eHotelier Newsletter

Sir Rocco Forte, Ken McCulloch and Orient-Express are battling to cherry-pick Starwood’s luxury Ciga portfolio, while Hilton, Marriott and Le Meridien have not confirmed an interest.

The news, in this week’s issue of The Business, comes after the deadline for bids passed last week.
In June 2001 Sir Rocco’s RF Hotels signed a JV deal with the Bank of Scotland giving him some £270m to spend. The article claims that the Danieli in Venice, the Diana Majestic in Milan and the Santa Maria in Madrid would fit RF Hotels’ expansion plans. They would soak up an estimated £95m of the £270m warchest.

The properties being eyed up by Orient-Express, Ken McCulloch and the Savoy group are not named.
Starwood put Ciga up for sale the start of the year. It is looking to reduce its $2.3bn debt and invest further in its Sheraton and Westin brands.
Background from e-tid.com

HOSPITALITY INDUSTRY INNOVATION IN TECHNOLOGY – A CALL TO ARMS

Written by: Chris Hartmann, HVS International

When it comes to technology, the hospitality industry has generally preferred to have third parties develop products that we purchase when they are complete. This is true across the technology spectrum, from computer systems, in-room entertainment, high-speed Internet access, even to sales and "distribution". This is not a bad strategy for minimizing risk, but I'd like to propose that as businesses, even people-oriented hospitality businesses, become dependent on technological innovation, it's time for us to take a more active role.

Information gathering and even sales are increasingly taking a technological turn. Guests may read about your property in a magazine or see an ad for the brand on TV, but when the time comes to actually choose a place to stay, more people are turning to the Internet or possibly a travel agent, using a Global Distribution System (GDS), to make that final decision.

But much of the information that is presented and almost all the reservations booked come from third parties such as travel sites and GDSs, where it's not only outside our control for the most part, but sterile and unattractive. Even when an individual property prepares the information for the GDS, it's the GDS that governs how the information is presented. The Internet in many ways is a low-cost media channel. It provides the ultimate in flexibility where published information can change as often and as dramatically as you like. Many marketers remember the good old days of late night TV direct marketing. You found out how effective your advertising was six weeks later and you could adjust and try out three or four strategies a year. It was Heaven, but it's even better now.

Using the Internet you can get answers back the next day or certainly within a week. Want to try three messages? Do them all at the same time. Want to know which media provides the most exposure? Offer the same deal through a different URL for each "publication". Need to close out discounts quickly or want to allow "pay in advance" rates? You'd better be online because you're not going to be able to explain it to customers who call up after reading a magazine ad. Flexibility is not a hallmark of most third party information and reservations providers. Finally consider customer acquisition. The cost of a new customer versus retaining an existing one has been quoted at anywhere from 2 to 1 to 10 to 1, or even more. We know more about our customers (or at least should) than almost any other business, yet my kids get contacted weekly by clothing stores that they've visited on the web or shopped in, while I can't remember the last time I heard from a hotel that I stayed in, let alone ever been told, "Since you requested high-speed Internet access during your last stay, we wanted to let you know all our Executive level rooms now have complimentary access."

Those who still believe technology does not play an important role in hospitality should look to K-Mart's current problems and Wal-Mart's success to understand what ignoring technology can do to any business. In a recent Forbes.com piece on K-Mart's problems, Forbes magazine noted: "He (K-Mart's CEO James Conaway) is also hacking away at the supply chain mess left by decades of under-investment in technology. Scanners in the stores were outdated and didn't feed purchasing information back to headquarters, leaving the central planners in the dark about what customers were buying. When Conaway arrived at K-Mart, the distribution centers were late in delivering merchandise to stores 11% of the time, or about one in ten deliveries. Most retailers are late just 5% of the time.

The supply chain system also bungled 15% of stores' orders from the distribution centers. The industry's discrepancy rate is less than half a percent. And until last year, shrinkage, the percentage of goods lost to mishandling and theft, was three times that of competitors. K-Mart took a $195 million charge in the October quarter to jettison old software. Conaway is devoting $1.7 billion to upgrade store and back-office technology, including new software from I2, Manhattan Associates and other tech outfits, in hopes that the applications will fix the underlying problems. He's also spending $200 million on high-tech checkout scanners from IBM.

Rafts of consultants from Deloitte & Touche, where Conaway worked early in his career, are doing the integration. "Project Elmo," the 400-person initiative to combine the two separate hard-line and soft-line purchasing systems into one, will be done by quarter's end. Conaway told analysts the conversion would eliminate 5,000 computer jobs and get goods to the stores two weeks faster. K-Mart is also redoing its demand-planning and forecasting software to get the right goods into stores, hoping to reduce the replenishment cycle from the current five- to seven-day levels to between 48 and 72 hours."

Contrast that to the numerous stories of Wal-Mart's success including this recent study by McKinsey (Retail: The Wal-Mart Effect) that explains that while half of Wal-Mart's innovations came from managerial decisions, "Even so, IT was a necessary if not a sufficient part of Wal-Mart's success. The company invested in most of the waves of retail IT systems earlier and more aggressively than did its competitors: it was among the first retailers to use computers to track inventory (1969), just as it was one of the first to adopt bar codes (1980), EDI for better coordination with suppliers (1985), and wireless scanning guns (late 1980s). These investments, which allowed Wal-Mart to reduce its inventory significantly and to reap savings, boosted its capital productivity and labor productivity." Note the dates carefully as most of these initiatives were completed years and even decades before Wal-Mart decimated its competition.

Hospitality has recently had some bad experiences with e-procurement and high-speed Internet access providers. Companies launched products that were sustainable only via massive investments and quickly collapsed. Although hotel companies relying on their services paid very little or nothing, they lost a great deal both in service levels and time. "Free" to the property only meant they didn't send any cash to the service provider.

It definitely wasn't free of cost. Although ours was certainly not the only industry burned by the technology bubble, one need only look to manufacturing and office buildings to see examples where e-procurement and high-speed access continue to flourish for both suppliers and customers. At least part of the reason for their success is the fact that the customers were and are, deeply involved in the creation and development of those services.

It's time for the hospitality industry to step up to the next frontiers of innovation, the Internet and data integration and management. Computers can improve everything from sales to yields to cost efficiency. We don't have to do it all - any more than Michael Dell or Sam Walton did, but nor can we rely on transaction processing companies and generic web developers to provide "out of our control" pre-packaged solutions while we sit back and watch. We've got to be active participants, come up with ideas, work with others to implement them, and take the lead in innovation within our own industry.

Chris Hartmann is Chief Technology Strategist for the HVS Technology Strategies division of HVS International. Chris has a computer science degree from Harvard as well as over 18 years experience as Chief Technology Officer at a large advertising agency in New York.

The Pacific Asia Travel Association (PATA) has pledged to support a new campaign to restore consumer confidence in travel.

Spearheaded by the Association of Asia Pacific Airlines (AAPA), the campaign, themed "Travel Moves People," communicates to the public that travel is an essential part of life. This is accomplished through messages that reach out to the emotive sentiments of consumers.

"Our objective is to motivate people to travel -- to create momentum that will propel our industry into recovery by mid-2002 and beyond," said Mr. Peter de Jong, PATA President and CEO.

PATA, as part of its active endorsement of the campaign, has asked its members to consider contributing funds, advertising space or even travel prizes that can be used in lucky draws.

"Challenging times such as these call for unity and cooperation," said Mr. de Jong. "We can accomplish a great deal by working together as an industry, and PATA and its members are grateful to the AAPA for recognising the importance of all segments of travel and tourism."

The advertising and public relations campaign is funded by voluntary contributions from key stakeholders in the travel and tourism industry, including Airbus and ABACUS. The campaign will run through April in key regional markets such as Hong Kong SAR, Japan, Malaysia, Singapore, Brunei, Korea (ROK), Chinese Taipei, Thailand, Vietnam and the Philippines.

Founded in 1951, the Pacific Asia Travel Association (PATA) is the recognised authority on Pacific Asia travel and tourism. PATA's membership includes 41 national government members, over 60 state and local tourism bodies, 66 airlines and cruise lines, and some 2,000 travel-related companies and organisations in total. In addition, 17,000 individuals participate in 80+ PATA chapters worldwide. PATA programmes are designed to meet the needs of members, allowing each to remain competitive in the world marketplace. PATA offers members research and marketing services, product development and a variety of educational seminars and workshops.

The AAPA is a grouping of 18 scheduled international airlines based in the Pacific Asia region. It is the trade association of the region's airlines, created to represent their interests and to provide a forum for all members to exchange information and views on matters of common concern. For more information about the AAPA, please visit www.AAPAirlines.org.

The San Francisco office of HVS International, the global hospitality consulting and hotel appraisal firm, has just released its annual Hotel Development Cost Survey. Published annually since 1979, the survey tracks nationwide hotel development costs. HVS International has completely revised its methodology and reporting for the 2001 Hotel Development Cost Survey. This year, we are launching a redesigned hotel development cost survey to include a larger range of hotel products and a new classification of development cost categories. While prior years’ surveys differentiated between three general property types—luxury, standard, and economy—the HVS International Development Cost Survey considers the evolution of hotel facilities, resulting in six hotel product categories. The introduction of extended-stay hotels and the proliferation of focused-service properties merited an expanded analysis of development costs. Based on industry publications, rating guides, franchise circulars, and conventional wisdom, hotels products have been categorized into the following types: Economy/Budget Hotels, Midscale Hotels w/o F&B (without Food and Beverage), Extended-Stay Hotels, Midscale Hotels w/ F&B (with Food and Beverage), Full-Service Hotels, and Luxury Hotels and Independent Resorts. These categories are based on the physical attributes, amenities, and branding of the properties. Development costs are allocated among five categories: Land, Building and Site Improvements, Soft Costs, FF&E, and Pre-Opening and Working Capital, for each of the six hotel product types.

Development costs are a moving target. Budgets for projects are often penciled years in advance of a property’s opening. While the land is typically secured and its cost known, and the general contract signed and guaranteed prior to construction, other costs, such as “soft costs” relating to entitlements and fees, and pre-opening, including labor and marketing, can be more volatile.

New hotel construction surged at the end of the 1990s and we are currently in the waning phase of this development cycle. The evolution of new brands and products, particularly extended-stay and focused-service, and the availability of ready financing drove much of the boom in hotel construction during this recent building cycle. Even now, we are still seeing the completion of projects financed during this period. Data from these projects form the primary basis for the following analysis. Contributions from developers, lenders, designers, engineers, assessors, and other real estate professionals also provided substantial data for the 2001 development cost survey. We also reviewed the estimated development costs provided by the Uniform Franchise Offering Circulars for numerous hotel products.

Average development costs and allocations for each of the six redefined hotel product type are set forth in the following table:

View the complete Hotel Development Cost Survey on HVS International's website at www.hvsinternational.com.

The UK's leading hotel booking agents report a return to near normality.

Since the terrorist attacks of September 11 there has been
a drop in business travel, however the Hotel Booking Agents Association (HBAA) believe that the worst may be over.

The UK's leading agents that are members of the HBAA are reporting that booking levels for major business destinations for January — traditionally the most challenging month for the business travel — are only marginally down on last year's results. The drop being much less than anticipated in the days following on September 11th.

Charles Cockell, the HBAA's Chairman, says the biggest challenge faced by all sectors of the travel industry was the reduced lead time for bookings. The change in booking pattern applied not only to overnight hotel bookings, but also to conference bookings, and this says Cockell made planning particularly difficult for both agents and hotels.

However, although the HBAA and its member companies currently feel unable to predict when business levels will return to those enjoyed early last year, they are beginning to see booking lead times returning to pre September patterns, and Cockell believes that current trends bode well for agents and their clients, as well as for hotels, many of which have already reported, or are predicted to report, better than expected figures.

Cockell went on to say that post September 11th the HBAA has been maintaining a close dialogue with the hotel industry. A dialogue that has led to a closer working relationship between agents and hotels.

MARRIOTT INT'L PLANS TO EXPAND IN INDONESIA

The Jakarta Post - Hospitality major Marriott International is reportedly seeking several properties outside of Jakarta as part of its expansion plan in Indonesia, The Jakarta Post reported.

Marriott International president director Edwin Fuller told the paper he remained confident about the long-term business prospects in Indonesia.

The 333-room JW Marriott Hotel Jakarta opened in September when the political and economic situation in Indonesia remained uncertain.

The Sept 11 terrorist attacks and the global economic recession have further compounded the troubles of the tourism and hotel industry worldwide, Indonesia included.

"We are here for the long term," Fuller said, adding that Marriott built hotels for 20 to 30 years.

The Marriott group, whose hotel properties also go by the names of the Ritz-Carlton, Renaissance, New World and Courtyard, shelved four of its five on-going Jakarta projects in the wake of the Asian financial crisis in 1997.

Other Indonesian properties currently managed by the group include the Ramada and the Ritz-Carlton, both in Bali.

The Australian – It’s the battle of the big hotel sale. For about $ 200 million, investors have a choice of buying the plush Westin Hotel in Sydney's Martin Place or the older, Japanese-owned ANA Hotel in The Rocks.

Potential buyers, and both local and international investors, are believed to have shown a keener interest in buying the ANA Hotel because it offers vacant possession. This allows buyers to install their own hotel management team and the hotel can be re-branded.

In the case of the Westin, however, buyers have to be passive investors. Hotel operator Starwood has a water-tight clause to manage the hotel for the next 20 years and potential buyers have no choice but to continue with Starwood as the operator.

"It's an open field and the competition is going to be stiff. Although it is more than 10 years old, the 590-room ANA is a trophy property and has been trading well despite the downturn in the tourism industry," a source said.

It is understood that Accor may be interested in the hotel to stamp its own five-star Sofitel brand on the ANA. The Hyatt Group is also keen to have a Grand Hyatt presence in Sydney. International operators like the Shangri-la and the Mandarin Oriental which have been keen to enter the luxury market hotel in Sydney may also make a play for the property.

The luxury 416-room Westin, owned by developer Grocon, is part of the office complex 1 Martin Place which is also for sale with price expectations of around $ 600 million. The hotel is expected to sell for between $ 170 million and $ 200 million.

General Property Trust and Singapore's GIC have been flagged as potential bidders.

The sales will set a new benchmark for the industry as other owners look to sell down their hotel portfolio.

BT Hotels which late last year postponed the sale of its four hotel assets, will be watching with interest.

Shortly after the September 11 terrorist attacks, the Ansett collapse and the downturn in tourism, BT called off its $ 400 million sale of the Inter-Continental Hotel in Sydney, Hayman Island Resort, Sheraton brisbane Hotel and Hilton Melbourne Airport.

Newsletter - March 5, 2002