While group business remains a staple of luxury hotels and resorts, the segment’s ongoing efforts to get rates up where they need to be may in fact depend on the transient guest. This was one of a number of topics discussed at last month’s HOTEL BUSINESS® annual Executive Management Roundtable held in Phoeniz at the Arizona Biltmore, a Waldorf-Astoria Hotel.
The event, entitled “Luxury Management: Handling High-End Hotels,” was hosted by Hilton Hotels Worldwide with additional support from Keurig, Arthur J. Gallagher & Co. and Ferguson. Stefani C. O’Connor, managing editor of Roundtables for Hotel Business, moderated the discussion, which included a number of operators of luxury product as well as an industry consultant to crunch the numbers.
Bruce Baltin, senior vice president with Colliers PFK Consulting USA, started off the discussion with some positive figures. “The numbers didn’t jive with our thoughts going in,” he noted. The segment overall, he added, came back strong in 2010, doubling the overall RevPAR growth of the market as a whole. The segment is rebounding very quickly, and for 2011, another 9.6 percent RevPAR growth is expected.
Richard Kessler, CEO of the Kessler Collection, agreed, noting rate is quickly following behind demand. “I think we’ll get it back quicker than we think,” he noted. In fact, Kessler said that his properties are currently walking away from group business in favor of transient, since the individual travelers are willing to pay the higher rates. Occupancy, he said, is at 70 percent and holding, and he plans to keep it right around there going forward.
“We’re seeing the group customers fighting the rate,” agreed Sean Mullen, vice president of sales for Noble House Hotels & Resorts Ltd. He noted that as a result of not budging as much on the rates, his properties are giving fewer concessions and less discounted overall business to groups. “We see [individuals]willing to buy a bit more for a memory or emotion now,” he said.
“Thank god for transient,” said John Vanderslice, president, global head of luxury & lifestyle brands, Hilton Worldwide. “They have stuck with luxury. That business has not stopped—it has increased. The future is bright.” He went on to note, however, that the business is changing. “It comes back, but it comes back different,” he said, referring to a new class of travelers who are staying at luxury properties.
The changing face of luxury
These guests are more of a mix than in years past. Vanderslice noted that today there are as many millionaires in the world as Australians. “It used to be a very defined market,” he said, “but now it’s all about the experience. It’s all about culture and authenticity.”
Baltin agreed, adding, “the whole mindset of people from the tech industry with money is all about experience. They are very intellectual, and want no pretense, but they do want a great experience.”
Greg Miller, vice president/managing director, Royal Palms Resort & Spa, Destination Hotels & Resorts, has also noticed a shift. “When I think about what luxury was like a few years ago, things we wouldn’t consider luxury are now part of that culture.” He specifically noted that green programs are a big draw for luxury guests.
“Green is part of the new luxury,” agreed Peter Heinemann, managing principal, Passport Resorts. “Customers are looking at that, and it’s gone beyond ‘don’t change the sheets.’”
“It comes back to lifestyle brands and the lifestyle of the customer,” said Jim Petrus, COO, Trump International Hotels Management LLC. “Luxury had been a bit staid and didn’t look at the customer lifestyle and expectations. Today we need to look at the core lifestyle elements that represent the customer. We need to give people what they really want.”
Striking a balance
But while luxury has changed, guests still expect a certain level of service and quality. Meeting those expectations and still growing the bottom line is a challenge many luxury properties have faced.
“If we’re all honest about it, we’ve found efficiencies,” said Bill Otto, president and COO, Marcus Hotels & Resorts. “We’ve watched carefully to make sure the guest experience hasn’t suffered – it’s become more expensive to find a customer today. So we have to save in other areas.”
“Amenities and features always come up,” agreed Petrus. “But if we ask what they want versus what they’ll pay for, it’s different. We have to understand what they’ll pay for [and offer that]. The psyche of the consumer is different today, and they will approach things differently.” Petrus went on to note that Trump International has gone back to the drawing board when it comes to what amenities its properties offer. “All the customer wants is a great experience.”
“Eliminating amenities is not where the guest wants to go,” said Kessler. “But scale is something to look at. We believe the guest gets more sophisticated every year, and asks for a little more. Quality has stepped up across the board, and at the end of the day, they have to pay for it.”
Heinemann agreed, noting that, “customers are always looking at value. It’s what you build into your room rate. They aren’t as rate sensitive, as they are sensitive to what’s included in that rate with value-adds.”
At the end of the day, what sets properties apart isn’t amenities, said Baltin, but service. “It’s 95 percent service and 5 percent product that differentiates hotels. You have to have a perfect service delivery.”
Heinemann agreed, noting that, “it’s how you reorganize and be creative with labor and how it’s allocated [that’s important.] At the end of the day, it’s all about the guest experience and their interactions with the staff.”
Paul Toner, senior vice president/COO, RockResorts International LLC/Vail Resorts Hospitality, gave one example of how changing service structures can save on the bottom line and increase guest satisfaction at the same time. “We changed from butlers [for each room]to overall service [for a section of rooms]and it has resonated very well. Guests wanted more attentive service,” he said, adding that the property can now provide by having a smaller staff of trained bulters available on-demand, versus a larger staff of people who were under-utilized.
“We’re looking to attract [and keep]great people,” said Miller. “Our focus is unconstrained thinking about the future. Training is an important element, and we’re passionate about that. We’ve seen our service scores elevate as we train and keep the ‘A’ team.”
Looking ahead
2011 is going to be a year of growth for most of those brands, but it will be targeted, according to the executives.
“We’re interested in expanding the footprint of the [Trump] brand,” noted Petrus. “We looked at a logical way of growing—you have to make sure that what you have works first. Can you outpace the person next to you? You also have to have a story to tell and make sure that what you have resonates with guests. You have to have something tangible, otherwise it’s all just fluff.”
Otto agreed, saying, “[we have]individual assets that are all unique. We make sure they have a story to tell. There has to be a strong story.”
“We’re growing, but we’re not going to grow for growth’s sake,” agreed Toner. “You have to identify what makes you unique.”
“There’s not any real rocket science [to it],” noted Greg Mount, president, Richfield Hospitality Inc. “You can find some good distressed deals out there, and we will look at taking advantage of those. It’s just finding them.”
“We’re also looking at distressed,” said Otto, “but probably not in the major markets. We’ll be looking at secondary markets and places to reposition properties.”
“The biggest challenge is being patient; waiting for the right opportunity and knowing when to say no,” said Heinemann.
And it’s not only about opening new properties either. “It’s hard to get a new customer,” said Heinemann. “The key to success is repeat business across not just one property, but across the entire portfolio. You have to build a loyal customer base.”
“Ultimately, what you have to do is develop and deliver a culture across hotels,” Baltin noted.