Hoteliers brave crisis, focus on longterm(1)

19 October 2001

Leaders of the hotel industry, while mindful of the negative impact of September 11 on their immediate business, are determined not to let it derail the medium- and long-term prospects of their sector.

That message came through loud and clear at the Asia/Pacific 12th Hotel Investment Conference hosted by Horwath and Sonnenblick-Goldman Company in Hong Kong last week as hoteliers and business partners braved the fallout on their business to discuss strategic development and investment issues.

IMPACT AND ADJUSTMENTS

At an industry leaders roundtable, five hotel chiefs were asked if they had adjusted plans for the next 12 months.

Ed Fuller, president and managing director of Marriott International, said it was important to differentiate between short term and long term.

In the short term, he said, Marriott had made adjustments in each market. "Obviously the US has been hit harder than international destinations; we are looking at it country by country."

Long term, however, he said, "I don't see any change in direction. Growth is imperative and we plan to open development offices worldwide. We might see opportunities as a result of the situation."

Fuller said the key was maintaining occupancies and serving customers. "We've been through situations like these many times before."

"STAY HEALTHY"

James Brown, president and chief operating officer of Rosewood Hotels & Resorts, hoped the recovery would not take more than 18 months. "In the interim, we have to stay healthy and make sure the product does not change. We must not let any product change affect the customer."

Miguel Ko, president, Asia/Pacific of Starwood Hotels & Resorts, said that 70 percent of his company's guests were from within the region. The impact therefore had been "nothing compared to east coast USA".

He said there was no broadbrush approach to how Starwood had handled the situation, adding it had contigency plans to "plan for the worst but hope for the best."

Starwood has also delayed its budget process to the end of the year or even beginning of next year.

Jochen Dobel, deputy chairman-Asia/Pacific, Accor said because Accor was strong in the one and two star market in US and Europe, it had not suffered as much as the five star segment.

He reiterated Ko's comment that Asia was also less affected than US and Europe. What Accor was trying to do was to work in short-term cycles - two or three months - to "be prepared if something does happen. We are not that concerned about Asia except for certain regions."

Richard Hartman, managing director, Asia/Pacific, Six Continents Hotels, said hotels dependent on the US leisure and corporate incentive markets had been affected.

With 200 hotels in 22 countries, he said Six Continents had different pockets of problems. For instance, RevPAR continues to grow year on year especially in China. In Australia, business was hit when 48 percent of the lift left the industry "but it's slowly coming back."

FORGET NUMBERS...

Dobel however dismissed further discussion on numbers, saying, "It is more important to figure out the war than who's down how many points. Let's look at the long-term impact - how is that changing the traveller?"

MANAGING COSTS & OWNERS

It was inevitable however that numbers had to reappear in the roundtable discussion - in the issue of costs.

The hoteliers agreed this crisis was a good opportunity to drive costs down by looking at new business processes and continuing training.

Starwood's Ko said a crisis made it easier to pass the cost message through the company. Labour costs however were more challenging. He said Starwood was in a "freeze situation and we owe it to our employees to retrain them and give them new skills."

He said in Asia, staff costs were about 25 percent of total overheads compared to 35 percent in Australia.

Marriott's Fuller said Asia was in a far better situation to deal with cost reductions. Because Marriott was a relatively "young company going overseas", it used to have a high percentage of expatriates - about five per hotel. Now it was 1.5 expats per hotel.

He said Marriott was also not touching its training budget even as it reduced costs. The company would go ahead with a US$1 million investment in training with the aim of "training local executives to develop a totally regional talent pool."

Dobel said the first round of costs reductions took place after the Asian crisis of 1997, adding the first cuts should start at headquarters. "The fewer people you have in headquarters, the better."

He said that with GOP in Asia running between 40 and 48 percent, "how much can you add if you cut your costs? How much do you lose in customer service and motivating your staff?"

Rosewood's Brown, touching on ownership issues, said the key word should be "partnership" and said his company was working with owners to defer fees and restructure management contracts to help owners "because without them, we are dead."