, ’is very familiar with our strategy, brands and leaders around the globe.’
’Adam has been a Starwood director for nearly a decade and has deep hospitality industry experience as former CEO of both Vail Resorts and Norwegian Cruise Line. He is very familiar with our strategy, brands and leaders around the globe, and we are confident Starwood won’t miss a beat as he steps in to lead the Company during this transitional period,’ Duncan said.
Where does that leave the India immersion? Watch this space for the latest.
Sourish Bhattacharyya is Consulting Editor, BW Hotelier.
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