Posted by Ric Garrido

Starwood Hotels CEO says luxury hotels are looking bright on their radar. Nadja Brandt, my favorite Bloomberg hotel news reporter, published an article this week saying US developers are shunning luxury hotels.

More than once in the past year I have read hotel industry reports that appear contradictory.

Frits van Paasschen, president and CEO of Starwood Hotels & Resorts, sees a growing wealthy class globally. Starwood Hotels are in a position to capture a portion of that travel market with their St. Regis, W Hotel and Luxury Collection brands. One of his comments is people who develop a new ability to travel globally look at Europe as an aspirational destination. People who can travel anywhere want to see London, Paris and Rome.

Interview statements to CNBC from the Starwood Investor’s Conference in Dubai last month indicate Starwood Hotels has a “laser focus on luxury,” while looking to target a younger audience of travelers. Starwood plans to open 50 luxury hotels in the next five years in 12 countries with 90% of luxury hotel openings in emerging markets.

He said that the company is also seeing an increased use of its loyalty program.

“Over half the beds that we fill in any given hotel on any given night are through our loyalty program. It’s about knowing which of our guests to treat in an extra special way,” he said, estimating that the top 2 percent of Starwood guests account for 30 percent of the company’s profitability. “We know who those people are, we know what they personally want and taking care of them is good business for us.”

CNBC’s Paul Toscano -

http://www.cnbc.com/id/100546120

At the International Hotel Investment Conference Berlin, March 2013 another interview with Frits van Paasschen spoke about Europe being a region where a high-end hotel base already existed prior to the hotel brand development model prevalent today. The penetration of brand hotels in Europe is relatively low compared to the U.S., meaning there is room for growth of hotel brands.

Common in recent years is the branding of independent hotels as luxury collections. Starwood has The Luxury Collection. Hilton has Waldorf Astoria and Conrad. IHG has InterContinental Hotels and InterContinental Alliance Resorts. Hyatt has Park Hyatt and Andaz. The recent acquisition of The Driskill in Texas without a Hyatt brand name attachment opens the door to further independent hotels coming into Hyatt. Marriott has Autograph Collection and has been acquiring European independent luxury hotels within its portfolio for the past few years.

The King George hotel in Athens has joined Starwood’s Luxury Collection, marking the brand’s eighth hotel in Greece.

W Hotels opens its first ski resort with the W Verbier and The Residences at W Verbier in Switzerland in December. Starwood has opened five W hotels in Europe since 2008, including London, Barcelona, St. Petersburg, Istanbul and Paris. Next year, W Hotels will debut in Milan.

Travel Agent Central – March 29, 2013

 

On a different note:

Developers are shunning luxury hotels in the U.S. as room rates fail to rebound to peak levels – Nadja Brandt, Bloomberg News, April 9, 2013

Six luxury hotels will open in the USA in 2013. There were 23 luxury hotel openings in 2010 for the USA. Analysts predict the supply of luxury hotel rooms in the USA will be lower in five years than today. Investment money is going into higher profit margin upscale and upper upscale hotels rather than luxury hotels.

STR data shows a decline in luxury hotel rooms from 2.6% of all US hotel rooms in 2010 to 2.2% today.

My Loyalty Traveler interpretation is consumers are seeking better value than luxury hotels offer with their expensive fine dining restaurants and spa facilities. Are fresh flowers and an attendant escorting you to your pool chair the kind of service you want? Or more importantly, the kind of service you want to pay for at a luxury hotel?

New York, Chicago, Miami, Los Angeles and San Francisco will continue to offer luxury hotel experiences in the USA. Most places in the USA will see more hotel growth in the form of Holiday Inn Express, Courtyard and Fairfield Inn, Hilton Garden Inn and Hampton Inn and a variety of other generic brands marketing themselves to the masses.

Keep those hotel loyalty promotions coming.

And internationally there will be a Starwood luxury hotel or some other brand of luxury hotel waiting for you when you travel to the aspirational cities and resorts sought after by the growing class of wealthy travelers touring the world.

Cash bookings at hotels are welcome everywhere as an alternative payment when your loyalty points balance is not sufficient for a free luxury hotel room.

6 Responses

  1. The market is shrinking in the USA because the foreign money willing to spend on the luxury space isn’t coming here. Hard to say whether that is because we’re so unwelcoming (from a government/immigration perspective) or if there are other reasons, but I’m willing to bet that the vast majority of luxury spend is coming from the same emerging markets who are visiting Europe. If they aren’t coming to the USA then there is no one left to buy those room nights.

  2. Not so sure we can blame lower International tourism because, have you visited miami lately?
    Some of these luxury locations in Europe are really special, based on lacation and classic style for those that appreciate it. the Luxury hotels in the USA have neither of the above attributes. In thi sday and age when most new or renovated homes have granite countertops a granite trimmed bathroom no longer defines a luxury hotel.

  3. I think this post is missing Frits’ point to an extent. There is simply already a saturated level of branded luxury hotels in the US. That is the reason for the lack of development here. In Europe, there is also a high existing inventory of luxury hotels, but they are largely independent, so conversions and looser marketing/brand affiliations are more prevalent for the big players. Everywhere else, luxury hotels are a huge area for focus due to emerging wealthy classes – China, Middle East, Brazil, India, etc. It’s developer supply / demand, not consumer behavior.

    Comment by Diamond Vargas on April 11th, 2013 at 9:54 pm
  4. I think Diamond Vargas’ comment shows why these two apparently contradictory articles aren’t really contradictory. In the US and Europe, a saturated luxury market means that developers are wise to shun developing more and that current owners of luxury hotels can add incremental customers (even if hoi polloi) through being an aspirational redemption though a loyalty program as well as more name recognition through the brands (and even rich folks like bargains). In the non-saturated emerging markets there is still room to add luxury hotels for the newly wealthy in those countries as well as the folks who won’t visit a country unless they are pampered.

    Yes, it is developer supply/demand, but they are anticipating consumer supply/demand. How well they do that will be seen over time.

  5. @Diamond Vargas and @Charles Clarke – In 2009 when all the hotel news turned to doom and gloom there were many articles about luxury hotel projects running out of funding. There were numerous bankruptcies in the luxury sector for hotels like Four Seasons and Ritz Carlton and St. Regis. Many of these brand hotels changed ownership in past five years in USA.

    A luxury hotel takes about five years to launch and build. Since few luxury hotel projects have started since 2009 there will be fewer luxury hotels in the USA over the next several years.

    When the downturn hit the USA in 2009 the hotel investment money went to other regions of the world where there were forecasts of better hotel profitability.

    Many of the luxury hotels entering the market in the major brands are independent hotels seeking the marketing services of the major hotel loyalty programs. That is why Marriott, Choice, Starwood, Hyatt, Hilton and IHG are picking up hotels for their luxury brands.

    Hilton got Elysian in Chicago for Waldorf Collection. Marriott got Essex House in New York for JW Marriott. And so on.

    One thing I noticed in recent months is how inexpensive hotels are in Europe outside the major cities. There is a new class of wealthy individuals while at the same time there is a much faster growing class of people with less money for discretionary travel.

    Midscale and upper midscale are still the fastest growing hotel market segments. There are plenty of hotels growing in those market segments in the US and around the world.

  6. I stay elsewhere for a true luxury experience as Starwood/ SPG have been in a partial decline for years IMHO
    Stinky perfumed lobbies and over priced point redemptions have made me run. Combined with Luxury properties that cry there are just too many of you Platinum’s to deal with
    Let them build as many luxury properties as they want
    I use to be a big fan of Starwood but no longer. Sure they have their exception properties however for the most part I’ve moved on to vastly superior recognition and overall experience

    Comment by D Wonderment on April 25th, 2013 at 10:07 pm

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