Beyond the joint venture with Thayer in Interstate, how much of Jin Jiang’s business extends outside of China?
The only thing Jin Jiang owns outside of China is Interstate and Louvre Hotels, which it acquired this year from Starwood Capital for $1.3 billion. Louvre is principally in Europe, and primarily in France. Together, we’ve looked at a lot of other companies over the years. I think that Jin Jiang will continue its buying spree—it has a lot of capital. With the acquisition of 7 Days [economy hotel chain], Jin Jiang is now the fifth largest hotel company in the world.
Are there any big projects that you’re currently working on with Jin Jiang?
One of the more interesting ones is the Shanghai Tower, which will be the tallest building in Asia and the second tallest building in the world. There will be a 200-room J Hotel there. When I met with Qing Wei Kong, then-chairman of Shanghai Chengtou Corporation, the company building the tower ,and now the finance minister for Shanghai Province, he was about to sign a management agreement with one of the international firms. I said, “I’m surprised you’d do that. I would think if it’s China’s most iconic building, you would have a Chinese brand on it.” He looked at me and said, “How could we do that?” I said, “Why don’t we have Interstate develop a Chinese luxury brand under the Jin Jiang family?” It took 24 hours to tear up the management contract that was this close to being signed. Then Jin Jiang started making a J Hotel there.
The lodging industry is poised for an upswing in China, yet the Chinese stock market is volatile, so how do you go about placing your bets there?
It’s never been about taking capital into China. They obviously don’t need our money. Instead Thayer has established two significant businesses in China—Interstate and J Hotels, a Chinese domestic luxury brand under Jin Jiang. We also have HUBS1, the central reservations platform that we’re in the process of selling to Jin Jiang. The company plans to use it as the central reservation system for all of its hotels, which currently number over 10,000. As recently as 2004, if you were in Beijing and you wanted to stay in a hotel in Shanghai, you’d call a travel agent in Beijing who would send a fax to the travel agent in Shanghai. Someone would bicycle to the hotel and to see if there was a vacancy and then fax back to the travel agent in Beijing, who would then send a text to confirm the reservation. There was no CRS. There was no GDS. There was none of that.
Creating hotel brands in China seems a long way from where you began in Ithaca, N.Y. How did you get your start?
I worked as a soda jerk at a Howard Johnsons in high school and went to the hotel school at Cornell. When I gratduated, I got a job at Marriott and came up through the sales and marketing side of the business and became general manager of the Bloomington Minnesota Marriott. I was 24 years old. It was an interesting time because Marriott was growing so fast that you were often pushed into the next job before you had mastered the one you were in.
What did you do as a general manager to stand out and keep up with the changing hotel landscape?
I got pretty good at raising rates. The average rate at the hotel when I got there was $29. By the end of my first year, the average rate was $65. Previously the management team would set prices by looking across the street and seeing what the other hotels were charging. I thought a better approach was to look instead at where our guests were coming from. Their previous stays were in places like Chicago, St. Louis, and New York where hotels charged much more. So I said, if people paid $45 last night, why do we have to charge $29 tonight? So I raised our rates and kept raising them by $5 every month until we were up to a $65 average rate.
How did the other hotels respond?
They brought their rates up too. Hotels focus on the competitor pricing too much. What they don’t understand is how there’s always a price setter in each marketplace. And if your hotel can become the price setter, then everyone else will pay attention when you move, and you’ll have the advantage. It involves more risk for sure. There’s this bias that hotels have to operate with perishable goods and low variable costs. The tendency when you’re in with a perishable good with a low variable cost, is to go for volume. But you can’t make as much money doing that.
How much is the traditional way of doing things a barrier to innovation in the industry?
It has been, for sure, but the lodging industry also has a long history of embracing disruption. For instance, Kemmons Wilson’s creation of Holiday Inn was made possible by Dwight David Eisenhower. After seeing Hitler move six divisions from the Eastern Front to the Western Front overnight during the Battle of the Bulge on Christmas of 1944, Eisenhower knew the U.S. needed to have the same ability to move military men and materials rapidly around the country. When he became president, this idea became the Interstate Highway System. Now when the Interstate came through, it didn’t go through a town, it went around it. Kemmons Wilson recognized the opportunity this created for a chain of hotels. Even more, he developed a way for the hotels to market to each other. He created Holidex, the first reservation system to tie all of his hotels together. So when someone checked out of one Holiday Inn, the desk clerk would find out where the guest was heading and then check him into the Holiday Inn at their destination.
