Starwood Cuts Operating, Capital Expenditures

WHITE PLAINS, NY— Starwood Hotels & Resorts will undergo a number of dramatic cost-cutting measures to preserve profits to combat dismally low hotel occupancy rates it, along with the entire industry, have been suffering since the terrorist attacks on the United States. Barry Sternlicht, Starwood’s chairman/CEO, outlined the company’s plans for investors during a conference call earlier this week, noting that capital expenditures and operating budgets are being frozen or cut. “For the lodging industry this is the equivalent to the thousand-year flood,” said Sternlicht. “This is a time that none of us underwrote or prepared for. Our focus in this crisis has been to react flexibly and entrepreneurially and to a run lean, mean machine,” said Sternlicht. Some of the lean, mean measures Starwood is taking include freezing most capital expenditures, which means putting on hold the construction of the St. Regis Hotel & Towers in San Francisco, as well as a slowdown in construction of most of the company’s vacation ownership projects, although developments in Maui and the Westin Mission Hills (CA) will move ahead. “Any other major capital project over $3 million has been delayed or deferred, other than completing the New York W at Times Square and the W Chicago on Lakeshore Drive, which should be complete in October,” said Sternlicht. Further cuts to capital expenditures are possible, he added. “If necessary, we can defer almost all maintenance capital in this company,” he said, noting that Starwood’s portfolio overall “is in pretty good shape.” Marketing and advertising budgets are being cut, and all corporate headquarters and divisional expenses are being trimmed, said Sternlicht. Some downsizing at Starwood had already been in effect due to the slowing economy, such as shutting down franchise operations in Starwood’s Atlanta offices and moving that function north to the White Plains, NY headquarters. Meanwhile, Africa/Middle East operations will be consolidated into the company’s European operations. Dramatic moves are also being made at Starwood’s owned and managed hotels to battle anticipated lower occupancies going forward. In some cases, unused floors and even wings are being shut down, front desk and concierge services are being combined, doormen hours are being curtailed to peak periods and wake-up calls will be automated rather than delivered by a live person. Meal hours will be curtailed at hotels, as will operating hours for giftshops and executive and club lounges; workout rooms will not be staffed. Bob Cotter, Starwood’s COO, said Starwood following the attacks “immediately right-sized the staffing levels of its hotels, adjusting [workers’] hours per occupied room to current occupancy levels.” “September staffing will be 23% behind last year’s with a similar picture right now forecast for October, November and December,” said Cotter, who added that the overall reduction in Starwood’s workforce would be close to 10,000. Customer satisfaction ratings will be closely followed during this time, said Cotter, noting that executives at all hotels have been asked to be in their properties’ lobbies during check-in and check-out periods to communicate with customers as to why these changes have been implemented. There are some revenue-enhancing opportunities during this period, said Sternlcht. Starwood quickly in the wake for the attacks on New York City turned several floors of its Sheraton Manhattan into office space for displaced Lehman Brothers employees, wiring over one weekend the entire hotel for high-speed Internet access to accommodate its new tenants. That property is also housing students from New York University who were ousted from their downtown dormitory after the attacks.