Assessing The Damage Of 9/11

By Staff -- Hotels, 10/31/2001 11:00:00 PM

• Assessing The Damage Of September 11
• Facing Staff Cuts
• McInerney Maps AH&LA Strategy In Wake Of Attacks
• Ripplewood Sets Sights On Japan
• Boutique Borrows Ritz-Carlton's Power
• E-Club Boosts Dan Hotels
• Rediscovering the Past
• New Prototypes for Limited Service
• Gostelow Report
• Hoteliers
• World Watch

Assessing The Damage Of September 11

At press time, a little over a month after the September 11 terrorist attacks in New York City and Washington, and just days after the start of United States-led retaliation in Afghanistan, the hotel industry was wondering if the worst was over—or yet to come.

In early October in the United States, there was some comfort in the numbers. Felcor Lodging Trust, Irving, Texas, reported occupancy improved to 62% on September 29 from a low of 48% during the previous week. On October 8, Hilton Hotels Corp. reported occupancies and rates were trending up and that 40% of group cancellations had rebooked. Pegasus Solutions reported reservation call volume reached 70% of pre-September 11 levels by September 28. However, Smith Travel Research reported on October 10 that preliminary September 2001 data in the top 25 markets showed a 15%-17% dip in occupancy and a 22%-24% declined in RevPAR as measured against September 2000.

The hotel news from the rest of the world following September 11 has been equally distressing with little initial news about recovery, since many global markets are so dependent on American travelers. The collapse of Swissair and Australia’s Ansett airline are potent indicators of how global and dramatic the impact of the attacks has been. Hilton Group in London reported a 20% dip in occupancy for September versus last year. CEO David Michels said he plans to freeze about £150 million (US$217 million) in capital expenditure plans and shed 500 UK hotel staff. European giant Accor said it expects to cut hotel investment by 20-35% in 2002 as a direct consequence of the attacks on the United States. It also expects hotel and travel services business to fall by 20% between early September and the end of the year.

In early October in Hong Kong, occupancy rates dropped 30 percentage points (from 80% to 50%) since the attacks, and industry leaders said half of the air-travel tours scheduled from the United States to Hong Kong had been canceled. In Phuket, Thailand, there were reports of 300-400 booking cancellations per hotel during the first two weeks after the attacks. In Sydney, business in early October was reportedly down 10-20% with hoteliers fighting a losing battle in their attempts to hold on to existing room rates. Elsewhere, Mexico was reporting a drop of more than 17,000 U.S. visitors since the attacks with occupancy in Puerto Vallarta at 20% in early October. Egypt’s hotel occupancy rates plunged between 40%-50% since September 11.

Barring further terrorist incidents, the trend toward slow recovery in the United States is expected to continue—weakening somewhat during the traditionally soft period of January and early February, then gaining momentum going into the second quarter of 2002. “September was a wash-out. October looked awful. November and December are uncertain,” says Art Adler, managing director, the Americas, Jones Lang LaSalle Hotels, New York City. “A lot of factors are at work—from cost-cutting as a result of the economic downturn, which is affecting business travel, to the concerns about the economy and job security, which are influencing leisure travel decisions. Then there is the issue of airline and airport safety. In the near term, this adds up to cancellations.”

Adler sees travel “really picking up” in the second quarter. “There will be a lot of pent-up demand. Business people who have not seen their customers since before September 11 will need to start traveling,” he adds.

Challenge Or Opportunity?

But, like everyone, Adler is quick to point out this is how the future looks today. “No one knows what will happen tomorrow,” he says. Therein lies the problem and the opportunity. Much of the hotel industry is focusing short term, waiting to see how extensive the U.S. government’s retaliation will be, what the response to that will be, how the airlines will adjust rates and routes, what it will take to build back consumer confidence in the travel industry and how deep the recession will be.

“We’re looking at business plans in 30-day increments. Like everyone else, we’re struggling to forecast business beyond a month out,” says Brian Windle, senior vice president, sales and marketing for Destination Hotels & Resorts, Englewood, Colorado. “Some properties could see a decrease of 20%-40% in business compared with last year. But, still, there is potential, especially for our resorts within driving distance of major metropolitan centers.”

Even the biggest chains are divided on this question of challenge versus opportunity. Barry Sternlicht, CEO of Starwood Hotels & Resorts, is bracing for tough times. Though the company continues to renovate hotels and grow its brands, including a 16th W hotel opening in December in the heart of Times Square, the overall mood is cautious at the White Plains, New York, headquarters. The fact that bookings were positive by late September did not prevent Starwood from reducing staff by 23% and postponing plans for capital expenditures. Reflecting his view that the downturn would persist past year’s end, Sternlicht joined others in the hotel industry in lobbying for a government bailout plan.

Hilton Hotels Corp.’s CEO Stephen Bollenbach says that, while he supports the government bail-out program for the airlines, he does not see that as necessary for the hotel industry. Bollenbach looks to be managing for recovery. “Most of our cancellations were for September, October and November, not for 2002. I do not see a major change for 2002. There may be some shift, some days that need to be rearranged,” he told analysts late in September. Much of what happens next, especially in terms of transient business, depends on the airlines’ response.

“We have to make decisions every day on how we run the business,” Bollenbach added. “You just have to bet, if you will, on what things will look like in January, and run the business that way. We do not have any more information than anyone else, but we are going to run this company on the assumption that in a fairly short period of time we are going to be back to normal.” As confirmation, he stressed that Hilton is not looking to buy back shares. “Now is not the time to be buying back stock to send capital back to our shareholders. Now is the time to keep our capital here,” he said. Hilton signaled further confidence by forming a partnership with CNL Hospitality to own four hotels in the United States. All groundbreakings remain on schedule.

Wall Street’s Divided View

The financial community remains equally divided. Brian Maher, analyst with Credit Lyonnais, bolted from the pack with comments in late September that investors had overshot the downside of lodging stocks. He argues that the potential upside far outweighs the downside over the next 12 months, especially given the depth and speed of the decline. However, most analysts want to wait longer before joining Maher’s bandwagon.

UBS Warburg analyst Keith Mills maintained in early October that risk profiles “have increased significantly,” and owners and owner/operators “are facing material earnings, balance sheet and dividend risk due to negative operating leverage.” Operators and franchisors face the risk of less unit growth. He also forecasts that less debt capital will be available for construction, adversely affecting earnings growth beginning in the second quarter of 2002. This adds up to a decision “not to recommend” lodging stocks at this time. “Our investment outlook for the lodging industry will turn more positive when we have evidence that U.S. corporations are lifting restrictions on employee travel and that RevPAR growth is accelerating due to higher demand for rooms,” says Mills.

The Road To Recovery

Getting heads back in beds remains a major challenge. Of course, New York City was hit the hardest by the terrorist attack, but by the beginning of October, hoteliers were announcing promotions to encourage travelers to return to New York. Six Continent’s Inter-Continental and Crowne Plaza hotels launched “Come Back To New York,” offering greatly reduced rates from US$109-US$149 through October 31.

Despite New York hoteliers’ best efforts, PricewaterhouseCoopers forecasted RevPAR in New York would decline between 30%-35% for the rest of 2001, and average occupancy rates would finish the year at 70%, down from last year’s 50-year high of 84%.

In Las Vegas, where business nearly came to a standstill immediately after September 11, Lehman Brothers reported encouraging news as RevPAR declines improved dramatically from a 30% decline between September 23-26 to down just 8% on September 28-29.

Chains everywhere are working aggressively to rebuild occupancy. Choice Hotels Canada launched a multi-faceted autumn promotion for travel agents, increasing commission from 10% to 15% and offering agents the chance to win a large cash prize that would be matched by a donation to the Canadian Red Cross’ U.S.A. appeal. At Choice International headquarters in Silver Spring, Maryland, a campaign called “Thanks for Traveling” has been launched simply to thank its customers for having the courage and commitment to travel.

Companies such as Four Seasons Hotels and Resorts, Toronto, are looking to continue successful promotions already in place rather than indulging in a pricing war. “Our rates have not changed because of the events of September 11, and we do not anticipate adjusting rates beyond normal seasonal variances. Nor will we change our service levels,” says Four Seasons spokeswoman Nicola Blazier. “Many of our hotels will continue to offer special packages and rates, and our ‘bed and breakfast’ package will continue to be available at all of our hotels worldwide. We agree with estimates that travel will begin to normalize in the months ahead. Like many industry experts, we do not think people will permanently travel less because of September 11’s tragic events.”

Hong Kong-based luxury chain Mandarin Oriental says there is too much “uncertainty” to create a definite plan. “Discretionary leisure travel has been affected the most, and Mandarin Oriental is not immune,” says Chantal Hooper, the group’s spokeswoman. “Some cities have been affected more than others, noticeably those reliant on business from within the United States. In Asia, however, our hotels enjoy a significant portion of intra-regional travel and have managed to maintain healthier occupancy levels at this point. Rates are remaining steady.”

Discounting may be more apparent in regions such as the Middle East and where business is soft going into the winter months. Rafi Baeri, vice president of sales and marketing for Dan Hotels, Tel Aviv, says discounts “are a way to show customers attention is being given to their concerns.” Some chains in Egypt have already dropped rates for tour operators to less than US$25 a night. But, in the United Arab Emirates and other countries where hotel development continues on schedule, discounting is still under review.

Art Buser, executive vice president and head of West Coast operations for Jones Lang LaSalle Hotels, predicts creative packages will contribute more to the bottom line than straight-out discounting. He sees opportunities for city hotels to rebuild some business through “pampering” packages that will appeal to customers who want a break but are afraid or unwilling to fly. Other beneficiaries could be regional resorts, accessible by car from major cities. Roadside hotels may see a renaissance as well, as long security-related delays for airport check-ins and fewer flights make driving an option even for business trips.

Luxury hotels might have to work harder, Buser suggests. “It will not be fashionable for a CEO to stay at an expensive hotel when his or her company is cutting back employees,” he says. And Buser echoes a common hope that government spending and the added liquidity sparked by 5.5% interest rates will jump start consumer spending and travel.

Facing Staff Cuts

WORLDWIDE The impact of September 11 hit hotels’ bottom ines by the week of September 24. U.S. hotel companies began announcing significant staff reductions: from Lodgian’s decision to reduce payroll 30%, or 1,600 full-time equivalents, to rumors of several thousand layoffs at Starwood Hotels & Resorts. At least one Washington, D.C.-based lobbying group estimated the hotel industry could lay off as many as 500,000 workers by year’s end.

Many companies are trying to cut strategically. John Hudson, CFO of Australia’s Thakral Holdings, rolled out a strategy that typifies the industry’s response to the downturn: Hourly workers would be laid off first; then annual leave will be “put forward,” along with arrangements for taking compensatory time or vacation. If these options prove insufficient, “redundancies” will be considered.

Not that staff cutbacks are ever first choice. Brian Windle, senior vice president, sales and marketing for Englewood, Colorado-based Destination Hotels & Resorts, says each of the group’s 26 hotels conducted a staff review immediately after the tragedy and continues to analyze staffing on a weekly basis. “We are trying to see what we can do without laying people off,” Windle says. “Layoffs are difficult because you know how hard it will be to find people when business picks up. Eliminating jobs also adds to the challenge of maintaining service and integrity. But we have to operate in an efficient way and deliver to our investors.”

Like other groups, Destination Hotels & Resorts will look at alternatives such as reducing hours or alternating schedules before across-the-board cuts. The Plasencia Group, Tampa, Florida, reports its survey of 20 general managers around the United States showed most have or are considering cutting management associates’ work weeks to 30 hours or less.

Australia’s P&O Australian Resorts is parlaying its experience in scheduling for its seven upscale nature-based resorts into “best practices” staffing solutions. Craig Bradbery, operations manager for the chain, says the group initially saw heavy cancellations and “amendments” from the U.S. market, which makes up about 30% of its business. Within two weeks, the booking patterns returned to “near normal.”

Bradbery forecasts that after a small, short-term occupancy dip, staffing concerns will be influenced more by seasonality than a protracted slowdown. P&O’s low-season staffing strategies include: employing hotel school students who are on fixed-term, six-month work placement or internship programs; transferring employees between resorts; and employing staff on fixed term seasonal contracts.

Avoiding the knee-jerk reaction to make deep staff cuts may be the best move for business in the long-term, says veteran executive search consultant Stephen Renard, president, Renard Hospitality, Toronto. “Some chains had no-hire policies in place two months before the attacks of September 11,” says Renard. “If the general manager cannot replace a food and beverage director or an executive housekeeper, he or she will have to take on at least part of those duties. No one can do that without having something suffer. If you can cut casuals, fine. But cutting back on experienced staff is the worst thing you can do. It is like taking the flowers off the table—it tells your customers and your competitors that you are in trouble.”

It also impacts the bottom line. Renard estimates that recruiting and training costs run several thousand dollars for an entry level position and up to US$50,000 or more for a general manager who must be relocated to a major hotel. That does not take into account lost revenue as the manager learns the hotel and maps out a business plan. He also cautions this may be one more factor that pushes good managers out of hospitality.

McInerney Maps AH&LA Strategy In Wake of Terrorist Attacks

WASHINGTON, D.C. By early September, Joseph McInerney had mapped out some of the broader strategies he hoped to implement when he officially took over as president and CEO of the American Hotel & Lodging Association (AH&LA) on October 15. The tragedies of the September 11 terrorist attacks in New York City and Washington sharpened his focus. “These events change the way we do business,” says McInerney. “Depending upon the extent of retaliation and the level of counter-attacks, we will get back to business. But, it will not be business as usual.”

AH&LA’s response to the crippling aftermath of the tragedy reflects McInerney’s agenda of creating meaningful services for the association’s 12,000 property members worldwide and intensifying cooperation with travel industry partners and related associations worldwide. His first move was to address the human factor, offering the association’s condolences to the families and friends of the victims, making available the association’s resources and urging members to provide whatever assistance they could. At the same time, McInerney signaled his intentions to increase the visibility and impact of AH&LA by asking the presidents of American Airlines, United Airlines and other major travel industry companies to help develop a plan to stimulate travel once adequate security measures were in place for air travel.

“It is doubtful there will be much of an upswing in travel before the year-end holidays. We are talking with our state associations, hotel companies and independent hoteliers to determine what their needs are. But we already know that promotion and marketing are priorities,” says McInerney, a veteran hotelier who has worked through various challenges during his 35 years in the hotel industry. In his most recent post, as CEO of the Bangkok-based Pacific Area Travel Association (PATA), he was instrumental in working with members to respond to Asia’s prolonged financial crisis.

McInerney indicates the association “will spend a lot more promotional money.” Near term, that means more advertising/promotion money for the association’s New York hotel show, which McInerney views as “reinforcing our commitment to New York City.” It also involves finding ways to promote travel to the United States that will benefit not only chains, but independent properties that may need more promotional/marketing help. Although he has formulated proposals for more fundamental, long-term change, he will not discuss them before he makes an official presentation to board members and association members.

One thing members are likely to want is a continuation of AH&LA’s commitment to governmental affairs. Days after the attacks, Government Affairs committee members were working with Congress to make sure “the laws they considered enacting were rational” in travel industry terms, says McInerney.

McInerney plans to use Internet capabilities and a service review to address an issue critical to many members: training. For example, immediately after the terrorist attacks, AH&LA’s Web site offered online crisis management training films and documents to members at no cost. Maximizing the opportunities of the Internet pays benefits to members and the association. “They can download what they want instantly, and we can monitor what they download to determine whether we are offering something valuable or whether we have missed the mark,” McInerney says.

It appears McInerney will use consultants for a task force on member needs. A study will ask about services and issues such as the AH&LA’s current federation structure. “Running an association is no different than running a business,” he says. “A business answers to shareholders. We answer to members.”

Ripplewood Sets Sights On Japan

TOKYO U.S.-based Ripplewood Holdings has weighed into Japan’s complex hotel market with its recent acquisition of the high-profile Phoenix/Seagaia resort on Kyushu Island. Now the challenge is to meet an aggressive turnaround schedule within the framework of Japan’s distressed economy and the tourism-choking ripples of the September 11 terrorist attacks in the United States.

The pressure on Ripplewood Lodging’s new president and CEO, Michael Glennie, is intensified by the fact that Seagaia is the first in what parent company Ripplewood Holdings hopes will be a portfolio of Japanese (and, later, Asian) hotels. Glennie, whose experience includes posts with Hilton’s Waldorf-Astoria in New York City, the Rockresorts Group and, most recently, Florida’s Boca Raton Hotel and Club, has mapped out a three-part strategy to enable this luxury golf complex to reach its profit potential.

Glennie predicts “immediate” gains from applying more focused revenue management practices and cost controls. The next phase of the turnaround will involve branding what are now the 753-room, 4-star-plus Ocean 45 hotel adjacent to the seaside golf courses, the 296-room, 4-star Sun hotel and the mountaintop 100-room Hotel Kitago Phoenix. Ripplewood Holding’s close relationship with Marriott International makes it a front runner, but Glennie will not confirm that. His team is considering whether to keep the hotels within one brand family or introduce several different flags. Sources speculate that list could include Starwood Hotels & Resorts, which has built a vigorous guest frequency program in Japan.

Ripplewood Lodging also is assessing what investments will enhance the property. A golf academy and/or a spa are options. Business generated through a golf academy would supplement that already attracted by the resort’s 99 holes of golf. Expansion of the existing hotels, as well as the residential component, would further broaden the resort’s profit potential. Tomohiko Sawayanagi of Jones Lang LaSalle Hotels’ Tokyo office suggests the resort could score a “big hit” by securing one of the first-ever gaming licenses granted in Japan—though intense debate is expected before the government makes a decision on the gaming issue.

Ripplewood Holding’s knowledge of the Japanese market should benefit its hotel group in the short term since 90% of the resort’s business is domestic. That is not a bad thing for now, says Glennie, who is based in Tokyo. He expects concern over terrorist activities will keep more Japanese travelers close to home.

Managing Seagaia’s potential also includes a closer look at its facilities, such as a 5,000-seat convention center. Justifying the center will necessitate developing international business, says Sawayanagi. But that will not be automatic given a strong yen, high labor costs and the competitive services of other resorts. It also will entail cultivating more local business, which, he says, could prove challenging since “most corporate and government entities are based in Tokyo, which means people have less incentive to take their meetings, incentives, conventions and exhibitions business outside of the city. In recent years, it has not been customary to mix these events with golf.” Glennie is working on packaging and pricing aimed at positioning Seagaia “as an extraordinary incentive destination” as demand shifts.

Results will be watched closely as Ripplewood Holdings continues expansion in Japan. Robert Lovejoy, senior managing director of Ripplewood Lodging, says the company will continue to shop the Japanese market at or above the mid-tier, looking both at single-asset and portfolio deals. Although pan-Asian distribution may be in the offing, he says that job one is to build a firm base in Japan where Ripplewood Lodging will benefit from synergies with sister investment platforms and Japanese recovery. Both urban and leisure hotels will be targets in Ripplewood’s opportunistic search for portfolio growth

Boutique Borrows Ritz-Carlton’s Power

Given the brand strength of Ritz-Carlton, it is surprising not to see its flag flying over the door of the 75-room Maison Orléans in New Orleans. While the six-month-old hotel has its own identity, it does benefit from Ritz-Carlton’s management skills, as well as its marketing, reservation and distribution systems.

The decision to keep a low branding profile was tailor-made to the opportunities inherent in converting New Orleans’ Maison Blanche department store to a menu of hotel concepts. Too large to fit Ritz-Carlton’s template for a 5-star hotel with personalized service, the block-long building was subdivided into a 450-room Ritz-Carlton, targeted at high-end meeting groups, transient and leisure travelers; the 230-key Iberville Suites, aimed one tier lower; and the Maison Orléans, styled to appeal to guests seeking a deluxe boutique experience.

The Maison Orléans has only five dedicated staff members, sharing the rest with a staff pool that services all three hotels. Guests have access to amenities rarely available for urban boutique hotels, such as the Ritz-Carlton’s spa, a business center and a restaurant ranked among the hottest new openings in the city. Its inherently New Orleans aesthetic, created by interior designer Lisambiance and architect Coleman & Associates, further differentiates it from the crisper Ritz-Carlton.

John Russell, general manager for the Ritz-Carlton New Orleans and its sister hotels, says the result is complementary and cost effective. “We can attract a customer who would not have stayed at the Ritz-Carlton,” says Russell. “The Maison Orléans is more residential. It draws the client who wants an immersive New Orleans experience.” Its rates are complementary as well, with its US$475 rack rate positioned between the Ritz-Carlton’s standard US$385 guestrooms and its club levels and suites. The first year occupancy target is 65%-70%, though Russell is cautious in these first weeks after the terrorist attacks in the United States.

How well this concept performs may influence future development plans. “It could create new opportunities within the context of Ritz-Carlton, or it could remain as a unique solution for a unique situation,” Russell says.

E-Club Boosts Dan Hotels

Looking for ways to stimulate occupancy, Tel Aviv-based Dan Hotels has harnessed the business potential of its highly loyal repeat customers and the reach of the Internet by creating the e-dan e-mail club.

Some user benefits are immediate: exclusive reduced rates, best room in the category reserved, an early check-in option, VIP treatment and 50 program points. As with most loyalty programs, the more room nights guests book, the more rapidly they accumulate points toward free meals (350 points for lunch or dinner in the dining room, or 400 for a grill room or theme dinner) and free rooms. Guest preferences listed with each booking enable properties to customize amenities and services and open up further marketing opportunities for the chain. For example, opera lovers can be contacted via e-mail with offers of special rooms/opera ticket packages for the opera season in Caesarea, Israel, in conjunction with the Dan Caesarea.

“Our goal is to achieve higher brand loyalty through cross-selling among hotels. Our city hotels have benefited throughout the period since the program was launched last June,” says Rafi Baeri, Dan’s vice president, sales and marketing. “Resort hotels have enjoyed demand from club members on weekends, in summer and on holidays. This club does not pretend to try to convince people to come to Israel. The aim is to convince people who are traveling here to stay at Dan Hotels.”

In just more than three months, the club has grown to “several thousand” members and helped Dan push its Internet-generated reservations to 4%-5% of the total for FITs. The next step will be reaching out to new customers. Though a planned advertising campaign was put on hold in mid-September amidst a wait-and-see attitude after terrorist attacks in the United States, Dan hopes to build the club’s new customer base to 40%-50% from its current 10%-15%.

Rediscovering The Past

Before After

INTERLAKEN, SWITZERLAND Last renovated in 1957, the Jungfrau Stube at the Victoria-Jungfrau Grand Hotel, Interlaken, Switzerland, needed updating at every level—from tired décor and a predictable menu to operational issues, such as not having a bar or bar service within the restaurant.

Inspiration for the US$4 million transformation of the country/cozy Jungfrau Stube into the opulent Jungfrau Brasserie began with Peter Bruederli, executive chef since 1997. Bruederli shifted the focus of the menu to distinctive Swiss cuisine that showcases the nation’s foods and wines. The next step was to infuse the best of Swiss style into the design. Broenemann Architects, Interlaken, and interior designer Jo Brinkmann, Zurich, drilled holes into the dark wood paneling and low ceilings that masked the original décor for more than a century. What they found were enough remnants of the intricately painted walls and ceiling murals, rich carvings and ornate stucco work of the brasserie’s original design to reconstruct its Belle Epoque motif.

While the architecture and paintings were carefully restored, the seating has a more contemporary edge for added comfort. A new bar enhances efficiency since waitstaff no longer needs to leave the room to serve beverages. The menu is a newspaper that changes seasonally, “reporting” on the season’s dishes as well as the producers and suppliers from around Switzerland whose products are featured in the menu items.

This comprehensive overhaul struck a chord with locals, who make up 30% of the brasserie’s business base, as well as guests. Emmanuel Berger, the hotel’s managing director, estimates covers have increased 40% since the year-long renovation was completed last spring.

New Prototypes For Limited Service

UNITED STATES Competition for franchisees and market share is heating up as limited-service chains roll out market-driven prototypes. There are several products debuting amidst prospects for recessionary trade-downs and increased highway traffic some see as a near-term response to the September 11 terrorist attacks.

Hampton Inn’s new scaled-down prototype for “rural” and tertiary markets. Statistics showing one out of 10 hotel stays in the United States occurs in a market of 40,000 or less pointed to opportunities for Hilton’s Hampton Inn brand. Since the average US$65,000 per key development costs (exclusive of land and variables) could prove difficult to rationalize in these smaller markets, Hampton launched a space-saving prototype that pares the development budget by 15% to 20%.

Much of the savings stems from a redesign of the building (with the public area and guestroom area conceived as two adjacent blocks) and a 25-35% reduction in the public space. This means not only a smaller footprint and the efficiencies of stacking guestrooms during construction, but also a more efficient operating environment. Redesigning the reception desk as an island means one staffer can oversee all lobby operations. The new model offers the option of single rooms, which are 25% to 30% smaller than the standard Hampton Inn room.

Phillip Cordell, senior vice president and brand manager for Hampton Inn, has identified 400 to 500 markets for the prototype. “The development pace hadn’t slowed in this economy. But, after September 11, we are cautious about what the impact will be,” he says.

Sleep Inn’s streamlined prototype for urban/suburban sites. Choice Hotels International’s Sleep Inn had earned consumer acceptance, but developer interest was lagging. Cost was an issue, says Ed Hall, vice president of emerging brands. To reduce construction costs (including furniture, fixtures and equipment) to a competitive US$39,500 per key, Sleep Inn eliminated expensive architectural elements such as a curvilinear shower and angled exterior wall. That left space and budget to enlarge the guestrooms from 286 sq. ft. (26 sq.m.) to 312 sq. ft. (27 sq.m.). Freestanding rather than wall-hung furniture adds residential appeal.

Hall sees this new prototype as a vehicle that will help Sleep Inn meet its goal of doubling the system size to between 500 and 600 properties by 2005. Secondary urban/suburban markets are the primary target. Airport locations were also on the list, but “we have to reassess. At some point, airports will be a focus because they still offer tremendous visibility for the flag,” says Hall. With 25% suites, the prototype is slated to achieve a US$10-12 higher daily rate than the US$56 system average.

LaQuinta’s franchise-friendly prototype. LaQuinta rethought its product before the launch of its franchise program a year ago. The result is a menu of four prototypes—two inn and two suite designs—with better space utilization and enhanced business amenities, including a business center, enhanced meeting space and in-room, high-speed Internet access. Per key construction costs begin in the low US$40,000s for the inn products, with suites products running about US$8,000 more. Conversion costs range from a nominal amount for signage changes to about US$15,000 per room.

Though LaQuinta “strongly suggests” one of its standard décor packages, the traditional stucco façade may take on more of a sense of place, says Alan L. Tallis, executive vice president, chief development officer. Targets range from urban to tertiary sites and 15 are scheduled to open this year. “We’re on track to open more than double that amount next year,” says Tallis. Although the terrorist tragedy “will have an affect on this pace,” he sees lingering recession as creating more development and conversion opportunities for this mid-tier product.

Gostelow Report

Fritz Consulting, based in Hanoi and Ho Chi Minh City, is working on a resort in Ho Chi Minh City, an 85-room hotel in the center of Vietnam and a bungalow-style 100-room resort in the south of the country. Set up in 1998 by Martin Fluck, Fritz Consulting has recently opened the Angkor Century Hotel in Siem Reap, near Angkor Wat, Cambodia. The company hopes to expand into Myanmar and Thailand, and is looking at opportunities in Japan.

Jonathan Worsley, director, Insignia Hotel Partners, London, says hotel investment in Europe right now is, versus other forms of real estate, fundamentally a very interesting option. After a short lull, he expects transactions to continue and there could be some attractive opportunities during the next six months.

There are certainly many groups that have been trying to get into London for some time. Moevenpick Hotels & Resorts and Ritz-Carlton are two names that immediately spring to mind. Also, Hyatt International needs presence after it relinquishes management of the Carlton Tower on December 31. The hotel then will be managed by Jumeirah International, Dubai, which also is part of the official portfolio of the Sultanate of Dubai.

Kempinski Hotels & Resorts, Geneva, is another group that has been close to having a London hotel on more than one occasion. The company’s Vice Chairman, President and CEO Reto Wittwer is determined finally to put his flag up as soon as possible. Until then, he is happy with a subtle marketing cooperation with The Savoy Group. Ten percent of Kempinski’s business worldwide is generated out of the UK. Watch some new names emerge. In the UK, the Nike Group, based in Bracknell, already has two country house hotels, the Coppid Beach, Bracknell, and the Swan at Streatley, which it recently bought from Stockholm-based Sune Malmstrom, owner of the Diplomat Hotel, Stockholm. The Nike Group, a 40-year-old construction company, is headed by John Nike, who also invests in artificial ski slopes, ice hockey teams and Toyota franchises.

Larry Pomeranc, development director for the Pomeranc Group in New York City, is looking hard for further properties to complement 60 Thompson, the 100-room hotel that opened in March 2000 in the Soho district. Pomeranc works with his brothers, the financially minded Michael and Jason, whose special forte is contacts. All three learned their skills from their father, whose real estate investments in airport hotels includes a large share of the Hilton at Newark International Airport. Larry Pomeranc hopes to get a second New York site soon, and he is also looking for Boston, Miami Beach and Washington. Operations, as the portfolio expands, will be handled by the general manager of 60 Thompson, Stephen C. Brandman, who says expansion plans are on course, projects are still sought and growth is expected.

There are strong opportunities in Latin America and the Caribbean. In Grenada, the International Finance Corporation, a Washington-based subsidiary of the World Bank, is looking at a boutique resort on an 18-acre peninsula. Eduardo Fuller, owner of Grand Hotel Miraflores, Lima, is looking for a partner or purchaser for three properties throughout Peru. And this month, a delegation led by the Uruguay consul-general to Boston, heads for Montevideo to look at hotel development possibilities in that capital city.

--Mary Gostelow, Contributing Editor

Hoteliers

• Mattmüller Agas

  Cendant Corporation’s hotel division, Parsippany, New Jersey, names Michael Kennedy senior vice president (VP) and chief information officer

• Relais & Châteaux, Paris, appoints Jean-Louis Bottigliero CEO

• Mövenpick Hotels & Resorts, Zurich, appoints Andreas Mattmüller senior VP Middle East

• Conrad Hotels, Brussels, promotes Mark Elawadi to area VP, Egypt and GM of the 617-room Conrad Cairo

• India-based Taj Hotels, Resorts and Palaces promotes Bernard de Villèle to VP business development and operations for Europe and the Americas

• The 530-room Outrigger Waikiki on the Beach, Honolulu, names Kimberly Agas general manager (GM)

• The 236-room Crowne Plaza Abu Dhabi, U.A.E., appoints Nagib Bensouda GM and the Holiday Inn Resort Sharjah appoints Guy Chidiac GM

• The 396-room Le Méridien L’Habitation Le Domaine, Anse Marcel, Saint Martin, appoints Georges François Torrani GM and Caribbean area GM

• The 308-room Hyatt Regency Belgrade,Yugoslavia, appoints Francois Dussart GM

• The 290-room May Fair Inter-Continental, London, appoints Peter Beckwith GM

• The 179-room Holiday Inn City Centre Perth, Australia, names Bill Vincent GM.

World Watch

Asia

The September 11 terrorist attacks in America and the global economic slowdown have resulted in downward revision of growth forecasts across all sectors in Asia, including the hotel industry. Naturally, the extent of this impact rests on the nature and extent of any retaliatory action in the upcoming weeks and months.

Although recent events will place extra pressure on hotels, Australia’s tourism industry is likely to benefit from the country’s “safe haven” image. Australia’s relative geographical isolation, diverse mix of inbound tourism source markets, limited developments in the pipeline and resilient economy should help hotels offset the negative impacts arising from further action.

U.S. outbound travel is likely to be significantly down in the fourth quarter 2001 and perhaps 2002, placing Australian markets with the highest reliance on U.S.-sourced demand most at risk. Hobart, Tropical North Queensland, Melbourne and Adelaide are likely to be affected.

Throughout the Asia Pacific region, the expected dip in short term hotel profitability and uncertainty surrounding future trading performance means investors will find it difficult to price assets at the moment. Investment volumes are likely to be down on original expectations for the remainder of 2001. However, there are likely to be attractive opportunities for the astute investor in 2002.

—Contributed by David Gibson, Jones Lang LaSalle, Sydney

North America

The American Hotel & Lodging Association is seeking government assistance for the hotel industry in the form of tax cuts and tax deductions to spur travel-related spending, workforce assistance and extension of health benefits for displaced workers. William Marriott, chairman of Marriott International, was among the leaders who came out in favor of travel incentives and “some sort of tax credit” for business travel.

Rob Wilson, president, GuestHouse International, says discounting “in many forms” will become more prevalent, as will cost cutting. The upside of this competitive environment may be more interest in franchising, he says. “Properties have to re-examine their backyard markets and cater to them like never before. This is their bread and butter,” he says.

Park Place Entertainment postponed construction of a US$475-million tower at Caesars Palace, Las Vegas. Richard Ross, partner, Squires, Sanders & Dempsey, Phoenix, says declining stock prices will mean companies can no longer afford to use their balance sheets and corporate capital to assist in funding new projects. But the pipeline is not dry. Hilton Hotels Corp. formed a partnership with CNL Hospitality to buy four hotels; Omni Hotels submitted a US$91-million bid for the Regent Las Vegas in a joint offer with Peccole Nevada Corp., reportedly the highest bid submitted thus far; and new openings such as the December debut of Starwood Hotels & Resort’s 16th W hotel are on schedule.

Europe

Some European hotel companies may not weather the storm that is ahead. These may be businesses that lack tough leadership or are over-exposed to the American market. They also may be young brands with a thin base of loyal clients or companies that are over-indebted. This provides an opportunity for further consolidation. Once share prices stabilize, expect to see some of the major brands taking advantage of the ravages of the recession to expand their own distribution.

In the meantime, the industry is likely to be negatively impacted. De Vere issued a warning of reduced profits and impending job cuts. France’s Accor is reducing capital spending and renovation by 35% but does not plan to stop pursuing expansion of its leisure presence in the Mediterranean. There is no word yet on how the impact of September 11 will affect longer-term plans such as Le Méridien’s plan to invest US$148 million annually in Italy to grow a portfolio of eight hotels within five years, or the group’s overall plan to add 120 hotels in five years.

—Compiled by Andersen, London, and HOTELS

Middle East

Egypt is already feeling the brunt of September 11, with occupancy rates diving 40%-50% by early October. Indications are that government help is on the way in the form of the government’s October 4 decision to pay off a portion of EgyptAir’s debts. It will be interesting to see whether Egypt recovers as quickly as it did after the 1997 Luxor tourist massacre. The tourism industry’s complete recovery took 18 months.

Canceled bookings are slowing business throughout the Gulf. However, local hotel companies see this as a short-term problem. “We experienced cancellations in the week immediately following the tragic events in America but are extremely encouraged with the continued levels of future bookings,” says Anne Bleeker, spokesperson for Jumeirah International Hotels, Dubai.

Discounting is a likely response to stimulate business. Dubai’s hotel sector is known for heavy discounting, especially during the summer low season. Dan Hotels is partnering with the Israel Tourist Board, El Al and other Israeli companies to promote first-time and return travel.

—Compiled by TRI Hospitality Consulting, Dubai, and HOTELS