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Building icons of tomorrow

Michael Issenberg, CEO of AccorHotels Asia Pacific, sees room for growth following milestone acquisition of FRHI.

'The digital is to enable, to make sure people come to our properties. But creating experience, at the end of the day, that's the business we're in.'

ON his first trip to Singapore back in 1985, Michael Issenberg paid a visit to the hotel which would later be known as the Fairmont Singapore. "A friend of mine was involved in the development and I went to the top of that hotel. It wasn't open yet," says the chief executive of AccorHotels Asia Pacific. "But ever since it opened in 1986, this complex has really stood out in Singapore. "That's the positioning of the Fairmont brand, in particular," he adds. "We use the expression 'icons of tomorrow'."

Perhaps, in a serendipitous twist, the American is now based in Singapore, heading up the Asia-Pacific arm of the European company that is managing the hotel. This comes after Accor finalised its US$2.9 billion purchase of hotel management company FRHI, which has about 155 properties worldwide under the Raffles, Fairmont and Swissotel brands. Among the properties managed are the Raffles Hotel Singapore, Fairmont Singapore and the Swissotel Singapore.

Groupwide, Accor has some 4,100 AccorHotels hotels across its various brands, which include Sofitel, Pullman, Novotel, Mercure and ibis.

The acquisition, which is Accor's largest in its history, was a calculated move, giving it a strong foothold in the luxury hotel business, which it sees as an area of growth. Accor has since formed a standalone luxury brand group which includes the three new brands as well as Sofitel Legend, So Sofitel, Sofitel, MGallery by Sofitel and Pullman.

Explaining the rationale for the purchase, Mr Issenberg says: "Number one was to increase our presence in the luxury segment. Number two would be exposure to the North American market, where we have been under-represented."

Big footprint

For instance, the Fairmont brand's strength in North America lies in the meetings, incentives, conferences and exhibitions (Mice) segment, and the Mice market in North America is the biggest in the world. With the acquisition, Accor has also inherited the Fairmont's global sales force and expertise in the Mice business, which will make it easier to introduce its Sofitel and Pullman brands there.

"The fact that we now have a big footprint in North America ... gives us another feeder market, makes us that more attractive in terms of distribution and the brand," he says.

Prior to the acquisition, the group had fewer than 20 hotels in North America; it has since added 42 large hotels to its portfolio, including some truly iconic and historic hotels, he points out. These include the Fairmont San Francisco, The Plaza in New York and The Fairmont Copley Plaza in Boston. And Accor plans to expand its footprint in North America further, especially in key cities where it lacks a presence, such as Miami, Los Angeles and Atlanta.

Similarly, Accor sees room to expand its three new brands - Raffles, Fairmont and Swissotel - and the group has already received "significant" enquiries from across the world, including the Asia-Pacific.

"In Asia Pacific, which is still the fastest growing (region) for the industry, we believe there's real scope for growth of those brands. Raffles is iconic in Asia and both Fairmont and Swissotel are under-represented in Asia," says Mr Issenberg, who led the integration of the two companies. "I'm very confident of the growth prospects of those brands."

Each of the three brands will be able to cater to a different segment. Raffles is a luxury brand, Fairmont sits in the upper upscale to luxury space, while Swissotel is defined as upscale. With Swissotel, there's a "massive opportunity", he reckons, adding that it is a great brand but undervalued. He likens it to Accor's Pullman brand, which was only launched in 2008 and has since been scaled up to more than 100 hotels. Of these, 65 alone are in the Asia-Pacific.

He goes on to add: "(Accor), being significantly larger than FRHI, brings distribution through our loyalty programme (and) digital platforms. Owners who are very savvy about what hotel companies can do actually see it as a very powerful combination."

Branded residences is another area that Accor will be able to leverage both the Fairmont and Raffles names. The group plans to ramp up its portfolio of branded residences in key capital cities as well as in resort locations.

And while some analysts have suggested that the group overpaid for FRHI, he shrugs it off, pointing to the synergies and growth opportunities.

"It was a competitive process," he says. "That was the price to acquire the company, and it was certainly strategic for us."

The group estimates it will generate 65 million euros in revenue and cost synergies from the acquisition, which will also see job cuts largely in North American and European markets.

Here in Singapore, Qatar's Katara Hospitality owns the Raffles Hotel, which in turn is managed by Accor.

Meanwhile, Raffles City Singapore - which includes the shopping mall, office tower, Fairmont Singapore and Swissotel The Stamford hotels - is jointly owned by CapitaLand Commercial Trust (CCT) and CapitaLand Mall Trust (CMT). The two hotels are on a long-term lease to RC Hotels, in which FRHI and CapitaLand have a stake. RC Hotels manages the Fairmont Singapore and Swissotel The Stamford.

Accor has earmarked S$200 million to refurbish the Fairmont and Swissotel in Singapore over the next four to five years, which will include improvements to the rooms as well as the food and beverage establishments. While parts of the Fairmont Singapore underwent a renovation a couple of years ago, this is par for the course for luxury hotels, which require a facelift at least every five years.

In addition, the owner of the Raffles Hotel also has intentions to upgrade the building. "We're going to work with them to make sure Raffles remains the icon it should be in Singapore," he adds.

The FRHI acquisition came around the same time Marriot announced it was buying Starwood to create the biggest hotel company in the world. And more consolidation in the industry is likely in the offing, he believes, pointing to a tougher operating environment with the rising popularity of online travel agents.

In the past year, Accor has also made two other acquisitions - FastBooking which provides e-commerce solutions to the hospitality industry and private rental platform, One Fine Stay. There are still more opportunities to be had both in terms of physical real estate as well as in the digital space, he reckons. But at the end of the day, what's important is to create a great travel experience, he emphasises. "The digital is to enable, to make sure people come to our properties," he says. "But creating experience, that's the business we're in."

This can give hoteliers an edge over rivals such as Airbnb, he reckons. And while some industry players downplay the threat from the sharing economy, Mr Issenberg takes it seriously.

"Content is king. Our hotel rooms are the content. The better we can make that content, the better we can make that experience. That's our biggest competitive advantage."

In the Asia-Pacific, Accor has around 750 hotels and 150,000 rooms in 17 countries, with a further 330 hotels scheduled to open over the next five years. It employs more than 70,000 people in the region and adds about 10,000 members of staff each year, which means "a lot of recruiting and a lot of training".

In Singapore, the group has over 5,400 rooms across 12 hotels, including the Sofitel Singapore Sentosa Resort & Spa, Grand Mercure Singapore Roxy, Novotel Singapore Clarke Quay and Ibis Singapore on Bencoolen.

Three more hotels are slated to come onstream next year namely the Sofitel in Tanjong Pagar as well as the Novotel and Ibis hotels on Stevens Road. Through these hotels, Accor will add another 1,000 rooms, which should give it a market share totalling 10 per cent, Mr Issenberg estimates.

Slight growth ahead

But the one brand still missing here is a Pullman hotel.

"That would be the one we would really like to find the right opportunity for. That would be a city centre (hotel) or somewhere in Sentosa, a resort location. We're quite happy with the way the Sofitel is doing in Sentosa," he says.

"Singapore has actually been pretty good. For the first half of this year, we're actually slightly ahead of last year. That's despite an awful lot of new hotels coming into Singapore and there's still a fair few to come in the next two to two-and-a-half years."

Preliminary data from the Singapore Tourism Board puts visitor arrivals to Singapore for the first half of 2016 at 8.17 million, up at a double-digit clip of 12.5 per cent year-on-year. This was fuelled in part by a sharp 55 per cent rise in the number of Chinese travellers.

Mr Issenberg hopes for "more of the same" in the second half, with slight growth in revenue per available room (RevPAR), an indicator of performance in the hotel industry.

OCBC Investment Research estimates that Singapore's hotel room inventory will expand by 4.7 per cent this year to 63,800 rooms. By end 2018, the figure could climb to nearly 67,700, market observers forecast.

Nonetheless, Mr Issenberg, who is based here, remains fairly upbeat on Singapore, despite concerns from some quarters about a supply overhang. "It will still be a challenging market, but it's a good market. By 2018, there won't be any new hotels for a while and then, demand will catch up again," he says.

He is similarly upbeat about the growth prospects for travel in the Asia-Pacific, pointing to China as well as a 600-million strong population in Asean. "It's just a trend that's not going to stop. There're a couple of billion people in Asia. That middle class is growing and they want to travel," adds Mr Issenberg.

"I'm one of the few people in the world who'd love to travel less," he quips, in a nod to the irony and his punishing travel schedule.

In addition, he expects that the luxury market will continue to do well because people aspire to luxury. At the same time, Mr Issenberg acknowledges there are challenges facing the industry. The issue of safety has risen high on the agenda in the wake of multiple terrorist attacks worldwide, which means stepping up security in individual hotels. Tourists too are playing it cautious, which has hit the tourism industry in some markets. Paris lost 750 million euros in the first six months of this year as visitor numbers fell, it was reported last month.

"Sadly, one of the biggest impacts on a destination now is security," he says. "This year for us, France is challenged."

The group will also see the impact of currency translations from Brexit, given that it has a "couple hundred" hotels in the UK, although this is expected to be offset by a rise in demand in the medium term. The Asia-Pacific today accounts for 26 per cent of Accor's room inventory, roughly on a par with its supply in its home base in France. The rest of Europe accounts for a further 25 per cent of group inventory and the remainder comes from the Middle East, Africa and the Americas.

In the Asia-Pacific, some 330 hotels are under development - about half of its global pipeline - across its different brands. The group has found that the more hotels it has in a city, the better it does, thanks to brand recognition and distribution.

Twenty per cent of its global pipeline is in China alone, in both big cities and smaller ones. This year, Accor and China's Huazhu Hotels Group finalised an alliance, which will help speed up the expansion of its Grand Mercure, Novotel, Mercure, ibis and ibis Styles brands in China, Taiwan and Mongolia.

China is important because it is the number one outbound market for Asia, as well as for other parts of the world. And while China's economy has been slowing, the market is still growing off a bigger base, he points out, adding that Shanghai is one of its better performing markets this year.

Increased presence

"Our brands are growing quite well in China," he says. "Australia is still growing nicely for us, as is Korea, Vietnam, Thailand."

At the same time, there are other markets in Asia as well that the group is keen to increase its presence, namely Japan, Myanmar and India.

A seasoned veteran, Mr Issenberg has been working in the hotel industry since his youth - the Boston native used to work part-time to earn some extra money but says he ended up making a career out of it by "accident".

"The football coach at Cornell University suggested I had a better chance of getting into Cornell if I applied to its hotel programme because of my work experience," he recounts.

Since then, he has lived in different cities throughout his career, from Sydney to Singapore, which has allowed him to immerse himself in different cultures.

"When I started what I loved about (the industry) was the interaction - both with the people I worked with, and the guests. It was fast paced and I wasn't sitting behind a desk. It was just really fun.

"Now, I don't do any of that but what I enjoy about it is (that) it's still a people industry. What I still enjoy the most is working with people to create great experiences."


1959 Born in Lawrence, Massachusetts

1981-1983 Project manager, Westin St Francis Hotel, San Francisco

1983-1984 Consultant, Laventhol and Horwath, San Francisco

1984-1986 Manager, Laventhol and Horwath, San Francisco

1986-1988 Manager, director of Leisure Services Horwath and Horwath Services, Sydney

1988-1989 Director of development, Merlin Properties

1989-1990 Director of development, Mirvac Hotels

1991-1994 Chief executive officer, Mirvac Hotels

1994-1995 Director of operations, Accor Pacific

1996-2002 Managing director Accor, Pacific

2003-2007 Managing director Accor, Asia-Pacific

2008-present Chairman and ceo, AccorHotels Asia-Pacific