When Ellen Adelman, director of sales for
Shutters on the Beach and Casa Del Mar in Santa Monica, Calif.,
speaks of January 2005, there’s a hint of wonder in her voice, as
if she’s recalling the landing of a strange and beautiful UFO. “It
was a January, which is always so slow,” she notes. “But this
January was the strongest month we have ever had. Something has to
be going on here.”
The “something” Adelman alludes to is the much-touted rebound
of the luxury travel market, perhaps one of the strongest, most
verifiable though, some might add, most inflated claims in the
industry this year. To paraphrase a slew of recent reports, the
luxury market, after years of being trampled on by economic
hardship and the new asceticism, has risen again. As of 12 months
ago, high-end hotels are booking more business, and at higher
rates, than they have since all of this century’s early
devastations slammed the travel market.
Meetings have ramped up as well. After a series of demoralizing
plunges in high-end group business, 2004 marked a significant
increase in RevPAR (revenue per available room) as well as
occupancy for the sector, according to a report from the New York
City-based Hospitality & Leisure Practice of consulting magnate
PricewaterhouseCoopers. Last year, the luxury market saw a 7.3
percent increase in RevPAR and a 7.2 percent jump in sold rooms,
with still more increases expected for this year and beyond.
While hoteliers are cheering this welcome news, rising demand
brings with it some obvious challenges for planners, particularly
in the form of higher room rates, as well as lower
availability.
“Short-term availability
definitely is shrinking.
Even six to nine months
out would be tough.”
Mary Jo Blythe, MasterPlan
The rebound bandwagon
Business is “absolutely” back, proclaims Dieter Huckestein, former
executive vice president of Hilton Hotels Corp. and the newly
minted chairman and CEO of Hilton’s rapidly proliferating luxury
brand, Conrad Hotels, based in Brussels, Belgium. Announcements of
Hilton’s fresh focus on Conrad began early this year, presumably in
response to the shifting power of luxury.
“There’s such a strong, pent-up demand right now. For years,
the meetings industry has been reining itself in,” says Huckestein,
who points to group business as the brand’s most badly bruised
sector in the aftermath of 9/11, compared with the leisure and
corporate travel markets, which recovered much faster. “The last 10
months, though, have shown us one thing: You can only lock these
people up for so long.”
Not everyone, like Huckestein, depicts the 21st-century meeting
attendee as a caged, luxury-starved beast, but the image looms
large over most discussions of current budget ceilings.
“After 9/11,” recalls Mary Jo Blythe, president of Clarendon
Hills, Ill.-based MasterPlan and a third-party planner specializing
in high-end meetings, “clients who previously had only considered
five-star properties started saying, ‘How about a Westin? A Loews?’
Things got extremely conservative.” Over the past eight months,
however, Blythe has seen the stigma of a five-star meeting wearing
away. “There’s a sense again of, ‘We’re working hard and we’re
doing well, and we want our people to feel good about this
company.’”
According to Chevy Chase, Md.-based Ritz-Carlton Hotels, recent
business lends compelling testimony. “This last quarter was the
best one we’ve had since 9/11,” says one representative, “and I
don’t think our competitors are any different. I think it’s safe to
say again that luxury is not a four-letter word.”
Over the Short Haul
While some planners are able to plan far in advance, the last-minute booking is thriving. Donald Stamets, right, director of catering and conference services for Ritz-Carlton Orlando, Grande Lakes, finds meetings booked within a 45-day window are the fastest-growing sector of business at his property.
“Short-term’s been ramping up for the past three years,” he notes, “but it’s gotten to the point where that market is crazy. We’ve had people call on a Monday about bringing their group in that Thursday.”
Last-minute arrivals became so common, in fact, that Stamets formed a service committee, called the executive meetings team, devoted exclusively to handling those groups.
“We had to do something,” he says. “My team would be working on a meeting that had been booked six months out, and all of a sudden I’d throw them a file on 20 corporate people who are paying higher rates and arriving in one week. The focus from the service side was just being stretched, and in order to provide every one of our luxury customers with the service they expect, we had to make a new team.”
Setting up the infrastructure to field latecomers allows Stamets and staff to anticipate short-notice bookings, rather than dread them. Too often, Stamets says, hoteliers are dismissive or even mildly resentful of what’s often called pop-in business. “I make sure my staff understands,” he says, “that this is how business is done nowadays.”
As the luxury rebound continues to mount, Stamets adds, the onus won’t be on planners to book earlier, but on hotels not to squander their resources.
“Any planner who’s having difficulty finding business at the last minute is working with a hotel that doesn’t understand how to prepare for last-minute business ahead of time,” Stamets says. “Short-term business is where the industry is heading, and smart hotels will start getting ready for that.”
A dose of perspective
Even among those witnessing the recent groundswell in
luxury business, some find such optimism premature. Tom Hubler,
Naperville, Ill.-based vice president of sales, North America, for
Four Seasons, confirms that 2004 brought on a marked increase in
meetings and conventions for the chain, but he is quick to distance
himself from declarations of “rebound” or “boom.”
“I would call it the beginning of a recovery,” he cautions.
“When you look at a chart of our business in 2004 compared to the
years previous, the line is certainly moving in the right
direction.”
Incentive houses such as St. Louis, Mo.-based Maritz Inc. and
Atlanta-based USMotivation have yet to see the sort of turnaround
that lives up to the gangbusters-level hype. “Budgets have crept up
since 9/11,” says Caryn Bigelow, USMotivation’s manager for travel
planning, incentives and meeting services, “but I wouldn’t call it
a comeback certainly not to pre-9/11 levels.”
As Dr. Bjorn Hanson, New York City-based global industry leader
of the Hospitality & Leisure Practice for PwC, puts it, “When
you look at a 7.2 percent occupancy increase in isolation, that’s a
really impressive number. What people are forgetting, though, is
how much business declined in the years leading up that.” Occupancy
in the luxury market dipped by 12 percent in 2001 over 2000, and
inflation-adjusted RevPAR dropped a dramatic 16.6 percent in 2001,
6.5 percent in 2002 and 1.2 percent in 2003, according to PwC.
“I read so many reports about the explosion of the luxury
market, but we haven’t made back one-third of what we’ve lost,”
adds Hanson.
In fact, it’s not clear whether the industry ever will. The
same numbers that reveal last year’s spike in luxury occupancy
suggest such increases will start diminishing as early as next
year. “We call this the unwinding of restrictions on business
travel,” Hanson says. “As primary restrictions get lifted, the
spike in five-star bookings will become less and less
prominent.”
Statistics aside, anecdotal evidence points to a striking surge
in high-end business. “We noticed a big push when the airlines
stopped requiring Saturday stayovers for discounted tickets,” says
Ellen Adelman, who saw conference business at both Shutters and
Casa skyrocket once her clients didn’t need to book Saturday rooms.
And with Sundays usually functioning as “the darkest day of the
year,” when leisure travelers are leaving before most business
travelers and meetings arrive, she was more than willing to offer
reduced rates for the new Sunday influx.
While some investigative methods are more precise than others
“You just pay attention to how many of your friends are calling all
of a sudden because they can’t get a room,” says Huckestein reports
of new activity abound, along with serious implications for the
planner wading back into luxury waters.
“There were a few years
when consumers saw a time
to get a great deal...
I think those days are
coming to an end.”
Dieter Huckestein, Conrad Hotels
Higher rates, fewer rooms
Just as the miserable economy meant space and bargains galore for
meeting planners, today’s thriving luxury market spells disaster
for those who have grown accustomed to sliding their meetings in at
the last minute at rock-bottom prices.
Last year, when Mary Jo Blythe and MasterPlan were given five
months to arrange a high-end meeting that required hefty amounts of
meeting space, the search for a location was fairly easy. “This
year, though, with the same challenge, I’d have to go back to the
client and say, ‘I’m sorry, but I can’t find you a thing,’” she
says.
While short-term bookings continue to rule the market, their
increasing abundance is leaving some planners with little choice
but to start planning further out. “Short-term availability
definitely is shrinking,” Blythe says. “Even six to nine months out
would be pretty tough to pull off at this point.”
Weekends are especially difficult, according to veteran planner
Cindy Nachman-Senders, president of Potomac, Md.-based CNS
Consulting Group, who sees hotels saving the few empty rooms they
do have for the increasingly healthy leisure market.
“After 9/11,” she says, “hotels wanted you whenever you wanted
to come. Now they ask if you’ll accept a different set of nights,
usually in the middle of the week. You have to be much more
flexible now, and you have to be willing to accept higher
rates.”
According to PwC’s Bjorn Hanson, even as occupancy growth
trails off over the next several years, rate growth should continue
to accelerate, with a 5.8 percent rate hike expected for this year
alone.
While much of the price increase is due to the familiar arc of
supply and demand, Hanson points out, “Not all of this is just the
psychological attitude of the market.” Some of the upward crawl
will be the result of hotels using tiered reservation systems.
The tiered system, which is the standard hotel template for
selling rooms, outfits most reservation offices with a wall full of
blinking, color-coded lights. When occupancy is low, hotels offer
green-light prices, moving on to red-light rates as rooms continue
to fill, until occupancy hits 70 percent, at which point rates are
at their highest. By next year, when occupancy is expected to hover
at 71.5 percent, according to PwC, higher rates are
guaranteed.
Of course, what Hanson calls psychology also will have a hand.
The slow, steady re-emergence of the seller’s market has high-end
hoteliers, and their pricing advisers, gearing up for a reversal of
fortune.
“The greatest cause of our diminished revenue wasn’t occupancy,”
says Huckestein, “it was our prices. There were a few years there
when consumers saw a time to get a great deal. As occupancy climbs
even further, I think those days are coming to an end.”
Ritz-Carlton’s representative agrees, claiming the chain is
“looking at group business differently now that it’s less
rate-sensitive.”
Four Seasons’ Hubler, who boasts of the chain’s rigid
consistency in pricing during the leaner years while competitors
were making compromises “We do not bend on our pricing integrity,”
he says pledges to make changes now. “Moving into 2005,” he warns,
“we’re looking at every market with a competitive eye. Where we can
make price increases, we will.”
“Companies now see that
you...can’t simply have
a bare-bones, no-perks
approach to the meeting.”
Steve O’Malley, Maritz
Committed to value
Even with undeniable improvement in the luxury market, however,
some aspects of the industry remain forever altered. Diminished
budgets were just one of several factors in the drop in business of
recent years. And even as corporate coffers fill up again, the
onset of the Sarbanes-Oxley Act, the new restrictions on
pharmaceutical meetings and the shifting zeitgeist that welcomed
them have sent the meetings business through a sea change that
leaves pre-9/11 levels impossible to recapture, at least in
spirit.
“We’re seeing a real shift,” admits Blythe, “but it’s nowhere
near where it was in 2000, when the basic agenda was spend spend
spend! Even if [companies] do choose the five-star property and the
big wow headliner event, which we’re also seeing more of now, it
will be because they’ve decided it’s worth it, rather than just
because it’s possible. Companies are definitely looking with a
keener eye at all their purchases.”
Hoteliers recognize the emphasis on value. For all of
Huckestein’s talk of a market gone deprived, he still relies most
heavily on terms like “return on investment” in order to explain
Conrad’s appeal, rather than attribute it to an industry fed up
with restraints. Ritz-Carlton, Four Seasons and Mandarin Oriental
are similarly careful to stress the value rather than the thrill of
a luxury property.
“We went through a fairly austere period,” notes Steve
O’Malley, vice president, major accounts, for Maritz, “and
companies now see that you have to focus on the entire attendee;
you can’t simply have a bare-bones, no-perks approach to the
meeting without losing the ability to create an atmosphere pleasant
enough to get your message across. But that’s what’s driving
meetings back to the five-stars: the understanding that it’s an
investment, and one that the company is allowed to make.”
