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Luxury Hotels Are Feeling Economy's Pinch

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The New York Times

January 27, 2009 Tuesday
The New York Times on the Web

Luxury Hotels Are Feeling Economy's Pinch

BYLINE: By JOE SHARKEY

SECTION: Section ; Column 0; Business/Financial Desk; ITINERARIES; Pg.

LENGTH: 1200 words

The hotel business has collided head-on with the bad economy and the tight credit market.
Hotel revenue is down sharply. Big new projects, planned in the boom days, are either sitting unfinished or left on the drawing boards. And some high-end hotel owners now face an unhappy situation -- how much can they cut prices to fill their rooms before they damage their hotels' luxury cachet?
''I don't think anybody ...view middle of the document...

Luxury hotels are heavily dependent on high-end business travel, corporate meetings and international visitors -- all of which have fallen.
''Everybody's got low occupancy, let's be honest,'' said Jim Treadway, the managing director of the Liberty, a luxury hotel in Boston.
Even with pressure to generate revenue, managers of hotels in all price categories except the lowest generally dislike overt discounts, fearing that customers will then insist on the bargains when good times return.
But now, said Mr. Treadway, ''There is some very competitive pricing going on, which is a euphemism for discounting, which, of course, we are loath to do.''
The luxury hotels are particularly worried about losing business travelers, as many companies tighten travel spending policies.
Some business travelers who were formerly authorized to stay at five-star hotels are now restricted to four-stars (which include so-called big-box urban hotels like Sheraton or Hilton). And big-box hotels are also dropping prices, adding to their lure.
''What we're worried about is the big-box hotels that were charging $270 are now charging $140,'' Mr. Treadway said. ''We don't want to discount to the extent that we reposition ourselves into a different segment, and wake up one day a year from now saying, 'Oops, we're no longer a luxury hotel.' ''
Still, luxury hotels in the United States and abroad are almost all offering bargain prices packaged to mask the fact that they have dropped rates.
''Things like 'Book us for two nights and get the third night free,' '' Mr. Treadway said. ''Effectively, that's arithmetic that adds up to discounting, though it's meant to look like you're just getting rewarded for a longer stay.''
Higher-end hotels are also now including in the room price services they used to charge extra for, like valet parking, Internet service and spa use. Some are even throwing in a free lunch or dinner in the hotel restaurant.
In every price range, hotels are struggling to cut costs without damaging the reputation of their brand. Midlevel hotels are trimming expenses, like reducing the amount of fresh fruit available in free breakfast buffets. Luxury hotels are looking at expenditures like staffing levels, flowers and bathroom amenities.
''We're doing a lot of things that really don't impact the guests, but take out costs,'' said J. W. Marriott Jr., the chief executive of Marriott International, which owns the Ritz-Carlton brand as well as numerous other brands. ''We're buying energy carefully. A lot of us are taking fresh flowers out of the lobby and substituting plants and things that we don't have to replace every day.''
Ms. Grossberg at the Buckingham Hotel in Manhattan said she was doing the same things. ''You're thinking, how do you provide decent service to guests...

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