New York Hospitality by Vijay Dandapani

Budget hotels in Asia: Rife with economic opportunties?

The term "budget hotels" has, for long, been used to refer to hotels at the lower end of the price spectrum despite the dictionary meaning of the word "budget" being "the amount of money that is available for, required for, or assigned to a particular purpose". True to all aspects of the industry connotation for the word was the recently concluded Budget & Economy Hotels Asia 2009 conference in Singapore

The conference, the first of its kind, covered a range of issues affecting Budget and Economy hotels in the largest markets for the segment including India, China, Thailand and Singapore while gaging prospects in what seems to be an underserved and fast booming segment of the industry in Asia. Sponsored largely by the industry giant in the field ACCOR, the conference was kicked off by its Asia Pacific CEO, Michael Issenberg who highlighted some of the path-breaking trends in the segment such as "manchising", a hybrid of franchising and management, that seems particularly relevant to the budget & economy segment in that part of the world.

Startlingly large GOP ratios (40-50%) and meteoric growth rates (1000% in 9 years!) in China and India (100% in 10 years) were combined with the sobering reality of oversupply in (parts of) China and enormous regulatory and infrastructure barriers in india, the two biggest markets for the region. Japan and Singapore were no different in terms of financial performance though with vastly different (and better) development tracks in terms of efficiency, transparency and ROI ratios. On the latter, the financial contrast between its brethren in the upper echelons of the industry was succinctly summarized by the effective, if trite, acronym ROI for the budget sector versus ROE (return on ego) for the luxury and upscale segments.

The pressing issues of the day for the segment were no different to others in the industry and in other parts of the world. These include financing (the lack of), technology, green issues and the seemingly extinct long-haul customer, guests originating from the heretofore robust markets of North America and Europe. Deal flow seemed to have thinned out particularly in markets like Thailand and Vietnam and was hard to come by even in hugely under-served markets such as India.

Nevertheless, the overwhelming consensus of most speakers and attendees was that the segment, particularly in Asia, had withstood the global financial crisis far better than their counterparts higher on the totem pole and was poised to reap even greater rewards as the world emerges from its deepest economic slump in decades.

Post recession planning: Talent retention and compensation.

Excessive executive compensation on Wall Street has been making headline news for well over a year reaching a controversial crescendo with the recently announced caps for seven CEOs by the US administration's compensation regulator. However, those seven giants should not be allowed to dwarf issues that affect the larger business community particularly when it comes to post-recession planning.

One consequence of the severity of the recession has been a surfeit of talent across industries looking for opportunities as few, if any, employers were hiring. That may change sooner than later as this survey by Intuit, a provider of payroll services finds that "that (of) nearly half of small business owners surveyed, 44 percent, are planning to hire new employees within the next 12 months. At the same time, many small business owners believe that benefits are key to attracting new hires but are finding them difficult to afford."  Interesting findings of that survey include the fact that family and friends of current employees make for good new hires as well as that long term relationships with employees matter.

The foregoing findings may seem intuitive to most but a counter-intuitive suggestion to retain executives comes from an article in the Wall Street Journal which advances the notion that "the best way to keep them (employees) from leaving is to prepare them to do just that."  The article notes that "in tough economic times like these, retention becomes less of a priority for many companies as they focus on more-immediate business concerns. But companies that neglect this issue during a downturn may be in for a nasty surprise just as things start looking up: Historically, there is a significant increase in the number of executives leaving their companies as market conditions improve and more job opportunities open up."

The Journal article suggests "giving executives opportunities to take on greater responsibility, broaden their skills and cultivate a network of relationships with their peers. These are the things that executives we have surveyed consistently say they want most from their jobs." While that may give executives more "marketability" research has apparently shown that "executives intend to stay longest with those companies that offer the greatest opportunities to enhance their employability. On balance, a company will keep more talent by helping its executives grow than it would by denying them these opportunities." An added bonus is that those employees contribute more to the firm while still there.

That much of the above is applicable to hotel companies can be inferred from an example from the industry. The article cites an instance where "a marketing executive with little experience in hotel operations completed a training assignment in the operations division. To help her get up to speed quickly, she was assigned both senior and peer mentors. Moreover, she wasn't the only one who benefited from the experience. During her assignment, she shared some of her marketing knowledge with her colleagues in operations, by suggesting ways to attract more customers."

An article in a similar vein appeared in Forbes magazine as well which concludes, somewhat darkly, by noting that 'retention will be a major concern as we begin to emerge from the darkness. Employees are like elephants: They watch, and they remember. They know how they were treated in the bad times, and how their fallen colleagues were treated, too. They form long-lasting impressions of their employers."

The upshot of it all, in a good sense, is that many commentators are discussing a positively better employment scenario that appears to herald the end of the great recession. Than can only be good for both employees and employers.

Plutonomy and hotels

Reuters reports that Starwood Hotels & Resorts third quarter profits was better than what analysts expected. However the report notes that the company "which operates mostly luxury and other top-tier properties, has been particularly sensitive to the decline in business travel and corporate cost-cutting. It has cut average daily rates dramatically to appease vacationers." The report goes on to quote an analyst as saying that a "recovery (has been) priced into these stocks, and people are just sort of reading the tea leaves from each of the companies about how and when that's going to happen."

If the foregoing perspective is more right than wrong it foretells a very slow recovery for hospitality as a revival in luxury is an essential component of any broader lodging (and overall economic) recovery. The notion that the luxury segment as represented by the rich & super-rich consumer drives overall economic growth was first neatly encapsulated by a Citibank executive in 2005 with the term Plutonomy. The Citibank report of 4 years ago said that "the richest 20% (in plutonomic economies) may have been responsible for 60% of total spending".

Starwood's perspective notwithstanding, the luxury market in the broader economy is reporting signs of life as another Reuters news report quotes a Bain & Company report that forecasts "positive growth for 2010 and quotes a partner in the firm as saying that "luxury goods markets are stabilizing (and) we are seeing less discounting and mark-downs (unlike in Starwood's report) and more signs of increasing consumer confidence." It is not all positive though as Bain predicts "luxury sales in mature markets show continued softness and that 2009 sales will be down 16% in America, 10% in Japan and 8% in Europe versus 2008."

Still luxury (and other) hoteliers can, perhaps, take a leaf out of some other resourceful luxury marketers seeking to overcome a major obstacle to luxury's revival: luxury shame. The Wall Street Journal reports that some are "encouraging Internet shopping, as many brands have been doing to overcome luxury shame—epitomized by the showy act of walking out of a fancy store with a big shopping bag—is one of the main reasons for the estimated 20% jump in online luxury sales this year as per Bain & Co." Another tactic for "taking some of the guilt out of shopping—offering a charitable-giving component—is gaining traction as well."

While hotels can't have guests stay virtually in their properties they can promote their properties and seek to alleviate any guilt from luxury shame amongst guests by offering to donate to their guests' favorite charity a ratio of the room rate at the end of their stay. Another move could be to incorporate more plebeian cars instead of Maybachs and Rolls Royces as part of their transportation stable as a way of alleviating luxury guilt.

Hotels and the US constitution's takings clause

Venezuela's thuggish leader, Hugo Chavez earlier this week proudly announced that "he (had) seized the landmark Hilton hotel on Margarita Island because its owners dared to impose conditions on its use by his government to host a summit there last month." The strongman was affronted by the fact "to hold the conference we had to ask for permission... and the owners tried to impose conditions on the revolutionary government. No way." While claiming that "the social development side of the tourism and hotel industries in Nueva Esparta state needed to be developed" he was continuing on a well-trodden path. In the recent past the government checked into the Caracas Hilton and stayed for good while  renamed it the Hotel Alba, a reference to the Venezuelan-led leftist regional alliance Alianza Bolivariana para las Americas (ALBA).

The contrast to the US could not be more stark with the US constitution's takings clause the subject of repeated review over the years by the US supreme court including a forthcoming case compelling the use of a fish ladder for a water storage facility. The last case involving a hotel was in 2005 where the tiny 62 room San Remo Hotel sought relief from San Francisco's oppressive housing ordinance. The hotel, however, never really got a hearing due to "issue preclusion" per the federal full faith and credit statute that bars litigants from suing in federal court when a suit based on issues that have been resolved in state court.

It is no accident, perhaps, that US companies shy away from ownership in a variety of jurisdictions from Africa to Asia and South America as property rights afford few if any protections.

In a not too dissimilar vein, Jim Norman a lawyer with Holland & Knight wrote a spoof a few months ago in Hotel Motel Management magazine entitled " If the government ran companies". The counterfactual scenario he envisaged included a government run program imaginatively called Hotel Asset Investment and Restructuring Program (HAIR) that got into asset owners and operators' hair via reservation systems run amok and government standards on a variety of issues. Anyone who has stayed in government "run" hotels in India or this "seven star" Tajik hotel need never imagine what those are.

Soaping for charity

Gifts in kind as well as pro-bono work take various forms and are a part of a long tradition in the hotel industry. The industry's national association the AH&LA leads the way with its charitable giving via its fund raising affiliate, the AH&LEF.  The major companies do their bit as well with programs from Marriott and Hilton including the outstanding foundation set up in the name of Conrad Hilton. A couple of years ago the latter got a boost from the whopping donation of $1.2 billion promised by Conrad Hilton's son, Barron Hilton. However, initiatives at the individual and grass roots level tend to attract far more attention and arguably has a greater impact.

An Atlanta based Derreck Kayongo, originally from Uganda has set about what seems to be a relatively simple yet unique effort to gather used soap bars from area hotels for shipment to his home country with a view to promoting hygiene amongst the poor in refugee camps in Africa. Thus far over 40 Atlanta based hotels including those at the very top of the hotel pyramid such as the Ritz Carlton have agreed to collect used soaps for Mr. Kayongo, a worker for the charitable organization, CARE. Mr. Kayongo says that "The soap will be shipped by freighter to Kenya and trucked to his native Uganda, where it will be sterilized and reshaped into new bars for distribution at refugee camps where soap is scarce. Reprocessing the soap will (also) create jobs in Africa for local workers."

Given soap's potential to save lives in those parts of the world it is particularly laudable venture. Also in other parts of the world some notable initiatives from the hotel industry include one in the UK entitled Small Change Big Difference which collected over a $1m in the last five years for a range of charities.

Along similar lines, the Grand Hotel Excelsior in Malta has just been recognized as the most philanthropic hotel in the world - a lofty title - by the Preferred Hotel Group for its program called GIFTTS (Great Initiatives for Today's (Tomorrow's) Society) "created to recognize exceptional actions on the part of member hotels and employees in the three areas of philanthropy, environment and community to encourage best practices".