PUBLISHED IN PARTNERSHIP WITH SWISSCOM HOSPITALITY

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1 How Barack Obama will affect the US hotel industry Economic woes in 2009 : Managing in a downturn Four CIOs join our first Technology Roundtable The GM of the «Best Hotel in the World» tells us where luxury is heading Thoughts on 2009 from the CEOs of Scandic and Mövenpick PUBLISHED IN PARTNERSHIP WITH SWISSCOM HOSPITALITY

2 Despite the economic downturn, UFI IBRAHIM of the WORLD TRAVEL & TOURISM COUNCIL believes that the desire of people all over the world to travel will not abate. Here she explores three trends which she says will shape developments in travel & tourism in 2009 : the rise of significant new source markets ; the emergence of a new class of travelers she calls «value-trotters» ; and the development of more active partnerships that will drive innovations. Moving toward the new BRICs of tourism «Crystal balling» has always been an art rather than a science. At the time that I am writing this article (November 2008), the high volatility of the global economy and the wide range of probable scenarios for 2009 pose even higher risks to projections than usual. However, a number of trends are generally agreed upon, both in the short and longer term. For example, today most economists and global institutions agree that developed economies will contract in As a result of this recession, travel & tourism demand is expected to fall. By how much, and for how long, is difficult to assess at this time. However, amidst the doom and gloom, there is some room for cautious optimism. Let s start with a fundamental premise. Ever since its inception, the World Travel & Tourism Council (WTTC) has recorded a steady increase in demand. And where shocks caused by downturns, such as economic recession, SARS and even 9/11 affected travel in the short term, demand has always rebounded in line with consumer confidence and increasing levels of disposable income. Likewise, after the current downturn, we expect to see a strong rebound in tourism, as pent-up demand is released like trapped steam from a pressure cooker. certainty at this time of significant change. This is the growing desire of an ever-increasing number of people across the world to travel. Today, more than ever before, the sector is deemed to be a fundamental human freedom. Certainly in the mediumterm, and perhaps even in 2009, we expect demand to continue spreading in geographical terms, with the emergence of significant new tourism source markets, particularly in Brazil, Russia, China and India (the so-called «BRIC economies»). Based on this and other research and observations we have undertaken at WTTC, I am confident in professing one Our expectations are underpinned by one of the key indicators that we at WTTC use to forecast travel & tourism activity at a macro- 2

3 cont. economic level the correlation between GDP per capita and the number of trips taken by consumers. As shown in the chart, there has historically been a clear connection between the two. The graph provides evidence that the wealthier people feel, the more they will travel. So how wealthy will people feel in 2009 and onwards? Well, most economists profess that households, particularly in developed economies, will feel much poorer in light of the significant correction in house prices and increased unemployment. However, a few others tend to take a different and more optimistic view. Based on confidence in recent fiscal policy in most developed economies (lowered tax and interest rates), the positive view is that household bills will fall, alongside commodity prices in 2009, helping to limit the damage to demand, even in the short term. And there is another factor to take into account : developing countries will not be what they once were. According to the World Bank, in 2000, developing countries were home to 56 percent of the global middle class, but by 2030 that figure is expected to reach 93 percent! China and India alone are expected to account for two-thirds of this growth, with China contributing 52 percent of the increase and India 12 percent. In Brazil, an estimated 52 percent of the population already falls within the «middle class» bracket, representing more than 100 million middle class people. It may be premature to expect this new mass middle class to venture too far from home in 2009, but certainly in the long term, the mix of international travelers may be very different from the European, North Americans and Japanese who have characterized the scene until today. But the picture for the emerging source markets has even stronger ground to be positive. There, economic growth, while due to slow, will still remain positive in Therefore, we expect that continued wealth-creation in these markets (particularly the BRIC economies) will offer travel & tourism a steady stream of new international, regional and domestic travelers. Note that in 2007, China already jumped into fifth place on the UNWTO ranking of international tourism spenders, overtaking Japan, and after having overtaken Italy in China is surging forward and really fast to shape the future of the sector. Furthermore, the huge potential of domestic and regional travel should never be overlooked. For instance, in China it is estimated that the number of domestic trips (i.e. Chinese nationals traveling within the country) will soon exceed 1 billion, versus an inbound travel market to China of just some 54 million visitors in 2007, according to the UNWTO. Hence, we see more and more well-known hotel and hospitality brands popping up in the BRIC economies to serve BRIC customers and I will not be surprised at all (quite the 3

4 cont. contrary) if this trend continues to grow strongly. Companies like Marriott and Inter-Continental (plus other WTTC members) are already doing exactly that. Nor would it be surprising to see more new global brands emanating from these and other emerging markets, like the Middle East, to establish their presence in the mature travel economies of Europe and North America, eventually to become truly global brands in their own right. The examples are already there, with Jumeirah and Mandarin Oriental. Globetrotters become «value-trotters» In 2009, I expect to see an evolution of globetrotters to «value-trotters.» I coined this term to reflect the mass market that will be seeking trips offering «good value.» Rather than cancelling or postponing their travel plans, they may decide to switch to lower cost vacations. Some expect to see a decline in the average length of stay. And certainly, corporate clients will become «value-trotters,» thereby squeezing their travel providers for the best deals possible. In fact, we could even see many business travelers cashing in their air miles and hotel loyalty points by way of still travelling in comfort at no extra cost to their own companies bottom line. In this area, there are some opinions that expect the mass market to avoid «extravagance» and seek holidays closer to home. While I agree that «value-trotters» will actively work on saving costs, I do expect competition to remain international, with long-haul offers effectively competing with domestic and regional travel. For example, in 2009 many people living in the UK may argue that a short break to the South of England will cost considerably more than a week s vacation in the Caribbean! However, my term «value-trotters» encapsulates much more than those on a saving spree. It refers to the changing nature of values, which are sought by a growing number of people across the world. So who are these people, and what are the values that they seek? Globally aware, environmentally-conscious, technologically-savvy, time-poor individuals who are spoiled by a wide range of choice and consider themselves good world citizens these are the «value-trotters.» As for the values they seek, the evidence is sprinkled all over companies through the good people we aim to recruit it is wrapped around us by the media and portrayed in numerous forms of sound, vision and print, and it is deeply rooted in the education system which is growing this new breed of traveller across the globe. More and more, the young graduates I interview for positions at WTTC ask me about the «purpose of the organization.» We spend more time talking about the mission of WTTC rather than the salary on offer. Similarly, many HR executives I meet from companies who are members of WTTC (the foremost 100 travel & tourism companies across the world) tell me that they are observing and responding to the «added value» which is demanded of the positions on offer. In fact, companies across all industries have reacted to the changing values people associate with today s society. They communicate their purpose of existence way beyond financial return or long-term profitability. A quick glance at the Websites of globally renowned brands such as Coca-Cola, Wal-Mart, Honda or Google reflects an active shift toward «valuetrotters» in terms of customers, employees and shareholders. Similarly, successful industry brands are transforming their business models and furthering an active engagement for their customers and employees with meaningful experiences that make a positive difference to local communities, to themselves and society at large, as well as to the natural environment. To illustrate this point, I would like to highlight findings taken from the Condé Nast Traveler Research Center. Their study, conducted among high-net-worth individuals in the USA in February 2008, showed that some 85 percent of travelers stated it was important that their chosen hotel/resort was environmentally friendly, and 72 percent attached importance to the hotel or resort s role in alleviating poverty in local communities. I am confident that this trend will spread to other consumer groups across the world and travelers will continue to demand further demonstration of extended values from travel & tourism operators across the world. Already, many leading companies have made great strides towards meeting and satisfying value-trotters expectations, and some groundbreaking initiatives are even exceeding them. HOTELyearbook2009 4

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6 cont. These brands are actively engaged with local communities, making definite and verifiable efforts towards tackling climate change and alleviating poverty across the world. This partnership is helping to protect 1.4 million acres of the Amazonian rainforest called the Juma Sustainable Rainforest Reserve. The third is the multi-level partnership that we at WTTC have just signed with the Government of Brazil, the regional government of Santa Catarina and the Brazilian Tourism Board, Embratur. Working in close partnership, we will provide our world leaders with a platform for open dialogue at the Global Travel & Tourism Summit in May In 2009, I expect to see many more such partnerships emerging, driving innovative projects that will feed the thirst of valuetrotters worldwide. Furthermore, partnerships will become increasingly reflective of the new geographical diversity of industry leaders, from across the world embracing government, industry, local communities as well as others. This diversity could lead to even more creative developments and exciting projects like those cited above. That s one of the reasons why travel & tourism is such a great industry to work in! The emerging spirit of partnership This development should really come as no surprise to anyone who works in the sector. Surely, if there were to be any industry that could lead the way forward for value-trotters, it would be ours. However, through the journey toward corporate, environmental and social leadership, another important trend has emerged one which I believe will grow even stronger in the years ahead. This is the start of «real partnerships» i.e., active partnerships making a demonstrable difference. I d like to share just three such examples to demonstrate the important role of partnership. The first is a partnership between a travel & tourism operator and an international institution, British Airways and UNICEF. To date, the Change For Good Program operated by British Airways has raised more than 25 million for UNICEF, supporting projects in over 50 countries around the world and helping to transform the lives of thousands of children. The second is an exemplary public/ private partnership between Marriott International, the state of Amazonas and the Amazonas Sustainable Foundation. «Companies across all industries have reacted to the changing values people associate with today s society.» HOTELyearbook2009 6