One-On-One: Wolf Hengst Airs Four Seasons' View Of Deluxe Changes - 2006-10-23

Wolf Hengst, Four Seasons president of worldwide hotel operations, spoke recently with BTN editor-in-chief David Meyer about the strength of corporate demand, current corporate negotiations, maintaining superior service, the importance of meetings and the state of hotel development for his deluxe hotel chain.

BTN: Demand has been extremely strong in the past couple of years. Will that strength continue through the next year?

Wolf Hengst: Right now, based on everything we see including forward bookings, it looks like the trend that we have now in 2006 is going to continue into 2007.

BTN: That certainly is the expectation many corporate travel buyers have as they enter into 2007 negotiations.

Hengst: Correct.

BTN: Are you in the height of that activity at this moment?

Hengst: Yes. The various hotels and the worldwide sales offices are in fact negotiating right now. Most of our partners expect business to be strong next year, and I think they also expect prices to reflect the relationship between supply and demand.

BTN: Does the strength of that demand look like it will continue beyond 2007?

Hengst: There's no indication that tells us that it shouldn't continue, but you know you have to deal with economic cycles. You never really know what will happen geopolitically, but in the absence of that, we're hoping the cycle will continue on the upswing for the next 24 months.

BTN: In this part of the seller's market cycle, are you less receptive to corporate discounting?

Hengst: We always make deals with our high-volume customers, of course. There is some price negotiation that goes on for the very top customers, but we are not famous for discounting, as you know. We are not going to try to reach that pinnacle this year. We are going to be good to our top customers but understand that there is only so much we can do because we provide value in terms of our pricing, and the value is based on the quality of service that we provide and that our corporate customers expect as well.

BTN: Does the total number of corporate accounts that you maintain fluctuate with the economic cycle?

Hengst: It stays fairly constant. When you have very adverse economic periods, you have some falloff. After 9/11, we had very little falloff but we had some, although it didn't last long.

BTN: In this part of the cycle, buyers are concerned not only about price, but also availability. Has the volume of requests for proposals increased this year?

Hengst: I am not sure, but it probably increased this year because there is no increase in supply at the top end of the market and demand has increased.

BTN: Your proposition always has been one of value beyond price, so do you add anything else to the negotiation?

Hengst: We don't add anything to it, because we can't discriminate from one to the other. First of all, it's confusing to our customer base, but it also becomes confusing to our employees, who should always be doing the same for everybody. We don't throw in perks, if you will. We try to give the best product and the best service, which is why Four Seasons achieves a relative premium.

BTN: In the past few years, the upper upscale chains have been trying to encroach on deluxe hotel territory. What is the competitive response to that?

Hengst: The way we know that we are differentiated is by our guests and corporate customers who continue to come back to us, despite the premium that they have to pay, because what we deliver on a consistent, ongoing basis makes it a value buy. I can't really worry about what other people are giving, because I have to worry about what we are giving our guests as far as their expectations are concerned, which always revolves around the quality of service, recognition and the very basics of our business.

BTN: If it's really about maintaining that level of service and making sure there are no defects, is there a process you have in place to make sure you constantly are performing at the top of your game?

Hengst: You have actually hit it right on the head. That's exactly what we provide. We have always stuck with the knitting. It is something we are compulsive about because we know that is what our guests demand. We have all sorts of processes in place to make sure this happens on a consistent basis. We spend an enormous amount of time, first of all, in selecting and interviewing our employees based on tight identifiers. At our company, it doesn't matter at what level, you have to interview for any position five times, and the fifth time it's with the general manager of the hotel. It doesn't matter if you are a steward or a financial director. Everyone goes through the same process. Once the person is hired, we make sure they are trained. The other important factor is the work environment that we provide our employees, with a true level of dignity and respect for what they do. We believe that reflects onto our guests and our purveyors, to our partners, and instills a sense of pride towards the hotel and the company. That's why we're on nine years of being on the Fortune list of the best employers.

BTN: How do you keep that fresh? Do you make changes in the training or in the follow-up?

Hengst: It's not about freshness. It's about never stopping the process, and also ways to keep it interesting. Ten years ago, we never thought about online access for management training for all sorts of levels, as we do today. I guess it is a refreshing. It is taking advantage of new opportunities to train and to teach, and never stopping, because possessions and people change and you have to have reorientation and evaluation of employees. It's a constant focus on how can we keep the employee in place to do the best job possible.

BTN: Are corporate meetings an important part of your growth?

Hengst: Meetings have always been huge for us. While we're a very significant individual transient business hotel company, and of course leisure is very big for us—they are for the most part the same customer, incidentally—the meetings business has always been substantial. It has been growing, contrary to predictions going back 10 years, in which the mindset appeared to be—with videoconferencing and other technology—that there would be less travel for meetings. We've found that it's actually been the reverse. I can see from how I travel today, which is more than I did 10 years ago. There is nothing that substitutes for getting together in a group face-to-face, because of body language, expression, networking and camaraderie.

BTN: As you look to develop the chain, are you looking to add meetings facilities?

Hengst: We've always looked at a very good mix of meetings space to total public space because we know that it's such an important part of our business. For instance, we opened Hong Kong earlier this year. In that hotel, we have a very significant amount of meetings and function space, because when you have a 400-room hotel, you need more group space than, say, at Jackson Hole, where we opened a hotel with less than 200 rooms. We do have meetings in Jackson Hole and Whistler, which are ski resorts and summer leisure resorts. We have a good meetings mix, even though the mix may be smaller in terms of facilities. They're there so that we can take advantage of the meetings business in shoulder seasons and in some instances even during the high season, if they are willing to pay the premium. We will always have that as an important element of our planning of new hotels because that business, I believe, will continue to be as significant to us in the future as it is today.

BTN: Where in the United States would you like to see Four Seasons?

Hengst: The one thing that I have learned in my 30 years with the Four Seasons is that marketplaces change. Cities that may appear to be tertiary cities all of a sudden become secondary cities. I would not have thought, back in the late '70s, that going into the late '80s and '90s Austin would be a very important and excellent market for us. Baltimore is a very strong market, but I wouldn't have thought 10 or 15 years ago that that is a place for a Four Seasons. Today, I think a market like St. Louis is and will be a good market for us, and I wouldn't have thought that 10 years ago. There are plenty of leisure destinations that still are available over the years to come in North America.

BTN: Do most near-term development opportunities lie outside North America?

Hengst: For the most part, yes, as far as business hotels are concerned, certainly.

BTN: Is Asia the hot region?

Hengst: It is, Asia and the subcontinent. We're opening in Mumbai, India. It will be a business hotel and we're opening early next year. We're also building a second hotel in Shanghai, which we'll open in about three years. We're going to be in Guangzhou in three or four years and I predict in two or three other locations in China over the next few years. In Beijing, we hope to have a hotel open in time for the Olympics, but it is a business hotel as much as anything else. We just opened a business meetings hotel in Palo Alto. We've got Stanford University nearby, the entire Silicon Valley and it's a gorgeous hotel. If you had told me 15 years ago that we'd be there I'd have said, "What?"

BTN: Are you currently involved, as so many others are, in a lot of renovations?

Hengst: We never stop. In good times and in bad times, together with our partners, there's always been an understanding that we have to really keep the hotels at the very top. As an example, this year we completely renovated the Washington Hotel, which was the yield leader and the most successful hotel in Washington. We completely redid it. In fact, we reduced the size of the hotel to provide larger rooms from the original ones we opened back in 1978. And today the hotel is ready for the next 20 years of leadership. In Santa Barbara, we have done a major multimillion-dollar renovation with our partner, Ty Warner. The hotel today is in my opinion one of the most beautiful hotels on the entire West Coast of the United States. Ty Warner also is the owner of the New York Four Seasons, where we have just put tens of millions of dollars into renovating the rooms—adding suites at the top that are simply magnificent—and restaurants. That is typical of what we do. There's always a certain percentage, depending on the contract, that has to be reinvested every year in capital improvements. We are completely redoing Chicago starting in December. The hotel has always been rated one of the top hotels in America, and I'm sure that when we get done with the renovation, which goes through June of next year, we will regain that number-one spot in the United States. It's already a magnificent hotel that we're spending another $30 million on.

BTN: Are you converting any hotel space into residential space?

Hengst: We have not been involved in conversions like that. The residential properties that we have, in such cities as San Francisco, Chicago, Boston, Houston and Miami, are built for that purpose.

BTN: Do your hotel guests benefit from that residential infrastructure?

Hengst: Well, for one thing, it allows hotels in destinations to be built that otherwise might not by built because of the cost today of building stand-alone hotels. It brings capital to the table that allows the hotel to be built. In that regard, the business traveler benefits. The other way that the business traveler benefits is, at our hotels in Hong Kong and Miami, which has 220 rooms or so, the residential part can, on the request of the owner, be introduced into the rental pool. We can rent those units and in an overflow situation use them as hotel rooms. It's more common in leisure destinations than in business destinations. It does exist in business destinations, but to a lesser extent.

BTN: Will deluxe hotels offer free high-speed Internet access?

Hengst: It's still very much a debate. Generally, in the luxury category it is still something that involves a small charge, but for many it's become a bit of an irritant and it may very well go the direction of some other charges. We don't nickel-and-dime people to death. That is pretty much the only expense that we charge our guests for and we don't get much negative reaction on it, although we do occasionally, quite frankly. My prediction is that sooner or later it will be a nonchargeable item.

BTN: From your perspective, is the market at an all-time high right now?

Hengst: We're approaching 2000 levels, which were the all-time historical high. I don't think we're there in the luxury category, but we're approaching it. We're right up near the top.

BTN: When did you actually hit what you would call recovery from 9/11?

Hengst: I think we started recovering last year. It started at the end of 2004. In 2005, you could see it in cities like New York and San Francisco, which had been such a disaster. It was certainly universal for us at the end of 2005 and into 2006.