Lands of (Luxury) Opportunity

At this week’s BITAC Luxury it’s become clear the economic recession is a fading and distant memory and luxury leads the way to a new profit bounty.
Monday, March 28, 2011
Glenn Haussman

Forget what your gut is telling you, luxury is leading the way. That’s right, in the hotel business – which is finally off the trough and experiencing an upswing – the luxury sector is seeing a recovery much faster and more robust than many industry insiders expected or predicted.

Most interesting is that while the segment has been pilloried by press and politicians alike, the luxury market has continued to be tremendously resilient. And though the nature of the luxury hotel experience is changing—more on that in an article set to appear Thursday - one thing is clear people have money to spend and they are spending it at the finest hotels.

That notion was a major discussion point this morning during BITAC Luxury, the industry’s leading peer-to-peer matchmaking event. This year’s sold –out conference is being held near Horseshoe Bay at the Fairmont Southampton in Bermuda. BITAC has become synonymous with relationship building and empowering attendees with the critical information and contacts they need to excel in their businesses.

Not only did the vast majority of conference attendees agree luxury is leading a top down recovery of the entire lodging industry, but in a real time poll taken of attendees 67 percent said they feel the lodging industry recovery in the luxury sector happening much quicker than or as quickly as expected.

That perceived recovery is playing itself out in real dollars. According to STR, the luxury segment saw a 7.1 percent occupancy increase while upper upscale and upscale saw 6.5 percent and 7.3 percent respectively. Luxury, however, is also enjoying an incredible rate premium over other sectors with an ADR of $243.89, a $99 premium over Upper Upscale and about a $135 premium over the upscale segment.

In 2011 it’s expected the luxury segment will see a small 0.8 percent occupancy increase but an astounding 7.4 percent ADR increase and an 8.2 percent RevPAR increase.

“People will spend their money where they see the value,” said Robin Holt, Principal with Callison. “People will still pay for those experiences and luxury hoteliers realize they don’t have to cut their prices.”

But with luxury hotels in most major markets at this point, both developers and luxury hotel customers are looking for something new.

“We are going through a metamorphosis in terms of luxury, and in many ways it is very driven in terms of location,” said Bala Kamallakharan, Prinicpal with Auro Investment Partners, which recently introduced the lifestyle focused Modo Hotels brand, which will focus on emerging markets such as India and Brazil for its growth.

People have a been there and done that attitude and are looking for something new, a statement Kamallakharan agrees with, and said markets such as Iceland and Thailand will be places developers are now looking to expand into. “Iceland is a fantastic location and it helps with luxury because luxury has to have an element of uniqueness. Plus the dynamics of travelers are changing,” said Kamallakharan.

Another way to boost luxury hotel sales is by inuring your property or brand to the latest consumer desires. “We ate differentiating our own brands and looking to find emotional connections with the guest,” said George Scammel, Vice President Global Design with Wyndham Worldwide.

Eduardo Oliva, Director of Design & Construction  with InterContinental Hotels Group, said his company is looking at emerging markets as well as those markets that still have tremendous depth to them such as Asia and South America, two powerhouse regions. “We have an emphasis on luxury. We have three upscale brands and we are emphasizing development in places like China, which has always been a big market for us and we are doing a lot of development in Latin America in places such as Brazil.”

In fact, according to Lodging Econometrics, the global authority on hotel real estate, InterContinental Hotels Group has the largest pipeline of any hotel company.

Finally, most executives are expecting strong revenue increases in 2011 with 34 percent of conference attendees saying they will see a 10 -19 percent increase. Additionally, 18 percent said they expect to revenue increases between 30 – 39 percent. Nearly 30 percent expect revenue increases between 20-29 percent while 14 percent expect to see increases less than 10 percent. Just 3 percent of conference attendees expect their revenues to remain flat.

InterContinental’s Oliva: “Like Kevin Costner said, ‘If you build it they will come.’ At IHG we have a lot of investors and franchisees believing that. But you have to have a positive mindset and psychology. There are so many deals to be done right now.

Christofle, Guy Degrenne, Garnier Thiebaut, Staub, Revol, Chilewich, Bernardaud, Hilden