Simon Cooper, president of The Ritz-Carlton Hotel Company, speaks on how the recession has hit the hotels business and how some cities suffer more than others in a downturn
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How is the downturn hitting your business?
Global business travel - one gateway city to another continent's gateway city - is very soft. So whether it's the airlines or the hotels, the front of the bus that is typically populated by business people who are investing or doing deals or looking at new deals or meeting potential investors, that hasn't rebounded. Credit is still frozen for new investment. The domestic business travel is much better, even in some of the more export orientated countries. So if you take China down in the Pearl River Delta, Shenzhen and Guangzhou are stronger than Beijing
We haven't seen the rebound of that proactive wealth creation of new projects, new IPOS and new investments. That's still has to come back. That really hurts your Hong Kongs, Singapores, Shanghais and New Yorks.
Do you think it's possible to stimulate demand?
You can't stimulate business travel, you can stimulate leisure. That's working fine. In times like this, you do two things. Firstly you try and replace the rooms that the business travellers are not occupying. A lot of our gateway cities are also leisure destinations. So for example we've partnered with Aer Lingus for our property at Powerscourt. They have seats coming in from America that aren't filled, so we can offer a great package, and where we might have had business groups at the hotel, we are seeing a lot of success replacing that. Whether it's Dublin or Moscow, Beijing or Shanghai, these destinations still have leisure travel.
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| A room at the Ritz, London |
The other thing is that you have to be as smart as you can with your operations. If you have multiple restaurants you have to rotate them. You have to be very careful; you can't alter the quality of the basic experience. Even if your traveller is spending $100 or $200 a night less, they're not expecting the experience to be any different from what they have had before. So it's always a fine line and the key thing we watch is how is that impacting our customer engagement. So we track that daily, roll it all up monthly, and we've seen an increase over the first five months over the first five months of last year. And I think that's because what our ladies and gentlemen [the Ritz-Carlton employees] have worked out, and I continually communicate to them, is that someone who decides to stay with us this year has a lot more opportunities that they had last year, and they are making a conscious decision to stay with us rather than brand X down the street. Because everyone has space, everyone is offering package rates. I was listening to a meeting planner two days ago who put out a RFP for a meeting, a big meeting, for two years in advance, to 54 hotels, and he usually gets four or five who can fit it. He got 48 positive responses to it because everyone has space, airlines, hotels, and therefore the guest staying with you tonight has really made a decision to stay with you. I think our ladies and gentlemen understand that.
How are future openings looking?
We have two more in China to do - Kowloon, tallest hotel in the world and Pudong, making a total of nine in China which without a doubt will give us the best luxury portfolio, all of them new, except Shanghai which has recently been renovated. And I'm delighted we've got it because that country is going to be huge in terms of an outward bound business. We will do LA Live next year, the hotel is about 125 rooms and has some residences. Toronto we will open next year and resorts in Tucson and the Dubai Financial Centre at the end of this year. Then Cairo will close in September or October, and we will spend two years to redo that to be the Ritz Carlton Cairo.
Do you think people still want conspicuous luxury?
I'd like to think we aren't about conspicuous consumption. We've spent a lot of time in the last few years moving away from traditional luxury to a more relaxed environment. There's no doubt that people are less willing to display their wealth right now. This is a very chilling economic crisis that has hit everybody and it's less appropriate to be overt in your expenditures. On the other hand people aren't changing what they want on a vacation or travel experience. So to a degree it's ‘How do I stay below the radar?' Having said that, corporations have to be careful. But in the end if they are going to have a successful meeting, they have to hold it in a hotel that people want to go to.
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| Ritz-Carlton Dubai |
How is the new Ritz-Carlton Reserve Brand looking?
The first one will open in Thailand in October. We are taking a bit longer to do it, because there's no rush to open it up there. We've got a number of them we are working on. I think the concept will be a pretty good fit as we go into the post crisis environment of the consumer having a more purposeful vacation - they are very environmentally friendly, leave very little footprint, that sort of escapism is what people are going to be looking for - rather than the big box Miami hotel with all the bells and whistles.
The biggest size would only be 125 or 140 rooms. It has got to be in an exquisite location, low rise, primarily for transient guests, you could have weddings but it's not for groups, and really it came about because we were seeing demand for our brand in locations we didn't have the lift. You couldn't get people in for a meeting, it would take you three days to get them all there. So to take advantage of the great locations we developed a product that would work in these sort of places. That's the basis for pretty much all of them - Dorado, Puerto Rico is a complete rebuilding of the old Dorado Beach resort. We have one signed in Costa Rica, we are looking at Vietnam and the Maldives (Elkulhivan Island), all private islands, and we are working on a couple in the Gulf including Nareel (Coconut) Island in Abu Dhabi.
Where would you like new Ritz Carltons?
We definitely need to be looking to Budapest, Prague, Italy for some leisure resorts, Amsterdam, which is good for leisure and business while in Germany there are four or five cities where we should be - Munich, for instance. But they are very mature cities, and there's a four or five block area that you've got to be in, because if you're out of it people would say ‘What's the Ritz doing over there?' And if those blocks come up we are competing against offices and residences so it's tough in a slower moving market.
How do you manage in London?
You can book the Ritz through our website, it's a partner hotel.
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| Ritz Carlton New York |
What will the immediate future hold for the market?
I do think we're close to hitting the bottom. I think it will be a more robust recovery in India and China, and to a degree Russia. From an hotelier's point of view, the next 18 months leisure travel is going to be the primary area that we are going to focus on. Business travel demand is stimulated when people are investing money on projects, meeting on projects, inspecting, negotiating, launching, and that positive investment just isn't occurring. And a lot of the stimulus in the US is arguably about retaining jobs in current industries rather than creating new ones. So I still think it's going to be a long haul and the strong brands with the discipline and the willingness on the one hand to demonstrate flexibility in their cost structure, and on the other hand not losing the integrity of the brand, those will be the ones that prevail.
Rates will continue to be very attractive because I don't see pricing power returning to hotels or airlines in gateway locations for some time, at least 18 months of very attractive travel for those who want to travel. The opportunities are terrific, the value is great and that will be there for a while.