Luxury hotels bounce back faster than overall market

The rebound proves that people's taste for luxury isn't dead — as said by Simon Cooper, Ritz-Carlton's top executive.

The hotel industry's luxury segment — dominated by familiar names such as Ritz-Carlton, Four Seasons and St. Regis — is rebounding faster than the overall hotel market as business travelers return to the road, executives of three luxury hotel companies say and new data confirm.

"We've turned the corner," says Kathleen Taylor, chief operating officer for Four Seasons.

The USA's luxury hotels sold almost 17% more rooms during the January-March period than a year ago, according to data from industry tracker Smith Travel Research. In contrast, the average hotel in the USA sold 5% more rooms during that time.

Simon Cooper, Ritz-Carlton's top executive, says he saw leisure travelers start coming back about the middle of last year when Ritz-Carlton aggressively marketed packages that included such amenities as breakfast or $100 resort credits to guests.

The recent return of the business traveler marks "the second phase" of the rebound, he says. Ritz-Carlton hotel occupancy levels are running in the low 70% range on average vs. the low 60% range a year ago, he says.

Cooper and other executives say the rebound proves that people's taste for luxury isn't dead — something that analysts speculated about last year, when corporations canceled lavish gatherings after the financial collapse and government bailout of some companies. Companies feared a backlash if they sent people to or met at luxury hotels or resorts.

"When you see luxury coming back with occupancies up 20% across 120 hotels that include St. Regis, it says that people have a great appetite for luxury," says Frits van Paasschen, CEO of Starwood, which runs the St. Regis, W and Luxury Collection brands.

The Four Seasons chain predicts that rising demand will lift its revenue per available room by about 10%, spokeswoman Elizabeth Pizzinato says.

The executives say that luxury hotels in world capitals and big business cities are rebounding first.
"We see the gateway cities, which generally are the leading indicators," van Paasschen says. He cites Boston, New York, San Francisco, Shanghai, London and Paris.

Yet, even as demand "roars back with a vengeance," hotel rates are down, says Jan Freitag, a vice president of Smith Travel Research.

Luxury hotel guests paid 7% less in the first quarter (an average of $247 a night) compared with last year's $265 a night. If demand keeps growing this briskly, however, Freitag says that rates could rise this year.

So what's contributing to the uptick?

•Attractive offers. Bargain-happy travelers are snapping up packages and cheap rates. "We just paid $149 per night for the W hotel in New Orleans, which made me feel pretty good," says Joseph Frohlinger of Tenafly, N.J. He's paid as much as $300 a night for a W room during the city's jazz festival, he says.
"Both business and leisure travelers are saying, 'I feel a little bit better about the world, and I can get a good rate,' " van Paasschen says.

•Fewer perception worries. "A year ago, as we were in the depths of this crisis, there was a high level of paranoia about luxury travel," van Paasschen says. "That's clearly gone away."

•More Wall Street deals. Financial services firms are back on the road doing deals, says Michael Steiner of Ovation Travel, which handles travel for some of Wall Street's top firms. Ovation's Wall Street clients spent 31% more on hotels in the first quarter than a year earlier, Steiner says. Ovation's average customer has been booking a room this year that costs $280 a night.

•More business activity. The Ritz-Carlton in Westchester, N.Y., which is near the headquarters of giants such as PepsiCo and IBM, has been packed with international business travelers lately, Cooper says. At the area's only five-star hotel, the Ritz-Carlton, revenue per available room leapt 33% this year vs. a year ago, he says.

Taylor says the return to luxury goes beyond the USA. She says strengthening world economies are contributing to an uptick in people's confidence in the future.

Although demand for luxury hotels is coming back, Cooper says that customers are paying for fewer frills than they did before the recession hit in 2008.

When companies book meetings to reward their top salespeople or schmooze with customers today, Cooper says, "The open bar is a little bit less open.

"The (former offers of) 'Have a couple of spa treatments' and the big fruit basket in the room for every day are probably something of the past," he says. "The excesses of two, three years ago are less prevalent today."

Story originally published in USA Today by Barbara DeLollis