New York Hospitality by Vijay Dandapani

A Debt Millstone For Hotels?

Dubai world's debt "standstill" shocker is still reverberating around the world and could include hotel assets such as the (temporarily suspended) under-construction Trump International Hotel and Tower in the iconic Palm Jumeirah, one of the world's largest man-made islands and the Versace hotel by Australian  group Sunland. The (not entirely unwarranted) fear is that Dubai may go the way of its island frere, Iceland. Dubai's most famous hotel asset is the Burj-al-Arab, a structure that resembles a "dhow" or an Arab sailing vessel that remains the world's second tallest hotel. But Dubai World , the entity at the eye of the latest financial storm with the odd byline "the sun never sets", owns hotel assets at the other end of the spectrum (and world) such as Britain's Travelodge group. It would be unsurprising if the implications for the hotel industry are not widespread both geographically and across segments.

Within the US, a couple of days ago,  Fitch Ratings revealed in its October commentary that "Hotel delinquencies are leading defaults within commercial mortgage-backed securities (CMBS). The report went on to note that "Hotels are expected to continue to lead defaults as values continue to decline and borrowers will be unwilling or unable to continue to fund debt service shortfalls. The ongoing economic downturn continues to affect the luxury and resort properties, many of which are securitized in recent vintage CMBS.” And the Salt Lake Tribune notes that " Like many home owners, hotels are starting to drown in debt". The newspaper also rightly observes that "hotels have been enticing travelers all year with sweet deals: credits for in-house spas and restaurants, up to 50 percent off five-star rooms, even free nights. But all that discounting hasn't stopped occupancy from dropping an average of 10 percent. The result? Hotel loans have begun falling into delinquency faster than any other kind of commercial real estate debt."

Bucking the trend and, perhaps, recognizing that the downturn does have a bottom the Wall Street Journal reports that Hyatt Hotels "this month helped the owner of the 966-room Hyatt Regency Jacksonville in Florida avoid default on its $150 million securitized mortgage." The internationally renowned operator promised to "cover as much as $5 million in payments on the mortgage in the event Chartres (the owner of the Jacksonville hotel) couldn't. (and) also pledged to cut its management fee in exchange for an extension of the pact's term and to pay up to $1 million in future costs for furniture, fixtures and equipment." Those actions certainly speak to a belief both in the asset and the local economy. 

The online & mobile payment revolution and hotels

The Wall Street Journal reports that American Express has bought into the growing online-payment business by acquiring Internet-transaction company Revolution Money for about $300 million. The article quotes Amex as saying that "the acquisition will help it develop reloadable, prepaid products; introduce new products for cardmembers who currently use other alternative-payment systems; work on payment alternatives designed for social-media sites; and develop mobile-payment solutions in the U.S."

Revolution money provides secure payments through an Internet-based platform and the company also offers a prepaid card linked to online accounts that can be used for offline payments or to withdraw cash from ATMs. But it is its breathtakingly cheaper transaction cost for accepting credit cards, slashed by up to 75% for merchants, that ought to be of tremendous interest to hoteliers, who, along with merchants in a variety of field have fought long (and continue to do so) and hard to contain credit-car fees. Amex for its part hopes the acquisition will "help it develop reloadable, prepaid products; introduce new products for cardmembers who currently use other alternative-payment systems; work on payment alternatives designed for social-media sites; and develop mobile-payment solutions in the U.S."

As for mobile payment solutions, the US is a significant laggard as compared to Asia and Europe where a mobile platform is used to pay for a variety of goods and services from transportation to music and books using four primary means: SMS (text), WAP (Wireless Application Protocol), NFC (Near field communication) and direct billing to the mobile phone. But as the article on Amex's acquisition of Revolution notes, the charge card giant expects to delve into mobile payment solutions before long.

Assuming potential savings are passed on, the industry stands to benefit from that as well. That will be a welcome development as the internet continues to afford unparalleled control to the consumer resulting in essentially one platform serving all her/his needs from travel to destination management and, soon, payment.

WTM 2009 - Epilogue

A repeat visitor to World Travel Mart 2009 that ended last week may be forgiven for thinking that there was no recession as the number of exhibitors was nearly as many (over 5500) as those for 2008 (5615). The crush of attendees alighting from London's DLR (docklands light railway) seemingly all at once every morning at the Excel Center did nothing to dispel that notion.

Countries that participated in a truly big way included economically deprived nations such as Nigeria as well as economically devastated states like Iceland. Formerly war-torn Sri Lanka also had a substantial footprint with a range of tour operators, hotels and its national carrier.

Innovative exhibitors such as hotelbeds where one could replicate a business experience with the receptive company showcased their wares next to relative minnows like Vertical Bookings. There was the obligatory exhortation to the travel industry to be mindful of climate change and even a seminar purporting to teach how best to "steward national identity" with a view to enhancing the reputation of nations. Some American tourism bosses even claimed to have found an entirely new market segment called the "funemployed"! The urban dictionary defines "funemployment" as "a happy time in one's life when one is not employed and is not wanting to be employed". Not to be outdone, organizers at WTM decided to dole out badges for some visitors with the title of "unemployed". It was hard to see the merit of the latter at any level whether as an exhibitor or a trade visitor.

WTM's technology section, off to one side of Excel's floor was not wanting either with a range of offerings for hoteliers and other travel providers with cutting edge companies such as netbiscuits looking to help hospitality to grow revenue in the fast emerging field of mobile technology. That the latter is clearly the next frontier as a distribution channel is clear from the fact that use of mobile browsers is increasing at warp speed. And yet top travel sites, according to a recent report continue to make consumers wait "anything from six seconds to more than 30 seconds for the homepage’s of the top ranking travel sites to load." Consumers on mobile phones are likely to be even less patient. Seems like an opportunity for technology companies in the hospitality sphere that, perhaps, could be ready for WTM 2010.

Loyalty programs redux

USA Today reports that hotel loyalty programs "have spent the last six months rolling out bonus offers and discounted award stays." That is part of a larger effort focused almost entirely on discounting as the paper reports that "discounted rates have been a big part of the strategy, especially at higher-end hotels. But additional amenities, room upgrades, resort credits, and deals offering a free night after a certain number of paid nights have also become standard at many properties." Along those lines one major company, Omni Hotels launched a "72 hour sale" that offers as much as 40% off while Carlson Hotels offered a "discount" of 25-50% fewer points to book an award stay.

However, what many seem to miss, in the frenzy of discounting and cornucopia of extra points is the value-exchange that lies at the heart of a good rewards program. For starters, the communication overload that results from enrolling in a value program begins with reams of material expensively wrapped along with the obligatory card, a somewhat anachronistic approach given the instantaneous nature of data availability at hotel PMS systems. And it is safe to assume that few, if any, adherents of programs actually carry the additional plastic card. In that regard, it is pertinent to note that most Millennial or Gen Y customers prefer communication via text messages or social-networking sites. But the larger issue may be the cookie-cutter program outreach across demographics: millennial to senior; few, if any, programs seem to want to target their offers by segment.

Building new customers should (and is for many) be the primary focus of hotel majors and emulating Starbucks' strategy for this holiday season could be one useful way of going about it. The giant coffee retailer is "is merging its rewards cards into one free program, as the coffee chain aims to tap a rush of post-holiday traffic for steady patronage. The company tends to see millions of gift card recipients in its stores in the days following Christmas each year. By launching the new rewards program on Dec. 26, the company expects to persuade "those often-infrequent visitors to become loyal members." And being no slacker when it comes to communications the company looks to step up "direct communication with customers when the economy turned in late 2007, with good results. Its rewards programs give the company more information about customers and an avenue for sending personalized promotions." Sounds like a good template to emulate for any hospitality reward program.