This is the second in a series of postings on the interviews that Randy Smith recently posted.
This section focuses on the luxury segment but also touches on the potential for knock on impact into other segments.
No one's putting on the Ritz
- Another huge difference with this downturn is that luxury is usually the most immune to past downturns. Not this time. Luxury was the first to feel the pain and is falling faster than any other segment.
- The luxury market downturn is undoubtedly linked closely with the financial services issues (i.e. the richest people are the one who are suffering the most so the richest hotels are suffering too pretty unsurprisingly.
Perception issues are going to be a huge problem for luxury
- A problem for luxury that Randy did not address is that part of the issue is perception as much as cost. By this, I mean that with federal bail-outs impacting so many sectors , it is hard for a lot of people to stay at luxury hotels because they are perceived to be wasteful. Think about the idiotic car company CEOs flying to Washington on private jets or the incentive trips that AIG went forward with after receiving federal funds. I'm betting that there are not many executives at company's who are laying off employees who want to be photographed staying at a Four Seasons or Ritz.
- I had a personal experience with this when I was meeting with a team of people I led to talk about the shared sacrifices that we would have to make following 9/11 that was likely to include layoffs. I arrived after a much delayed flight to my rental car slot to find that I had been upgraded several classes to a Land Rover. I can still remember arguing with the rental company guard at 2:00 a.m. that I didn't care if it only cost $44 a day, I could not drive up to my office in that car. This downturn is so much more severe that the sensitivty is likely to linger for awhile.
Now it's the hotels that are the ones trading down
- Rates in luxury are plummeting as the hotels trade down. That crew business or low ticket group business all of a sudden looks pretty good to some very expensive hotels.
- This is interesting because typically the industry's rate problems start in Upper Upscale or Upscale. When those hotels start to discount and travelers realize they can trade up to these better hotels for midscale rates, then the midscale hotels have to move downward.
- A question that Randy did not exist that could be very important is this: Since the downturn is starting up higher up in the rate chain this time, is it going to take longer for the full impact of price cuts to filter throughout the industry. I certainly hope not because that could indicate a more prolonged downturn.