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Hyatt CEO Builds His Global Footprint BRIC by BRIC

As head of the smallest of the big hotel chains, Mark Hoplamazian is taking Hyatt’s well-known brand to emerging markets’ growing middle class and newly wealthy.

Mark Hoplamazian was only supposed to be the interim CEO of Hyatt Hotels Corp. In 2006, as president of Pritzker Organization, where he had worked since 1989, the former First Boston Corp. M&A banker was overseeing the Chicago Pritzker family’s investment interests, including its ownership of Hyatt, and had little management or operational experience. Following a few months as Hyatt’s temporary CEO, however, he was asked by Pritzker Organization chief Thomas Pritzker to take the job permanently; other candidates had disappointed.

In 2005, Hoplamazian had navigated Pritzker family politics to put together Hyatt Hotels’ various properties into its current form as a North American and international hospitality company. His job as CEO was to define the direction of the new company, balancing a great history with the needs of an increasingly competitive industry. Hoplamazian, who has an MBA from the University of Chicago Booth School of Business, put in the financial controls necessary to take the company public in November 2009.

Founded in 1957, Hyatt now has 90,000 associates and 500 properties in 46 countries. Its brands include everything from the high-end Park Hyatt (made famous by the movie Lost in Translation) to the trendy Andaz boutique hotels to the more casual Hyatt House and Hyatt Place chains. Last year the company generated $3.9 billion in revenue, up from $3.7 billion in 2011. Net income, however, fell to $88 million from $113 million. Hyatt opened 22 hotels in 2012 and plans 30 new properties for 2013, including the conversion of four well-known hotels in Paris, Nice and Cannes to Hyatts. At a recent price of $42, Hyatt shares were up 68 percent from their IPO price of $25 but still below their all-time high of $49, set in February 2011.

Senior Writer Julie Segal recently spoke with Hoplamazian, 49, to discuss his company’s long history in China and India, its growth plans for emerging markets and what makes Hyatt different from other hotel operators.

Institutional Investor: The U.S. has been growing slowly, while the debt crisis in Europe is an ongoing affair. Where do you see growth?

Hoplamazian: Where you had declining demand occasioned by the financial crisis in the U.S. and in Europe, you had growing demand in places like India and China. The BRIC countries have been a major area of focus for all the larger multibrand global [hospitality] companies: ourselves, Marriott, Hilton, Starwood and so forth. Within BRIC, India and China have been the main drivers, with less consistent growth coming from Brazil and Russia.

Demand has been increasing because of the growth of those economies, and supply started off as being very constrained and quite modest. In ’06 there were more first-class, full-service hotel rooms in Manhattan than there were in the entire country of India.

We have been operating in those countries for a long time, going on 30 years in India and China. So we have a long history there, but the recent growth has been quite significant. We’ve got over 175 projects under way, and about 50 percent of them are in India and China.

Where does that leave North America?

The growth of new hotels being built in North America, and in the U.S. in particular, has declined precipitously. The decline in demand in the 2008–’09 time period, plus the limitation of financing available for construction of new hotels, combined to yield a very, very low rate of new properties being built. Results for REITs that own hotels and others have been driven solely by increased demand from individual transient guests who travel for business or for leisure. Big corporate groups and associations have lagged.

How do you manage a company that is so tied to economic factors that are beyond your control?

We don’t necessarily sit back and review GDP statistics, because, first of all, they are backward-looking. And second, they don’t necessarily reflect what’s happening in a given market for a given brand or a given hotel. We focus only on the customer groups that we serve. We don’t serve the general population, obviously. We don’t have a budget hotel chain and don’t compete in the lower-rated, lower-priced arena. We’re focused on what’s going on among corporate clients, among major corporations that are traveling globally and also among leisure guests.

What is the key to managing a global business?

I stay focused on our customers and stay close to them so that I can understand what their travel patterns look like and how we can better serve those customers. We also don’t try to operate — we have close to 500 hotels today — those hotels in a centralized fashion. Push down as much of the decision making as you can, so that individual hotels can be responsive to what’s going on in their individual markets.

Can you give us an example?

Talking about demand growth across India doesn’t necessarily help the general manager of the Grand Hyatt in Mumbai. If he’s undergoing a renovation, if a new hotel opened down the street, or if a major convention is back there this year, those are all local market considerations. So really the key is to be agile and highly responsive. And you have to do that in a very decentralized way in order to be effective.

China seems to be the Holy Grail for many businesses, not just hotels. How have you been successful there?

You have to think about this in the context of the next several decades, not just years. The country’s economic growth is obviously upward even if there will surely be periods of volatility.

You have to make sure that the projects you do have good long-term prospects and that you’re not doing things just because they are available. We’re not building the hotels ourselves; third parties are building hotels, and we’re managing them. A developer may identify a project because of a piece of land becoming available through a relationship with a local government, as opposed to a great project in the right location with the right brand applied to it. Discipline about how you go about growing and how you use your brand is very, very important.

How do you operate in a country where the government plays such a big role in directing the economy?

You have to adapt to the government being quite proactive in how it manages sectors within the economy. Within the past six years, we’ve gone through at least two cycles in real estate. Six years ago there was concern about a bubble developing. The government quickly intervened, and the end result was that non-Chinese investment in real estate was restricted. This dramatically slowed down real estate development. Then the government again supported real estate development, and we’re back as of last year into controlling the bubble.

We have a large number of projects under way, the vast majority of them with larger companies. They’re less dependent on government-incentivized financings and more dependent on their own strong balance sheets. That’s one way of mitigating it.

What consumer trends are you watching there?

More and more people have money to go and spend on holidays, so resort development is starting to spool up now. We’re going to be opening our first ski resorts in China this year. We also have our first beach resort, on Hainan Island, that we’ll also be opening this year.

What’s your experience been in India?

Real estate development in India involves using a lot of tradespeople, who are increasingly in shorter supply because there’s so much construction under way. In addition, the level of financing available for new projects has been a bit more constrained because of higher interest rates and because the overall economy has not done as well. But one of the things that really distinguishes development in India versus China is the level of regulatory red tape that you have to go through. The number of approvals or licenses that you need to open a hotel in India is dramatically higher than the number of approvals that you need to open one in China. There’s more bureaucracy, and that creates delay.

Tell us about your South American strategy.

We have a small but excellent representation in key places in deep South America: Santiago in Chile, Buenos Aires, São Paulo and Mendoza, which is more of a resort destination in Argentina. From a reputation perspective, we’ve got a very strong presence in those markets, no matter that we have just a single property in each place.

Now we’re looking at how we can expand and bring more of our brands into the region, especially in Brazil. Economic development there is high, and the number of cities in which we can be well represented with business travelers in particular is high.

Unlike China and India, where there is significant capital flowing into hotel development, in Brazil most of the capital in real estate development is residential. We are now developing a hotel ourselves in Rio, in part because trying to put together a transaction with a third party turned out to be too cumbersome and too time-consuming. We’ve got the Olympics coming, so we’d better get going.

Hyatt has lower-priced brands with more-limited services. What are the challenges in trying to bring a very high-end brand a bit downscale?

We had a lot of debates about this when we were expanding into India, for example, where the reputation of the brand was developed around the Hyatt Regency Delhi, which opened in 1983. It was the hotel in Delhi and the place where you went for your anniversary dinner or for your engagement or for your wedding. How do you then translate that brand reputation or that halo down into a lower-priced, more-limited-­service experience? In a lot of markets in which we are introducing Hyatt Place and Hyatt House, they will be the best hotel in that market. The idea that it’s at a price point or a level of service below our full-service brands is actually not the most relevant issue. The most relevant issue is, Are we actually at the top of the market when we’re opening our first Hyatt project in a given city?

How do you differentiate yourself from competitors?

The business model that we follow reflects a couple of principles that we live by, one of which is that we really believe that competitive advantage in our industry is best found in the interpersonal connections we have with our guests. Because trying to compete on physical product is really not viable. It’s too easy to go out and replicate a design. We pay attention to design because a great product is absolutely necessary, but it’s insufficient for long-term success. We think about leveraging the culture that we have at the company. If you look at, for example, the percentage of hotels around the world that we manage directly as opposed to franchise, it’s much higher than our other principal competitors. In our case about 83 to 84 percent of the total rooms around the world are managed by us. So having the ability to bring our culture to bear and being able to unleash the personalities of the people who are part of the Hyatt family and how they serve guests, and having that be a close emotional connection, is something that we spend a lot of time working on, thinking about and supporting.

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