Hotel focus: Five-star chains react to the recession

8 Jun 2009 by Mark Caswell

The recession has been particularly brutal for five-star hotel brands. Heavily reliant on high spending business travellers, they have been hit by the financial crisis as bankers and the investment community has severely curtailed their travels and high end meetings have been reduced. In addition, public and governmental pressure around the world has meant that corporations are wary about using five-star hotel brands. In recent interviews with both Four Seasons and Ritz-Carlton, it’s clear that both brands have thought deeply not only about the current situation, but where they will be in several years time. The message from both is clear: “We represent value for money”.

Christopher Norton is regional vice president and general manager of the Four Seasons Paris, George V. He says that Four Seasons hotels will not be discounting to “chase after the market and try and buy market share".

"It’s important that you manage your business differently, and you have to be smarter, and that’s healthy", says Norton. "But it would be a mistake to try and reposition the hotel. You can’t discount your way out of a recession. You win by holding rate and providing value, whatever the value is to your customer.”

For Norton, the message is clear, “Hotels like ours are part of your tool set. And like anything else, when you buy something, you buy the best that you can. A hotel is no different. As long as you believe that this is the best, and you can afford it, it represents value.

It’s a sentiment that Simon Cooper, president of Ritz-Carlton would agree with.

"You can’t stimulate business travel, you can stimulate leisure.... In times like this, you do two things. Firstly you try and replace the rooms that the business travellers are not occupying. A lot of our gateway cities are also leisure destinations. So for example we’ve partnered with Aer Lingus for our property at Powerscourt. They have seats coming in from America that aren’t filled, so we can offer a great package, and where we might have had business groups at the hotel, we are seeing a lot of success replacing that. Whether it’s Dublin or Moscow, Beijing or Shanghai, these destinations still have leisure travel.

"The other thing is that you have to be as smart as you can with your operations. If you have multiple restaurants you have to rotate them. [But] you have to be very careful; you can’t alter the quality of the basic experience. Even if your traveller is spending 100 or 200 dollars a night less, they’re not expecting the experience to be any different from what they have had before..."

What worries the five-star brands is that there may be a change in people’s perceptions of five-star hotels. Put bluntly, if the last five years were about conspicuous consumption, will the next five be concerned with being inconspicuous?

"I’d like to think we aren’t about conspicuous consumption,” says Cooper “We’ve spent a lot of time in the last few years moving away from traditional luxury to a more relaxed environment. [But] there’s no doubt that people are less willing to display their wealth right now. This is a very chilling economic crisis that has hit everybody and it’s less appropriate to be overt in your expenditures. On the other hand people aren’t changing what they want on a vacation or travel experience. So to a degree it’s 'How do I stay below the radar?'. Corporations have to be careful, but in the end if they are going to have a successful meeting, they have to hold it in a hotel that people want to go to. If they want to recognise their best performers, they can’t do it at brand X. So I think people are going to be more purposeful, that’s the key word I would use. If you argued that last year you could buy whatever you wanted, and this year you’ll buy whatever you need, it has to be about value, return on investment, there has to be a rationalisation for the expenditure. It’s as much of an internal sale as it is an external.”

For Christopher Norton at Four Seasons, it’s about evaluating the whole package: “Luxury is something that has value and is meaningful to consumers, and it is also subjective. What I see in our hotels are two segments which behave very differently. One segment travels on an expense account and has to justify its travel, and it is more cautious, but if they are used to the best, whether restaurants, hotels or the way they fly, and it is justifiable, they continue coming. The other is the leisure segment or the segment that doesn’t have to justify, and they are coming anyway.”

For travellers such as this, Norton argues that downgrading the hotel is a false economy. “You have to really think twice in the overall scheme of things how much will you save a night. You don’t just pay for the room, you pay for things that have no price. How much is it worth to have a great concierge service where they can do a million things for you during your stay and they are efficient and fast and they get it done. A good hotel is an amazing tool to be more efficient, effective, rested, better fed and less stressed, and that is worth the extra money.”

Typically, five-star brands do not have a loyalty-based points programme, arguing that high end travellers aren’t interested in collecting them. Would introducing the programme help convince people to travel and stay at the five star chains now? Neither brand think so. David Crowl is vice president sales and marketing of Four Seasons EMEA.

“We have discussed points and rewards a lot, but anyone who is into this say they would get out of it. The admin burden is enormous, and you set up such expectations. So if you have an automatic upgrade based on availability, and it doesn’t happen, the customer is upset. Instead we try very hard to take care of people one by one. For you an upgrade might not be relevant, but I might know you always arrive early and so I’d try and arrange for the room to be ready early, and we spend a lot of time sorting those things out.”

For Simon Cooper, there are several negatives to the process. "The tricky thing is that once you’ve crossed that line you can’t take it back. And we are trying to do everything we can to stay this side of the line. When we ask luxury travellers what they think is going to be critical for them in terms of hotels, loyalty programmes are still relatively low down. I think part of that is that nearly every business traveller with us is using a card that gives him or her loyalty points. Unlike our parent company [Marriott] where Visa is number one, with us by far our largest card of preference is American Express, and anyone using that is getting points in the AMEX Membership Rewards programme. So we haven’t gone there, and to answer it directly, “Would it help?” Yes, it possibly would. I’d have to be careful, because you’ve got to look at it incrementally, how many people would it bring in, and what percentage of my current guests are member of my parent’s loyalty programme [Marriott Rewards], because that would be cannibalisation."

So for leisure travellers, there are competitive prices, but generally, discounting is something the brands say they are not considering.

David Crowl: “It’s a gutsy move to hold rates, and you can only do it if you are really secure in what you produce. Cutting rate has a huge impact on your profitability, so then the next big move is to cut my expenses because I have to protect my profitability. Then the customer comes in with the same expectation, even if they are paying 20 per cent less, and you multiply this by all the rooms every day, and then they want a sandwich at one in the morning, and we don’t send out their clothes for pressing because we don’t do that anymore. And stopping investing in the physical property has a devastating impact in the long run.

Simon Cooper, while expressing the hope that "we’re close to hitting the bottom" of the recession, says that "from an hotelier’s point of view, the next 18 months leisure travel is going to be the primary area that we are going to focus on. Business travel demand is stimulated when people are investing money on projects, meeting on projects, inspecting, negotiating, launching, and that positive investment just isn’t occurring. And a lot of the stimulus in the US is arguably about retaining jobs in current industries rather than creating new ones. So I still think it’s going to be a long haul and the strong brands with the discipline and the willingness on the one hand to demonstrate flexibility in their cost structure, and on the other hand not losing the integrity of the brand, those will be the ones that prevail."

As far as Cooper is concerned, this is bad news for the industry, but good news for travellers.

“Rates will continue to be very attractive because I don’t see pricing power returning to hotels or airlines in gateway locations for some time, at least 18 months of very attractive travel for those who want to travel. The opportunities are terrific, the value is great and that will be there for a while.


Tom Otley

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