N.Y. Hotel Execs Detail Survival Strategies In Tough Year

Coping with a significant citywide decline in revenues throughout 2002, nine Manhattan hotel executives last month described the strategies they've developed for shoring up their key business travel base in 2003, including pursuing other market segments to help them weather the downturn. As negotiations for 2003 indicated, travel buyers with strong mandates in their hotel programs and considerable New York volume had the upperhand in getting favorable rates.

"What we've found is that the lines have blurred between what we always considered our competitive set to be and reality in 2003," said Mike Fiorentino, northeast regional director of sales and marketing for InterContinental Hotels & Resorts, which has the 686-room Barclay New York on East 48th Street and the 211-room InterContinental Central Park South.

"For example, in the historically quiet months for business travel of January, February and March, the discounting we normally would do has taken on a whole new meaning, because deluxe hotels in the city, at a price point above us, have begun relying on discounts as well."

But the lines also have blurred with the price point below the upper upscale InterContinental, which is part of Six Continents Hotels & Resorts. "As a result, we've found ourselves starting to compete for corporate accounts with hotels we didn't previously feel were our competition from a rate standpoint," he said.

Going into 2003, hotels faced the frustrating possibility that they overreacted to the drop in business travel in late 2001 and 2002 and, subsequently, cut rates too steeply.

"There's no doubt some in the industry panicked and that there was the mentality out there of getting heads into beds at any cost," said Offer Nissenbaum, general manager of the 396-room Omni Berkshire Place on East 52nd Street. "At the moment, people were trying to stay alive and keep their hotels going. Actually, there were a lot of hotels that didn't want to go down on rate so drastically, but felt they had no choice because some of the bigger hotels were leading the way and creating the fall."

In this kind of environment, a shakeout may have been inevitable. "During tough economic times, hotels that are new to the marketplace, are not as well-established or lack key services or amenities, are going to suffer," said Paul Celnik, general manager of the 114-room Iroquois New York on West 44th Street. "The barometer of success becomes your market share against your competitors as opposed to absolute occupancy or revenue numbers."

What is encouraging to hotels is that transient business travelers have started to travel more. "The transient market, while still depressed, is showing signs of improvement," said Steven Kipnis, general manager of the 935-room Park Central New York at Seventh Avenue and 56th Street. "Yet it's not back to the degree everyone thought it would be because of the continuing concerns about the economy. Plus in New York, any threat of violence overseas or terrorist acts devastates the city."

International business travel has been especially vulnerable. "Europeans, in particular, still are not traveling as much," said Renato Grussu, executive corporate sales manager of the 244-room Jolly Hotels' Madison Towers on East 38th Street, which is Italian owned. "If in 2000, there were five people from a company traveling to New York for business, now it's maybe one or two."

Corporate accounts remained very cost-conscious as the new year began. "Hotels sort of lead-lag with how the economy goes," said John Moser, chief marketing officer of Manhattan East Suite Hotels, which has 10 properties with more than 2,100 rooms. "Business travel tends to rebound after companies start feeling good about their prospects and the need to get out in front of their customers." Instead, companies still were focused on managing costs. "They are intent on managing every penny they can. That typically means travel expenses get cut and, if not cut, monitored very closely," Moser said. Manhattan East Suites' flagship is the 209-room Benjamin on East 50th Street.

Compounding the challenge for upper upscale and deluxe New York hotels was the fact that many of their business travel bookings came from the city's large financial services sector, which has been greatly affected by the economic downturn. "These companies have undergone major layoffs and many of the executives involved are frequent travelers, investment bankers included," said David Chu, director of sales at the InterContinental The Barclay. "It's taken a toll."

According to the Omni's Nissenbaum, the effects of the financial services sector cannot be understated. "Wall Street's woes have a major impact on New York in a variety of ways," he said. "A lot of other businesses in the city really take their direction from where Wall Street is going."

But Chu cited a positive side. "While these firms may have had a lot of layoffs, they've become very sophisticated buyers in the market: They were smart enough to reduce the number of preferred hotels they're using in New York in 2003. This allows them to deliver greater marketshare to a property, which increased their negotiating leverage."

Booking-ahead patterns have remained extremely short, a source of frustration to hoteliers. "Travelers are able to book at the last minute, something you never saw in 1999 and 2000, when availability was such an issue," Jolly Hotels' Grussu said.

The short-term thinking has spread to group bookings as well. "Meetings are being booked in the month for the month for as many as 50 people," Chu said. "What that's done to the market is bring the rate down."

Compared with transient bookings, the extended stay sector hasn't shown even early signs of a revival. "Extended stay is still a difficult market because it relies on companies sending executives to New York for periods of time for either training, long-term project assignments or actual relocation," said Stephen Shapiro, owner/manager of the 134-room Buckingham Hotel on West 57th Street, which caters to both extended stay and transient guests. "All these areas still are suffering."

As an example, Shapiro mentioned training programs where the company has chosen to send the trainer to the remote location, rather than bring the trainees to the headquarters in New York. "They realize this may be the cost-effective alternative, though they also realize something is lost when the training program isn't conducted at the headquarters location," he said.

The temptation remained strong to cut back on services and amenities as a way of making up for lost revenues. "The temptation was especially strong at the deluxe category, but it's something we have tried not to do," said Thomas Steinhauer, general manager of the 364-room Four Seasons Hotel New York on East 57th Street, because guests who stay at this level hotel, even if fewer than before, bring the same level of expectation they always did. "Times have changed, but they still have the same demands." Consequently, Steinhauer said the hotel had maintained rate integrity in an effort not to cut back on service levels.

In fact, some hotels have seen the current crisis as an opportunity to increase service levels as a defensive strategy. "Cut back on service and you give your loyal customers an excuse to go to another hotel," Nissenbaum said. "If anything, we've stepped up the service because, in a market like this, it's all about retaining customers." When expenses have to be cut, the focus has been on back-of-the-house operational areas that don't directly affect the guest experience.

Seeking ways to strengthen Jolly Hotels' business travel base in 2003, Grussu has been providing buyers with extras when an attractive rate alone wouldn't ensure his hotel was the preferred supplier. As a result, the hotel has begun including complimentary breakfast and discounts at the hotel restaurant for business travelers booking at a negotiated rate.

Similarly, a hotel such as the Iroquois, which is part of New York-based Triumph Hospitality, has taken the opportunity to add such amenities as an upgraded line of bath products and bottled water in guest rooms. "This is our chance to attract travelers who may be trading down from a higher price point hotel," Iroquois' Celnik said. "We want them to know we're a wonderful option for those who don't want to pay that higher price."

A defensive strategy for a transient business travel hotel is to try to make greater inroads into the group market. "With this in mind, we opened renovated meeting space in the third quarter of last year, intending to increase our meetings business in 2003," said Park Central's Kipnis, who expects to add at least 5,000 group room nights as a result. By combining their transient and group room night requirements, he said, buyers could strengthen their negotiating position.

Hotels have been forced by circumstance to broaden their marketing plans in other ways as well. At the Four Seasons, the expanded marketing push has meant going beyond appealing to its core business travel constituency. This is also true for InterContinental. "We've shifted our focus to achieve the results our parent company expects from us," said InterContinental's Fiorentino. "Indeed, we've had to look at markets we haven't looked at for a long time. For example, is the regional market a place we need to be? The drive market? Should we go after business in our own backyard so we can optimistically meet those revenue projections?"