HOTELS FIGHT FOR BUSINESS GUESTS The industry is overbuilt, with many rooms going vacant. In response, hostelries are laying on the frills, quoting lower rates, and unabashedly pampering customers.
(FORTUNE Magazine) – THE HOTEL GLUT has business travelers benefiting richly from the forces of supply and demand. Service is up but prices are not. Hostelries ranging from budget to best-in-town have plunged into an all-out service war to pamper their midweek mainstays, who spend about $34 billion a year for room and bath and account for nearly all the occupied hotel rooms from Monday to Friday. The industry is simply overbuilt. A construction boom that started in the early 1980s -- just as corporate America began restructuring and trimming travel budgets -- has driven occupancy rates down to 63.8% from a high of 71% a decade ago, according to Randy Smith, president of Smith Travel Research in Hendersonville, Tennessee. There are 40% more hotel rooms now, and beds go begging at grand old palaces like those on San Francisco's Nob Hill. Last year nearly 60% of the nation's hotels reported a net operating loss. Says New York-based hotel consultant Stephen W. Brener: ''It's bloody out there. The big boys want to get bigger and are trying to drive the others out.'' Fierce competition has forced the $54 billion industry to devise better prices for belt-tightening corporate customers. Rates at the sprawling Marriott Courtyard in Herndon, Virginia, for example, range from $77 to $87 a night, but General Electric, which has offices in nearby Reston, has worked out a special $69 price. Hewlett-Packard has a corporate package with Hyatt Hotels and pays $80 a night for quarters in New Orleans that normally let for up to $135. According to a survey by Laventhol & Horwath, an accounting firm, the median corporate discount rate, which includes various packages and programs, was about 25% in 1989, up from about 18% in 1985. In the scramble, hotels have also borrowed a wrinkle or two from the equally beleaguered airlines -- like free room upgrades to more spacious rooms, when available, for employees of the big-volume companies. The industry is aggressively marketing frequent-guest programs that reward repeat visitors with perks like exotic vacations. Hyatt, for example, awards five points for every dollar on the room bill, and a guest who accumulates 20,000 points -- the equivalent of a 20-night stay, counting bonus points -- gets three nights for free at any Hyatt hotel or resort, including those in Hawaii, Bali, and Tahiti. Accrue 250,000 points -- the equivalent of a nine-month stay -- and a ten-night ''dreamscape'' vacation, with free air fare and limousine service, is yours. Of course you might be a little tired of Hyatt hotels by then. In this difficult environment, economy hotels are thriving. When corporations started slicing travel expenses for lower-level employees, demand surged for cheaper rooms, priced at $40 a night and under. Once a tawdry milieu of ersatz leather furniture, patterned orange bedspreads, and noisy toilets, budget lodgings along with suite hotels are now the fast-growing segments of the industry. The big chains like Marriott, stymied by stagnating revenues in their upscale hotels, jumped into the low end, in the process upgrading its image. Then to keep up, older players like Travelodge and Comfort Inns began sprucing up their quarters and offering such frills as airport transfers. Now economy lodgings boast spacious rooms and luxurious touches such as king-size beds and continental breakfasts delivered to your door. WHILE HOSTELRIES lure business travelers with low rates and incentives, in the battle to keep them, amenities are the heavy artillery. Hotels in nearly every price category are busy adding elevators that zoom from the lobby to the top floor in 30 seconds; business centers equipped with fax machines, computers, and photocopiers; complimentary breakfast in your room; low- cholesterol menus; phone jacks for computers; exercise facilities; computerized check-out; and enough goodies tucked into that rattan basket on the bathroom counter to fill a drugstore shelf. Says Larry Magnan, chief executive of Westin Hotels & Resorts: ''Whatever the businessman says he wants, we will do it.'' The guest comment cards left in every room are required daily reading for Magnan and his colleagues, who want an edge on the competition. The attention that Magnan lavishes on business travelers is paying off in the crowded and competitive Washington, D.C., market, where the four-star Westin is nestled close to three other hotels at the tip of Georgetown, including a Four Seasons that is rated best in the city by the American Automobile Association. Over the past two years, Magnan added a number of services to coddle his guests, such as two executive floors with cozy lounges that have an open bar at night, and complimentary fax service. He also stepped up the marketing campaign for the hotel's awesome gym, where the exercise bikes are equipped with telephones for the executive who wants to give his jaw a workout along with his heart. Other luxury hotels are trying harder too. When business at Loews' posh Park Avenue Regency slumped a while back, Jonathan M. Tisch, its 36-year-old CEO, asked his friends in the movie industry why they didn't stay there. No gym, they replied. Within six months, that oversight was corrected by a 3,000- square-foot workout facility complete with personal trainers. The hotel is now tagged ''Hollywood East.'' When Tisch is in New York, he stations himself in the Regency's lobby to greet guests or mingles with the power-breakfasters who grease their deals with $5.75 melon and $4 danish in the hotel dining room. If Jonathan is away tending to the company's 15 other hotels, his father, Preston Robert, the former Postmaster General and current president of Loews Corp., hobnobs in his stead. CODDLING CUSTOMERS may fill more rooms, but the price is high, putting profits under pressure. Those baskets of toiletries, for example, cost $5.25 apiece. At Westin, earnings growth has declined from about 9% annually to 2% over the past three years. Even giant Marriott, the industry cynosure, is feeling peckish. Profits grew a steady 20% compounded from 1980 through 1988, but plunged 24% last year. Marriott attributes the weak showing to a fourth- quarter write-down of $321 million for restructuring, which was inadequately offset by a $231 million gain from the sale of its catering operations. Security analysts say the dip also reflects sluggish business at some hotels, particularly those in Tulsa, Newport Beach, California, and Bermuda. Better times may be coming, though. Industry expert Bjorn Hanson of Laventhol & Horwath expects that occupancy rates will inch up to an average 66% by the mid-1990s as the oversupply starts to dwindle and demand increases. At that point, hotels in all price ranges should be making money. Lodging companies zealously conceal their breakeven occupancy rates, but Hanson figures that for most chains it is about 65%. He estimates that at the current 63.8%, hotels are losing an average of $125 per room. The outlook for the 1990s is best for hotels at the extremes of the service- and-cost spectrum. At the top, the deluxe Four Seasons Hotel chain sets the standard for luxury. Says analyst Daniel Lee of First Boston: ''The company has defined its niche as being the best in service and accommodations, and sticks to it.'' The business traveler whose employer underwrites a substantial $120 to $285 a night knows that the laundry will be back on time, messages will be delivered quickly, and room service will not tell lies such as ''Breakfast will arrive in ten minutes, ma'am.'' The guaranteed time: 15 minutes. Each hotel in the chain goes to great lengths to accommodate visitors. An example: The president of a Nebraska bank, ensconced last June at the Four Seasons in Washington, D.C., asked the head concierge to find him four center- court seats for each day of the Wimbledon tennis matches commencing just four days later near London. The banker got the seats. '' 'No' is just not a part of our vocabulary,'' brags Jack Nargil, head concierge of the elegant hotel. MARRIOTT'S spanking-new economy chain, officially named Fairfield Inn but known also as the widget salesman's palace, wins raves at the low end of the price range. For $35 a night, it is downright plush. A typical room houses a king-size or two double-size beds, a large work area, free cable TV, and a bathroom with a separate vanity area so the traveler won't fog up the mirror with steam from the shower. When guests check out of a Fairfield, they can rate their stay on two computers at either end of the reception desk. Four questions pop up on the screen dealing with cleanliness, service, value for the price, and overall rating; the guest punches a key to indicate excellent, average, or poor. Employee bonuses are pegged to the ratings. Says analyst Michael Mueller of Montgomery Securities: ''The quality of Fairfield is high, higher than older Holiday Inns, which are nearly double the price.'' For $24.95 a night, you can't beat Motel 6, whose deadpan spokesman Tom Bodett drawls, ''We'll leave the light on for ya,'' after reciting the apparently dispensable services you won't get for your money. Travelers who have been pampered at other hotels should be warned that they won't be at this caravansary. Employees can be downright curt, perhaps a response to the chain's flourishing business -- room occupancy averages 76%, among the highest in the industry. Explains Hugh Thrasher, executive vice president of development: ''In order to keep our prices low, we have to be the antithesis of the service hotels.'' All 533 motels in the chain are consistently clean and well maintained, however, because each is refurbished about every three years, nearly twice as often as the industry average. Hotels in the upper middle range, those priced between $60 and $100 a night, will need a gimmick in order to prosper. Analysts are smitten with Embassy Suites, the first all-suite hotel, and business travelers rate it their favorite in poll after poll. Why? Partly for the inviting ambiance of a $500,000 tropical garden in each lobby and a waterfall that cascades down the atrium walls. But mostly because guests get two rooms for $84, about the same price as one room at the Hilton or Sheraton chains. If a business person is traveling with a spouse, one can relax in the bedroom while the other meets with associates in the living room. Owned by Promus Cos., Embassy Suites proliferated during the 1980s. Embassy Suites earns a gross profit margin of 50%, 20 points higher than such competitors as Sheraton. Lodging analysts expect margins to remain high because Embassy Suites has weak competitors. Even Marriott's new all-suite concept, they say, doesn't stand a chance against Embassy. Says Daniel Lee: ''It's hard for Marriott to advertise that people can get a Marriott suite ; for the same price as a single room at a Marriott hotel.'' The good news for business travelers is that even if occupancy rates go up, the service war will rage on during the 1990s because with Japanese investors buying up old hotels and building new ones, it will take time to work off the oversupply. Hoteliers will indulge their guests with improved technology, better food, and modest rate increases. Business people will be wooed as never before, and hotels that don't give them satisfaction may not be around long enough to get it right. CHART: NOT AVAILABLE CREDIT: SOURCE: LAVENTHOL & HORWATH, AMERICAN AUTOMOBILE ASSOCIATION, MOBILE TRAVEL GUIDES CAPTION: WHERE TO STAY ON THE ROAD Listed above in order are the ten cities business travelers visit most often, according to Laventhol & Horwath, an accounting firm. With the help of the American Automobile Association and Mobil Travel Guides, FORTUNE has selected the best in each city and also a few that represent good value for the money. Where the decision was close, the judgment was made based on how extensive facilities such as gyms and saunas are. The rates are the lowest available for one night's single occupancy. Corporate rates are available where noted. Surprise: Frequently they are higher than the basic room rate because they often guarantee more luxurious quarters than the rock-bottom accommodations at the lowest price. |
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