The credit crunch is affecting every region to a different extent - There will be many losers but also some winners- those with liquidity.

HVS explores these topics in an attempt to identify future hospitality recruitment trends.

Around the world, lines of credit are being pulled or frozen. The lack of liquidity, the tumbling stock markets, and the pervasive uncertainty are all starting to have their effect on the hospitality industry. Unlike in banking and real estate, the signs of how this credit crunch is affecting the hospitality employment market remain unclear. So far it appears that companies are holding onto their employees and, unlike other financial focused Executive Search firms, we have not been flooded with resumes of people desperately looking for a new job.

However, this global crisis is certainly affecting our industry, and those who have suffered the most are North America and Europe since hotels in these regions are heavily leveraged. Asia-Pacific is also starting to feel the global financial crisis and is forecasting delays in plans for as many as 90,000 new hotel beds in the region. In the Middle East banks are also tightening credit and thereby delaying some projects; but due to the amount of projects in the region, a slow down in recruitment has not yet been felt. Africa and Latin America, however, where in most countries there isn't a culture of debt, have not yet been directly affected by the credit crunch and still have positive outlooks and continue hunting for talent.

Even in those economies which have been hit the hardest by the recession, you will always find a winner- namely those with liquidity. This article takes a particular look at Private Equity firms. How will this credit crunch shape the employment market? Are equity rich entities such as Private Equity firms and emerging markets the future employers? It is hard to predict how the employment market will react further to the credit crunch, however we have begun to see a few indicators in the market that give us some initial insight.

So far, the clearest sign that the downturn is affecting the hospitality employment market was an announcement Marriott made earlier this month. Marriott declared that they may have to cut back in staff because of hotel projects being delayed or cancelled and forecasted RevPARs for 2009 being down 3 percent in North America and equal overseas. In an analyst's conference call, Arne Sorenson said that "There are thousands, maybe tens of thousands of jobs at stake in our company alone, and we are typical."

To date Marriott is the only company that has made such a public announcement. Other hotel companies are reviewing their recruitment pipeline and putting some new hires on hold, but there have been no further signs of large scale cutbacks. A sign that the credit crunch is affecting recruitment in Europe and North America is the decrease in overall hiring for hotel chains in the past few months. Thanks to ‘easy money,' booming markets in this region over the last years have experienced rising demands for corporate staff, particularly in Development and Technical Services. This level of hiring has now slowed down, partly due to the credit crisis and partly because many of the positions have now been filled. While we have seen a slow down in recruitment in some areas, there has been an increasing need for Asset Managers as businesses streamline their operations and try to maximise GOPs and in Directors of Sales & Marketing to maximise revenues.

While some hospitality operators have scaled back their recruitment, over the last year we have seen Private Equity firms intensify their hiring activities. For those who have equity ready to spend, a recession tends to be shopping time and their chance to shine in the market. There is a fair amount of appetite in these firms to invest, since with the valuations of assets and portfolios coming down, the investment scenario is more attractive than last year. Markets which were not accessible in the past because of high prices are now more attractive since it has become a buyer's market rather than a seller's market. In addition, there have been sovereign wealth funds, especially those from the Far East and the Gulf, acquiring impressive portfolio stakes in flagship businesses such as Citigroup, Barclays and Sony.

I spoke to hospitality focused Private Equity funds to see how the credit crunch is affecting them. Pierre Charalambides, Partner at Dolphin Capital Partners said, "For us it is business as usual. The crisis is actually working in our favour, resulting in us now having one of the most attractive pipelines we have ever had in the Caribbean and Latin America region both in terms of asset quality and pricing." On the other hand, Charalambides as well as the other Private Equity firms stressed that they are not buying distressed assets by the minute since there is still a big bid-ask gap and, while the price of assets in some places is going down by the day, the cost of capital isn't. Charalambides added, "The lower (or in some cases the non-) availability of debt significantly decreases potential equity IRRs and hence it is even more important now to buy assets at the best possible price."

Cristina Badenes, Research Director at Meridia Capital, said "Financing is most difficult to get in new build developments; in today's markets, the quality of the sponsor, a good location and a well established brand become key issues when trying to get financing." Stephane Obadia, Director Acquisitions Algonquin Asset Management, mentioned that "Today it is very difficult to properly value assets since there is so much uncertainty and we don't know how much the credit crunch has really affected the economy, what is the real future impact on assets and how long the downward cycle will last."

So while these Private Equity firms are at an advantage, they are not immune to the uncertainty and increasing cost of capital which is today's dominating theme. However, as time passes, those assets with a high debt/equity ratio will become more distressed and prices will drop thereby leading to more hotel transactions and a slow thawing of the economy. It is hard to predict when this price realignment will happen and in some markets it will happen sooner than in others. There are already a few transactions happening, however according to most, the bulk of transactions will start materializing towards the beginning of next year. To some extent, there will be a change of ownership in the hospitality industry and typically, change creates employment opportunities. There is talk worldwide about opportunistic funds being set up in order to buy distressed assets, but most are still holding back waiting for bargains. This will create a number of small entrepreneurial companies which will be looking for experienced developers as well as operators who understand the hospitality industry.

Even if this is a global recession and no one is untouched, it is not all doom and gloom. Emerging continents such as Africa and Latin America, where there is in most countries very little or no hotel debt financing, still have a positive outlook. Vincent Joyner, CEO Accor Southern Africa, mentioned, "People still want to invest in Africa since the hotel infrastructure here is often weak and investors take a long term view when developing in the region. Banks are still lending money even if at a slightly higher rate. At this stage, we are still forecasting increases in RevPARS for next year; Africa has good growth prospects in certain areas and overall it is in the best state it has been in the last 50 years."

Having attended the recent HVS South American Investment Forum in Buenos Aires, it was clear Latin America continues to develop and there are many employment opportunities. Graciana Garcia Iribarne, Managing Director HVS Buenos Aires said:

"This is actually the first time Latin America has not been affected directly by a crisis in North America. However, Latin America is affected by other internal factors which affect the bottom line. In Argentina, there is a real inflation of about 30% and because of the credit crunch, hotel rates cannot increase by 20% as initially planned in order to compensate the increased costs. Brazil on the other hand is suffering from the decrease of the Real to the US Dollar and the decreasing oil prices. Leading Hotels in the World said that they are not feeling the crisis in terms of their ADR's in the region, but in terms of their GOP's because of increased costs.

The problems in Latin America are the same as usual. In this region unfortunately we are used to ups and downs, and we do not panic as in North America and Europe. In Argentina, we lived this crisis in 2001, everyone removed their money because of panic and this made matters worst. We learnt our lesson and this is why now there is zero leverage and we are not as affected."

In the Middle East, which has recently learned from the mistakes in North America and Europe, it is becoming increasingly difficult to get credit from banks that are now lending money only to AAA listed companies. However, since staffing has always been the dominant problem in Dubai, job seekers have not felt a decline in employment opportunities. In fact, Dubai should take advantage of these times to streamline their businesses, develop their people and snap talent.

There are definitive signs that the employment market is changing. There will be changes in ownership, we might see the emergence of more small entrepreneurial opportunistic funds, and it seems as if the emerging markets are those that will live better through the current global crisis and offer more opportunities. However, these past weeks have been a reminder that life is full of surprises so who knows what the future will bring.

Looking at the bright side, the tourism industry is the fastest growing industry and it will always offer employment opportunities globally. Even if there is a recession, people will not stop traveling all together. A market adjustment was bound to happen, and these corrections are positive even if this crisis was a major slap in the face. In a period of crisis, great leadership is more important than ever. Those leaders who focus on streamlining and developing their business, investing in their internal talent as well as keeping an eye for opportunities will not only survive the turmoil, but will come out stronger.

About Lorenza Alessie
Lorenza Alessie is Associate Director of HVS Executive Search in London. Lorenza joined HVS Executive Search from an international recruitment company where she held the position of Director focusing on appointments in the hospitality sector. A graduate in Hospitality Management from the Ecole hôtelière de Lausanne, Switzerland, Lorenza is Dutch and Italian by nationality and fluent in Italian, Spanish and French. www.hvs.com