New York Hospitality by Vijay Dandapani

Hotel overload

The New York Sun (subscription required) which was until recently bullish on the Manhattan hotel market has a dire prognosis for the local hotel market in an article headlined "Amid Boom, a Fear of Glut in Hotels". The Sun columnist, Michael Stoler, till recently had headlines that read "Just Let Me Own a Hotel" and "Riding a High Hospitality Industry Pushes even Higher". So what has changed? In a nutshell - inventory (current and prospective) and investor (including lenders) sentiment. And both hinge on two primeval instincts lurking - to varying degrees - in all individuals: fear and greed.

Sean Hennessey of Lodging Advisors is quoted as saying "The year 2007 will be one for the record books, with about every indicator showing upward trends". That is certainly true for every owner and operator in New York City but the article also quotes Richard Born of BD hotels, a major hotel owner operator as saying "I think it is reasonable to assume that in the next three years we will see a 30% increase in available room inventory in Manhattan". Born goes on to state "Our rates have risen 100% over the past four years. I would not be surprised if we return to 2003 average daily rate levels. This will translate to a potential 50% decrease in projected gross revenues and a near total wipeout of operating profits". For those who have operated in the city over the past two decades will note that 2003 was worse than war and recession wracked year of 1991 when several hotels swooned into the arms of the US Bankruptcy court system.

The notion that hotels are the new Klondike is underscored by pension systems investing directly in New York City hotels. The Sun notes that "Michigan Retirement System is joining the ranks of investors interested in owning hotels in Manhattan. Earlier this month, the retirement system acquired the 14-story, 369-room Hilton Garden Inn at 709 Eighth Ave., on the corner of West 48th Street, and the 10-story, 300-room Hampton Inn Manhattan — Times Square North at 851 Eighth Ave. The state system is paying $475 million, or about $710,000 a room"!!

When absentee owners with little knowledge of local conditions and even less of hotels begin investing, it usually bodes poorly for the hotel industry. Could this time be different? Some indicators that point to New York running counter to the rest of the US include increases in international arrivals (while the US as a whole saw a decline in 2006), better demographics (the city saw an increase in population), and the development of a fourth airport (Stewart International) with a rail link to Manhattan to cater to air-traffic congestion and higher visitation.

Ultimately, whether or not the US slips into a recession next year, a fact that becomes known after a recession is in our midst (the NBER, the economic research organization that clocks business cycles is an ex-post chronicler of recessions), will determine the success or failure of many of these projects. Timing, as any developer knows, is critical for launching a hotel project and getting it right is almost always a game of chance.

Black Friday lessons for hotels

It's that time of the year again - suddenly politics, news , even celebrities are on the backburner as that phenomenal holiday herald called Black Friday shook people out of their slumber starting 12 midnight on Thursday! Preliminary results indicated that the operative word in the phrase was black as results on the registers were more along the lines of hope than expectation.

Considering that BF deals were the most searched most-discussed, probably the most emailed term/subject, perhaps the hotel industry could have got into the act - by tapping the frenzy into more room-nights. New York's Macy's Thanksgiving Parade and myriad glittering shops for every kind of taste and budget and, as usual, made for an especially attractive for shopping package. The weakening US dollar certainly stoked the shopping appetites for many tourists - high-profile American brands and designer names were suddenly accessible to the rest of the world.

Perhaps the hotel industry could tap the holiday shopping mania in other ways (taking cues from a Target ad that endlessly drilled the early- AM- get- to- the- store mantra last few days)

- Offer a special BF alarm to motivate guests to beat the rush!
- Special transportation to take them to and fro - from store to store to cover all the specials. A "TG shopping circuit shuttle! " - checkout times not included.
- Free high-speed Internet Cafe for guests who prefer to shop online (with a customized local webpage pointing to the best offers in the city)
- A specially fortified complimentary breakfast to get guests ready for the grueling challenges of bargain-hunting and deal-grabbing!

Shopping has become too ingrained in the American culture to dismiss as a weekend activity vacation! The travel industry must find ways to tap the flavor of the season and the huge hordes that frequent the all-enduring symbol of America - the retail mall! A travel equivalent of a BF blowout deal is yet to come by.

Personality peculiarities

The US is arguably the mecca of personality (dis?)orders with psychologists having a neat box to slot just about every personality trait known and unknown to mankind. But just as one might have thought that the list of personality traits - good, bad and weird - is all but complete along comes one that could be of interest (and use) to the hospitality field: the travel personality as reported in the Wall Street Journal (subscription required). While standard personality tests such as the Myers Briggs Type Indicator are used to ascertain personality types for a variety of career and personal related reasons, the travel personality test "pegs people into six different profiles" via a website that enables users to get travel suggestions for free. The site is the "outcome of 40 years researching travel preferences and decisions, from which coach seats are most comfortable on airplanes to how resorts and European capitals can best pitch to tourists" by Stanley Plogg, Ph.D. and Mr. Bahir Browsh, a former Trans World Airlines executive and Travel Channel president.

The Wall Street Journal column notes that "based on Dr. Plog's database of travel surveys on what destinations were most satisfying to what type of people, the site suggests places to go that fit your travel personality. It's a scientific version of the service of a very good travel agent -- someone who would get to know clients, figure out what they like and suggest appropriate trips. (And many travel agents already use software that helps them target trips for clients.) But with so many people now booking their own trips, some study of your inclinations and preferences can help avoid unsatisfactory vacations".

While Best Trip Choices is focused on providing a "solution" for individuals looking for travel destinations it would be nice to have a ready reckoner that determines if a particular hotel fits the traveler's personality and vice -versa. That could well refine current notions of segmentation in the industry.

Affluence makes price less of a factor?

According to a travelocity comment reported by travelmole, travelers are increasingly looking beyond price to book their dream vacations where they can combine activities and services (hotel, air, car) with the requisite customer service to address questions, prepurchase and post-purchase. Travelocity might have a point. The number of affluent travelers and luxury vacation seekers is on the rise in America. These are the folks who don't spend hours comparing deals or rates and prefer their travel agent to arrange their perfect vacations. The Internet has made travel a multi-faceted and research-heavy experience and more and more people are looking to save time over money.

According to a report by The Conference Board reported by the Center of Media Research, "about 73 million US households now have discretionary (spendable) income, up from about 57 million in 2002" . The key point - " majority of all discretionary income is held by households earning more than $100,000. Average discretionary income for this segment, $66,451, is 2.7 times the national average." The super-rich have the abundance of purchasing power required to propel a luxury travel boom. CA, New England, Florida, New York are among the states with high discretionary income.

While it seems that the middle class in the US is always battling high gas prices, high telephone bills, skyrocketing medical and educational costs, the rich are doing well and hold the key to a new kind of travel experience - an unforgettable vacation that's put together by experts with price being irrelevant. It's like shopping for luxury goods or designer labels - price was never a factor. Exclusivity, luxury and making a statement are important - take that idea to travel - exclusivity can really come about only through high prices like a $35,000 roomnight or privileged flying perks. Books like 1000 places to see before you die have made the concept of global wanderlust very cool and people who can afford to splurge are enjoying their moment.

Workaholic hotel guests

The New York Times (subscription required) in a report filed yesterday notes that "One challenge of the work-anywhere lifestyle is that not everywhere is designed for people who need to do work". Focusing on an odd coupling of hotels and airports, the article reports on "women in skirts sitting awkwardly on the carpet at an airport gate, balancing laptops plugged in to precious few outlets. Or hear about grown men building the adult equivalent of a pillow fort to fashion a makeshift desk on a hotel bed".

The 24/7 American worker is not a recent phenomenon and not unsurprisingly, hotels, as the Times notes, are responding more swiftly than airports by "scrambling to add electrical outlets in easy-to-reach places, install better task lighting and design chairs with flat armrests that can double as desks". Hotels are also "putting desks on casters so the desks can be wheeled in view of the television or even extend over the bed" - a somewhat awkward solution given the advent of flat screen TVs that not only can pivot 90 degree in either direction but are also pretty versatile when it comes to viewing from an angle.

The report also notes a gripe that extends across segments is about technology, particularly internet access, that either does not work or works improperly. In the case of higher end hotels, it is one where customers have a rather short fuse given that it is the upper segment that charges for internet access (it is free in almost all select-service hotels). The article quotes Henry H. Harteveldt, an analyst with Forrester Research in San Francisco, as saying that "reliable Internet access is the No. 1 amenity business travelers demand". Mr. Hartveldt notes that the "tech support issue is something hotels need to do a better job with”. “If you check into a five-star hotel and have to wait 20 minutes to talk to someone about a tech support problem and that person isn’t able to help you, that reflects poorly on the hotel.” Apparently, Hilton has taken that to heart by "bringing its technology support in-house, hiring about 40 employees to handle calls from guests at the 215 hotels that have already converted to its “Stay Connected @ Hilton” program, which also involves hardware and network upgrades".

Social networking meets travel

A new site aims to combine Linkedin with travel. Placely is interesting because it maps users geographically, allowing them to meet up or connect with their "contacts" on their next trips. The website targets business travelers and others who thrive on communities for a living - alumni groups, wedding planners and friends. It will be interesting to see whether this travel focussed social networking site gains an audience large enough for marketing to. The recommendations provided by "contacts" is bound to be an important factor on placely. The site could have lot of potential if it is able to harness the 'WOM"potential of contacts in making a travel-purchase decision.

www.placely.com

Indian hotels - iconoclasts or renegades?

India's hotel industry has attracted worldwide attention on account of the country's sizzling economy fueled by a high-octane diet that includes BPO (Business process outsourcing), exports, FDI (foreign direct investment) with most economic observers predicting that the country is merely in the nascent stage of a takeoff.

The country's hotel industry is the subject of conferences, articles and investment attention from virtually all the big players. At tourism fora such as ITB Berlin (where India was the main sponsor) and WTM London, the country has begun to play an increasingly prominent role with a variety of hospitality providers showcasing their wares including the MICE market where India barely figures. The challenges for both providers and customers are far too many to enumerate but a representative sample surely will include infrastructure issues such as airports, roads and the paucity of hotels. The good news about hotels is that the sector is almost entirely out of the hands of governments (local and national) and, therefore, responsive to the tremendous opportunities that are there to be had for the less than faint-hearted willing to navigate the development process. The bad news is that opacity and corruption (apart from "black" money demanded by sellers, officials at the state and central level are known to ask for "fees" to expedite processes) in the land acquisition process combined with stratospheric prices even by Western standards make it virtually impossible for outsiders to be principal developers. A fast diminishing supply of trained labor makes operations forbidding as well.

The situation at the retail level is unfortunately not much better and arguably worse. Groups arriving with guaranteed contracts for hotels in major metropolitan areas are being denied rooms and find themselves stranded. Hotels quoting rates in US$ are known to then change it on account of the dollar's drop subsequent to the booking! That from cities that already rank in the top ten for average rates worldwide (the 2006 average room rate for Bangalore was a whopping $330). Corporate travelers are reacting by embracing service apartments and guest houses. For the near term though, visitors, both corporate and tourists, have to put up with the renegade behavior of some of the hotels and hope that the infusion of investment in the industry will ease the uncertainty as more inventory comes into the market. But with some predicting GDP growth of nearly 10% per year, it is going to require a lot of inventory to reduce prices and minimize the extortionate practices of some of the rogue operators.

Derivatives in the hotel industry

The Financial Times reports on bankers turning to derivatives to exploit the divergence in outlook for commercial real estate between the US and the UK. Derivatives are financial instruments that derive their value from an underlying asset. Heretofore, that has been limited to bonds, equities, currencies and commodities. Its extension to real estate brings on a new dimension and arguably could change the fundamentals of the industry as it likely will bring considerably more volume to transactions currently limited by the physical and logistical difficulties of entering and exiting real estate markets in a timely fashion. The nimbleness and concurrent liquidity - not to mention fees to bankers - afforded by derivatives presents tremendous opportunities.

The article notes that property prices in the two markets are opening up opportunities for "relative value" trades which are bets on the performance of different markets that are based on differing opinions for economic prognoses. Apparently, these trades were not possible mere months ago as the market for property derivatives took off only this March when four (unnamed) banks signed up for a license to trade the securities. The derivative contracts are comprised of instruments (swaps) when one party bets that real estate returns will exceed a pre-set benchmark like LIBOR (London Inter-bank Offered Rate) while the counter-party bets that it will not. So far, the trades, estimated globally to be about $20billion, have been broad commercial real estate and may or may not have included hotels. But it presages interesting times for hotel owners skittish - or not - about their asset values in these uncertain times.

Religious holidays gather steam

Of the many trends that have revitalized the industry over the years, religious travel was never top-of-mind. According to a recent travelmole report, "spiritual sojourns" are growing in numbers - 15.7 million Americans are likely to embark on a religious vacation in the future. The Globus study reports that religious travelers have a preference for group travel, are usually highly educated, majority married and comfortably off ($75k or more household income). In other words, religious travel has arrived as a serious travel segment.

Do people really need an excuse to travel or take a vacation? It's no wonder that religious vacations are on the rise in a country preoccupied with material success and life in the fast lane. As vacations time get shorter and the rat race gets hyper competitive, people will pursue packages where they can combine fun with work whether "work" is business or a spiritual journey. People are also likely to feel less guilty if they took off on a "pilgrimage" vs a "pleasure trip" or "vacation time". Other packages likely to follow suit - educational vacations or "training tours". The vacation package of the future will combine work (connectivity, business services) + activities (religious, cooking-related, sports-driven, adventurist, local immersion) + rejuvenation (spas, yoga, fitness, medical hotels). Travel will truly become a way of life!

Email subject lines

According to an emarketer report, people use subject lines and the "from" lines to determine if their email is genuine or spam (with the subject line clearly playing an important role in establishing legitimacy). With all the buzz on new online media, email continues to be the preferred vehicle for many companies hoping to reach targeted customer lists. Occasionally email will win where others have failed.

For the travel industry, email is still an important vehicle to connect with one-time and repeat guests. Travelers have a lot more to choose from today and are spending more and more time researching options before they click on the buy button. One way to keep your customers coming back is to reach out to them via special offers. However, the travel industry rarely offers freebies (when was the last time anyone got $100 off their room for being a valued customer?). With frequent flier programs more or less shorn of their glamor, real travelers look for companies that care for their business and welcome them back. Email is able to bridge the gap between an Internet booking and the real-world checkout. Building a relationship with customers cannot be accomplished by search, display advertising, hoardings, television or contextual advertising! Direct mailers are old-fashioned and not environment friendly. Email has the power to connect beyond the ROI focus of other avenues. However, it also needs to work harder to escape the junk box! According to emarketer, personalized subject lines distinguish the genuine offer from a spammer.

Other beliefs about email that could apply to any category
- People don't like to read daily emails from the same company even if they clicked on "daily updates". A monthly roll-up is more likely to get attention.
- Don't send an offer that requires the customer to spend $100 to get 5% off a future order! It's hard enough getting the customer to read your email. Annoying them with a worthless offer is likely to put them off forever.
- Do remind the customer about a "search" that was not completed (not booked).
- Do remind the customer about a promotion in destinations of interest to them.
- Don't ask for feedback through lengthy forms without offering an incentive (either a gift card or another instant redemption).
- A subject line with a price-cut or attractive coupon is sure to catch attention if it clearly mentions the percentage of discount or price cut.

Always the much maligned online medium, email is still around and doing its job!