Hotel brands face obstacles scaling back in Russia, Hyatt CEO says

Jun 8, 2022

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Major Western hotel companies like Marriott, Hilton, Hyatt, IHG Hotels & Resorts and Accor garnered scrutiny earlier this year for maintaining a presence in Russia following its invasion of Ukraine.

Other companies like McDonald’s and Starbucks pulled out fairly quickly from Russia in light of mounting pressure to do so. Hotel companies eventually moved in lockstep earlier this year in closing corporate offices and suspending investments, planned openings and development in the country. Existing hotels remained in operation due to long-term franchise agreements between the brands and local owners of those individual properties.

But more than three months into the invasion and after several waves of sanctions on Russia, Marriott International is suspending all its operations in the country. The plan comes after Hyatt severed ties to various degrees at its hotels in the region and other companies indicated they might be exploring similar moves — but any such plan is a “complicated process,” according to an IHG announcement earlier this year.

Hyatt’s plan involved terminating or “suspending the provision of services to the third-party owners” of all Hyatt properties in Russia, according to a company release last month. But third-party owners may continue to operate the hotels in Russia under Hyatt branding, a company spokesperson told TPG following the initial publication of this story.

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Hotels often have third-party franchise or management agreements and, should those deals get canceled, it’s entirely likely the owner would continue to operate the hotel under existing branding and just no longer pay the fees associated with its former operations deal.

But Hyatt CEO Mark Hoplamazian noted during the NYU Hospitality Conference this week there is also a human element that makes it difficult to wind down an operation in Russia.

“We have to take great care of how you go about organizing that because there’s a lot of scrutiny,” Hoplamazian said. “The Russian government is applying a lot of scrutiny to how Western companies are behaving in Russia.”

There was an iota of defense in favor of hotel companies amid all the initial criticism, as the properties could provide some glimmer of Western influence in Russia.

InterContinental’s first location in Brazil arrived from the encouragement of U.S. President Franklin D. Roosevelt. The American leader wanted Pan Am founder Juan Trippe to build a network of business-oriented hotels with the idea the luxurious chain would be a symbol of American wealth and lifestyle and deter certain parts of the world from slipping into communism.

But sanctions levied on Russia and many of its wealthy oligarchs this year make doing business in the country impractical and even illegal in certain instances.

“We’ve worked really hard with our owners,” Hoplamazian said. “Of course, in the context of where there were specific sanctions, you’re complying with law.”

Marriott made a similar overture in its own decision to step back from Russia after doing business there for 25 years.

“Since the start of the war, we have remained in regular contact with our teams on the ground as we continued to evaluate our ability to operate in this changing legal and geopolitical landscape,” the company announced earlier this month. “We have come to the view that newly announced U.S., U.K. and EU restrictions will make it impossible for Marriott to continue to operate or franchise hotels in the Russian market.”

But leaving Russia isn’t just a matter of taking signs down, turning lights off and calling it a day.

Employees on the ground in Russia assisting a company’s decision to leave can be seen as a move against the government. Most companies aren’t giving details as to what exactly goes into the process of winding down operations apart from repeated use of the word “complex” in updates on Russia.

“What’s missing in some of the public discourse about the criticism of Western companies doing business in Russia is that there’s a human aspect to it that people are not talking about,” Hoplamazian said.

Featured image by yulenochekk/Getty Images.

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