Feb 21, 2023
154 – Where Do We Go From Here with Michael Dominguez
Today we have the pleasure of speaking with a legend in the industry!
Michael Dominguez is the President and CEO of Associated Luxury Hotels International (ALHI). He has a gift for explaining very complex economic issues simply. He joins us today to discuss the economy and where we are going.
We hope you enjoy listening to today’s informative conversation with Michael Dominguez!
President & CEO, Associated Luxury Hotels International (ALHI)
Michael Dominguez serves as the President & CEO of Associated Luxury Hotels International (ALHI). ALHI is the largest Global Sales Organization with a team of nearly 80 professionals located among 26 offices across North America and Europe. Before joining ALHI, Michael served in executive sales leadership roles with MGM Resorts International as Chief Sales Officer and many brand and independent branded companies.
Michael is an award-winning hospitality industry veteran. He has received multiple honors for his leadership and influence and has been recognized as a change agent by his peers. He has also been a speaker with Fortune 100 Companies on topics ranging from disruption to the economy and a passion for leadership and was invited as a speaker at SXSW in 2018.
ALHI is a membership-driven sales representation company for independent hotels and brands. It has been around for the last 35 years. About two years ago, they saw a need for specific consulting disciplines and started gathering expertise from various areas that they felt would be valuable to the industry. Recently, they launched their first internal consultant to help independent hotels understand data science and how to use it to drive their decisions.
A confusing environment
Today, we are living in a confusing environment where information gets given to us in bite-sized pieces. Unfortunately, most of us do not have the time to research the real story and find out what all the data means.
Hotels have been achieving record revenues when compared with 2019. Most of that was due to rate growth. However, the gross operating profit margins for convention hotels decreased by two-tenths of a percent. So even though hotels are hitting record revenues, they are making less profit due to wage inflation. (In the hotel industry, wage inflation has over-indexed that of all other industries by ten percent.)
We will see the rate of growth slowing down in the hotel industry but that will not indicate a recession or mean things are going backward. There will still be healthy growth within the industry.
Food and beverage
The price of everything within food and beverage has risen. The good part is that things are settling. The negative is that we will settle at a higher baseline. That still does not mean we are going backwards.
A missing piece in the conversation
According to forecasts, we should be back to a growth rate of a CPI of around 3% by 2024. That means we will have grown 18% in CPI over three years, which is normal. That is the missing piece in the conversation that proves we are not going backward- we are still growing. We have just reset the baseline.
A potential wheat crisis
59% of Ukraine's land gets used for growing food to be exported to some of the world’s poorest and neediest countries. Ukraine had no harvesting season last year because the invasion started just after they started laying their crops. The US did not have a good wheat crop last year due to drought conditions followed by floods in all the major areas. As a result, Michael is concerned that there may be a wheat shortage in the US, which means that the cost of wheat will rise dramatically. Additionally, there may be a famine situation in certain parts of the world for which the US will need to offer support.
The effects of a changing financial environment on the hotel industry
The financial environment has changed. The Federal fund rate that was zero is now pushing 5%. Many hotel owners opted to re-finance their debts or start projects when the interest rate was zero. That means they will have to re-finance within the next few years in a rate environment that is five percentage points higher. That will add a massive amount of debt to the operation of properties, which will strain hotel operators and delay the building of any new hotels.
What has changed for hotels?
The debt environment
The interest environment
Countries are re-considering putting their reserves into the US dollar. (If no one buys our debt, we will have to pay much more for it.)
What is the solution?
We have a spending issue, not a revenue issue. So we need discussions around ways to control spending and get our spending back under control.
People working in hotels
Hotels are not experiencing a great resignation. However, there is realignment with people moving to different jobs and environments within the industry. Michael believes that the hotel industry needs to get better at teaching young people about what goes on and the variety of disciplines and opportunities within the industry. He also feels that it is essential to address the issue of child care.
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