If analysts were looking to Wyndham for any signs of inflation driving away budget travelers, Paris-based Accor is the hotel industry’s test to see how much the war in Ukraine is affecting the European hotel business ahead of summer.The company behind brands like Sofitel, Fairmont, Raffles and Novotel is Europe’s largest hotel conglomerate. Accor’s chief financial officer downplayed any impact Russia and Ukraine had on the company’s overall business, which is accelerating its recovery after lagging its U.S.-based rivals. The company reported revenue was up 85% for the first three months of this year.But Accor’s Thursday earnings call with analysts might still leave some scratching their heads when it comes to the company’s expansion plans.For more TPG news delivered each morning to your inbox, sign up for our daily newsletter.The company’s overall recovery has positive momentum with the exception of China, which continues to struggle with the omicron variant surge and the country’s heavy lockdown, zero-coronavirus approach. But some of Accor’s biggest expansion plans are in China rather than the Middle East and the Americas, which posted the strongest performances during the first three months of this year.“At this juncture, I’ve got no reason to think differently [about our development outlook in China]. I think the difficulty with China is the violence of the variation,” Jean-Jacques Morin, Accor’s chief financial officer and deputy CEO, said on the company’s first-quarter earnings call. “They decide to shut down Shanghai, and suddenly it’s [millions of] people that are confined for weeks.”Accor and its lifestyle hotel joint venture with Ennismore announced a deal earlier this month to add “at least” 1,300 Jo&Joe lifestyle hotels with a combined guest room count of more than 100,000 across mainland China. Accor defines lifestyle hotels as those that make at least half their revenue from food and beverage offerings and cater as much to local traffic as they do to guests staying overnight.But that deal comes as China continues to struggle. The latest weekly data from STR shows hotels there performed 59% below 2019 levels while those in the U.S. (admittedly boosted by spring break travel demand) operated 11% above pre-pandemic performance. Accor’s overall performance in China for the first quarter was 43% below 2019 levels.Murmurs in the analyst community about the hotel development outlook for China swelled in recent months, as Western hotel companies put major stock in beefing up their Chinese presence in recent years. The country is seen as fertile ground to expand brands, as there is significantly less exposure there compared to the U.S., which some see as approaching a saturation point for many of the existing hotel brands.Sign up for our daily newsletterEmail addressSign upI would like to subscribe to The Points Guy newsletters and special email promotions. The Points Guy will not share or sell your email. See privacy policy.China’s tough approach to combatting the virus and its uncertain timeline for reopening might leave some wondering if it’s worth putting the time, resources and money into developments there.Hotel executives defended their development push, as they see the lockdown measures as a temporary issue.“I think what needs to be followed through with China is whether the situation for where we are continues to negatively evolve [and if] it will have an impact on the business or whether it will be just like what we saw last year, which is there was a bad month and then the next month [there was] a big positive because everybody goes back to business,” Morin said. “That we don’t know today.”A curious limited presenceIt’s a different story in other parts of the world.Accor’s Middle East, Africa and Turkey region outperformed 2019 levels by 8%. This was due in part to travel demand for Expo 2020 in Dubai.The Americas region was only down 14% from 2019 levels. That may not sound like a win, but it’s better than the 21% and 38% declines seen in Southern and Northern Europe, respectively.Morin specifically highlighted the company’s ability to charge higher rates for hotels in countries like Brazil and the U.S., where Accor has a much smaller presence relative to its home base of Europe, as driving factors of the stronger recovery.“North America, despite omicron, benefitted from a nice business travel [recovery] on top of a stronger leisure travel [demand] that already existed,” he added.Accor executives highlighted both the Middle East and the U.S. as strong performers in recent earnings calls, which begs the question: Why isn’t the company doing more to elbow into these regions?One of these regions is easier to beef up than the other. Accor has the second-highest development pipeline in the Middle East after Hilton, according to Lodging Econometrics.But the U.S. is a tougher market to break into. Marriott, Hilton and IHG have an extraordinarily large grip on both the hotel property environment as well as loyalty programs. The three companies combined accounted for 67% of the U.S. hotel construction pipeline at the end of March, Lodging Econometrics also reported.Scale feeds loyalty and vice-versa, so it makes it difficult to make much headway in a hotly competitive market like the U.S. But don’t rule out Accor from ever making a dent on American soil.Fairmont is arguably Accor’s best-known brand in the U.S., but company leaders indicated earlier this year it plans to expand significantly in America via its Ennismore joint venture.Ennismore, the founder of brands like The Hoxton and Gleneagles, retained its brand name for the partnership. Accor, which has a two-thirds stake in the enterprise, spun out several of its smaller lifestyle hotel chains like 21c Museum Hotel, Delano, Mondrian and SLS into the venture.“There’s no doubt that the focus for Ennismore in terms of growth is the U.S.,” Philippe Zrihen, head of the Americas for Ennismore, told this reporter earlier this year. “It is the most underserved market. It is underserved relative to our lifestyle brands and relative to Accor, so it kind of ties in nicely.”The idea is that, while Accor almost certainly will never be the same size as Marriott in the U.S., it can compete on a different playing field. The more curated lineup of Ennismore brands makes Accor stand out with more “see-and-be-seen” venues than its competitors.That could be enough to make people stray from their favored loyalty program.Current events don’t deter developmentAccor leadership emphasized they view both China’s lockdowns as well as the war in Ukraine as short-term events that don’t impact their expansion plans around the world.Overall, European hotel performance cooled in recent weeks amid the invasion of Ukraine, which theoretically could impact Accor’s business. But Morin emphasized the company had a limited presence in the most impacted areas.“Remember, Russia and Ukraine is like 1% of what we do. So, it’s very, very limited,” he said. “There is nothing in [our financial performance] that we can see that relates to that crisis at all.”Similarly, Morin downplayed the impact China’s lockdowns would have on Accor’s development trajectory in the country. The lockdowns were not causing developers to cancel plans for building new hotels, and the backlog of projects waiting to break ground in the coming months is strong, Morin said.“If you look at the numbers, as I have them in my hands, everything is fine,” he added. “I talk with what I have in my hands, which are facts.”
