Ritz-Carlton Retains Hold On Corporate Deluxe Buyers

For the sixth consecutive year, Ritz-Carlton Hotel Co. has grabbed the trophy as best deluxe chain in the eyes of business travel buyers, earning the highest scores for seven of the 13 criteria respondents were asked to measure in the Top U.S. Hotel Chain Survey. In addition, Ritz-Carlton tied for first place with Mandarin Oriental Hotels on two other criteria. In second place again this year was Ritz-Carlton's long-time rival in luxury lodging, Four Seasons Hotels & Resorts. Rounding out the top three positions this year was Starwood's St. Regis/Luxury Collection, which moved up from fourth place last year. Mandarin Oriental, which recently opened hotels in New York and Washington, D.C., made its first appearance on the list since 2002 in fourth place, followed by Fairmont Hotels & Resorts in fifth place out of five.

Survey respondents ranked Ritz-Carlton first on ease of arranging individual and group travel and its meeting facilities, among other criteria. Ritz-Carlton tied with Mandarin Oriental on its commission payment systems and the quality of its business centers. Four Seasons received highest scores for the quality of its food and its overall value of price to value. Mandarin Oriental scored highest for the quality of its in-room business amenities, and Fairmont led for its corporate rate programs.

The deluxe segment is positioned particularly well to benefit from the current rebound, according to Merrill Lynch lodging analyst David Anders. These brands were hesitant to lower room rates during the downturn, but instead allowed occupancy to decline. "Given the steadfast recovery experienced in 2004, we expect most key brands in the segment to raise rates in 2005, thus supporting ongoing revenue per available room growth," Anders said.

While new supply is at record lows across the industry, development sites appropriate for deluxe hotels are especially scarce, limiting the number of new competitors in key markets. "Deluxe development also requires long lead times and has higher than usual capital investment," Anders said.

PricewaterhouseCoopers said RevPAR in the deluxe segment grew a healthy 10.2 percent in 2004, year over year, compared with 7.5 percent for U.S. hotels overall. By comparison, RevPAR for the segment in 2001, the first year of the downturn, fell a significant 14.2 percent over the previous year.

For Ritz-Carlton president and COO Simon Cooper, a number of positive market forces that couldn't have been anticipated came together in 2004. "International travelers are back, the economy is strengthening and there's a sense of confidence among our corporate clients that they need to resume business travel," Cooper said. "Occupancies had been building and in 2004 we began to see upward movement on rate as well."

The rebound has been most apparent in the gateway cities, with certain markets in Middle America still a bit soft. Internationally, Cooper said the recovery in Asian markets had been more pronounced than in Europe. "German business travel, for example, has not been particularly buoyant," Cooper said.

Economic fluctuations notwithstanding, deluxe hotel operators need to take the long view. "The hotel is going to be open for 50 years, you don't open for the moment, so you invest accordingly," Cooper said. He remains particularly bullish on the long-term prospects for Asia, China in particular. Ritz-Carlton is building two new hotels in Beijing and in December announced a second project in Shanghai in the emerging Pudong financial district.

"Soon after we opened our original hotel in Shanghai in Puxi, we realized it wasn't the building or the meeting space alone that was going to make us successful," said Mark DeCocinis, vice president and area general manager for China. "It was the quality of the staff we recruited and the service culture we created. This applies to any lodging category, but especially in the luxury tier. And we've been very successful."

Similarly, Four Seasons saw demand for luxury travel increase through 2004. Along with demand, average daily rate has increased. "Profit margins continue to improve, particularly as we realize higher room rates," said chairman and CEO Isadore Sharp, adding that demand in the deluxe segment had outpaced other industry sectors. In addition to Asia, Four Seasons has targeted the Middle East. The property it opened in August in Cairo is its second in that city.

With the return of international travelers has come an increased average length of stay. "Rather than fly in the night before an appointment, they're more likely to arrive two or three days in advance to get acclimated," said Brian Honan, director of marketing for the Four Seasons New York.

Many accounts, financial firms especially, are starting to relax the strict budgeting controls that were the rule during the downturn. "Not only are bookings up, but we've begun seeing more reservations for suites and the club floor, which charge a premium," said Dan Flannery, general manager of the Ritz-Carlton New York Battery Park.

Ritz-Carlton and Four Seasons also have expanded their resort portfolios, where business travel is primarily meetings. Bookings rebounded in 2004. "We also saw groups extending the length of their meetings—board meetings and senior-level executive retreats mostly—to the point where six-day bookings were common," said Brad Jencks, general manager of the Ritz-Carlton St. Thomas.