INTERNATIONAL REPORT—While there’s no doubt every sector of the global hotel industry is suffering during this economic downturn, the luxury chain scale segment seems to be hit disproportionately.

Many luxury hotels derive a significant portion of business from groups and meetings, which, since the infamous AIG retreat in September 2008, has left companies (even those that don’t receive TARP funds) fearing the public scrutiny of hosting legitimate meetings.

Looking at the performance of luxury hotels in the U.S. since the publicized excesses of the TARP companies, occupancy rates declined in October, November and December by 9.0 percent, 15.0 percent and 11.5 percent, respectively, according to data from Smith Travel Research. Revenue per available room fell in those months 12.6 percent, 20.7 percent and 17.9 percent. Most recent metrics indicate luxury RevPAR has dropped 30.4 percent in the running 28 days, as of 14 March. Within that number, the segment saw a 34.0-percent decline of group business RevPAR for the running 28 days, as of 14 March.

Susan Helstab

Susan Helstab, executive VP of marketing for Four Seasons Hotels and Resorts, confirmed the struggle for luxury hotels. 

“On the occupancy side, we’re feeling it in the U.S. more than any other region,” she said. “The Middle East is a relatively bright spot for us, but we’re seeing softness in all markets. The global economic downturn has very serious consequences in general, and, most specifically, to our segment.”

In addition to the downturn, political rhetoric has created an environment in which even legitimate meetings incentives and events aren’t legitimate to take, Helstab said.

“We’ve been through enough cycles where we know what would be the normal impact,” she said. “This is beyond the normal impact.”

Ted Teng, president and CEO of The Leading Hotels of the World, said the company’s hotels reported about a 15-percent decline in roomnights in 2008, mostly in the last four months of the year, with about 8 percent to 10 percent of that decrease attributed to the recession.

Results aren’t completely comparable because hotels are coming in and out of the Leading system, Teng said. Another factor in the company’s results is that there’s less business from commercial corporate accounts and less corporate meetings than its competitors.

“We’re feeling less of the AIG effect because our hotels are individually branded and not publicly known quite as well,” he said. “That’s a plus or a minus.”

Leading’s rates declined about 8 percent to 10 percent, as of January. Teng attributed some of that decline to euro-based revenue for its hotels.

As previously reported, the transient rate premium over group rate is narrowing in the luxury segment, said STR’s Jan Freitag. (See Freitag: “Group rates losing premium; Recession different this time around.”)

Remedies for the pain

Four Seasons and Leading are focused on marketing and sales more than ever.

“The most important reason guests chose us was never the prestige,” Helstab said about Four Seasons. “It was always about service and consistency of experience. It’s really meaningful to talk about that right now.

“Trust and confidence are more important than ever,” she continued. “It’s such an unsettled environment. Any hotel company that continues to promise consistency and reliability will lead to repeat business and a shift in market share.”

At the corporate level, Leading Hotels is using reservations agents who might have downtime as outbound call agents—calling regular  

customers and travel agents.

“Downtimes are a wonderful time to reinforce relationships,” Teng said.

Ted Teng

“Look at some of market segments that aren’t necessarily regular customers. If you discount, you can find customers that aren’t regular customers but are willing to pay a lower rate to come into your hotel during this time,” Teng said. “Just be prepared that they’re not willing to trade up when the good times come back, but that’s OK because you haven’t lowered your value proposition to existing customers.”