share
by Cheryl-Anne Sturken | May 16, 2011

Last week, White Plains, N.Y.-based Starwood Hotels & Resorts Worldwide played host to 500 of its top global clients. The attendee list read like a who's who of corporate and association heavyweights -- Barclays Capital, Cisco, Oracle, Starbucks, AARP and the National Rifle Association. At the event's general session, held at the Sheraton New York Hotel & Towers, Starwood's top executives took to the stage to deliver well-rehearsed speeches touting the chain's global expansion and market dominance, while plugging its nine distinct brands. On explaining the company's commitment to brand development, Frits van Paasschen, president and chief operating officer, told the audience they could expect to see Starwood deliver even more content and improved product, because "The stakes for brands have never been higher. Personalization is where branding is going next," he said. "In my view, nice and generic does not cut it anymore."

Van Paasschen referenced Starwood's plump development pipeline (80 properties are on target to open by year's end), its commitment to social media and a promise to deliver the luxury experience right. In his words, "Global luxury is not about pomp and circumstance. It's about what you want, whatever that is, wherever you are."

But it was Vasant Prabhu, vice chairman and chief financial officer, who stole the show with his matter-of-fact assessment of current market conditions and how they stand to affect the outlook for the lodging industry as a whole. "Yes, we are confident and optimistic, but there are some clouds on the horizon," noted Prabhu. Among them -- escalating oil prices that could push the price of to $150 per barrel; the destruction caused by the Japanese earthquake, which took the company's 800-room Sheraton, next door to the closed Tokyo Disneyland, out of commission; heavy inflation in the emerging markets of India and China; the ongoing financial crisis in Europe (in particular Portugal, Italy, Ireland, Greece and Spain), and the fact that the U.S. government will end its money-printing spree next month. "When that happens, what will the dollar really be worth?" Prabhu posited.

With business travelers back on the road in record numbers and group bookings solid, demand is up across the board. That means hotels have begun to push rate and will continue to do so in an effort to gain some kind of rate integrity. "I know you don't want to hear this, but no rate increase is good enough from my standpoint," Prabhu told the crowd, who looked as if they had suddenly been body-checked. "But when occupancies go up, you have to move rate up." And it is not a matter of getting greedy in an up cycle, he insists. Despite Starwood's improved profit margins reported in quarter one 2011, it is nowhere near the levels it achieved in 2000. As such, the company is projecting a RevPar increase of 7 to 9 percent over the next three years. "If rate doesn't improve," warned Prabhu, "you won't have more hotel development, which is what you will need in the future." Put another way, the construction pipeline is the lowest it has ever been in North America, with less than a 1 percent increase projected over the next five years. And if demand continues to increase as expected, planners will be looking at a serious room shortage and stiff competition for availability.