Tough Time To Put On Ritz
During Simon Cooper's first year as president of the Ritz-Carlton Hotel Co., the lodging industry—and particularly the deluxe segment—experienced severe drops in occupancies and room revenues. Business Travel News hotel editor Bruce Serlen spoke with Cooper about how Ritz-Carlton is weathering the storm and his strategies for post-recession growth.
BTN: Factoring in the economy and Sept. 11, what's your sense of the market for transient travel?
Simon Cooper: The occupancy declines in New York, San Francisco and Boston were already occurring before Sept. 11. You then add Sept. 11 and international gateways like these just dried up. But if you look at heartland domestic travel in the United States, I don't think that it's been impacted as much as one imagines, because all these cities get lumped in with everybody else. If you actually look on a weekly basis, the leaders in terms of decline are still the gateway cities. The heartland cities have much less international, and much more drive-in, business.
BTN: Is it the same for groups?
Cooper: As we come out of the downturn, I believe we've begun to see the start of a domestic U.S. recovery. Certainly in groups, what we're seeing is that the recovery is occurring within U.S. borders. Again, drive hotels and resorts should do better than fly hotels and resorts. What's also a reality is that some U.S. group meetings abroad have rebooked to the United States and the Europeans have done the same. When you're taking 400 to 500 people to a meeting, there's a certain wisdom at the moment not to fly them across an ocean.
BTN: With the deluxe tier hit the hardest, do you believe all lodging segments will recover at about the same time or will the deluxe chains lag?
Cooper: Inevitably, if you look at previous recoveries, it's staged. In this regard, the luxury tier is almost two markets. First, there are luxury hotel customers who aren't going to change their travel plans no matter what. But there also is a lot of luxury business that is about America celebrating success. This aspect of the business does trend with the economy. As corporate profits began to decline in 2001, there was less of that spirit of celebration. That will take a bit of time to come back. That's why the luxury tier does tend to lag behind the midscale and economy tiers.
BTN: How would you describe the negotiations for 2002 rates?
Cooper: We probably were more responsive to requests for proposals than we had been previously, only because we recognized that this year we have a lot more need. But it's also in line that our hotel in Washington, D.C., has been open a year, we're opening in New York with two hotels this year and we just opened a new hotel in Boston. As a result, we brought more to the negotiating table.
BTN: Because of the importance of these markets?
Cooper: A lot of travel buyers are in the Northeast corridor and these are very big markets for them. So, consequently,we're probably more relevant to them.
BTN: How important is the distribution question when you sit down with global accounts?
Cooper: Quite. We have about 50 global accounts. You open two hotels in New York and suddenly you're able to deliver a city to global accounts that we've not been able to deliver before, a city where a lot of people want to be. Then because you can deliver New York—and we also delivered Washington, D.C., Boston and New Orleans—now we can fulfill more of these accounts' travel needs and may get a preferential position in their program.
We have distribution gaps, no two ways about it. We need to be in Paris, Frankfurt, Vienna, Milan. Probably in Taiwan, filling out our Asian portfolio. We need to be in Beijing. In the United States, Houston, Los Angeles. We've identified priority locations. In fact, our strategy is to put a lot of effort into establishing ourselves in Beijing, let's say, rather than three or four secondary locations.
BTN: Certainly, the downturn must be affecting your previously announced plans to grow the brand?
Cooper: There's no doubt that if one were seeking financing today for a new build hotel to start, let's say, next year for an opening in 2005-2006, that's an area where there'll be some impact. We do have some new build projects. Inevitably, the numbers have to improve in the industry overall, let alone in the luxury segment, before many of these projects get financing. But this isn't the sole challenge to development.
BTN: What would be another impediment?
Cooper: With city destinations, we're limited because there are only so many cities—both in North America and internationally—that have the depth of luxury business we need to be successful. By contrast, concerning luxury resorts as a group destination, there's much less of a limit because in a way you're only limited by the number of beautiful projects people want to develop.
BTN: Given the economic downturn, is there a hidden opportunity for the brand?
Cooper: Yes, by all means. We're open to conversions as well as new builds. We believe there are conversion possibilities that will come out of this because, if you're an independent without the marketing power of a brand, you may be more impacted. So there could be good potential for Ritz-Carlton that, if this continues for a while, we'll be able to do some conversions.
BTN: Another concern for buyers—at any price point, but definitely at the deluxe tier—is consistency. As you expand the brand in troubled economic times, how do you ensure this isn't a problem?
Cooper: Whenever you grow, there are always more opportunities for service breakdowns. It's really a leadership challenge in each of our hotels because there's no way I or anyone else sitting in our Atlanta headquarters can influence service in, let's say, Bali. Only the general manager running our hotel in Bali can do that. That's why all the training we do for our leaders is so important. But the other challenge is that one can grow and undermine the mystique of a product, sometimes physically, sometimes in terms of service. You know hotel companies as well as I do where it's a numbers game and you grow for the sake of growth. And you know companies where in one city you'll stay in their hotel and in another city you won't.
BTN: Precisely. So how do you prevent that?
Cooper: One thing we're pleased about is that every hotel we've added is physically better than our current inventory. Our challenge is to animate it and create that consistency of experience to which you refer.
BTN: A related issue for buyers is that deluxe hotels have cut back on service levels as a cost-saving measure. Is this a valid concern?
Cooper: Oh, yes. But there's such a differential in price between the luxury and upscale sectors, that it really isn't sensible for a luxury hotel to try and compete on price. It's really just not worth trying to bridge that gap. Any luxury hotel that's doing that, you'd probably want to be concerned about service cutbacks. As a company, we'll be flexible on price and try to meet buyers' needs, but one has to be very, very careful.