Lowdown From Loews - 2001-10-22

Jack Adler, who became president and COO of Loews Hotels in December, recently spoke with BTN hotel editor Bruce Serlen about the increasing importance of building distribution and branding to Loews and other midsize hotel companies.

BTN: This year's softening in occupancy rates and room revenues caught many in the industry off guard even before the terrorist attacks in September. How has Loews fared?

Jack Adler: Obviously, no one was prepared for the horrific events of Sept. 11. The economic impact of these events has devastated the travel industry. Prior to the attacks, when we were just dealing with a softening economy, Loews had increased market share as business travelers were trading down from luxury brands to upper and upper upscale chains. We're beginning to see business creep back to the levels it was at before the attacks. We're hopeful this recovery will take us back to pre-Sept. 11 levels shortly.

BTN: Where is the marketplace heading?

Adler: The demand for hotel rooms really follows the economic activity in the country. Prior to Sept. 11, we were feeling a slowdown. Now, clearly, things are worse. Economic experts predict that the economy will rebound in the second half of 2002. We're very hopeful they're right.

BTN: The rate of supply growth, however, has slowed down in most markets. That's good news.

Adler: Prior to Sept. 11, it was very difficult to find construction and development financing for upper upscale hotels. Since Sept. 11, financing is virtually nonexistent. Accordingly, it is not likely that any projects not already under construction will be built in the foreseeable future. By 2003, if not sooner, the industry should rebound and new construction will resume. Given the long lead-time to construct new hotels, this slowdown in the pipeline for new construction should help existing hotels in the mid-term.

BTN: With 17 hotels at present and plans to expand to 30 within a few years, is the corporate market becoming more critical to Loews?

Adler: All of our hotels are reliant on the corporate traveler. In fact, 50 percent of all total business is group business and, of that, about 60 percent is corporate group, with the balance being association group. Of our transient business, about 65 percent is corporate. So the corporate traveler is very important to all our individual hotels.

BTN: Even in a slowing economy, buyers still are looking for increased distribution in the gateway cities.

Adler: First on our list is San Francisco, which, of course, has seen drops in occupancy this year. But our planning is longer term and strategic. We think that a presence in San Francisco, for example, will help us to grow in the Northwest and then we can go up the coast to Seattle and Vancouver. We'd also like to have a presence in Toronto. We already have two hotels in Canada, so Toronto would be a natural fit to take advantage of that existing distribution.

BTN: Given the high barriers to entry that typically exist in gateway cities, will you opt for conversions of existing properties as opposed to new builds?

Adler: Oh, it could be across the line. Development takes a very long time from identification of a site to coming up with the right concept for that site to putting the deal together, constructing the hotel, opening it and then getting stabilization. We've done well with the development of our new properties, so I'd expect that most of our growth going forward will be similar, though we're always looking to acquire existing properties that fit our vision.

BTN: Do buyers have a clear idea of where Loews stands as a brand?

Adler: We've been building the brand for well over 10 years. We see the hotels as a collection of unique one-of-a-kind properties with distinct personalities. So we're looking to create an experience that when guests leave, they really know the personality of the hotel. It's one of the characteristics associated with the best boutique hotels. What complicates things is that, in certain instances, such as the House of Blues Hotel in Chicago, the Loews name exists as a sub-brand. Meanwhile, in other instances, such as the Hard Rock Hotel, one of our properties in Orlando, the hotel doesn't carry the Loews name at all.

BTN: But isn't this a potential issue for buyers who are driving travelers to stay in hotels they have included in their hotel programs? If travelers don't realize a hotel is part of a certain brand, wouldn't that be a problem?

Adler: We include the brand name when it makes sense. What's most important is that each individual hotel has a distinct personality. Yet, from a brand perspective, we strive to have each hotel offer a warm, friendly and unpretentious guest experience. In another example, we assumed the management contract on the Jefferson Hotel in Washington, D.C., earlier this year and chose not to change the property's name, but instead add the Loews Hotel sub-brand. We and the owners felt that the Jefferson had a name in and of itself that was well known and respected in the Washington market. At the same time, by adding the sub-brand, we alerted our customer base that they now could expect the Loews brand promise.

BTN: Does it have to do with price point as well? Are you alerting buyers that rates and amenities might differ?

Adler: To some degree. In New York, for example, where we have two hotels, we made a determination that we needed to bifurcate them because one hotel is four star and the other is three star. At the three-star Metropolitan, we removed the Loews name because we want buyers to associate Loews with four-star and five-star hotels.

BTN: Many of your competitors are multi-brand hotel companies. Have you considered creating other brands?

Adler: Not really. Even with 30 hotels, we're still a midsize company. Our entire management team is focused on the one brand. At the corporate office, it's our job to lead the management teams at the local property level to provide the warm and friendly, personalized service associated with the Loews brand. It's at the local level that room availability is managed, for example.

BTN: In today's competitive marketplace, how is Loews positioned?

Adler: We've positioned ourselves right below the deluxe brands at the top end of the upper upscale chains. Part of our thinking in niche-ing ourselves between these two is to deliver good price value. Consequently, buyers are paying a lot less than they would at the deluxe chains, but, hopefully from a value perspective, they're getting more.