Major luxury hotel chains are seeing signs of recovery, yet return to previous performance unlikely

Mandarin Oriental Las Vegas

End of February 2010 has marked the first signs of recovery at most international luxury hotel chains, as reflected in improving occupancy rates and demand. However, the recovery process has been slow and hoteliers do no longer expect to return to the performances registered prior to the debut of the international crisis. Properties in the main capital cities such as London, New York, Milan, Paris and Tokyo have been the first to show stronger sales and improved occupancy rates. These are also the key locations for the top luxury chains where they exercise they pricing power, being known that these cities generate most of the revenue due to the higher pricing. Ritz Carlton, Mandarin Oriental, Park Hyatt and Four Seasons have been reporting increased sales in the past 4 months.

Unfortunately, the crisis has determined most luxury chains to resort to previously unseen promotions and discount packages, most of them realizing consumers are less and less brand oriented and more price sensitive when making their bookings. By lowering prices, luxury hotels have become more affordable and this has had damaging effect on the core essence of the positioning of a luxury hotel, which is exclusivity. Most luxury chains introduced extra complimentary accommodation nights for minimum stays, large discounts for advance payments or packages which include business services or F&B vouchers. All these promotions have attracted a new customer base for the top luxury hotels, mostly short leisure stays.

The financial crisis has also had a dramatic effect on corporate sales, most international corporations cutting drastically travel costs. Nowadays, for business executives staying at a Four Seasons or Ritz Carlton is most likely regarded outrageous and offensive, while most companies are struggling to cut costs. For many luxury hotel chains this ”image factor” has become a very difficult issue to tackle in relating to potential corporate consumers. The hotels which have understood they have to lower even further their corporate contractual rates are the ones which have managed to maintain a constant or even increasing level of corporate sales.

Another factor which has been having a negative influence on the performance of the luxury hotel chains is the continuous cost cutting strategy . One such negative example is the decision of some luxury chains to cut the number of their staff in Concierge, otherwise crucial services for any luxury hotel. If cutting the flowers or the evening amenity at evening turndown may likely go un-notice, regular customers will not be happy to spend twice as much time to ask for a concierge service. Some luxury chains have even gone further by cutting guest relations services, directly affecting overall customer experience in a luxury hotel.

The real winners which will emerge even stronger from the international crisis will be those hotel management chains which will realize the importance of maitaining a high level of customer service, while providing a good quality product. They will also have to master their relationships with hotel owners, who are the first to acquiesce to cost cutting measurements and postponement of essential renovation and refurbishing works.

Oliver Petcu