Kurt Ritter, long standing president and ceo of Rezidor Hotels, talks about managing hotels in an economic downturn
When did the financial crisis start to hit?
It really started to hit us in December, and rev PAR (revenue per available room) has been falling since. That is for me the only indicator because in our company the sensitivity is such that if revPAR falls by one euro our EBITA (pre-tax earnings) fall by between €5-6m, so it's a terrible hit to take. The real task is to keep my ear to the ground and notice from month to month how this develops. We've learned a lot from the past, though. In 2001 after September 11, our fixed costs were too high and so since then we have been very hard on changing these fixed costs to variable costs, not because we thought there would be a crisis in 2008, but we knew one would be coming some time soon. I tell people the only thing which is true is that there is light at the end of the tunnel but we don't know how long the tunnel is.
Cost control is important, but should you discount to bring in business?
If you make a world rule for all your properties, I think it would be a mistake. If I were to send out a memo to all our hotels saying you do discount or do not I would be a fool. Instead, I say before you discount, know exactly what you are doing. It doesn't necessarily bring you new clients, you need to value add instead. Every property has to do its own calculations. I have seen the big chain brands stupidly giving rooms away, and of course they fill the hotel, but to get these prices back up again can take ten years. So for the time being we have not done any panic discounting.
How is Radisson Blu, the new brand of Radisson SAS performing?
There are very few comments on it. We dropped the SAS part because we don't have any more relations with SAS than we do with British Airways. We have built up Radisson SAS as a brand so it is in a competitive set with hotels such as Sheraton, Hilton, Marriott, Le Meridien and we want to keep that. Some people said why call it blu, just drop the SAS and be a simple Radission, but we didn't want to dilute what we have built up, and on a practical level, if you took the blue box away where the SAS had been, on the outside of 250 buildings you would have had either a white spot or a dark spot where the SAS sign had been. So we needed to think of something simple, not a sentence. We didn't do lots of research. We could have gone to some company and paid them five million and they would have come up with something like this. The name has to sound good but it's the product behind the name which is important.
Who is paying for the rebranding?
We are. It's not the hotel owners' fault. We will help. We will do them all immediately and we are paying for it. The real cost is having a crane to put up the site.
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| Radisson Blu Plaza Hotel Oslo |
How well is the Park Inn performing in these economic times?
There is a move of the market that way, but Park Inn has much more opportunities for expansion than Radisson Blu anyway. If you look in the Nordic countries for instance, there isn't much room for that brand, so we are growing Park Inns there. The Rezidor family is currently dominated by Radisson hotels, around 68% with Park Inn being 29%. But the pipeline is 100 hotels and the number of Park Inns will rise.
Isn't it the owners who dictate these things?
Well we have surprisingly signed more Radissons than we thought we would, that's true, but perhaps that will change now. We have just signed a contract with a sub company of the Russian railway for 20 Park Inns throughout Russia because the railway owns a lot of ground around the railway. Two of the hotels are under construction and eight more are ready for construction to start. What happens is that you are going into towns and cities where there are no global brands. So you go in with a Park Inn which is easier and quicker to build, and then, like with Ekaterinburg, we start with a Park Inn and now we are building a Radisson. But you're right, sometimes it is to do with a location, and sometimes it is the emotions of the owner which decides these things.
Are you moving towards having more properties under management?
Yes, we are still 60% managed, and though we will always have a proportion of leasing, we have promised the market we want to go down to 15% leased. So the new inventory will be managed.
How is MICE business looking?
Well in the States there has been lobbying to try and get people to continue with their meetings, but I think the problems will solve themselves. I don't think people will stop travelling, they will not sit still. You don't have a meeting as efficiently over the phone. Of course when you get into recession there are measures you take, we do it within our own company, but I don't think it will last long. We will come out of this.
Where is worst affected?
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| Park Inn Zurich Airport |
Parts of western Europe, because you are in so many cities where no one was shouting for another hotel . It was a developer saying I have a piece of land, let's go for it. The good places are towns and cities where there is a real need - so I'm optimistic about the pipeline, because in these Russian cities we have a very good opportunity. Russia has 50 cities with half a million population or more, and we are way ahead of most of the other big brands in these places, and that will be to our advantage. Of course the market in Moscow is down, some 40% in February, I think, and St Petersburg as well, but we have other cities where we don't feel it at all and we are the only hotel in town.
How long will you remain CEO?.
I could have stopped in 2006 when we did the IPO, but it was important that I stayed then because there was a lot to do. So many people in my position at other brands have come from other industries, so which is right and which is wrong? If they would tell me tomorrow to take over a famous shoe brand I don't think I'd know too much about what to do about it. At least in our hotels it doesn't take me too long to see what's wrong. Now I am the longest sitting CEO at a hotel company. In Germany they ask me "Are you stuck to the chair"? But no, I have just been asked for another three years from now and I've said yes.