Newsletter - March 1, 2002

WHAT BONUS? A YEAR END DILEMMA

Written By:  Keith Kefgen & Michael S. Kogen  HVS International

The softening of the US economy was well underway prior to the horrific events that unfolded on September 11^th in New York and Washington, D.C. The negative impact on business sectors across the country has been significant, particularly in the hospitality industry. It is that time of year when the leaves fall and hospitality executives traditionally know that bonuses are around the corner. The foremost question in their minds is whether there will be any 2001 year-end bonuses.

Michael Nanosky, President of Janus Hotels and Resorts, recently visited all 55 properties in his portfolio in order to personally quell fear and concern amongst his 3,500 employees. He reassured them that the company as a whole was financially intact and that management was doing everything in their power not to institute wage reductions and avoid any employee layoffs. Some of his senior level executives earn as much as 40% of their base salary in a bonus formula. But with a considerable amount of it tied to revenue he realizes that he is going to be “looking at the discretionary side” of the equation in the near future. He doesn’t want to lose valuable employees due to the impact of circumstances that they had no direct control over. In addition, he will be reexamining the bonus structure for 2002 in light of what he feels may be a 12 month downturn.

Robert Falor, President of Allied Hospitality Group, has always been big on incentives throughout his organization. He is modifying Allied’s  2002 bonus formula to reflect a philosophy in which executives will feel that they have more “control” over their bonus destiny. Their traditional bonus formula consisted of a profit component, a quality assurance component, and a discretionary component. The revamped formula will have an operations margin component, a quality assurance component, and a RevPar penetration component that will be allocated with a 50% weighted value.

First Hospitality Group President Robert Habeeb has not had to make any wage modifications or layoffs since September 11^th. He feels that their “lean” organization will continue to respond to market conditions and sees no forthcoming need to modify their more traditional bonus structure. Mary Comfort, Director of Compensation at Choice Hotels International, and Peter Cass, Chief Executive Officer at Preferred Hotels & Resorts Worldwide, maintained that their respective bonus structures were very much linked to overall corporate performance.

The current weak economy has produced a 5.4% unemployment rate, the highest in 21 years. Likewise, pressure on hospitality wages will continue to increase. In particular, bonus programs based solely on financial measures will come under fire. It is therefore important for bonus formulas to reflect a more “balanced” criteria; the revenue component should be structured so as not to undermine an employee’s contribution to an organization.

We all realize that qualified and valuable hospitality talent will continue to be scarce and will always be lured by other employment offers both inside and outside the industry. The current compensation challenge is to adequately balance a manager’s compensation in relation to contribution. 

The following is an excerpt from our 2000 HCE Lodging Property Annual Report, with data from nearly 4000 hotels:

Top Six Lodging Property Level Positions Bonus DataBonus Data

It will be interesting to see how 2001 bonuses compare with the 2000 data.  HVS International’s Hospitality Compensation Exchange will continue to monitor compensation trends, and will report on the evolution of bonus structures and amounts in future HVS International Journal articles.

CENDANT NAMES KRAFT EXECUTIVE TO HEAD ITS HOTEL GROUP

Cendant Corporation today announced that Steven A. Rudnitsky, a veteran of Kraft Foods, Nabisco, Pillsbury, PepsiCo and Johnson & Johnson, will become the next chairman & chief executive officer of its hotel group.

Rudnitsky, 43, most recently was president of Kraft Food Services and executive vice president of Kraft Foods, based in Glenview, Ill. He expects to begin his Cendant duties March 25, reporting to Stephen P. Holmes, chairman & chief executive officer of Cendant's Hospitality Division.

YEAR-OVER-YEAR PERSPECTIVE OF AVERAGE DAILY ROOM RATES OF BOOKINGS MADE THROUGH THE GDS VIA THE INTERNET

DALLAS (February 27, 2002) - To gain a year-over-year perspective of how hotel industry average daily room rates performed in 2001, Pegasus Solutions, Inc. (Nasdaq: PEGS) evaluated electronic reservations transaction data representing hotel bookings made through the global distribution systems (GDS) and via the Internet for actual guest stays in 2001 and 2000.  Dallas-based Pegasus Solutions is a leading provider of hotel industry transaction processing solutions and electronic commerce services.

OBSERVATIONS

Average Daily Rate by Electronic Channel

GDS: For hotel reservations made through the GDS channel for guest stays in 2001, average daily rate (ADR) declined $1 to settle at $130, slightly down from an ADR of $131 for hotel bookings in 2000.

Internet: The ADR for room reservations booked via the Internet for 2001 guest stays fell 11 percent or $12 to an ADR of $96, significantly lower than the ADR of $108 that occurred in 2000. 

The ADR rate gap between the two electronic distribution channels experienced notable movement of nearly 48 percent in 2001.  The variance in rates widened to $34, or an increase of $11 over the rate gap of $23 in 2000.

Room-rate Range Performance GDS vs. Internet

GDS: For analysis purposes, Pegasus categorized analyzed ADRs in terms of rate ranges of $50 or less, $51 - $100, $101 - $150, $151 - $200, $201 - $250, $251 - $300, and $300 and up.  Consistent with the performance of travel in 2000, the $51 - $100 room-rate range was the most popular price category with travelers whose hotel reservations for 2001 arrivals were made through the GDS channel.  In addition, the $77 ADR for the $51 - $100 rate segment remained steady.  The second most popular rate category was $101 - $150 with an ADR of $124, which was consistent with the previous year’s outcome. 

Internet: For the Internet channel, the $51 - $100 rate category dominated guest stays in 2001, as it did in 2000.  This room-rate segment had an ADR of $74, mirroring that of the previous year.  As with the GDS channel, the $101 - $150 rate range secured the position as the second most popular room-rate range booked via the Internet by travelers.  For this rate category, the ADR of $123 saw no movement over 2000.  Worth noting, the Internet channel’s ADR of $417 for the $301 and above price segment surpassed the GDS channel’s ADR by $7 for the same rate band.

Web Sites’ ADR Performance Snapshot

To gauge room-rate outcomes by type of Internet channel, Pegasus took a closer look at aggregate hotel bookings made in 2001 and 2000 via various types of Web sites. 

Hotel-branded Web Sites: With a significant year-over-year decline in ADR of nearly 21 percent, proprietary hotel-branded sites experienced a drop in price segment, moving from the $101 - $150 ADR rate band to the high end of the $51 - $100 range.

Discount Sites (opaque): Still apparent in 2001 was the trend of discount sites selling rooms at rates at about 35 to 40 percent lower than those booked on hotel single-brand sites.  In 2001, the ADR of discount sites fell about 12 percent, settling at the low end of the $51 - $100 price category.

Group/Convention Sites: Of the Web site-related bookings studied by Pegasus, the group/convention business was the only Internet channel to realize positive year-over-year movement in price.  The ADR for online hotel reservations in this segment grew more than 10 percent over 2000 and occupied the high end of the $101 - $150 price category.  This may be in part attributable to the growing acceptance of this booking mechanism, which was evident in the increase in reservations volume seen on group/convention sites analyzed by Pegasus.

Major Third-party Sites (selected sites with annual reservations volume greater than 20,000): The ADR on leading third-party online travel agency sites was down nearly 7 percent, but was in line with the average room rate booked on hotel-branded sites in 2001, which was in the high end of the $51 - $100 range.

Minor Third-party Sites (selected sites with annual reservations volume less than 20,000): Although minor third-party Web sites experienced only a 5 percent decline in ADR, the average room rate booked on this type of site was nearly 34 percent higher than that of the major third-party sites and fell in the middle of the $101 - $150 price category.

HOW PEGASUS’ SNAPSHOT WAS CONDUCTED

The travel snapshot was conducted by Pegasus Solutions and is based on cleansing and analysis of electronic reservations transaction data that was captured from thousands of Internet hotel reservations booked around the world through thousands of travel-related Web sites whose online hotel reservations are Powered by Pegasus™, as well as from thousands of electronic GDS hotel bookings that are processed through the Pegasus Electronic Distribution System.  The GDS bookings originated from travel agents using GDSs such as Amadeus, Sabre, Galileo and Worldspan, or from Internet sites that are powered by GDSs.  By being Powered by Pegasus, a Web site gains seamless access to the central reservations systems of nearly 200 hotel brands, providing online travelers with real-time rates, availability and booking capabilities with instant online confirmations. 

Dallas-based Pegasus Solutions, Inc. is a leading global provider of hotel reservation technologies.  

HILTON POSTS MODEST RISE IN PROFITS DESPITE TOUGH CONDITIONS

Hilton has posted a modest rise in full-year profits, despite difficult trading conditions. Its 2001 pre-tax profits before one-off costs were £280.2 million, up from £276.7 million.

Hilton says hotel trading in European cities affected by the events of September 11 is showing signs of recovery.

Its Ladbroke division's betting and gaming profits, excluding international gaming and casinos, rose by 23% to £113.5 million.

Over the year to December 31, profits at its Hilton International division fell 17% to £221.4 million, when stripping out profits from its Scandic Hotels, which it bought in June.

As well as September 11, foot-and-mouth disease and the generally weak global economies also made trading conditions difficult.

Group chief executive David Michels says: "Despite the difficult hotel trading conditions in the last four months of the year, the group still managed to increase profits before tax, goodwill amortisation and exceptional items, mainly due to the outstanding performances of both divisions in the first-half.

He adds: "It has been another busy year for Hilton International, with the pioneering £312 million sale and leaseback transaction of 11 hotels to the Royal Bank of Scotland.

"In Europe, we purchased Scandic Hotels, the largest hotel operator in the Nordic region, increasing the total number of hotels in the Hilton family from 224 to 384."

Mr Michels adds: "We also have another 41 new Hiltons due to open over the next 30 months from as far afield as Kuwait to Kuala Lumpur."

BATTERY-POWERED RITZ

Forbes.com   -  What would the English say about the Ritz-Carlton Battery Park's new "power tea," where Earl Grey and canapés have been substituted for fruit-infused vodkas and steak tartare? They just might think it's a great idea. Located near Wall Street, New York's newest Ritz-Carlton has many elements that guests have come to expect from this luxury chain, such as afternoon tea, superior service and understated décor. But it has also tweaked a few signature elements to appeal to a younger clientele.

The timing of the hotel's opening, of course, could not have been worse. When it opened its doors on Jan. 29 after two years of construction, the city's financial district was still reeling from the aftershocks of Sept. 11. The destruction of the World Trade Center and the surrounding area not only forced the hotel to delay its official start by several months but also nearly decimated its potential client base.

But as Wall Street has begun the laborious climb back to normalcy, the establishment of a hotel like the Ritz-Carlton sends a positive signal that the world's greatest financial district is still open for business. 

Inside, the hotel seems eerily unruffled by the devastation only blocks away. The décor is a restrained 1920s Art Deco style highlighted with Asian elements. Blown-glass vases and oversized bowls in vibrant primary colors dot the hotel, together with gigantic arrangements of calla lilies and bamboo shoots. The Asian theme also extends to the rooms, where the colors used are muted sand, celadon green and pale yellow, and much of the furniture (such as the entertainment center) is a high-gloss lacquered wood. All of the artwork in the hotel was commissioned from New York City artists--such as painter Ross Bleckner and photographer David Seidner--and just about all of it is original.

Nearly all the rooms face New York Harbor, offering views of the Statue of Liberty and Battery Park. Each room comes with a telescope aimed at Lady Liberty, and guests will appreciate the small touches, such as Bose radios, Bang & Olufson stereos, Frette linens and down comforters. The bathrooms are tiled in a pale marble, and guests also receive a pair of Ritz-Carlton pajamas (after six visits, the hotel will monogram them and keep them for your next trip). For those who aren't technologically savvy, a Technology Butler can help you with your tech woes. Now if he could only follow you to work.

Guests (and New Yorkers) can visit the Rise Bar on the 14th floor, which has views of the harbor as well as a large wraparound terrace. The hotel plans to have daytime yoga classes there during the summer. Downstairs, the 2 West restaurant serves "new American cuisine" that, paradoxically, continues the Asian theme, with such touches as bento boxes and dim sum.

The hotel's spa (which is also open to non-guests) has the full range of treatments. For those who are too lazy to travel between floors or simply want more privacy, ring the Bath Butler (there are actually three types of butlers in the hotel; besides the Technology and Bath Butlers there is also a Wedding Butler) and choose from four different types of baths. Then, the baths will be drawn for you (and no, the butler does not stick around to scrub your back).

The Liberty Bath is milk-based with a blend of essential oils and comes with an after-bath treat of Bailey's or Remy XO and a selection of Belgium chocolates. The Wall Street Bath, with rosemary and peppermint, is intended to invigorate the mind (and comes with a glass of beer or champagne). And just for kids, the Rub-A-Dub-Dub Bath is a plain, old-fashioned bubble bath, complete with toys, chocolate milk and homemade cookies.

All of this luxury does not come cheap. Rooms range from $465 to $4,500 for the Ritz-Carlton Suite. If you enjoy your stay so much that you never want to leave, the top floors are residential apartments and range from $680,000 to $6,350,000.

The Ritz-Carlton
2 West St.
Phone: (212)-344-0800
Fax: (212)344-3804

Forbes Fact

The name "Ritz" is only to be used by the Ritz hotel in Paris, which was founded in 1898 by Swiss hotelier Cesar Ritz, as well as by two other hotels that bear his name that Ritz founded subsequently in London and Madrid. Cesar Ritz also managed a fourth hotel in London, called the Carlton. After Ritz's death in 1918, his widow continued to expand the brand in the U.S. In 1923 Bostonian William B. Johnson acquired the rights to the Ritz-Carlton, which was then sold to Albert Keller, who established the Ritz-Carlton Investing Co. and franchised out the name. By 1940 there was only one Ritz-Carlton--the original Boston hotel--still in operation. However, after several changes of ownership, the chain is now 99% owned by Marriott International and has 40 hotels around the world

AUSTRALIAN HOTEL ASSOCIATION CALL FOR SIX MONTHS WAGE PAUSE

AAP News  -  A downturn in tourism had left the hotel
industry with no option but to seek a wage pause for staff, the
Australian Hotels Association (AHA) said today.

The AHA today revealed it would seek a six-month freeze on wage
increases for staff in four and five-star hotels across the
country.

The application for a pay pause comes as part of the union's
annual living wage case.


The ACTU has lodged a claim in the Australian Industrial
Relations Commission for a $ 25-a-week pay rise for the nation's
lowest paid workers.

AHA national executive director Richard Mulcahy said the ACTU
wage claim would send some accommodation hotels broke and should be
postponed.

"We are seeking a special exemption for the four and five-star
hotels as this sector of the tourism industry has been hit
particularly hard," he said.

"The events surrounding September 11 and the collapse of Ansett,
combined to make the summer period a particularly difficult one
financially."

The chance of an upturn in tourism was served another blow
today, when a deal to finalise the sale of Ansett to Tesna fell
through.

Mr Mulcahy said the four and five-star hotel sector was not
expected to pick up business in the short-term.

"This sector has had their executive bonuses frozen, some
general managers have been forced to reduce staff hours, while
others have been forced to reduce staff all together," he said.

"The money is simply not there to justify a wage increase at
this time because the work is simply not there."

The AHA is expected to put its claim for a freeze on wage
increases when it makes its submissions in the Living Wage case
next month.

Comment was being sought from hotel unions.

The hotel workers' union, the Liquor Hospitality and
Miscellaneous Workers Union (LHMU), said it believed hotels had
weathered the storm of the recent downturn in tourism.

LHMU assistant national secretary Tim Ferrari said the AHA push
for a wage pause came in the very week that the hotel industry was
booked out in four capital cities.

"In Adelaide because of the Queen's visit; in Brisbane because
of CHOGM; in Sydney because of the Mardi Gras; and in Melbourne
because of the Grand Prix - you just can't find a spare hotel bed,"
he said.

Mr Ferrari said the workers who would be impacted by the wage
freeze were those who could least afford it.

"The workers who would be damaged by the AHA's claim are those
whose employers pay only the minimum award wage and who refuse to
bargain for above-award wages," he said.

"These workers earn less in a day than many of their employers
spend on lunch.

STARWOOD EYES ZIMBABWE

The Financial Gazette -  STARWOOD Hotels, one of the world’s largest hotel and leisure firms and owners of the Sheraton brand name, says it is exploring possible business opportunities in Zimbabwe in a move seen as an endorsement of the country’s tourism industry.

The company’s senior vice president for the Middle East and Africa, Philippe Cassis, told the Financial Gazette that the United States-based firm believed in the potential of Zimbabwe’s tourism industry despite the volatile economic and political climate prevailing in the southern African country.

Cassis, who is based in Egypt, was in Zimbabwe last week as part of a tour of various hotels managed by Starwood in Ethiopia, Nigeria and South Africa.

"We will be looking at any potential properties in Zimbabwe over the next 12 months," he said.

During his stay in Zimbabwe, Cassis visited several resorts such as the Victoria Falls as part of efforts to explore potential business opportunities.

The mooted move by Starwood comes at a time when Zimbabwe’s tourism sector is going through a difficult patch, marked by tumbling hotel occupancy and a string of politically motivated violence in which more than 40 people have been killed since December last year.

Zimbabwe has suffered an 11 percent drop in tourist arrivals since 1999 due to international worries about the government’s chaotic land seizures.

Statistics released last month by the Zimbabwe Tourism Authority show that tourism receipts tumbled by more than 42 percent in 2001 due to the decline in arrivals.

Starwood is one of the world’s largest hotel and leisure companies, with brands such as the Sheraton, Westin, the Luxury Collection, St Regis and the Four Points. Through these brands, Starwood is well represented in most major markets around the world.

The company’s revenue and earnings are derived primarily from hotel and leisure operations, which include the operation of its own hotels, management fees earned from hotels the group manages under long-term contracts, receipt of franchise fees and the development, ownership and operation of vacation ownership resorts.

At the end of 2000, the company’s portfolio of owned, managed and franchised hotels totalled 738 hotels, with about 227 000 rooms in 80 countries.