Accor’s decision to split its economy, midscale and premium brands and its luxury and lifestyle brands into two divisions, which officially began on Jan. 1, is set to be the story of the year.

The former division will be led by Jean-Jacques Morin, the chief financial officer and deputy CEO. Sébastien Bazin, Accor’s chairman and CEO, will lead the latter.

The global branded operators have been swiveling their focus to luxury for some time, but the French company is taking the strategy one stage further.

“Changing our organizational structure is a natural step in the transformation initiated several years ago, which turned Accor into an asset-light group that is more agile and efficient, with a global profile and which has become a key player in luxury and lifestyle. By evolving from a generalist to a multi-specialist model, our aim is to improve further Accor’s appeal in the eyes of owners, partners and investors. We capitalize on our leadership positions to accelerate our development, better focus talents and expertise and improve our performance.” Bazin said.

I couldn’t agree more.

The global hotel brands have spent the past few years expanding their stables to include a flag for every occasion, every journey type and every personality. This can stretch their operational expertise, perhaps further than they can manage. There is a significant difference between the service offered and the operations of managing an economy hotel and a luxury one. Each requires a specific skill set.

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This difference is also seen in how a hotel, or group of hotels, is valued. It is easier to understand one group of similar hotels with comparable revenues, costs and peak periods than to understand a mixed batch. Accor is not the only hotel company to have been outspoken in recent years about the markets and their inability to price the hotel sector properly, but it is the only one to consider dividing its portfolio along segment lines.

The pandemic turned the eyes of the sector toward the leisure market, and, with the global recession likely to color this year, that is expected to continue.

The old beliefs that downturns were a time to lean on your economy brands have been overturned. Now, sanctuary is to be found in luxury. The attractions of the high-end market are clear, and with the ranks of the wealthy growing, it is a must-have for any hotel group and investor.

This has played out in recent years, with deals including The Pig brand in the United Kingdom, Hyatt Hotels Corporation buying Apple Leisure Group and Dream Hotel Group and, just before the end of last year, the sale of Viceroy Hotels & Resorts.

Accor has performed perhaps the most remarkable shift of all the operators, having made its name as the economy group of choice in Europe. Indeed, observers used to love to speculate on how great a companion it would make, filling in the gaps of other international hotel firms with its all-conquering triplet of Ibis-branded hotel flags.

This changed in 2015 with Accor’s purchase of Fairmont, Raffles and Swissôtel for a total of $2.9 billion.

At the time, Bazin described this as “a historical milestone for AccorHotels. It will open up amazing growth prospects, lift our international presence to unprecedented heights and build value over the long term.”

This was followed with several other acquisitions and, most recently, the group’s joint venture with Ennismore, which drove the creation of the luxury and lifestyle division and gave Accor the Hoxton brand.

And if you can hold on until 2025, Accor will revive the Orient-Express train service.

Accor is also swinging towards the U.S., which Bazin recently said had “missed the boat” on lifestyle.

This is a country where Accor pulled back from economy Red Roof Inn in 2007, but got into luxury with SBE in 2018, adding the Delano, Mondrian, SLS and Hyde brands.

One question that might be answered before the year is over is whether both divisions will stay with Accor or whether one will be sold.

Shortly before the pandemic, Accor investor CIAM told the Sohn Investment Conference — in clear hearing distance of Reuters and other news agencies — that Accor was undervalued by the public markets and was a good potential target for a private equity buyer. Such a buyer could dispose of Accor’s non-core assets — its luxury franchises — and return up to 35% of its market capitalization in cash.

At the time of writing, Accor’s market cap is 8.4 billion euros ($8.9 billion).

Not a bad day out.

A part sale, though, would leave Accor as a smaller company, focused either on economy or luxury, led by either Bazin or Morin, and that could therefore be a target for more takeover activity.

In a short space of time, Accor could be no more, a classic private equity asset strip.

What this move does tell us, crystal ball aside, is that there is value in luxury, but only for those with specialist knowledge.

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Alex Sogno
CEO & Senior Hotel Asset Manager
Global Asset Solutions

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