Summary of Strategic Analysis – SWOT Analysis

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• Fragmented markets fit Rezidor well • Disappointing RevPAR development in the Nordics • Secure business model • Small size is disadvantageous

• Attractive market position in Sub-Saharan Africa • No possibilities to expand to the Asia Pacific Region

• Good position to meet the technological shift • Increased political risk

• Radisson Red • Increased exposure to commodity prices • Favorable demand conditions • Brand dilution by mismanaging franchisees

• Airbnb and changing customer preferences

Strengths Weaknesses

Opportunities Threats

over routine errands from the hotel's personnel which frees up resources and allows them to create a more personalized experience for guests. (Solomon, 2014)

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property prices, compared to most of the competing hotel companies in Europe and MEA.

However, during periods with favorable market conditions, Rezidor’s hotel portfolio implies lower earnings than the competition since management and franchise contracts only entitle Rezidor to shares of the revenue and not all of the revenues, as with lease contracts.

In exhibit 26, we showed that Rezidor belongs to the fastest growing hotel companies in the world. This growth has in the past years been directed primarily towards unexploited markets in Eastern Europe and MEA, making Rezidor one of the top players in these regions. Many countries in Sub-Saharan Africa have stepped up their efforts to diversify their economies and are now growing despite low commodity prices. Their economic growth in the last years has also been mirrored in the increasing number of international business travelers, who are willing to pay more and more for accommodation, since supply of new hotels is not keeping up at the same speed. One explanation is that funding is time-extensive. Yet the partnership with Afrinord has put Rezidor “in a strategic advantage”. For several consecutive years, Rezidor has had the largest pipeline of all hotel companies in the region, an asset that will generate good cash flows in the years to come, considering that all are under management contracts.

5.5.2 Weaknesses

As we saw in exhibit 23, Rezidor has in the last 5 years reported disappointing RevPAR growth rates for two of its markets, namely the Nordics and Eastern Europe. While the development in Eastern Europe can be explained by political unrest, resulting in a negative demand chock for the entire industry, Rezidor’s deceiving RevPAR growth rates in the Nordics are harder to explain. The Nordic hotel industry has over the past 5 years experienced a surge in demand, thanks to their expanding economies and growing tourism sector. The low performance in the Nordic region, is definitely a weak spot for Rezidor.

Another weak spot for Rezidor is its small size. As showed in exhibit 26, Rezidor’s global market share in 2015 was 0.5% and 1.1% as measured together with its owner Carlson Hotel Group.

While Rezidor is a recognized player in many markets in the EMEA region, where the American giants have little presence, they would still be vulnerable if Hilton, Starwood or Marriott would start a price war in order to eliminate Rezidor on favorable locations, especially considering the fact that competition authorities may not be as strong as in some of Rezidor’s markets as in Western societies. Rezidor’s size is also a disadvantage, when it comes to attracting and retaining customers through its loyalty program. Rezidor’s network of hotels is simply not as large as its main competitors.

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One last weakness of Rezidor is its dependence of its owner and the owner of the brand portfolio, Carlson Hotel Group. The relationship with Carlson hinders Rezidor to expand to new markets in the Asia Pacific region, which is cumbersome, considering that this is where most of the global growth is taking place. It is also troublesome for Rezidor, because it limits Rezidor’s possibilities to diversify its hotel portfolio.

5.5.3 Opportunities

Section 4.5.1.2 dealt with the global demand for hotel services. Judging by its drivers, the outlook is quite promising for Rezidor’s markets and for the global hotel industry as a whole.

Tourism is expected to grow by 3.2% and 4.2% in Europe, by 2.4% and 3.3% in Africa for 2016 and 2017. The highest growth rates in terms of tourism will be achieved by the Middle East, expecting 4.3% in 2016 and 5.2% in 2017. (Statista, 2015) IMF predicts an annual increase of 4.3% in GDP in MEA between 2016 and 2020. Estimates for GDP growth in Rezidor’s European markets are around 2% per year for the same period. Oil prices are expected to remain low in future which together with continued price competition in the airline industry makes transportation more affordable, especially on long-distance routes. A surge for hotel demand in the coming years implies big opportunities for Rezidor increase its earnings.

As we saw in section 5.4.4, the international hotel industry is currently facing a technological shift, in which significant cost reductions can be realized. Examples of this technological trend are apps that serve as hotel keys or robots replacing hotel personnel in running routine errands.

Rezidor is currently developing such an application that will be applied in Radisson Red hotels.

Rezidor’s new concept Radisson Red is otherwise an opportunity itself. As we know from section 5.4.3, customers born after 1980 are projected to represent half of all travelers by 2020.

These consumers are different in their travel habits and expect different kinds of services than previous generations. Designed to appeal this new generation travelers, Radisson Red has a lower emphasis on service, instead focusing more on modern design, connectivity and technology.

5.5.4 Threats

Due to its rapid expansion in Eastern Europe and the MEA region, Rezidor is becoming more and more vulnerable to factors that are beyond the company’s control. The situation in Ukraine is one such example that is troublesome to Rezidor, affecting hotel demand in the entire Eastern Europe. Another political risk is the situation in the Middle East, where many countries have unstable regimes following the Arab spring. Rezidor’s south – and eastward expansion has also increased Rezidor’s exposure to commodity prices, and most importantly oil prices. Many of

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Rezidor’s markets are large oil producers, as for instance Russia, Norway, Saudi Arabia, Qatar, the United Arab Emirates, Tunisia, Egypt, Algeria, Angola and Nigeria. There is a risk that we in future will see oil prices remain on low levels, which has a serious effect on GDP and hotel demand in these countries.

The threat of Airbnb has already hit the hotel industry, but may constitute a bigger threat in future, if the next generation chooses to spend less on accommodation. One possibility to tackle this threat is to follow the tactics of Hyatt and Wyndham, who are contesting Airbnb by investing in other home-sharing start-ups. (Zacks, 2016)

Another risk that Rezidor faces is the risk of brand dilution through the misconduct of franchisees. In order to reduce costs, a franchisee might be incentivized to decrease the level of service, which hurts the reputation of Rezidor’s brands (Rezidor, 2014b). The franchising agreement that Rezidor has with the brand owner Carlson constitutes another serious threat to Rezidor. Carlson might decide to increase the royalty fees for using the brand names or worse, terminate the partnership upon contract expiry.