Source : Business Times – 24 Sep 2009
The Savoy, the 121-year-old London hotel that has hosted Elizabeth Taylor and Claude Monet, may add to strains on the city’s luxury guesthouses when it reopens next April following British hospitality’s most expensive renovation.
After last year’s collapse of Lehman Brothers Holdings Inc sparked a slump in business travel, the belated and overbudget completion of the Savoy’s makeover will dump 268 luxury rooms into a market suffering a dearth of bankers and corporate guests.
Even with the Savoy shut, revenue at London’s upscale hotels this year has declined the most since the Sars outbreak in 2003, according to STR Global, which tracks the industry.
‘Luxury properties are going to feel it when the Savoy opens,’ said STR Global analyst Konstanze Auernheimer on Tuesday. ‘In these market conditions, when it is already tough for everyone, it has been a blessing for rivals to have it out of action.’
Savoy manager Kiaran Macdonald said he’s counting on an economic recovery by the time the property reopens, almost a year later than planned.
The delays to restoration work meant the hotel missed the worst of the market’s decline, although the final cost to owner Prince Alwaleed bin Talal will be ‘a lot higher’ than £120 million (S$277 million), Mr Macdonald said, compared with an original budget of £100 million.
Times have changed from two years ago, when luxury hotel companies enjoyed a record year as bankers flush with bonuses booked London suites alongside Russian and Middle Eastern tourists.
A survey cited by Christie & Co, a unit of STR, says 47 per cent of executives will take fewer business trips this year, while 28 per cent will downgrade from five-star hotels.
‘If I look two weeks ahead, you have to have a stomach of iron because it can look desperately empty,’ said Geoffrey Gelardi, general manager of the Lanesborough near Hyde Park.
The number of companies using his hotel for so-called investor road- shows fell to about 10 in the first half of 2009, from 20-30 a month at the peak of merger activity two years ago, he said.
The Savoy’s closure in December 2007 helped stem declines in occupancy at upscale hotels such as the Lanesborough and the Sultan of Brunei’s Dorchester, STR Global’s Mr Auernheimer said. Revenue per available room (revpar), a gauge of hotel profitability, at luxury London properties fell 7.7 per cent in the first seven months of the year, according to STR figures. Revpar slid 13.6 per cent last November, a month after Lehman’s collapse.
‘After the financial shock of last October, conspicuous consumption by bankers and people in financial services isn’t on the agenda anymore,’ Wyn Ellis, a London-based analyst at Nomura Securities Ltd, said in an interview.
To ensure the Savoy’s renovation makes a splash among those still spending, Prince Alwaleed retained designer Pierre-Yves Rochon, famous for revamping the Four Seasons Hotels Inc-managed George V in Paris and styling restaurants for Joel Robuchon.
Rochon touches such as a glass winter garden and faux panther-fur carpeted bistro will be teasers to the Royal Suite – 3,200 square feet of opulence overlooking the Thames River at about US$12,500 per night.
‘If they want a bit of bling, we’ll give it to them with Rochon,’ Savoy’s Mr MacDonald said at an adjacent bar, still open while as many as 600 workers a day toil on the hotel.
Two kilometres west in the Mayfair district, home to hedge funds and embassies, the Dorchester has fought the slowdown by stepping up advertising to wealthy Russians, Chinese and Arabs, and offered complimentary gourmet meals to tempt weekend tourists.
Even so, revpar is down from 2008, the hotel’s general manager, Roland Fasel, said in an interview.
‘There’s a finite cake of clients available who are willing to pay the premium we need to operate our hotels,’ Mr Fasel said in the hotel’s Dorchester suite, adorned in an English country house style with Victorian furniture and Chinese armoires.
The hotel doesn’t plan to reduce the price of its rooms, he said.
The Lanesborough, in nearby Knightsbridge, has hired sales representatives in the US, Russia and the Middle East this year – the first time they have had people directly in those markets.
It has also translated its website into Mandarin, Cantonese and Arabic to target higher-growth regions.
‘You can see who’s doing the deals and who’s not – those emerging markets are clearly where the action is right now,’ said Mr Gelardi, the Lanesborough’s general manager.
He is fighting for guest loyalty with automatic upgrades for longstanding customers and new laptops in every room.
Round doorknobs were even removed from a suite and replaced with lever- style handles to meet one recent client’s aesthetic tastes, Mr Gelardi said.
Competitor Mandarin Oriental International Ltd said in March that occupancy at its Hyde Park property, a recent stop for singer Beyonce Knowles, fell 4 percentage points in 2008.
‘The hotel sector in London has grown as a result of the financial services industry,’ said Michael Shepherd, general manager of Hilton Hotels Corp’s Park Lane property.
‘The way that sector behaves will never return to what it was. Banks that were in our top 10 corporate client list no longer exist,’ he said in the hotel’s 28th floor cocktail bar.
Back at the Savoy, Mr MacDonald isn’t planning to make life any easier for his rivals. His hotel will be ‘directly competitive with the very best of London’, he said.
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