European Luxury Hotel Rates Up, But Not At U.S. Counterparts' Pace

At the deluxe tip of the European market, hotels have continued to prosper, but there are varying opinions over whether their success has been tempered by some companies intensifying their downgrading policies in 2005 in spite of the general economic upturn. European hotels in 2005 generally have seen steady rate growth, rather than the spectacular acceleration of gateway cities in the United States or the rampant inflation of the Middle East. However, this probably reflects the fact that Europe did not suffer the steep rate declines as did hotels in the United States earlier in the decade.

Paul Reynolds, vice president for sales and marketing at Maybourne Hotel Group, is one of those who regards the outlook as unequivocally sunny. Maybourne runs three of London's swankiest traditional hotels—Claridge's, The Berkeley and The Connaught, which used to be sister properties of The Savoy until that property was sold earlier this year, with management handed over to Fairmont Hotels & Resorts.

"We have had a very positive year," said Reynolds. "Revenue per available room is substantially up and we had no effect from the July 7 London subway bombings. We only have eight corporate agreements. We want chief executive officers and roadshow business. We used to go after the people who travel in the first five rows of an aircraft. Now, we go after those who fly in private jets. The top one or two executives in a company are not moving down."

"Our customers are cash-rich but time-poor. If we can give them back time, that is where we are giving value," said Reynolds.

London is infamous for its steep hotel rates, which usually weigh in at $400 to $600 for a double room at the top end, but Reynolds said Americans are becoming accustomed to the price of accommodation in the U.K. capital. This is thanks to rampant inflation in the deluxe sector in New York, where room supply has contracted, taking rates to a similar level.

Mandarin Oriental also views the European market positively. It has hotels in Geneva, London, Paris and Munich. "The economy is doing well, so senior management needs to travel," said David Spooner, vice president of sales and marketing for Europe and the Middle East. "Demand has been very good."

Spooner added that Mandarin Oriental properties in Europe have benefitted from properties the chain recently opened in New York and Washington, D.C., leading more American guests to book across the Atlantic. He also confirmed that rates are increasing.

David Crowl, vice president of sales and marketing in Europe, Middle East and Africa for Four Seasons Hotels and Resorts, takes a more balanced view of the deluxe market than his competitors, possibly reflecting the fact that his chain manages more properties—12—across Europe.

"Demand is holding up well and prospects for the future are bright but in certain cities there has been a little retraction in corporate demand," he said. "Senior management stays wherever they want to stay, but most hotels need more than that. Although upper management is immune, upper-middle management does not have the same degree of empowerment. Some negotiated corporate business has transferred from us to four-star brands."

However, Crowl said he does not intend to fight back by slashing prices. "We have always taken a long view of the world," he said. "If we respond by lowering prices, then we have to lay off people. If the product changes [for the worse], then we are defeating ourselves."

Four Seasons is showing its faith in the European market with continuing, selective expansion. Its next project to come to fruition will be the reopening of the Hotel des Bergues in Geneva, a property dating back to 1834 that was previously marketed through the Leading Hotels of the World brand. One of the key differentiators between deluxe hotels in Europe and other regions is that many are situated in historic buildings constructed in the 19th century or even earlier. While this lends an "old-world" charm, it also brings the challenge of old technology. Four Seasons is giving bedrooms in the Hotel des Bergues Internet access for the first time.

Mandarin Oriental is looking even further back in time for its next project, the conversion of a 14th-century monastery in Prague that is scheduled to open next year. Crowl said a couple more projects are scheduled for 2007. "Europe is a big expansion area for us because we are light in that market," he said.

The Maybourne Group also is looking to expand its portfolio to up to 12 properties beyond its London base. Reynolds said both Rome and Paris are on shopping list.