It's been a difficult period for hotels, with many seeing their corporate business and meetings falling off a cliff sometime in 2007-8. Tom Otley finds out how the chains coped, what lessons they have learned and how they see the future
THE DOWNTURN
THE RECESSION, when it arrived, took many hoteliers by surprise, and the big chains were as vulnerable as everyone else.
"It was something we had not expected. In any economic downturn you drop and then you bounce back, but this has been a very challenging two years. In 2008 we dropped about 11 per cent RevPAR [revenue per available room] and 2009 around 14 per cent, so, all in all, we were 25 per cent down. One of the sectors we always did very well in was the financial sector, and that business almost completely disappeared in 2008 and 2009."
Herve Hummler,
CEO and president, Ritz-Carlton
FOR CHAINS WITH A concentration in a particular region, such as Jumeirah and its properties in Dubai, the downturn was particularly pronounced.
"Viewed over the last few years, overall we were somewhere around 30 per cent down, but the RevPAR combination is driven by the average rate rather than the occupancy. So, sure, we've adjusted our price ranges to reflect the market conditions, but we have come off a massive peak. The rates that we are achieving now are very customer-friendly, particularly in the business traveller segment, and we certainly haven't reduced our service levels."
Gerald Lawless,
executive chairman, Jumeirah Group
IN MANY MARKETS, such as Dubai and India, the reduction in prices was as much because of over-supply of rooms as it was because of falling demand, even in regions that continued to grow.
"Last year was difficult for many hotel brands in India, though perhaps not as difficult as it was elsewhere in the world. The supply was planned when the world economy was on the up, and all the supply came in just at the wrong time, which has impacted the hotel groups' revenue. We have been affected less. We have strong domestic demand, and we get a lot of domestic food and beverage revenue. It could be 55 per cent or 60 per cent of the revenue in some hotels, including the meetings business."
Vijay Dewan,
managing director, Park Hotels India
THE EFFECTS ON hotel chains obviously differed from region to region, not only worldwide, but even within the UK. For Malmaison and Hotel du Vin, certain properties performed strongly during the downturn, while others found it more difficult.
"Aberdeen is in its own micro-climate and is booming but, aside from that, for provincial UK - for example Henley, Tunbridge Wells, York and Harrogate - we have seen gentle growth. Where we are still seeing difficulties is on the M62 corridor - Manchester, Liverpool and Leeds. Those are the three cities where we have been hardest hit. In Manchester it was over-supply just as things were going wrong, coupled with a rate war, with the big boys dumping rates. Funnily enough, Manchester has had difficult times on rooms but has had a very strong time on food and beverage, which has grown 12 per cent during the downturn."
Robert Cook,
CEO, Malmaison and Hotel du Vin
THE RECOVERY
FOR NEARLY 12 MONTHS now, hoteliers have been seeing a recovery from the lows of 2009.
"Industry forecasts on RevPAR look quite positive. When I hear people saying the prices are not so good, I say we have to get used to these prices - you see it in all downturns. At first you have occupancy that goes down, and if you look at 2008, everyone was thinking they would lose their shirts. We still had good rates and a RevPAR growth but occupancies were going down. As we have always seen in downturns, occupancy goes down, and then rates, and, with the upturn, occupancy improves - but prices are the same as last year."
Kurt Ritter,
CEO, Rezidor
THE IMPROVING SITUATION became more apparent as the year progressed.
"2010 was much, much better than we expected. I have to qualify that because we had a lot of inventory out the previous year because we were refurbishing, so quite naturally when you take rooms out and bring them in again, hopefully you've done a good job and you want to see some benefit - and I think we have. So in markets where we lost market share, we certainly very rapidly regained the share again. London came back very quickly in 2010, [but] what really took us aback was how quickly we found our footing again in our regional properties."
Heiko Figge,
managing director, Thistle Hotels and Guoman Hotels
FOR GROUPS WHICH depended on more leisure travel for the mix, again the effect was different.
"If you look at what has happened in the last two years, Europe got decimated. The currency, on top of everything else, didn't help. South America, and Russia to a certain extent, made the difference for us. A third of our EBITDA [earnings before interest, taxes, depreciation, and amortization] came from those two regions. Now I think Europe will come back."
Paul White,
president and CEO, Orient-Express Hotels & Resorts
THE FUTURE
FOLLOWING LAST YEAR'S upturn, hoteliers are expressing an increasing optimism for the immediate future.
"I'm very positive for 2011. We had a very good 2010, Germany had a very good 2010 and occupancy was up - 2011 looks great and I am quite confident that this will continue. Germany came out of the crisis very well, and Germans spend money when they are on holiday, so for 2011 the growth is positive. It's very sustainable right now."
Arco Buijs,
CEO, Steigenberger Hotels
"I am very optimistic about the future. The worrying thing about the crisis is no one saw it coming, but the one thing we learned was that things do rebound, and people rebound - people are very resilient. I believe some corrections were needed, but the future is very promising."
Rakesh Sarna,
resorts chief operating officer - international, Hyatt Hotels
ONE OF THE INTERESTING things is that hotel brands are once more expanding, not only in India and China, but also in Europe.
"In 2009 we announced we would grow our room count in Europe from 40,000 to 80,000 by the end of 2015. We are about a quarter of the way to that goal now, largely as a result of the deal with AC Hotels, which adds 9,100 rooms. We have around another 10,000 rooms in the pipeline already confirmed and so, if we can achieve on average 8,000 extra rooms per year, we will be on target. Those totals also include Ritz-Carlton hotels as well as Bulgari."
Belinda Pote,
chief sales and marketing officer (Europe), Marriott
"At the moment we are in Germany, Austria and Switzerland. There is still room for growth -we have 12 hotels, all new builds, [opening] in these countries in the next two years. The challenge is to bring the whole machine outside Germany. I like to compare it with the German car industry, which is very successful at exporting its cars, and people pay more for them than other cars, and so it would be good to export a German hotel brand. We should also look at destinations that are attractive to German-speaking markets. In the UK we look to see if maybe we can partner up with a small hotel company, or buy one. We see a lot of opportunities."
Arco Buijs,
CEO, Steigenberger Hotels
"We actually ended 2010 pretty well, I think, from where we started. We are cautiously optimistic. We are seeing good demand in the summer for gateway cities in Europe like London, Berlin, Paris and Amsterdam. We are seeing corporate demand coming back and there's not a lot of new supply coming into those cities, but there is new supply coming into Moscow - it's an up and down market. Germany is doing well because last year we had the reduction in VAT. The weekend is where we might see some softening, particularly in the UK. We are seeing an increase in rates midweek - it's something we have focused on, and our revenues are up as well."
Belinda Pote,
chief sales and marketing officer (Europe), Marriott
"We are concentrating on emerging markets. We have 36 hotels in operation or in the pipeline in Africa. We see a lot of opportunities in Africa, but the headache is it takes ages to do projects - Lagos has taken seven years. In Africa you have inventory with foreign hotels but in Russia it is about demand. In Moscow you could charge anything but it is not sustainable as there has been a lot of supply there, but also a lot was taken out as well. We have a pole position in Russia, and it helped to be the first in there." Kurt Ritter,
CEO, Rezidor
INTERNET COST
ONE OF THE MOST CONSISTENT COMPLAINTS business travellers and travel managers make is the cost of internet access in hotels. Some chains don't charge, or at least include the charge in the room price, while others charge up to £25 for 24-hours' access. So how do hoteliers justify the charges?
"It's something we get a lot of feedback on and we've looked at different options. Consistency around the globe is important to us, so it would have to be one offering for all the hotels of that one brand. There's a significant difference when you look at the focused service brands and the full service, and that material difference is bandwidth. The cost of bandwidth across the world has got pretty expensive, and the bandwidth requirements in a full service or luxury hotel is far greater than it is in a focused service. It's a real cost to the business and it's not as though we're making lots of money on selling internet access in our full service or luxury service hotels. It's not to say it won't change to a different model, though - we are exploring options around different bandwidth requirements."
Chris Nasseta,
CEO and president, Hilton Worldwide
"Charges for internet are disappearing. We have one or two left charging but that will end. Paying for wifishould be an absolute no-no. It's like having to put a coin in the shower before you can use it. Maybe in a budget hotel, but not in an Orient-Express."
Paul White,
CEO and president, Orient-Express Hotels & Resorts
"Our approach is to charge. Most of our hotels have a basic service if you want to check your email, and a premium one which allows multimedia, and music and movie downloads. In addition, we provide on-site tech support to our hotel guests. You're not just getting access to a feed like you would in a coffee shop - it is a very high speed that allows you to do all the work you need to do just as though you were in your office. And it takes a huge amount of capital investment to continue to expand the pipe into the hotel. We do offer complimentary internet access in all business centres, so if someone just needs to send an email they can do that."
Katie Taylor,
CEO, Four Seasons Hotels and Resorts
"In the future internet will be free - the question is when. We all made contracts with providers, which we pay for and we get a commission on the sale of the internet, which has been going on for six or seven years. Once contracts can be renewed we will think of giving it free of charge, but then it will be included in the room rate. For some of our hotels it is already free."
Arco Buijs,
CEO, Steigenberger Hotels
"We don't have free wi-fi across Marriott branded properties. We charge for wifiaccess in the rooms but are looking to standardise charging across the brands."
Belinda Pote,
chief sales and marketing officer (Europe), Marriott