Luxury segment: New year, new strategy

Boston–Given 2009’s lodging industry climate, the luxury segment is struggling to maintain its foothold at the top of the mountain. To stay competitive and profitable, hoteliers are focusing inward on efficiency and belt-tightening—and trying to reconcile those efforts with traditional standards of luxury.

At November’s Leading Hotels of the World annual convention, luxury hoteliers from around the world addressed how the segment can weather the economic storm while maintaining standards and growing business.

Paul McManus

“There’s a less-ostentatious form of luxury now. It’s about quality and authenticity,” said Paul McManus, outgoing president and CEO of the organization, at a media briefing.

This theme of quiet authenticity permeated the conference, as hoteliers recognized the need to appeal to their customers by focusing—and spending—less on over-the-top amenities and more on the value of the experience.

“It’s down to basics now, and much less chi-chi,” said Jean-Jacques Gauer, chairman of the executive committee of The Leading Hotels of the World. “You have to be more conscious about what you give the customers.”

By the numbers
In the United States, luxury hotels saw shifting numbers from September to November alone, according to Jan Freitag, VP of global development at Smith Travel Research. From September to early November, occupancy dropped 2.9 percent to 70.6 percent, and revenue per available room dipped 0.8 percent to $204. Average daily rate, however, rose 2.1 percent to $289.

Hoteliers recognized that to maintain revenue, properties must replace dwindling numbers of transient travelers with group (mostly business) travelers—even though the luxury segment traditionally appealed to leisure guests without the potential restrictions of a business-travel budget.
According to Freitag, transient business demand seesawed from a strong demand in 2007 to a negative one in 2008. On the other hand, group travel demand at luxury properties in the U.S. rose 2.3 percent in 2008 over 2007.

The challenge for luxury properties is to grow group demand enough to offset potential rate differences, he said. In 2008 through November, transient business drew an ADR of $319 and group ADR lagged behind at $250. 

Promotions
To offset business mix changes, Leading executives reminded members that adapting to the changing customer is critical.

“It’s essential to realize that this [economic] crisis may bring about deep changes to our industry,” Gauer said. “The culture is changing, the customers are changing.”

New president and CEO Ted Teng told members, “This is a good time to remind ourselves that if we failed to diversify in good times, it’s a little too late to deal with that now.”

McManus explained research on revenue streams at member properties throughout the year, noting that guest buying patterns have changed. “Logo sales and pro shop sales were down among Americans,” he said. “The guest mix is different. We see more Eastern Europeans. So hoteliers have to look at [guests’] ancillary spend, and what they can offer.”

One way Leading executives advised members to increase revenue is to add value by offering more promotions and package deals.

“How do we approach this crisis?” Gauer asked. “We add value. Maybe it’s a free massage, maybe it’s free transportation.”