Merger Creates Luxury Giant

<B> Merger Creates Luxury Giant</B>

By Cheryl Rosen

<I>Toronto</I> - Fairmont Hotels and Canadian Pacific last month closed on a merger deal that has created the largest luxury hotel brand in North America, with 34 properties. In the group are not only the well-known Fairmonts, including the one atop San Francisco's Nob Hill, but also a variety of big-city hotels and high-end resorts including The Plaza in New York; Princess resorts in Scottsdale, Ariz., and Bermuda; and the Banff Springs, Le Chateau Frontenac and Chateau Lake Louise in Canada.

Ed Mace, president of the new Fairmont Hotels & Resorts, said that the "very unusual" combination of such a large number of landmark properties allows the company to meet the needs of corporate travel and meeting buyers in a wide variety of ways. The new company expects 45 percent of its business to come from corporate travelers, slightly more than half of that from transient travelers to the urban Fairmonts and the balance from corporate groups.

"Obviously the corporate market is very important to us," Mace said. "All our corporate salespeople at the unit level will remain, in addition to 47 salespeople in our regional sales office. We believe that's the largest staff in the industry. We're already functioning as one company, and are working through our corporate rate programs to include all our properties."

The new company--which will use the Fairmont name in the United States but retain the Canadian Pacific moniker north of the border--is 67 percent owned by Canadian Pacific, with the remaining one-third split between former Fairmont Hotels owners Kingdom Hotels, led by Arab billionaire Prince Alwaleed bin Talal, and Maritz Wolff, whose investors include the Maritz family of Maritz Travel.

From the Fairmont perspective, Mace said, the merger brings two gifts: resort properties, which Fairmont never before had, and hard capital in a real estate market where bank financing for large new projects is hard to come by. And growth surely is on his mind.

"We like to say that the whole reason for this merger is to allow Fairmont to grow. Really what's great about this deal is that the corporate customer has so many more places to stay with us--and will have even more distribution to choose from," he said. "Certainly we have more room for growth in key cities in the United States, and in resort areas as well, and we are negotiating for new hotels that will grow the brand. We're looking now for more warm-weather resorts, in destinations like Southern California, Florida and Hawaii, which we'll selectively acquire or develop. But we'd prefer to acquire, if we can find the right property."

Also in Mace's sights are new global destinations. "Our brand recognition is very high, and we'll be playing off that brand awareness in Europe and Asia. We're being very targeted in what we look at; we want it to be consistent with our existing product," he said

Though he "wouldn't rule out going public at some time in the future," at least for now, Mace said, "we have great access to capital through this group of investors," though he declined to cite his current budget for acquisitions.

"We're very opportunistic, and we have the capital," he noted. "We could do a portfolio deal tomorrow, but we do not feel pressured. The luxury market has enjoyed some very good years, and we can be patient."

Indeed, the luxury segment has been enjoying the highest occupancies in the hospitality industry, running 73.8 percent for the first eight months of 1999, and down only a pinch (0.4 percent) from the same period in 1998, the second lowest decline among the five segments, according to Smith Travel Research. "That particular segment has been doing well because the difficulty in obtaining financing has led to little supply growth, and there's been good demand growth," said Smith vice president Chuck Ross.

Global growth, meanwhile, will bring a greater emphasis on technology, as the company plays off its brand name to a huge new Internet audience. "The electronic commerce aspect of the business is going to continue to accelerate, and all of us see the relationship with at least some of our customers changing," Mace said. "Our current online business is small, but it's growing at geometric rates. We want customers to be able to buy us in any way they choose, and we are looking at every model, though we are not anywhere near introducing anything that displaces the current distribution system."

Canadian Pacific has been on something of a hospitality buying binge in recent months, acquiring the 38 Canadian Delta Hotels last year and the Princess chain in August 1999. The Delta chain is not included in the current merger.

Mace and his team have spent much of their time in the months since the deal was first announced (<I>BTN</I>, April 26) "integrating the operating companies, and refining operating service standards, to be sure we carry consistent quality across the brand." On his agenda for January is a plan to integrate the CP and Fairmont loyalty programs.