Hospitality Conference Yields Mixed Growth Opinions

<B>Hospitality Conference Yields Mixed Growth Opinions</B>

By Bruce Serlen

<I>New York - </I>Hotel industry experts expect a healthy performance for the remainder of 2000 and into 2001, but two of the industry's top analysts, disagreed here at last week's New York University Hospitality Industry Investment Conference, on just what the U.S. supply-demand growth picture would look like.

Randell Smith, CEO of Smith Travel Research, projected that supply growth will start to move back down this year, while demand will be strong for the foreseeable future. "We've seen the demand growth rate exceed the supply growth rate in the past three months," he said.

Bjorn Hanson, global hospitality industry leader of PricewaterhouseCoopers, however, said supply growth will stabilize. "The supply growth rate will be 3.4 percent in 2000, 3.2 percent in 2001 and 2.8 percent in 2002," he said.

Supply in the upscale and upper upscale categories, which matters most to most business travel buyers, will have a disproportionate amount of construction relative to their market presence (see chart, page 1). "In these categories, considerably more supply will come online in late 2000 and 2001 than was anticipated," Hanson said.

For travel buyers, greater supply growth, relative to the growth in demand, translates into a stronger negotiating position as the RFP process gets underway for 2001 in the next few months, though much depends on the scenario in individual markets.

In terms of specific U.S. markets, Stephen Rushmore, president of HVS International, said the hotel market was especially strong in San Francisco, Los Angeles, Boston, New York (Long Island), Tampa and Detroit, which would make negotiations in those cities more difficult. "By contrast, the market appears weak in Salt Lake City, Phoenix, Philadelphia, Albuquerque, Houston, Seattle, Indianapolis and Memphis," he said.

Regarding national occupancy levels, Smith Travel Research said rates were sluggish early in the year, but by April were recording solid improvement: "Room rates had been drifting down, but began stabilizing about six months ago and are starting to move back up."

PwC is projecting a U.S. occupancy rate of 63.2 percent for 2000, compared with 63.3 percent in 1999. "This should dip to 62.7 percent in 2001 and then be roughly the same in 2002," said Hanson.

Senior officers of Marriott International, Four Seasons Hotels & Resorts, U.S. Franchise Systems and Ian Schrager Hotels shared the upbeat assessment of the industry's prospects, and their short-term expansion plans would seem to bear out Hanson's assessment of supply.

"With the economy as strong as it's been, we're interested in broadening our reach still further across all the bases and price points we're already in," said William Tiefel, vice chair of Marriott and chair of Ritz-Carlton Hotel Co. Marriott has 70,000 rooms in the development pipeline right now, and expects that number to be 175,000 by 2003.

As other hotel companies pursue the multi-brand strategy that Marriott pioneered, Tiefel said the company no longer is alone in negotiating with travel buyers for their business at every price point, acknowledging Hilton Hotels Corp.'s buy of Promus.

The Promus acquisition was further recognized by the Conference's annual "Deal of the Year" award. In accepting the award, Stephen Bollenbach, president and CEO, said he pursued the Promus deal because of the "breadth of brands" it brought to Hilton. "This allows us to now cross-sell to our most important customers. While Hilton had a well-known brand name, we just didn't have a large enough number of outlets to succeed in today's marketplace."

Now that its market segmentation model is being copied by other players, "our approach to negotiating national accounts has had to change," Tiefel said. He singled out Courtyard as a brand undergoing particular change. "While we're not stepping back from Courtyard's traditional suburban location, our customers are telling us they want to see more urban properties," he said.

While not on the same scale as Marriott, the 48-property Four Seasons is planning a nearly 50 percent increase in properties in the near term. "We expect to open 20 new properties in the next three or four years," said Kathleen Taylor, co-president and COO. What won't change for Four Seasons is the commitment to highly personalized service. "It's the service culture that supports our brand," Taylor said, noting that the challenge often lies in making that service culture work in some of the international markets the company is entering.

Michael Leven, CEO of U.S. Franchise Systems, said the hotel industry in 2000 is the healthiest it's been since World War II. Leven announced that the Pritzker family, which owns Hyatt Hotels, had made a $75 million equity investment in USFS. "The recapitalization gets us over the financial hump and allows us to meet our goal for opening new properties," said Leven, who said the deal gives Hyatt majority ownership but retains the USFS management team to run the company separately.

From a handful of hotels in New York, Los Angeles, Miami and London, Ian Schrager, chairman and CEO of the hotel company bearing his name, anticipates operating 25 U.S. properties, 10 European properties and at least five Latin American properties in key gateway cities in the next few years. "Like our existing hotels, these boutique properties would be more radical, more provocative, more fun and exciting than traditional hotels," he said.

Schrager is looking to grow his company, but is trying to avoid creating a brand. "A brand sets up a certain level of expectation. If anything, this will be the anti-brand," he said.

For example, Schrager is thinking beyond such specific amenities as high-speed Internet access to try to come up with a truly interactive room: "Travelers would get to design the room to their own tastes and specifications.