French hotels and services group Accor SA outlined plans to cut spending to tackle weakening demand for its mid-range and luxury hotels as it posted a 3.5 percent drop in 2008 operating profit. Accor, whose hotels range from the budget Ibis brand to top-of the range Sofitel, will spend 125 million euros ($160.2 million) less this year to renovate its hotels and will be more selective, it said on Wednesday.
It also planned to spend 100 million euros less annually from 2011 in expanding its mid- and upscale hotel portfolio, compared with 500 million this year and next. It repeated plans to cut other costs by 75 million euros this year and a further 25 million in 2010. Depending on global demand, Accor would focus its expansion spending on budget hotels outside the United States, it said.
Chief Executive Gilles Pelisson told a news conference Accor would look out for opportunities to buy hotels, especially in Spain, Italy, Germany and the UK, as the economic crisis and more scarce financing encouraged some hotel owners to sell. The measures amounted to a "battle plan to face a difficult environment" after "the effects of the global economic downturn quickly spread to the hotels business, especially in the fourth quarter," Accor said.
Rival InterContinental Hotels, the world's largest hotelier, said last week the year would be difficult for the industry and there was no sign of any improvement in the ability to predict bookings. Accor's operating profit before non-recurring items fell to 875 million euros last year from 907 million in 2007. Nine analysts polled by Reuters on average expected profit of 885 million. In October, Accor set a goal of 870-890 million.
SERVICES TO ACCELERATE Shares in Accor have lost 15 percent this year, broadly in line with the decline on the French benchmark CAC 40 index. The Dow Jones travel and leisure index has fallen 7.8 percent. The stock was 2.7 percent lower at 29.575 euros by 1036 GMT, the top loser on the CAC 40, after earlier rising 3.8 percent. Traders cited comments by Pelisson at a news conference which raised fears for the dividend this year as well as questions over corporate governance, ownership and structure.
"The company has not committed itself to maintaining the dividend in 2009," an analyst said. Accor has 101,000 hotel rooms in the pipeline and a goal to open 30,000 in 2009, 35,000 in 2010 and 40,000 in 2011 but its mid- and upscale hotel business is feeling the impact of the economic crisis and it wants to expand its services business. This month the firm announced a European flexible payment joint venture with MasterCard.
Accor aims to boost growth at its Accor Services business to 10-18 percent organically after 2010 from 8-16 percent now. Some analysts see the potential to split Accor's two key businesses and have linked this to recent board changes. Accor Chairman Serge Weinberg and five other members of the board of directors resigned on Tuesday as Pelisson was named chairman in addition to CEO, a move Pelisson defended.
The board members, including the head of French state bank Caisse des Depots (CDC), Augustin de Romanet, and BNP Paribas Chief Executive Baudouin Prot, said combining the roles stopped them carrying out their responsibilities normally. Top shareholders Eurazeo and US investment fund Colony Capital, who together own over 30 percent of the capital of Accor, had questioned the previous "governance balance" and had wanted to combine the two functions.