Big Easy Hoteliers Get Tough

As the lodging industry continues to suffer reduced revenues in the economic downturn, the relationships between the hotel companies managing the properties and hotel owners have become more litigious. The latest example occurred this week in New Orleans, when Ritz-Carlton Hotels and its parent company, Marriott International, were sued by the owners of Ritz-Carlton's complex of three hotels in New Orleans, claiming a range of unfair business practices.

One of the issues is Marriott's plans to assume management of a nearby property, the former Le Meridien New Orleans, and operate it as a J.W. Marriott. The owners of the Ritz-Carlton complex--Whitehouse Hotel Limited Partnership and W.H. Holdings--contend that Marriott will divert business from its properties to the new J.W. Marriott. The complex includes the Ritz-Carlton New Orleans, the Iberville Suites and the Maison Orleans, a Ritz-Carlton Club Hotel. None of the principals in the suit would comment because the litigation is pending.

Typically in these suits, owners and managers disagree over how revenues are being divided. "The relationships often get difficult during economic downturns like we're experiencing now," said Keith Mills, lodging industry analyst at UBS Warburg.

For travel buyers and meeting planners who bring significant business to New Orleans, the conflict adds another uncertainty to a market where occupancies and room revenues have dropped. Typically, changes in flag signal a negotiating opportunity for buyers as new entrants in the market offer attractive rates as a way of building trial usage.

According to Smith Travel Research, revenue per available room in New Orleans fell 5.4 percent in 2002 over the prior year, while occupancy rates slipped 3.6 percent. In the Marriott portfolio, Ritz-Carlton is managed as a deluxe brand, while the J.W. is positioned in the upper upscale category, though the distinctions in terms of amenities and service levels can be hard to discern. Other Marriott brands including a core full-service Marriott are represented in the market as well.