Frits van Paasschen, CEO, Starwood Hotels & Resorts Worldwide
You are opening your 1,000th hotel this year in the midst of a global recession. It signifies the coming of age of Starwood as a truly global hospitality leader. In fact by the end of this year, more than half of our 1,000 hotels will be in markets outside of the United States.
Opening any new hotels in this environment is no small feat – and we are opening 80-100 this year alone.
Starwood is building, opening, renovating and innovating for the recovery and beyond, and these new hotels will further position Starwood and its development partners for long-term growth and success.
Does the government listen more to the hotel industry? The travel and tourism industry needs to do a better job of educating the public sector on the powerful global financial impact of our industry, and the devastating ramifications to the economy when we’re crippled.
Ours is often perceived as a “soft” industry and, historically, it is not until it is too late that the crucial contribution of the travel and tourism industry is recognised.
To understand the impact of the travel and tourism industry, let’s take a look at the numbers. In 2008 T&T accounted for nearly 240 million jobs around the globe, or one in every 12 jobs.
The contribution of travel and tourism to GDP was 9.9% in 2008, and the expectation has been that that in the next 10 years, this will rise to more than 10%.
Importantly, our industry is a critical “first job” for most of our employees and an important source of training for future development both within and outside the industry. When we eliminate jobs, just as we did in the US after 9/11, when our industry eliminated 25% of our workforce, we knocked some of the most vulnerable people out of the workforce – a group that had become part of the global economic engine with real career opportunities, overnight became a drag on the economy.
It is essential that T&T be part of global stimulus programmes. As the industry workforce becomes unemployed, stops consuming and spending, and worse, becomes dependent on government, it deepens the recession.
Simply put, it is essential that we bring these workers back into the workforce to stimulate the economy.
Has there been one person who has shown outstanding leadership during the economic crisis? There is not one person in particular that I would single out.
I think hotel leaders across the board have realised the critical nature of the challenges we all face together and have mobilised to take immediate and bold action to protect our people and our industry. In that spirit, Starwood has partnered with our industry peers to fight the villainisation of travel that is taking place in the US in government and in the media.
Specifically we have worked closely with the US Travel Association in a grassroots campaign to lobby policy makers, change the tone of the media coverage and engage our associates. As part of our efforts, 12 leading industry CEOs wrote a letter to Capitol Hill and met with President Obama for a roundtable at the White House.
This crucial meeting resulted in a statement issued on behalf of the president that encouraged people to travel.
Now that the government is no longer demonising travel and it’s safe to get back in the water, I say let’s go swimming. It’s time for business to get back out there and resume commerce – do deals, meet clients, make sales and incentivise associates.
When companies do this, there’s a multiplier effect that ripples throughout the economy.
How well has the US Government handled this crisis? After 9/11, the government recognised and appreciated the need to take immediate action to stimulate and incentivise travel.
Unfortunately today, the vitality of our business and, critically, the volume of people we employ and the make-up of our workforce, have gone largely unrecognised.
For instance we advocated a travel tax credit or enhanced deductibility of travel that would incentivise companies to return to the road, enhance their bottom line and stimulate businesses that travel as they resume commerce, make sales, do deals, generate new business and essentially do what they do in a vital economy.
Unfortunately travel and tourism are seen by policymakers as too much of a luxury, and this important legislation would never pass in the current climate.
Call it the AIG [American International Group] effect but, in addition to companies just cutting back on travel as part of cost containment efforts, we’re also seeing them cancel meetings, sales incentive programs and day-to-day business travel because all of a sudden travel seems irresponsible or at least unseemly. Our industry needs to combat the villainisation of travel.
We need to fight the perception that travel is some sort of perk, and instead position travel as a critical business tool, and an activity that helps sustain and support millions of employees who fuel our global economic engines.
In that context my colleagues in the US are working to pass or incorporate into the broader stimulus package the Travel Promotion Act, which would create a public-private travel promotion board that essentially fills the role of national tourism offices in many countries. The fact is that the US spends zero dollars on travel promotion and we certainly don’t make it easy for people to travel to the States.
Our industry needs to work with Homeland Security on measures that would ensure security without deterring tourism.
How has the economic crisis affected your development pipeline? By staying focused on working with the right partners on the right properties in the right places we can continue to expand our portfolio through the highest quality hotels everywhere our guests want to travel.
With the hotels that will open this year – along with our quality pipeline that has sites under control and solid equity in place – we are on track to grow our portfolio by 40% by 2011.
While these are challenging economic times, we still see long-term growth opportunities for each of our nine brands. For example development partners who own land and want to build a W can still do so.
The deals may take longer to structure but they can still move forward. In fact we have nearly 30 W hotels open and plans to double the footprint over the next three years.
It is more feasible to get smaller rather than larger loans now, which provides more opportunity for growth in select serve brands – Aloft, Element and Four Points by Sheraton. And Four Points by Sheraton will open more than 20 new hotels in 11 countries.
These two brands open up opportunities for us to solidify our presence in markets not served by our upper-upscale and luxury full-service brands.
So there are opportunities for brands, but where? Strong brands have never been more important and Starwood is uniquely positioned within the industry by our nine distinctive and compelling brands, which complement rather than compete with each other.
Last year we launched two new brands – Aloft and Element – that were developed to meet the demands of a new consumer where there was no existing product. We’ve built tremendous momentum with those brands.
We have already opened in three countries, including China. These new brands have earned guest satisfaction scores typically reserved for our luxury brands.
And we will double the portfolio this year with more than 20 hotels, including our first Aloft in the Middle East. In 2005, we made a strategic decision to acquire the Le Méridien brand, which gave us access to key new markets around the world.
That brand was the right fit for us based on our existing portfolio and our long-term vision for growth.
In a new age of austerity, how do you keep luxury brands like W relevant? There is still a place for each of our brands now and in the long term.
Each of our luxury brands has a legacy of delivering on consumer needs and has made it through the other side of previous down cycles, emerging stronger than before. W, as an example, launched prior to 9/11 as a New York-centric brand.
Today it is poised to become a global powerhouse with plans to triple its portfolio to more than 60 hotels by 2011. St Regis was founded more than a century ago and has survived the Great Depression, world wars and 9/11.
From its roots as a single hotel in NYC, the brand is now on track to double its presence of 14 existing hotels at the best addresses in the world. We are building these brands for the long term, with a view of 20, 30, and 40 years down the road.
Which current and future markets are you most excited by? Central and Eastern Europe is a key region, and particularly strong markets include Russia, Ukraine and other economies in Eastern Europe like the Czech Republic and Hungary. We have 35 projects in development in these territories.
The Middle East and North Africa also offer exciting growth opportunities, with multiple signings in Saudi Arabia, the United Arab Emirates, Libya, Madagascar and Mauritius in 2008 across all Starwood brands. At the same time we continue to expand opportunistically in established, high-profile destinations such as London, Paris, Barcelona and Milan.
While there has been some slowdown, the long-term growth opportunity for Starwood in Asia Pacific is perhaps unsurpassed anywhere in the world. We have more than 100 hotels in the Asia Pacific pipeline, and much of that growth is driven by China, where we expect to double our portfolio by 2011 with 50 new hotels in development.
Has your strategic focus shifted completely east? I look back over the past few decades at the transformation in places like China, India, and Vietnam, and I’m struck both by how far they’ve come economically and by how much more potential they have.
While all three of these countries represent strong opportunities for long-term growth, further establishing our presence in China is especially vital. By 2020, China will generate more than 100 million outbound trips a year, making it one of the largest origins of outbound travel in the world.
As the Chinese travel abroad, they will look for brands they know, and therefore Starwood’s development in China today has significant implications for our hotels worldwide. Today we are the largest operator of upscale hotels in China, and this is a position we intend to maintain with a robust and exciting pipeline of new hotels.
Interestingly, China is now home to the largest number of Starwood hotels outside of North America, and it has the largest pipeline of new hotels outside of the United States. As a point of perspective, within two years we expect to have a presence in Shanghai that rivals our existing footprint in New York City, where we have more than a dozen hotels and growing.
Who are going to be the winners from this period? Who are going to be the losers? Starwood will make it to the other side of this crisis. It is not entirely clear to me that other companies and brands within our space will – we are talking survival of the fittest.
We are hunkered down, aggressively managing what we can control – costs, capital and taking care of our guests – and we will weather this storm. Starwood took fast and early action to address the economy, well before last fall’s banking meltdown, to cut costs, drastically scale back on capital spending and reduce corporate overhead, property level operations and procurement costs.
And we are working with our development partners to ensure our key learnings and best practices are shared throughout the system to impact hotel level performance. In addition our asset light strategy, in which we have significantly reduced our investments in owned real estate in favour of management and franchise agreements, lessens our exposure and protects us at times like these.
Strong brands are never more valuable than when times get tough. The same can be said for loyalty programmes, and Starwood Preferred Guest is best-in-class.
What I think is important to note is that despite dramatic cost cuts, guest satisfaction scores across all of our brands have never been higher.
From a macro-perspective, the same factors that attracted me to this business will be at least as relevant – the inexorable forces of globalisation, emerging middle class, and demand for infrastructure. Starwood, with the most global footprint in the hotel industry, is uniquely well positioned to take advantage of these trends.
What’s more, today’s crisis is creating tomorrow’s demand in all sectors of our economy. New houses being built are below the level of population growth, today’s dismal level of new car purchases assumes a 27-year lifespan on automobiles, and people are actually saving money again.
Closer to home, today’s reduced travel budgets, cancelled meetings, and “staycations” are tomorrow’s pent-up demand. And Starwood will be ready.
When the turnaround happens, we will be in the position to once again leverage our great brands, our unique properties, and our truly global organisation to make the most of our opportunity.
Andy Coslett, CEO, InterContinental Hotels Group
What gives you cause for optimism? We work in an industry that has long-running strong, sustainable growth prospects.
It has taken the worst economic situation in history to stop it temporarily. But the growth drivers for the future are so entrenched that the moment we get back to normality, we will see a return to the growth in traffic and travel that we have come to expect.
I don’t think anything is going to stop that. World population is rising.
We will see many more people travelling – and living longer. I think we have strategic advantages in our company that play well into the future.
Obviously you have to be very realistic at the moment about what is going on. We are giving all our attention to helping our owners and partners through a challenging time.
Is everything going to plan? The uncertainty is the only thing that unnerves me.
What is stopping everybody is uncertainty, and that has to be sorted out. People can deal with good news and bad news – what they can’t deal with is uncertainty, and I think that is the same with markets and businesses.
How impressed have you been by political leadership in the crisis? As a businessman and as a member of a society, I’m very appreciative of what they are doing.
I think it’s very easy to knock leaders but actually we are all in uncharted waters and they have just got on with doing things, which has been hugely impressive. It’s not easy for politicians to get involved in some of the darker recesses of economic and financial instruments.
It would be nice if they could do it in a more concerted and coordinated way, though.
Who will emerge stronger from this crisis? The businesses that have the strength to deal with this and to continue to drive revenue use their scale.
In business, scale is a wonderful thing. In a downturn you can really make that work for you. I think the big companies will weather the storm well.
Where you wouldn’t want to be at the moment is on your own, independent, with no support. I think that is going to be a very tough place to be for some time.
It’s a lonely place when you are on your own and not part of a group. But if you are in the shelter of a big brand system that is continuing to drive guests to your hotel and can help manage your cost burden, you are part of an army.
IHG refinanced its business last year. We are in a good place because of our liquidity situation.
The first thing you do in business is secure your own base and then you can help others.
Are more people interested in joining your brands? We are having lots of conversations, which I think will convert into action in the future.
For people who have built up an independent chain or a small group of their own, it’s quite challenging to think about moving into a branded system that has a different set of demands, rules and regulations.
Are you reassessing your development strategy? We are continuing to invest in the things that will drive revenue share in the future.
This is a moment for a company like ours to see how it can consolidate its position. We have been investing in our global sales capability so we can actually talk to global corporate accounts today, not in the future.
Right now we need to be saying: “Have you have seen what we are doing with Holiday Inn and our position in midscale? If you want your executives to spend less money on corporate travel, now is the time to talk to us.”
We are investing in the things that we know are the underlying long-term drivers of customer preference and loyalty, and finding other places to cut costs internally; but as much as possible not touching the customer. We are spending a lot more time in dialogue with our owners about what we can do to help them today.
Our strategy remains consistent. Your strategy shouldn’t change unless it is wrong.
A strategy should be able to deal with the rough and the smooth if it is any good.
We are opening more than 400 hotels this year, which is more than one a day, and will create 25,000 jobs. Our pipeline is huge.
It’s twice as big as anyone else’s, with a quarter of a million rooms. You always lose some deals but we don’t see huge attrition.
We usually run south of 10% per annum. Within that range I wouldn’t be surprised if it went up a bit as the banks remain shut.
They need to get moving again and remove that uncertainty. There are 85,000 rooms under construction so we are busy.
When will there be an upturn? We will see a lot of turns of the wheel yet, and they are going to surprise us.
But at some point we will know that we have cleared out the bottom of the barrel in terms of toxic debt and bad loans, and we will know what we are dealing with. I think at that point the light will start to shine through and we will start to move.
It is like being at war. We are going to have put the whole national effort and economy into gear to support our societies and economies.
Our job is to get the very best out of our existing system. We have 4,000 hotels in our system and a growth strategy.
But that strategy has two aspects. It is not just adding rooms; it’s growing the market share of revenues that our existing system takes from the industry.
Where do the opportunities lie at this point? You have to look at providing products that are ringing bells with guests right now.
You need to hit the sweet spots that drive good economic returns, and chime with a guest’s changing view of the world and what they want. I don’t think this is necessarily the time to be launching very exclusive upscale brands because people are more conscious not just of the spending but also the conspicuousness of how they are spending their money.
The brands that will do pretty well over the next year or two are those that are conservative, like Indigo. It ticks a lot of boxes and is designed around a cost model that enables owners to make good returns because of its rates and operating costs.
It’s able to be a small hotel. Many of our brands do not operate below 100 rooms.
Economically Indigo can, so we can go to smaller developers. Banks at the moment may lend you £5m but not £10m, and Indigo is not a massive investment.
You can make it into a big hotel or a small hotel. You can put it into different parts of the city, where you would not put a Holiday Inn or a Plaza.
It is very flexible and the owner can do a lot with it. We call it “Interpret Indigo”.
It’s a boutique brand. Each hotel is unique.
The other obvious area is midscale. To be relaunching Holiday Inn right now is lucky timing, and we are going to have thousands of new and lapsed visitors coming to the brand.
I think people will be surprised by what we have done.
Will a new age of austerity be ushered in? In the US some of the most luxurious brands are getting hammered the hardest because of a backlash against what is seen to be conspicuous consumption.
The luxury hotel business is not going to stop but people are going to be a lot more careful about when and how they use these properties.
Has the diversification of hotel brands become more important? I don’t think it makes a difference what the market is doing.
All markets segment into smaller units over time. With the first Ford, you could have any colour as long as it was black, had four wheels and a steering wheel.
We have come a long way since then and hotels are no different.
You will see smaller brands linked to a big brand system. We want to offer a spectrum of experience to different customers.
It makes it easier for the owners as well. In Asia we are signing deals where there is an InterContinental, a Holiday Inn and a Crowne Plaza.
Post recession, will the industry model change? Will a different way of doing business emerge?
I think we will probably see a reversion to what was the normal practice ten years ago before this unprecedented availability of cheap money. We had the party and now we have the hangover.
If you want a mortgage for a house you will have to put a 20% deposit down, as I did when I bought my first house.
The financial system worked well for half a century or more after these financial geniuses decided to do weird stuff and we are all paying the price. In the business model that operates now we focus on driving demand, revenue, top-line growth and security while other people work out how you play the real estate market and manage the property.
I think that separation is entirely right. I think that is how you maximise value in the industry.
I can’t think of anything that will stop that, because it is innately value enhancing that you have experts thinking about the customer and others thinking about the buildings. If you look at some of the most successful industries in the world, that is how they are configured.
In future some of the rules of engagement will be different. Deals will come more slowly.
There will be fewer marginal projects going through as owners will want more secure and guaranteed returns.
Kurt Ritter, president and CEO of Rezidor
How surprised were you and your contemporaries by the scale of the crisis? Ask this group of CEOs about the year ahead last November and I don’t think any of us would have talked then like we do today.
Even in December we were still quite philosophical: “We’ve been through tough times before and come through.” The first real drop was November.
The previous months may not have been like the good times a year earlier but there were some growth periods. November was difficult, December more so and January confirmed the worst.
Have events forced you to review your business model? We have kept our growth strategy, and opened 33 hotels and signed up more than 50 last year.
In certain emerging markets there are still a lot of opportunities to pursue.
We have changed in regards to being more asset-light, focusing on uncommitted contracts rather than committed like we did before. All groups now have this asset-light strategy in place but we were early appropriators of the practice through the 1998 strategic decision to manage rather than own hotels.
If you own and operate the same property, you will not be as hard to yourself as an owner pressing for returns might be; for an unsuccessful year you can find a million excuses. Being answerable to another power can be tough but the industry will be seeing far more of that model over the year ahead.
The first Missoni Hotels open this summer: was there a temptation to delay the rollout?
Changing the concept for Missoni would have been suicidal.
It would be foolish to say that this is the time I would have chosen, but sometimes events are beyond one’s control. It is a good segment to be in and we believe totally in the product.
Just because times are bad doesn’t mean you must put the brakes on innovation – of course it has to be affordable and one mustn’t go over the top. Some of my colleagues will say it is time for consolidation and making the most of what you already have.
That is true as well, but we must strive to move forward rather than stand still.
In that respect, are there still markets that excite you? I look at Africa and see two key points.
Firstly the inventory is very aged: 40 or 50-year-old hotels that have been exploited hard and offer a great opportunity for companies such as ours to enter the market with new properties. Secondly a lot of markets that were closed for many years have no foreign hotels.
We are already present in Angola and Rwanda. Look at Zambia, which has had very low tourism for years and is now experiencing an explosion.
It’s good to be in this market where there is major market share to be won.
We’re still rather new in Africa and it hasn’t been a decade since our first hotel on the continent. We now have 25 in operation and under development, with future openings in major cities including Lusaka, Lagos, Addis Ababa, Maputo and Dakar.
So even at time like this you can still see opportunity? Not that I want to play the masochist here and say I’m happy with the downturn, but I was saying to some of our area managers only yesterday that there are a lot of positives to be taken from events.
There are hotels that were doing well before and we were happy to simply leave them be. Now they’re benchmarked against sister hotels and tough questions are asked.
Why are there so many more employees but the same number of facilities and rooms? Why is that operation so much more industrious and profitable?
It adds different dimensions to the whole concept of performance. When we come out of the crisis – I don’t say “if” because I know we will – the overhaul of performance management will stand us in much better stead.
This is also a time for renovating existing properties. When you have high-season or high business volume it’s not so easy to remove rooms from your inventory.
One can become a little bit too greedy: “Why must I invest when people will still come regardless?” People may not have the cash flows like they did before, that’s the catch-22, but we had reserves in place for many of our properties and work is already underway.
Your inventory mustn’t lose its sparkle while waiting for business to pick up again. I appreciate that nobody likes spending money at times like this but you have to do it.
The alternative is running your hotel into ruin.
Are there any potential pitfalls that you’re particularly wary of? We are very careful about rate discipline.
There is that temptation to put an empty bed up for $50 because then at least the maid is paid. This is a very dangerous game and once you go down that route it’s very difficult to turn back.
I have seen other companies in markets where we’re operating go too far and too quickly. Perhaps it hasn’t been a corporate decision, it can be a single GM making the call, but the warning must come from on high.
It’s also a sickness in the hotel business that people will claim the rack rate on their property is $300, but you analyse the results and the average is only $120. It’s not serious business to have these big gaps in prices.
We had one case five or so years ago that woke us up to the danger and led to the declaration that there couldn’t be a gap of more than 30%. That has put us at a much better pricing level.
Of course I would be lying if I said we haven’t become a little bit more flexible. One hotel might take an airline and make an exception because of the business it will generate.
We haven’t tried to be more Catholic than the pope but it is a philosophy we try and stick to.
Will we see a very different hotel industry when the downturn is over? It’s a matter of survival of the fittest. The landscape, or should I say “brandscape”, will certainly change.
I don’t think there will be big purchases – nobody has the money – but we’ll see more mergers. Some companies will realise that together they’re stronger and there will be consolidation in that respect.
The big brands will be bigger.
Frank Fiskers, president and CEO of Scandic Hotels
Describe the mood at the Berlin Conference back in March. It was one of shellshock: we’d just had the horrible January and February numbers and were still digesting them.
There was also some denial. We can all suffer from this silly hotelier trait that whenever you’re asked how things are, they’re great.
That’s a hindrance to getting to some real discussions going.
It took another month or so for people to come to terms with events. Today there’s a different mood.
This thing is hitting all of us, in all markets and in all segments, the steepest decline we’ve seen in the industry’s history. It’s a big word, but there’s now some solidarity there, an understanding that we need to move forward together.
And how does your job as leader change? There are far tougher demands from various stakeholders: huge pressure on performance and communication.
Team members, owners, media, they all turn to you and demand answers; the requirement to communicate is constant. You also carry on doing what you normally do but under far more pressure and greater time constraints.
You still have to sell and save, but more than you did two years ago. It’s tough.
Balance is key. We’ve just had a management conference involving our top 200 people and the big trick was striking the right note between an honest appraisal of the markets and the need for conveying that this is something we can get through.
Without being too pompous, there’s a bit of Winston Churchill involved: we have to win this thing, but it will require blood, sweat and tears.
Does Scandic being so regionally focused help in any way? Generally the rule is that if you cover a huge geographical area like Andy and Fritz do, you can win here and lose there and in the end everything evens out.
This time it hasn’t played out like that; it sucks everywhere. Historically we’ve been partially shielded from the worst of economic storms, but I would say this time our markets are down 15% year on year.
We’re hit just as hard.
How has this affected your development pipeline? It’s two years since we were divested from Hilton. There wasn’t much growth before then so it’s only over the last 24 months or so that we’ve built up the pipeline.
Around 20 projects have been confirmed during that time. We’ve also had, like most hotel companies, our own share of projects collapsing simply because the financing for some of the more leveraged projects has dried up.
We saw in the heydays, particularly 2007, projects with 80-85% leverage. These are the projects where banks are at the highest risk and they’ve pulled the plug on many of them.
Has the change in ownership model post-Hilton made a difference? A big plus to being private equity-owned is the level of speed with which we work, particularly in regards to decision making.
That is a huge advantage at a time when events and markets can transform by the day.
We have done our cost cutting but I wouldn’t call it dramatic. Even under Hilton we’ve never been a fat company; we’re the IKEA of the hotel business.
There has been a fair share of cost efficiency matters and this is something we’ve been able to push through rapidly. The ownership model is part of that.
Our main focus has been finding savings that do not have a negative impact on services: back office, distribution, a lot of work on streamlining our supply chain, centralising a lot of our bookings into call centres.
Does a reputation as a “safe option” offer opportunities when times are bad? I had a view a couple of months ago – perhaps slightly less so today as people start to talk about “green shoots” – that if things really turned bad we could well enter a new age of austerity.
Look at the ’30s and what it did to that generation – my grandmother carried on penny pinching for 50 years.
Even if things aren’t so dramatic, I think there are opportunities. Customers are going for safe, solid, well-known brands.
There is clearly a buy down, which benefits a smart and well-dressed organisation like ours in the midmarket economy segment, and we are taking market share at the moment.
Companies have really tightened their travel policies and cut a lot of the four and five-stars from their portfolios. There’s also a political pressure that one cannot underestimate: it’s very difficult for a company to stage a conference or meeting at a top-tier luxury hotel these days.
Even if they go back and say “look at what a great deal we got”, it simply doesn’t chime with the current mood.
Will the hotel scene that emerges from the downturn look as markedly different? The financial artistry that has fuelled much of our business over the last three to four years has come to an end.
There must now be a return to traditional hotelier values. Do you treat your customers well?
Do you treat your staff well? Are your hotels clean?
Have you got a solid F&B operation in place? These questions are once again front and centre.
I think there was a large chunk of our industry that had relied far too heavily on all the clever things you could do with an asset, leaving the actual operation side secondary to their investment. That culture was reinforced by the fact that, over the last few years, you could just open your doors in the morning and watch guests flow through.
Business doesn’t come so easily now and being challenged more can only be healthy for the industry.
How conscious are you of the need to keep rate discipline from slipping? On any recessionary curve, first there is the decline in demand, then we all get nervous and there is a reduction in rate.
I warn my people that there is a death penalty for just pushing rate as a blunt instrument for increased market share. We’ve seen time and time again that it doesn’t work: we all played with rates in previous recessions and it deteriorated the entire market.
Then there’s the difficulty in getting rates up again. When I was with the Park Lane Hilton it took us four years to come out of the 2002-03 slump before rates were back again.
The reduction that you execute over a couple of months takes years to get back. We hoteliers really need to understand exactly what these perceived short-term wins will do to long-term profitability.
Loyalty schemes and all the things you are able to offer the customer because you are a big system are what we are really trying to push. Instead of just having the rate moving completely independently, we can work with our customers, who we know are under certain pressures, but try and get something in return: increased share of wallet, increased penetration, extra events.
That’s where the opportunities lie.
Would you like to see more government assistance when times are so tough? One of the weaknesses in hospitality and tourism is that we’re not nearly as well organised as other big industries.
The automotive and financial players are far better at lobbying politicians and this means that far less has been done to protect our interests. We are polite, open hoteliers, but we should complain more.
Look at the farmer: he’s never happy. Come rain or shine, there’s always something to complain about.
Once you start saying everything’s fine, you get overlooked.
I see a bit of rallying behind the WTTC [World Travel and Tourism Council] and they’re trying to be a voice on various things, such as sustainability and labour practices. That can help but we also need to see the big operators making more noise and establishing common interests.
Gerald Lawless, executive chairman, Jumeirah Group
Has Jumeirah’s strategy changed in the midst of the global financial crisis? We are keeping to our strategy.
Right now we have contracts signed from Argentina to China. We have had no let up in the number of people approaching us to discuss management agreements with them to run hotels that they want to develop, convert or operate.
Right now we have approximately 14 hotels under construction. Some of them might be slightly delayed but we don’t see a major threat to any of them in terms of competing.
One example is Jumeirah HanTang Xintiandi, which was originally scheduled to open in 2008, was delayed and is now back on track, so we can expect it to open later this year. This is really important for us as we want to be open for the Shanghai Expo 2010.
We are encouraged by China and are negotiating very strongly in quite a few cities there. We have projects under development from Shanghai to the Maldives and the Middle East.
Jumeirah Port Soller, Mallorca is a major project for us.
We have had no downturn in that and I think we will exceed 60 hotels signed up. How many open will be dependent on how the situation evolves over the next couple of years but I think we are ok.
How is the downturn affecting your core business? Certainly there are a lot more challenges and leadership does become really important.
I believe how we handle ourselves and our colleagues, and lead the company through this situation, is of vital importance – particularly now we are getting to a point where we have been in a recession for eight months. Now is the time to start looking forward.
Let’s see what initiatives are going to drive the business forward, to encourage and stimulate business.
I think this is the time when colleagues working within our organisation should expect leadership from myself, my top team and our CEO Guy Crawford to help lead them through difficult times. Now the aspects that are really important are truthfulness and transparency.
If you have got bad news to deliver, let’s go and deliver it in a way that is sincere and honest, and be supportive in how we are going to take things forward.
How long will the downturn last? Everybody is asking the same question.
You can take a straw poll and 99.9% of the world might be wrong. We just don’t know.
That is the honest answer. I would hope that the critical nature of the recession would begin to dissipate by the end of the year, but that still doesn’t mean that we are going to have the sudden upswing.
I don’t think anyone can guarantee jobs at the moment. I hope we can minimise the effects of the downturn in relation to employment but it would be irresponsible to make promises.
We would hope that we will get to a point not too far down the line where we would start opening hotels, but it’s this gap in between that’s the worry.
Jumeirah is a young brand. Does that bring with it an element of risk during this time?
We still aim to have up to 60 hotels either under development or in operation. In order to maintain your luxury profile you also need to have a pretty measured number of hotels opening on a regular basis.
You don’t need a flood of hotels coming together. We are still very much sticking to our target and we have been really encouraged in the last few months, even when the credit crunch started to bite.
Are there advantages at this time to being a Dubai-based company? Absolutely.
Like Emirates Airlines, we look forward to developing an international luxury brand out of Dubai. The can-do attitude is a big influence on the way we work.
We have always worked very closely to not only develop hotels but develop business with Dubai Tourism and Commerce and Emirates, which has a given us a unique ability to react quickly and effectively during a world crisis.
Jumeirah belongs to a very strong organisation, Dubai Holdings, but if you look at our pipeline, 60% are outside the parent company. New investors are coming to us.
If things get bad, could you foresee the Dubai Government stepping in to help? I really think that we are a company on our own and I don’t think you can expect that in our type of situation, where we are very much a commercially based private company.
I don’t think we will ever need any help from the government. We get support from the Department of Tourism but I wouldn’t expect any help from the government.
Do you feel it’s an advantage that many of your new projects are focused on regions that have not been hit the hardest? I think it is very much a global recession.
We are fortunate that most of our operating businesses are in Dubai, which remains a great centre of activity, where we need to encourage more people to stay.
Every Emirates flight either starts or finishes in Dubai. Of those 20 million passengers, seven million visitors came to Dubai, so what happened to the rest of them?
So where do you see key opportunities? I see key opportunities in and from China.
The United Arab Emirates has just received Approved Destination Status from China. Last year over a million Chinese tourists either visited or transited from the UAE.
We can develop new markets in China. We can develop new markets in India.
We can stimulate more from Japan.
Will you diversify? We might look at another brand later this year but if we do, it will be at the five-star level.
You can get to a level where you have too many brands. We are alright.
We are still small. We are at the beginning of the journey, not the middle part.
Small is an advantage. We are the right size for the times.
We do have the platform, the foundation and the organisation to be bigger than we are.
Who will the winners and losers be from this period? I think Jumeirah will be a winner but I am not prepared to speculate on anyone else.
I’ll take the fifth amendment on that one.
Do you see a different type of hotel operation emerging in the near future? I don’t know if it is as a result of the recession or if it is because of the heightened awareness of the environmental issues these days, but people are very keen to know that the hotel industry is doing enough for the environment; that it has the right social responsibility and that people are doing the right things in communities.
Most of our employees in Dubai come from developing nations. Guests need to know that you are concerned as an employer about these issues, which are beginning to matter a lot more for people.
I am very encouraged by it. We are in a unique position in the hotel industry to do a lot of good and be very beneficial for society.
How important does the brand itself become at this time? Despite books like No Logo, even now we have not seen the demise of brands.
If you look at a brand like Ferragamo, they make excellent shoes. At the luxury level, brand reputation is built on quality, not just on clever marketing.
Don’t lose sight of the values you placed when you established the brand.
You acquired Essex House in 2006. How has Jumeirah settled into the US?
The feedback has been great and our mystery guest satisfaction has risen significantly since we took it over. Essex House does help to generate business to sister hotels.
There is a great awareness of Essex House from our London and Dubai-based customers. Emirates now flies twice a day to New York City and our US visitor levels have increased by 100% in the last two years.
Do you think that the hospitality industry needs to establish a stronger relationship with governments? I think it needs to continue on an upward trajectory.
Every government really should have a tourism minister. They still don’t give enough encouragement and don’t understand the importance of tourism.
If we don’t come out of it stronger then it is our fault as much as governments’, particularly given the significance of tourism to GDP contribution.
I am involved with the World Travel and Tourism Council, which has a pivotal role in making governments aware of our industry. We did it with the American authorities after 9/11 and especially during the Iraq invasion, when it was so difficult for people to visit America.
You have had no concerns about the effects of dropping your rates? We have dropped our rates for this season and we are still top of the market.
It has made Dubai affordable, competitive and accessible. There was 90% occupancy in our beach hotels in February and March, in the middle of the worst recession known to us all.
It makes me very happy. People, no matter how wealthy they are, do not want to spend more money on products.
Why should they? What we have done in Dubai is right.
Keep our hotels busy, keep the people coming in. Do not drop the quality of our service or our standards.
We have to keep the quality and are absolutely adamant that we will do that.
Fred Kleisner, president/CEO at Morgans Hotel Group
What does the financial climate mean for the high-end luxury experience? We’ve been careful, even during the best of times, to never call ourselves luxury.
We’re something unto ourselves and we sell an experience that remains desirable through all space, times and cycles.
Someone told me recently that more than 90% of properties within the luxury brand of a major hotel group are not making debt service right now. Those that have portrayed themselves as luxury face a dilemma.
Many corporate controllers out there are squinting with one eye shut, or at least raising an eyebrow, when the logos of these companies appear on expense reports crossing their desks. We can benefit from the number of top executives who want a unique experience, but also have to keep that expense report in mind – Royalton, Morgans or Mondrian won’t set alarm bells ringing.
This comes down to our having been careful never to say that this is consummate, high-end luxury; we’re just the leaders in the boutique space. Period.
Does the fact that some of the big boys are starting to flex their muscles in the boutique market worry you at all? The fact that the majors have stepped into our space validates us and confirms in the eyes of the corporate controllers that it’s totally valid for the travelling businessman – 55% of our clientele is through corporate business, of that over 30% are negotiated national corporate accounts – to have their people stay in boutique hotels.
Now these big players have come along, many believing that gluing a chair onto the lobby ceiling is all it takes to be hip.
We’re different. Look at pictures of our hotels, interior and exterior, and it is obvious that there is not a book five inches thick of brand standards we hoist onto any prospective owner’s desk.
We have consummate flexibility, so long as it’s cool. You look at some of our mainstream competitors, the name that comes to mind is W, and they’re on their way to becoming the Pottery Barn of boutique hotels.
People are without question being more careful about the money coming out of their own pocket, but that doesn’t necessarily mean they won’t spend it on the right things. As a matter of fact, as times get tough, those that spend every day in the office feeling as though they are staring into an abyss are looking for a departure, a bit of fantasy that allows them to enjoy themselves.
What they don’t want is a place where all they can do is access the internet and sleep. This is true across the board: the leisure traveller is the business traveller – they just pack differently.
So should a lifestyle brand be seen to be above economic events? I think people understand that we’re not immune to the crisis. The yield management systems have pulled rates down in various cities, but we’ve been very purposeful about adding value rather than discounting.
The beauty is that as we look to expand, there will be more opportunities for conversions and takeovers over the next 12-month period. I would expect we could see some rapid growth, carefully controlled to ensure that we stay true to our core principles.
If I look five years down the line, might we move on to 25 hotels going on 30 in the US? Quite possibly.
Internationally, might we be talking about 50 going on 60 or 70? It’s more than possible.
But the numbers are not important; what matters are the cities. In Europe it’s the style capitals with that 24-hour gateway experience, whether it’s Prague, Barcelona or Milan.
We’d also say selected resort locations, whether that’s US or elsewhere, make sense. It will be opportunity driven.
Where those opportunities are, we will look very carefully: does this fit the profile and branding of the company? If the answer is yes, then we move on to looking at how we make it work for us and the property in question: how do we define cool and hip in this locale?
Without question we will see a change in the balance between owned and managed properties. Since we went public in 2006, we have not taken on any fully owned projects; they’ve all been joint ventures.
Now is the time to start looking at doing managed projects without equity. It’s not so much about leveraging our balance sheet any more, but leveraging our brands: looking at the opportunities that we know are going to occur for conversions of existing independents and branded hotels looking to become hip boutique properties and improve results.
Is there not a danger that rapid growth will undermine brand integrity? Four Seasons is clearly a chain, but they do it really well: the strength of their brand is their greatest asset.
The Luxury Collection may not stand alone from Starwood, but it has a very feisty independent spirit.
Just because we have a lot of locations does not mean we are a “chain”. If we are ever seen as such, we lose a lot of credibility.
We’re very careful about the curation of what goes into Morgans Hotel Group. That said, I don’t think you can put an optimum number on it; it’s rather like capping the output of a great artist.
You implemented an additional $10m in annualised cost savings in the first quarter of 2009. What is the danger of undermining the guest experience?
There are many companies out there that are adjusting their cost structure with a sledgehammer; we do it with a very fine scalpel. This had to be about making appropriate reductions in our infrastructure and operational costs without reaching into the customer’s pocket and trying to steal loose change.
We’ve taken senior members of our staff, both in sales and marketing and operations, and added direct responsibilities for major hotels or regional selling groups. That puts our best players in charge of our most important assets and teams and allows us to reduce leadership elsewhere.
Also, if our employees are truly empowered, it begs the question why we have someone watching them for eight hours a shift. If we’ve done an effective job of developing our employees during the growth period of the cycle, we can make significant reductions in the total numbers of managers it takes to run a hotel.
We can depend on these guys to know their jobs, execute them well and take care of our customers.