New York Hospitality by Vijay Dandapani

Hotels within airports - terminal decline?

The US leads the world in most metrics in the hospitality field be it number of hotel rooms, brands, concepts (boutiques), technology and a host of other areas. But when it comes to hotels within airport terminal buildings, the US is near or at the bottom of worldwide rankings. There are instances such as the Hyatt at DFW airport but even those are outside the actual terminal building and, thus far, there is no hotel for international travelers in transit at any US airport.

The Washington Times has an article entitled "Hotels just steps away from airport gates". The article notes that ''it's puzzling why in the United States, one of the most lucrative travel markets in the world, the concept of airport transit hotels is so foreign. There are signs that may be changing, but current plans seem more like baby steps than bold decision-making." The "baby steps" the writer refers to is a concept launched in Atlanta's Hartsfield International airport called "Minute Suites".

Not quite a hotel but each "suite" comes with "equipped with a comfortable daybed sofa, pillows and fresh blankets. A sound masking system within each suite helps neutralize noise and a unique “napware” audio program is available to help deliver a refreshing powernap." Other hotel-like features include an alarm clock (or request a wake-up call) and a HDTV that"converts to a computer with access to the Internet and the airport's flight tracking system. besides a desk, phone, and office chair." There is also access to the airport's WiFi or a direct connection port.

Nevertheless, as a founder of Minute Suites notes in the article, they "are not a hotel." But there is a threshold reason for the US being such a laggard in the field; which is that the US's Department of Homeland Security suspended (indefinitely) in 2003 two programs " Transit Without Visa program (TWOV) and the International-to-International transit program (ITI)" due to which it is unviable if not impossible to develop hotels within airport terminal buildings of the kind seen in Hong Kong's Regal hotel at Chek Lap Kok or Singapore's Ambassador at Changi airport, both more likely to overwhelm guests for convenience  rather than hospitality. Until (and it may well be years) the US permits transit travel without clearing customs and immigration hotels within terminal buildings likely never will be built.

Loyalty marketing: a dynamic process

Customer loyalty in the digital era often seems like an oxymoron given the unprecedentedly high level of control customers wield in a high-supply-low-demand economy. Evidence of the tenuous nature of loyalty found its way into print in this article in the Wall Street Journal which notes that "some large hotel chains, including Marriott International Inc. and InterContinental Hotels Group PLC, are finding that more members of their customer-loyalty programs are redeeming points not for overnight stays but for merchandise, like jewelry and electronics, apparently to use as holiday presents." Both chains noted a 14-15% increase in customer utilization of points for purchasing gifts instead of free room nights. Hilton topped that with an astounding 23% increase for "redemptions for merchandise in the first week of this month from a year earlier."  Of course much of the spike in redemptions for gift merchandise is due to the economic downturn tightening purse strings. This has a significant knock-on effect for hotel owners in terms of the direct cost of loyalty programs that is unaided by the deluge of point freebies from the hotel majors.

However, the foregoing, if anything, underscores the need for hoteliers to realize that loyalty marketing is a process whose dynamic nature is sometimes blindingly swift and yet, paradoxically, relies on some "old world" precepts such as operational savvy, design innovation and, most importantly, CRM. 

Operational savvy overlaps and includes many CRM issues but but at its core represents process efficiency all the way from reservations to check-out and beyond. The ideal for hotels is for customers to not know, and yet admire, what results in a seamless stay; the analog to a perfect dining experience in a restaurant.

Design innovation is what sets apart one hostelry from another. This could be seemingly mundane yet easy to do features like free early check-ins (a much appreciated touch in gateway cities with international flights) to the avant-garde RFID locks. While refreshing structural features as part of a design overhaul in an economic downturn may be a tall order to most owners and operators it can be achieved by recasting high visibility and high traffic locations in the hotel such as the elevators and fitness centers.

CRM, exemplified by getting close to the customer, potential and current is much written about and often addressed by hotels.  Its implementation includes getting up-close-and-personal (not quite literally) with guests and doing more than offering a free third night or a weekend stay for every three nights. Most, if not all, CRM initiatives are nowadays technology driven and include, at a minimum, comprehensive (customer) data capture and analysis by "recognizing" the guest and to have a conversation, virtual or real, with them. Knowing the most profitable among those is also an integral part of that process.  Metrics, both for customer loyalty and programs are also essential components.

In the end, customer growth is also driven by nimble responses to crises that befall other businesses regardless of the state of the economy. Ryanair, notorious for its parsimony in terms of offerings for customers nevertheless, (frequently) garners both publicity and (new) customers via its initiatives such as the most recent one in response to the loss-plagued Eurostar's latest customer relation disaster. The airline called its fare offered in response to the Eurostar's service failure a "rescue fair". Tongue-in-cheek no doubt but it is fair to say that the low-cost airline does have more than its share of loyal customers despite not having any loyalty program.

Occupancy revival on the anvil?

The Wall Street Journal reports that the adroitly named Oracle corporation that quarterly profit for the technology giant "jumped 12% and sales exceeded its expectations, a sign that corporate technology spending may be poised to rebound from one of the sector's worst-ever slumps." It is not hard to connect dots that would indicate it as being good news for the larger economy including the overall travel industry.

Hints of a revival in travel have graced the pages of newspapers and internet forums both in the US and outside. Some of these pronouncements are from companies heretofore reticent if not downright pessimistic about prospects of a revival. These include American Express whose executives are quoted as saying that "airfares and international business travel saw modest sequential increases in the third quarter, a sign of hope the travel sector may be stabilizing after a prolonged decline." The data underlying that conclusion were culled from American Express' purchase information. However, AmEx's travel executive,  Christa Degnan Manning,  also noted that "hotel rates continued to weaken from the year earlier, down 10% internationally and 2% in the U.S. Domestic hotel rates strengthened 7% sequentially. and went on to add that "since hotels cannot reduce capacity as easily as air or ground transport providers, this drives rates down, and the effect will likely continue through the first half of 2010." No surprise to hotel owners and operators but an uptrend in travel could arguably push rates up meaningfully in the second half of 2010 if the economic recovery is tangible and sustainable.

Other news items  along the preceding lines include Continental Airlines report that "it flew more passengers on fuller planes in November, although passengers paid less for each mile."  Further, Continental said "systemwide traffic rose 2.9 percent to 6.77 billion revenue passenger miles, from 6.58 billion revenue passenger miles a year earlier." United Airlines had similar tidings as a report in the Wall Street Journal has a quote from  G;enn Tilton, CEO of UAL that they are "seeing a steady upward trend in ticket bookings going into the new year."

Individual US states also had some cheery stats as was the case with Florida per Smith Travel which noted that "an increase in hotel occupancy at Florida’s big beach counties, like Miami-Dade, and Palm Beach.." And on a long overdue front, a Reuters report carried by Forbes notes quoting IATA that "premium airline seats are starting to fill up again after business travel plunged 18 percent in the first ten months of the year compared with the same period in 2008." All in all a cause for cautious optimism as the New Year comes around.

Hotel mezzanine loans head for the basement

When mezzanine loans were first introduced in the eighties they galvanized transactions in all industries and, before long, were a frequent component of hotel loans. While they offer a high return they expectedly are high risk instruments. The acute fall in RevPar across the country has pitched a series of "mezz" loan transactions over the brink with Dubai World's ownership of the W Hotel in Union Square, New York being the most prominent and recent casualty. The hotel is now owned by LEM Mezzanine of PA with the assumption of $212m in debt. Real Capital Analytics, however, estimates the hotel value at around $137m, an astonishing loss of nearly 55% in value in 3 years. Dubai World's problems extend to another trophy property, Miami's famed Fontainbleu hotel where the primary loan has not been serviced since August of this year.

Going back some years, a mezz deal that defaulted even in the boom times of 2006 is Chicago's 437 room Hotel 71. The Wall Street Journal reports that several years later, the hotel recently sold for $37m wiping out an astonishingly large amount (approximately $91m) in debt.  Other prominent hotel assets in mezz trouble include the Gansevoort South which the Miami Herald reports is a Miami Beach hotel popular with stars (and) now destined to be sold at a foreclosure auction. Credit Suisse announced on Wednesday morning an auction for the ownership stake used to secure an $89 million mezzanine loan on the 334-room oceanfront hotel. The Mondrian in Scottsdale, Arizona is facing a similar situation. Additionally, Fitch, the rating agency, has a slew of downgrades using their "base case stress scenario" of mezz debt relating to hotels including a 424 room full-service hotel located in Boston, MA; a portfolio of 12 full-service hotels located in Puerto Rico, Florida, California, New York, and Jamaica and a 72-room boutique hotel located in the Times Square area of New York City.

The good news for consumers in most in most cases is that these hotels were renovated and significantly (eg. Fontainbleu) upgraded in the recent past and present are usually represent a great value due to the drop in pricing power of hoteliers. Should the crisis persist, that aspect can quickly be reversed as, anyone in the business knows, the high traffic (at low rates) causes wear and tear with without a concomitant rise in cap-ex funding.

Contactless payments on the anvil for hotels?

Measuring ROI for new technology is not too dissimilar to advertising. The trite old adage about 50% of advertising works with no idea about which 50% may not quite apply to technology but hotels do invest in new technology such as TVs on bathroom mirrors or i-pod docking stations without clear metrics for evaluating their ROI. What is often clear is that customers "demand" such amenities before long resulting in revenue slippage to competitors who do install them. Non-financial metrics frequently accompany the roll out of new technology in hotels.

Contactless payments use RFID (radio frequency identification) that enable customers to make a payment by merely flashing their credit cards near a reader. The transaction is done without a signature or receipt for transactions below $25. Apart from savings in time for both customers and merchants, the technology has benefits such as avoiding physical contact (via the card) that may be of interest to compulsively sanitary individuals.  Yet despite the fact that contactless payments such as Chase bank's Chase "Blink" cards which have been around for over two years have yet to catch on in hotels. From hostelries having vending machines to resorts with remote outlets stand to benefit from its implementation which over time should catch up with more traditional high ticket sales.

Alnother customer-centric technology that is aong similar lines is the announcement of web-enabled payment systems via smartphones. A new launch is "Square" by a co-founder of Twitter with a device and application geared to enable credit card payments to Apple's iPhones.

eweek reports that "users make a purchase by swiping the credit or debit card through the reader, which would be plugged into an iPhone that has the Square payment application on it. The reader parses the card data and converts it into and audio signal, which is picked up by the phone's microphone and onto the Square app.The data is encrypted and sent via Wi-Fi or a 3G connection to Square's servers, which talk with payment networks, including Visa, Mastercard and American Express. The purchaser signs for the transaction with their finger on iPhone's touch screen."  While the technology is not similar, the visual is akin to what one encounters at any Apple store with its salespeople walking around with mobile iPhone credit card readers. For resort hotels mobile check-in could be a game changer.