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Guest Star

An Interview with Federico Lalatta Costerbosa

June 13, 2016

The world is on the move—for business and for pleasure. In all corners of the globe, people are traveling more and spending more nights away from home.

Those people need accommodation.

Despite an unprecedented period of upheaval—new, big-hitting digital disrupters; the sharing economy; geopolitical unrest, and such—the global hotel industry is enjoying something of a purple patch. Demand growth is expected to outpace supply growth for the foreseeable future.

One big player is InterContinental Hotels Group (IHG), which brand includes, among others, Staybridge Suites, Crowne Plaza, and Holiday Inn. IHG has 740,000 rooms at the ready to suit the budgets, tastes, and aspirations of a broad range of accommodation seekers.

“We host 170 million guests each year and continue to evolve our business for success in an ever-changing world. We are a big company, we open one hotel per day and recruit 100,000 people every year,” says IHG’s head of global strategy and corporate development, Federico Lalatta Costerbosa.

The hospitality sector has long appealed to Federico (Milan, 1994-2014), who was a core member of BCG’s Travel & Tourism sector. He came to IHG when the company was in the process of a radical restructure.

Indeed, Federico’s job did not exist prior to his arrival at IHG. There had been a planning cadre but it had been fragmented and dependent on small, unconnected regional teams. The company’s CEO saw the need for a global strategy position to deal with the fast-changing world of travel. “He felt that my BCG experience could help, not just with the conceptual aspects of strategy, but to make sure that big, global projects get delivered quickly.”

For Federico, it was a good move at a good time.

“It’s a new and different type of professional journey for me, one strengthened by my 20 years as a BCGer. I came in with a strong grasp of the issues IHG must deal with; I’m comfortable tackling complex analysis; I know how to influence colleagues so that things get done; and I understand the importance of reliability and absolute commitment.”

Federico oversees a team of 30 people who help shape the company’s strategic direction and another of 40 or so who make sure that large, cross-regional and cross-functional projects are completed successfully, on time, and within budget.

“My move to the corporate world has brought a new sense of accountability. I’ve had to find my feet in a totally new industry but it’s a chance to challenge myself and look for new successes.”

In the meantime, IHG has been ringing in some changes of its own, not least of which is the way it operates its hotels. “Significantly, we’ve shifted from being a real estate company to being a brand and technology company,” said Federico, who adds that IHG has sold off 170 of its hotels over the last six years, distributing $12 billion to shareholders. “We believe it’s better to have institutional investors own the walls and floors, leaving us to manage or franchise the properties on their behalf. The owners put up the capital; we provide brand, reservations, loyalty programs, hotel technology, people training, and more.”

Under this new operating model, IHG now franchises 4,500 hotels, manages about 800, and owns seven across 100 countries. Asked what he sees as the critical challenge facing the company over the next few years, Federico’s response is succinct: “customer loyalty.”

Even for a company that boasts 88 million members—the largest loyalty program in the industry?

“Absolutely! Our distribution cost for a loyal customer is a fraction of the commission our hotels pay to online travel agencies such as Expedia, and loyal customers are more likely to generate ancillary revenues. We can’t afford to take any of those members for granted. We must make sure that they continue to choose our products and channels so that our owners and franchisees enjoy good returns.”

This brings us to a fork in the road, of sorts. IHG’s new approach to its brand means that it must, in effect, answer to two distinct sets of stakeholders: its guests, and its franchisees and owners—two entities with separate interests that are not always aligned.

Look, for example, at the topic of Wi-Fi service.

“It’s great for us to tell customers they can enjoy free Wi-Fi. But that’s tinkering with a source of income for the owners. The customer is happy but our owners make less money.”

Federico says that issues of this sort find him playing “devil’s advocate” between IHG’s marketing team and its owners and franchisees. “We have a great marketing team, constantly looking for ways to better serve our guests. But I’ve often got to bring in the voice of the owners and constructively challenge marketing ideas.”

By way of illustration, he points to a concept that would see some IHG brands turn over significant lobby space to facilitate a mixed-use social and work area (a growing trend in the industry.) “Guests love this type of service but, because it eats up revenue-generating room space, some owners and franchisees are apt to balk.”

Nonetheless, he says, it remains critical that each IHG brand deliver a consistent customer experience.

“We can’t have a chain where some hotels do and some hotels do not have this type of lobby area. Otherwise, customers will ask, ‘is this really a branded hotel, or just a random collection of businesses?’”

And then, there’s the elephant in the hotel room—the emergence of home rentals companies like Airbnb.

“Home rentals have always been around but Airbnb has inspired millennials with the concept of the ‘sharing economy’—even if a large majority of their bookings are for ‘normal’ whole apartments. Home rentals appeal to customers who often might prefer not to stay at a hotel at all. We already offer home-like accommodations in our portfolio: from the luxurious Intercontinental Residences across the world to the midpriced suburban Staybridge Suites and Candlewood Suites. Also, the segment is experiencing revenue growth rates comparable to hotels, around 6% to 7% per year.”

Does this mean IHG is aggressively moving into the home rental business?

“This is something I’ve been exploring for a while. Let’s face it, if you’re a large family visiting New York for a week, you’d surely be more comfortable sharing a home than three or four hotel rooms. Likewise, if you’re a consultant, say, away from home on a case team project for three months, wouldn’t you be better off with an apartment?

“IHG now sees itself, not as a hotel company, but as a hospitality company. As such, we must address emerging needs and be open to all accommodation solutions, including home rentals. I strongly believe that if we provide new options and alternatives, customers will gladly take advantage of them. If not, then when that family comes to New York, it will look elsewhere for accommodations and we’ll lose its loyalty.”

Federico concludes that he’s thoroughly enjoying what he calls his “second professional life.”

“I spent 20 years at BCG—which I loved—and now I’ve got a very different perspective. I still devise strategies and oversee their implementation but my year-end management objective is no longer focused on billing clients. It’s about making things happen.”

Guest Star