||Spruced-Up Hotels Offering Good Deals, At Least for Now
Last year, the owners of the Ritz-Carlton resort on the outskirts of Las Vegas shut down the Mediterranean-style property in a bid to cut losses as travelers avoided pricey hotels and investor anxiety grew.
This year, the resort reopened with a smaller staff, fewer amenities and services, and cheaper prices. Guests can now pay as little as $140 for a night in the same bed that was previously $300.
Ritz-Carlton's downgrade of what's now called the Ravella at Lake Las Vegas is just an example of how the hotel industry hopes to climb out of its biggest slump in recent history as Americans, especially business travelers, are returning to the road amid optimism about the USA's economy.
Hotel companies also are renovating their properties after years of delaying makeovers. They're investing in boutique hotels and creating new loyalty programs to lure or keep customers. The improvements could even mean that travelers will get better service, because internal studies at some companies, such as InterContinental Hotel Group, find hotel employees tend to feel better about where they work when their hotel is updated.
At the same time that hotel groups are sprucing up lobbies, beds, TV sets, restaurants, bars and fitness centers, they're also seeking new strategies to one-up rivals. More full-service chains, for instance, are giving free Wi-Fi to more customers, addressing the frequent traveler's biggest pet peeve.
The companies are betting that the timing is right to make the investment. More people are returning to the road thanks to improved consumer confidence, renewed interest in making business deals and hiring gains.
"People are tired of not traveling, particularly the business community," says hotel investment banker W. Michael Murphy of First Fidelity.
The travel outlook -- barring sustained increases in gasoline and jet fuel prices -- is good enough that PricewaterhouseCoopers predicts year-over-year increases in each of the industry's three key measures: occupancy, average daily rate and revenue per available room.
"There's a lot that we should feel confident about," Marriott International President Arne Sorenson said at January's Americas Lodging Investment Summit, a key industry meeting in San Diego that typically forecasts the year ahead.
The economic rebound is "much faster than we expected around the world," says Hubert Joly, CEO of Carlson, another international hotel group, which is revamping its Radisson brand in the USA.
Despite their optimism, hoteliers remain nervous about how much they can push up what they charge for a room.
Consumers have gotten used to finding cheap rates -- especially at luxury hotels -- on Priceline and other discount travel websites. And this year, coupon website Groupon and copycats have seen business skyrocket, partly thanks to hotels' eagerness to fill rooms.
Earlier this month, for instance, the LivingSocial coupon site offered a one-night stay at New York City's new ultraluxury Setai Fifth Avenue hotel for $289, 45% less than its $525 introductory rate last fall.
Larger hotel owners are also putting rooms on sale for this summer. Sage Hospitality, which operates 39 hotels, ran an unusual 48-hour sale this month. The sale lets customers slash 50% off summer-time rates at the company's Marriott Courtyard, Hilton Garden Inn, Sheraton, Renaissance and other hotels as long as they pay in advance.
The discounts underscore how confidence still varies in the industry's recovery.
Michael DeNicola, chief investment officer of FelCor Lodging Trust, one of the USA's biggest hotel real-estate investment trusts, says some of FelCor's hotels are in "areas that aren't seeing strong comebacks yet." He lists Arizona and California among the weaker markets.
Yet, most industry leaders agree it's a matter of time before rates soar and travelers pay more because hotels are nearly as full as before the peak year, 2008. Evidence that room prices soon will rise: Big chains last fall successfully negotiated rate increases in their 2011 corporate contracts, a first step toward raising prices for other customers, Marriott's Sorenson said.
Starwood CEO Frits van Paasschen says the high-end meetings that companies stopped during the recession are returning.
"December looks like it was a big booking month for group business," he said at January's lodging summit.
Increasing demand for rooms by business travelers, vacationers and group business isn't enough to push rates higher by itself. But another factor may: a looming shortage of rooms.
The industry is seeing a dramatic decline in the number of new hotels ready to open or in the planning stages. In 2011 and 2012 combined, just 933 newly built hotels are scheduled to open -- nearly 30% fewer than in the last peak year of 2008 (1,341 hotels), according to hotel construction tracker Lodging Econometrics.
"There isn't going to be any new capacity added in the next two, three years," van Paasschen says. "If you're a hotel company, this is actually very good news. There will be growing demand, and people go out and travel more, and there won't be enough hotels for people to stay in."
Construction financing for new hotels vanished when the financial markets crashed after the collapse of Lehman Bros. in September 2008. Most of the hotels that have opened since had financing in place before Lehman's collapse.
That could be starting to change. In the last six months, however, Charles Quinn of CBRE Hotels, says he's seen hints of a rebound among well-qualified buyers in top cities. A Hyatt being built in Midtown Manhattan, for instance, was able to get construction financing, he says.
The slowdown in hotel openings is expected to last several years, though. Lodging Econometrics' figures also show that last year developers initiated only 422 new hotels -- the smallest number in more than a decade.
Pleasant results coming
Travelers can expect to see some pleasant results after three years of hotel penny-pinching that meant worn furniture, hotel staff layoffs and no free water.
"People are willing to reinvest in our hotels, do upgrades, and finally get around to installing flat-screen TVs," says Jim Anhut, a senior executive at InterContinental Hotels Group, which runs chains such as Holiday Inn, Crowne Plaza and Hotel Indigo.
Hotel sales, a likely outgrowth of an improved market, will spur more renovations, says CBRE Hotels chief Kevin Mallory. That's because sale contracts always contain a provision requiring the new owner to upgrade the property.
When FelCor closed on its purchase of the iconic Fairmont Copley Plaza in Boston last fall, for instance, the company immediately initiated a massive upgrade. "We're going to put some money into the hotel that will make it a better hotel," DeNicola says.
As business picks up, hotels get busier, start to hire and show off redone interiors, travelers should also benefit from a harder-to-measure effect: higher employee morale.
"Are you happier to work in a dreary space that the owner hasn't invested any capital in the last five years, or are you happier in a space that's bright and cheery, and you hear the customer saying, 'How nice?'" Anhut says. "Employees are feeling good about that."
Feeling at home
Boutique hotels that defy the cookie-cutter formula expect another big year.
Despite being around since the early 1980s, boutiques have become a hot trend among hoteliers because they let today's iPhone-using, playlist-making, Starbucks-drinking travelers feel at home. They eschew predictability in favor of helping people feel special through design, music, art, fashion, cuisine and even gourmet coffee and hand-made cocktails.
Because the trend is hot, travelers should expect to see more developers transform old hotels, warehouses and office buildings into upscale boutique hotels -- especially in big cities such as New York, Miami and Chicago. Boutique hotel pioneer Ian Schrager this fall plans to re-open Chicago's iconic Ambassador East as a hip hotel that gives guests complimentary Wi-Fi.
The big chains this year more than ever are trying to embrace a boutique feel, adopting a hip attitude, love of music and fresh design. Marriott, which grew into a global powerhouse by offering predictability, is trying to rebrand its Renaissance hotels into a hip chain that stands for cool music and memorable design. At InterContinental, parent of the Holiday Inn chain, the 5-year-old, boutique-style Hotel Indigo chain will grow from 38 to 48 by the end of this year.
Hotel companies are getting more aggressive about capturing customers, too. Since fall, luxury chains Ritz-Carlton, Omni Hotels and Leading Hotels of the World have tweaked their loyalty programs in ways they think will encourage customers to come and return to them.
Carlson, with its Radisson, Radisson Blu and Country Inns & Suites chains, last month revamped its loyalty program so that frequent customers keep their complimentary Wi-Fi and earn an unusually fast free stay -- after just five paid stays.
Travelers, industry analysts say, should hit the road now. Prices, they say, will only go up.
"The consumer should look at this as a great time to get out and travel, because there is not a lot of hotel development, and as demand rises, rates are going to rise," First Fidelity's Murphy says. Hotels, he says, "are going to be able to raise rates pretty substantially."
(Source: USA Today, 03/21/11)
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