STAMFORD, Connecticut—Executives from Starwood Hotels & Resorts Worldwide spoke from a decidedly global perspective Thursday during the company’s fourth-quarter earnings call.
Of particular focus was the hotel company’s global expansion, which reached new records during 2011, as well as its outlook for the volatile global economy.
Starwood Hotels opened 81 hotels representing approximately 20,900 rooms during the year, which is the most in the company’s history, said CEO Frits van Paasschen.
“This is a remarkable milestone. Bear in mind three years ago we were in the midst of a crisis,” he said.
While new development was stymied in North America by a significant slowdown in debt financing, the company saw an increase in conversions from existing hotels. The majority of ground-up development came outside of North America; 61% of new rooms opened in emerging markets such as China, India and Brazil.
Nearly two-thirds of new hotels signed during 2011 are new builds in emerging markets, van Paasschen said.
The CEO placed particular emphasis on Brazil as a target for growth—an acknowledgement underscored by Starwood’s introduction of a Portuguese-language website.
Global growth primarily will be fueled by the company’s upper-upscale Westin brand, which comprises 70% of the company’s pipeline outside of the United States. The company will very nearly approach the 200-property mark for the brand during 2012, as well as hit 20 hotels open in China.
Global economic volatility
Given the “volatile and uncertain” global economic climate, Starwood continued to bolster its balance sheet throughout the year, said Vasant M. Prabhu, the company’s vice chairman and CFO.
“Our balance sheet is prepared for the worst, with ample access to liquidity, low leverage and no maturing debt this year,” he said.
“Our sense is that the new normal will carry with it a great degree of volatility, and we certainly want to be prepared for that on the downside. We also believe having funds available to be opportunistic is equally important,” van Paasschen later added.
Company management forecasts the global economy to muddle through the year without any major blowups, though Prabhu acknowledged there were a number of black swans that could land such as the euro debt crisis and an unstable Middle East.
Starwood during the year worked to limit its cash exposure to euro banks as a precautionary measure. Management also is holding the line on hotel costs and preparing for contingency costs, he added.
“It is our view that Europeans and the rest of the world will continue to do just enough to hold the euro together through 2012,” Prabhu said.
In Asia, the company’s focus remains on China. The country has moved past the hangover effect of 2010’s World Expo in Shanghai, as well as the concerns over an industrial sputter.
“A hard landing is very unlikely any time soon,” Prabhu said of the existing sentiment surrounding the country.
He expects double-digit revenue-per-available-room growth to resume in Asia.
Starwood’s outlook, which calls for RevPAR increases between 5% and 7% at same-store company-operated hotels, has the Asia/Pacific region above range, North America in the middle of the range, and Europe, Africa and the Middle East below range, Prabhu said.
The investment community is improving its outlook on Starwood. Fitch on Thursday upgraded Starwood to investment grade with a positive outlook, reported Reuters.
SPG overhaul
Van Paasschen during the call also provided background on the company’s recently announced changes to its Starwood Preferred Guests loyalty program.
The impetus came during the CEO’s days before Starwood, when as a frequent corporate traveler he saw a lack of recognition or acknowledgement for his customer loyalty. Three years ago, van Paasschen directed his team to better leverage the company’s loyalty database to provide more customized guest experiences.
“Vegans don’t like cheese plates. Sports fans want to hear about their home teams. And some people just want to be left alone,” he said.
Of particular focus were the company’s most frequent “mega travelers,” whom Starwood representatives reach out to on a one-on-one basis to discern their needs and wants.
“They wanted to know their loyalty to us over time was worth something,” van Paasschen said.
Starwood responded by offering more milestones, more rewards and added benefits like 24-hour check-in for double elite members.
The efforts will be well worth it, van Paasschen assured. For every dollar spent on the initiative, the company expects a US$4 return.
