Jones Lang LaSalle Hotels, the world’s
leading hotel investment services group, provides clients with value-added
investment opportunities and advice. In 2001, its success story includes
the sale of 7,972 hotel rooms to the value of US$1.3 billion in 39 cities
and advisory expertise on 100,550 rooms to the value of US$26.3 billion
across 255 cities. Jones Lang LaSalle Hotels’ services include
transactions, mergers and acquisitions, financial advice and capital
raising, valuation and appraisal, asset management, strategic planning,
operator assessment and selection and industry research. Jones Lang
LaSalle (NYSE: JLL) is the world’s leading real estate services and
investment management firm, operating across 100 key markets on five
continents. http://www.joneslanglasallehotels.com by Lisa M. Jebodhsingh, Senior Market Analyst, Hospitality
Knowledge Solutions, Andersen, London, UK
Bordered
by the Kingdom of Saudi Arabia in the South, Iraq to the North and West
and the Arabian Gulf to the East, Kuwait is considered the gateway to the
Arab peninsula. This oil-rich nation is home to just over two million
people, with over half of them non-nationals. Kuwait
has a climate typical of a desert geographical region, with temperatures
averaging 23 degrees celsius for the year, but climbing as high as 50
degrees celcius in the summer months. In this climate, prohibitive to
agricultural development, there is virtually no arable land, and it is
necessary to import most of the food and water consumed by the populace.
Contrary
to its lack of agricultural resources, Kuwait is a country supremely rich
in oil resources, which account for 50 percent of its GDP, 90 percent of
its exports and 75 percent of government revenues. The first significant
oil strike was recorded in 1938 but it was not until 1946, after World War
II, that the first barrels were exported. Today, Kuwait is ranked third in
the Middle East for proven oil reserves after Iraq and Saudia Arabia, with
an estimated 94 billion barrels, 10 percent of the world's crude oil
reserves Economy Kuwait's
economy is dependent almost completely on the production of oil, and thus
subject to external market conditions. The government is well aware of the
finite nature of this resource, albeit not in the immediate future, and
have maintained a 'Reserve Fund for Future Generations' into which they
funnel 10 percent of oil sector revenues. They are also aware of the need
to diversify the economy and tourism is one of the tools at hand. Following
the September attacks in the US, oil prices slumped by 40 percent. Real
GDP growth is estimated at 0.8 percent for 2001, but is expected to
contract by 1.1 percent in 2002 as a result of OPEC production quota cuts,
which will bring overall oil production down by nine percent compared to
2001. However, this is expected to rebound in 2003 with real GDP growth of
3.5 percent. Continued tensions in the region and the increasing concern that there will be a US led military assault on Iraq pose a potential threat to the economy. Foreign and domestic investment activity will most likely be negatively impacted, although this may be balanced by increased oil output and revenues if the Iraqi oil supply is severely disrupted. Tourism Tourism is a relatively untapped industry in Kuwait, a
country that has primarily concentrated on the development of its oil
industry. Corporate and government business dominated the sector with over
90 percent of the travel to the country being for the purpose of business
rather than leisure. A complicated visa regime and lack of attractions are
current hindrances to the development of a leisure tourism industry.
However, the introduction of the Hala Shopping Festival, is one step
towards placing Kuwait on the radar screens of potential visitors. Increased
promotion activity coupled with the development of a number of major
tourism projects are another step in the development of the industry. The
Pearly City Project is a mixed-used development incorporating residential
and tourism facilities in a complex in the south of the country, with
construction due to be underway shortly. There are also plans underway to
develop Failaka and Bubujan islands in the Arabian Sea, aimed at providing
a haven for leisure visitors. If
the oil industry is open to foreign participation, as is the plan with the
implementation of US$7 billion Project Kuwait, Kuwait's profile in the
non-GCC arena will potentially be raised, and will be a push towards
increasing leisure business. However, with oil production the dominant
economic activity in the country and a lack of attractions, the push for
tourism is perhaps not the primary focus of the government at this time.
The
most recent data available from the World Tourism Organization show
visitor arrivals to Kuwait at 77,000 in 1998. With 89,000 arrivals in
1989, visitation declined dramatically to 4,000 in 1991 in light of the
invasion by Iraq, but has increased each year since then.
International tourism receipts have also increased year on year with the
1999 figures set at US$243 million. Kuwait - The City In
1999, there were an estimated 2,224 hotel rooms in the country according
to the World Tourism Organization. In the capital city, the majority of
these rooms are in the four and five-star sector, made up of a selection
of international hotel chains, including Starwood, Radisson SAS, Le
Meridien and Six Continents, although the dominant company is the local
Safir Hotel Management Company. The
rate cartel operated by the five-star hotels has served to guarantee the
highest average room rates of a destination city in the Middle East. Of
the 28 markets that are tracked by the Andersen Hotel Industry Benchmark
Survey - Middle East and Africa, Kuwait has consistently been ranked first
in terms of average room rate. However, occupancy is practically the
lowest in the region averaging less than 50 percent in each of the last
six years. Future supply It
can be argued that the four and five-star market is saturated and it is
unlikely that the industry can sustain the new additions that are
currently in the pipeline. The Safir Palace Hotel Riggae has reopened
after undergoing an extensive refurbishment program, and Hilton has opened
a new resort property located on one of the longest private beaches in the
country. Other projects online include a new Four Points by Sheraton
property to be constructed adjacent to the existing Sheraton Kuwait, as
well as the first Courtyard by Marriott hotel for the Middle East, due to
open next year. Outlook Government
and corporate business dominate in Kuwait, although there is an increasing
push to grow the level of leisure travel to the country. The development
of resort properties suited to the leisure traveller, as well as
mixed-used developments focusing away from the business traveller are
evidence of the desire to attract more leisure business. However, the
success of this strategy in the short-term is dependent on the continued
conflict in the region, and the potential escalation of violence which
will prove a powerful deterrent to new leisure business. DECREE
GRANTS DUBAI HOTELS GRACE PERIOD EUROPEAN
COMMISSION APPROVES NEW ONLINE TRAVEL AGENCY Europemedia.net
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The European Commission approved a merger between IT company
Amadeus and Laser, the CRM subsidiary of French retail group Galeries
Lafayette, which is to pave the way for a joint online travel agency. PRESIDENT DISCUSSES THE SEGMENT OF CANDLEWOOD
HOTEL COMPANY BUSINESS
TWST:
Could we start out with a history and overview of Candlewood Hotel
Company, Inc. (Nasdaq:CNDL)?
Mr. Roos: Jack DeBoer, who is known as the father of the extended-stay hotel industry, founded Candlewood Hotel Company. Jack DeBoer founded Residence Inn and later sold it to Marriott. He then founded Summerfield Suites, which is now owned by Wyndham Hotels. And in 1995, he founded Candlewood Suites in an effort to reach the middle market. Jack DeBoer is the Chairman and CEO of Candlewood Hotel Company, Inc. Residence Inn, with additional amenities and a rising price point, was challenged with finding places to develop hotels because there are few markets that could support those development costs. By changing the operating model he was able to put the extended-stay hotel concept in far more markets. The first Candlewood Suites opened in 1996 and today we have 103 Candlewood Suites and three Cambridge Suites. Candlewood Suites was actually a joint venture between Jack DeBoer, Warren Fix, our Chief Financial Officer, and DoubleTree Hotels. DoubleTree Hotels later merged with Promus Hotels, and since then, Promus Hotels was acquired by Hilton Hotels. Approximately one-third of our common stock continues to be owned by Hilton Hotels; another third by management; and a third is in the public’s hands. WST: What’s going on in your segment of the business? Is there still a lot of building going on? Mr. Roos: The long-term key to hotel industry profitability is the rate of new supply growth, and that has been almost cut off. I’m sorry I don’t have a number to quote you on that. But there’s been a tremendous change in the number of new
units coming on as well as the pipelines going forward. You know, it takes
12-18 months, the better part of two years, to take an idea to build a
hotel and actually get it open. Again those developers who get one under
construction soon will have little threat of new competition when they
open. TWST:
What does that mean to you in terms of rate flexibility? Mr. Roos: As supply and demand changes, great opportunities present themselves. This is a primary focus. We have an operating model that has proven itself. It is providing high levels of customer satisfaction, and it has given us costs that are significantly lower than traditional hotels. This concept really works. Our opportunities today are to manage the top line of our business more effectively. And our aim is to continue to refine the way we sell and market. We are intensely top line driven, and pride ourselves on having the best sales team in the industry. We actually had been using a sales approach that Jack DeBoer developed along with McGraw-Hill when he owned Residence Inn. It was developed there, it was refined in Summerfield, and we really thought we had perfected it here. But with the help of McKinsey Consulting we have identified even better ways to sell. We are implementing strategies right now that we believe will
take us to great heights. The key is to find the right customers for our
kind of product so that we can maximize the rates they pay. They’ll
still get great value, but we’ll have the best of what’s out there. SOCIETE DE LOUVRE CHAIRMAN
DISCUSSES THE COMPANY FOCUS ON LUXURY GOODS AND HOTELS
TWST:
Could we begin with a brief overview of Société du Louvre, including the
history, product portfolio and main markets that you serve? Mrs.
Taittinger: Société du Louvre (Paris:3311.PA) operates in two main
areas, the first of which is the hotel business, where we have luxury and
budget operations that represent around 80% of our total turnover. The
remaining 20% comes from our other business stream, luxury goods, which
include products such as Baccarat Crystal. In terms of the luxury hotels,
our main customers come from America, Europe and the Middle East, they
account for around 85-90% of the total volume. So, we are mainly oriented
towards foreign markets. With regards to our budget hotels, we have about
800 in the portfolio and they are mainly located in France, the UK,
Belgium and the Netherlands, with the majority of our customers being
domestic Europeans. TWST:
Do you anticipate a shift in the percentages of turnover for the two main
areas in the future? Mrs.
Taittinger: There will be some increase in the hotels side, but luxury
goods will remain the same. TWST:
In terms of the 80% revenues that you derive from the hotel business, what
is the split between the luxury and budget side? Mrs.
Taittinger: For the last two years the budget hotels have represented
more than 53% because we have continued to build new properties, adding to
our portfolio. The luxury hotels are not growing at such as rapid rate. TWST:
What are the characteristics of the hotel industry and the luxury goods
market at present? Has the US economic downturn had any noticeable
effects? Mrs.
Taittinger: In terms of our luxury hotels, after September 11th we had a
great decrease during October, but November to present has seen a
recovery. So, in October our revenues were down by 30%, now that figure is
less than 10%. With regards to luxury goods, 1/3 of Baccarat Crystal’s
turnover comes from a US subsidiary, so it was clear that this was
slightly jeopardized by economic and political events there. With regards
to Baccarats other markets such as Japan, which represents 1/3 of its
turnover, double-digit growth was experienced. So, the turnover there and
in the Middle East compensates for the diminishing US figures. Since
December, the six exclusive stores that Baccarat operates in the States
are up by 15%, so there are signs of a recovery. TWST:
Is it a similar scenario with the other luxury product, Annick Goutal
perfumes? Mrs.
Taittinger: Yes it was, because about 70% of the turnover of Annick
Goutal came from the US. However, Goutal still has strong benefits but at
the same time was more jeopardized than Baccarat because it does not have
the same international focus. TWST:
How are each of the Société du Louvre brands such as Baccarat, Annick
Goutal and Concorde Hotels perceived in their markets? How prominent does
branding feature in your marketing strategy? Mrs.
Taittinger: It depends, for example, the Concorde brand is not strong,
but the luxury hotels under its umbrella are, such as The Hôtel de
Crillon and The Hôtel Lutetia in Paris and The Hôtel Martinez in Cannes.
In this case, customers do not visit the hotels because of the Concorde
brand, it is because of the quality, prestige and fame of each hotel and
its location. In the budget hotel market it is totally different, guests
stay because of the overall brand name that represents a guarantee of
service and certain standards. We have three names for our budget hotels
and they are well known in Europe, these include Kyriad, Campanile and
Première Classe. We will expand the number of these hotels and the
franchises, as rapid growth is a requisite in the market. As a brand,
Baccarat is perceived as the number 1 in prestigious crystal gifts and has
a strong presence in Japan, Europe and the Middle East. Although the
market in the US has suffered, it is showing signs of a recovery. TWST:
Will the geographic expansion of the budget hotel portfolio involve growth
into emerging markets, such as those in Central and Eastern Europe? Mrs.
Taittinger: We do have some development plans in this area towards
Poland, which is the main Eastern developed country and also into Southern
Europe. We see that as a good opportunity for us, but in terms of the
other countries in that area, there are no opportunities at present.
However, in 5-10 years this will change, but at present it is too early to
predict. TWST:
Are you also looking at inorganic growth in the form of joint ventures or
mergers and acquisitions? Mrs.
Taittinger: It will be both. Organic growth is the most natural method
for budget hotels, but it may be the case that we have the opportunity for
acquisitions or joint ventures with partners, specifically financial
people operating in certain countries. In contrast, it is very different
with Concorde as perhaps growth may only be through acquisitions, but at
this stage we are unsure. As a group we are very focused on the European
market, so we don’t plan to make major acquisitions outside of that
area. Three analysts and top management from eight sector firms examine the lodging sector in this special 47-page Lodging Industry issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info557.htm e-Tid.com
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Hotel and restaurant owner the Savoy Group saw profits of £40.8m
during 2001, down from £55m the previous year.
DEPUTY GROUP CE DESCRIBES HILTON GROUP’S KEYS FOR
GROWTH Brian Wallace, Hilton
Group - BRIAN G. WALLACE is Deputy Group Chief Executive of
Hilton Group TWST:
Would you begin with a sketch of the most significant events in the
history of Hilton Group (LSE:HG.L) and tell us what is most important to
the company at the present time? Mr.
Wallace: The Hilton Group started off many years ago from a very
small betting business and really has grown tremendously over its long
history. One of the major events was certainly the acquisition of the
Hilton Hotels brand back in the late 1980s. Today, the business is now
very focused on two businesses: the hotels business and the betting
business. TWST:
What were the keys to the growth? Mr.
Wallace: For many years, the company was run by an individual named
Cyril Stein. He was tremendously entrepreneurial and managed to grow the
betting shop business in particular during the 1970s and 1980s. With the
success of that business, he made some bold moves, including the Hilton
one. So I think it was a very entrepreneurial style in those days. TWST:
Is betting now a bigger part of the business than hotels? Mr.
Wallace: No, the bigger part is hotels. But I must say that the
betting business itself is going through quite exciting times because of a
number of regulatory changes. TWST:
Would you comment on that briefly? Mr.
Wallace: Last year in the United Kingdom, the government decided to
abolish betting duty completely. That was something that the industry had
lobbied for. We got what we asked for, which is always nice from the
government. Since then, we have seen a significant increase in turnover
— in excess of 30%. I think the other aspect of the betting business
that is exciting right now is the very new business of e-betting —
betting through the Internet. That’s a business that is less than three
years old and yet it is growing rapidly for us. TWST:
What was the advantage to the government of eliminating the duty? Mr.
Wallace: They really perceive the potential of the Ladbrokes brand,
which, of course, we own and two other major brands in the UK in
particular — William Hill and Coral — which are also potentially
global leaders. Because of the potential the government sees for growth in
betting on a global scale mainly through the Internet, they wanted to make
the playing field competitive for companies in the United Kingdom. We in
fact had moved some of that business off shore, so as a quid pro quo for
the abolition of duty, we and the other major betting companies
repositioned our business in the United Kingdom. Of course, for the
government that is good for business and employment. TWST:
With regard to business in general and with regard to Hilton Group in
particular, could you comment on the condition of things in 2001 before
and after 9/11? Mr.
Wallace: I think the summary for that is, if people look back to our
first half results for the half-year to June 2001, they would have seen an
exceptionally good period, with very good growth in RevPAR and in
profitability. We were on track to outperform market expectations for the
whole of 2001. Clearly, that situation was dramatically changed with the
sad events of September 11. Three
analysts and top management from eight sector firms examine the lodging
sector in this special 47-page Lodging Industry issue from The Wall Street
Transcript, available at (212/952-7433) or http://www.twst.com/info/info557.htm CEO OUTLINES ARLINGTON HOSPITALITY’S GAME PLAN Michael Holtz,
Arlington Hospitality - MICHAEL
P. HOLTZ is Chairman of the Board, President and Chief Executive Officer
of Arlington Hospitality, Inc. TWST:
Could we start out with some background and an introduction to Arlington
Hospitality, Inc. (Nasdaq:HOST)?
Mr.
Holtz: Arlington Hospitality, Inc., is basically a real estate
ownership and development company, formerly known as AmeriHost Properties,
Inc. The company was founded and went public in 1984. We started in the
hotel industry in 1987 when we opened up our very first hotel in Sullivan,
Indiana. Our strategy at that time was to build small hotels in small
towns. We wanted to focus on the tertiary markets, very similar to a
strategy by Wal-Mart at the time. In 1989 we opened up our very first
AmeriHost Inn hotel in Athens, Ohio. This was a newly designed hotel
prototype; we wanted to create one that offered more in terms of amenities
and services than they would typically find in what we call “small town
America.” The AmeriHost Inn brand grew very quickly and very well. By
the year 2000 the brand had 81 hotels in 17 states. We created a lot of
value in that brand, and in recognizing that value, Cendant Corporation,
the world’s largest franchiser of hotels, purchased the name and
franchise rights to the AmeriHost Inn brands from Arlington Hospitality.
And today, we are Cendant’s largest hotel franchisee. Today, the company
has 65 AmeriHost Inn hotels and one of our major strategies at this time
is to continue to grow the AmeriHost Inn brand with Cendant. TWST:
What’s on the agenda when you look out over the next 12-24 months, what
will make that time frame a success? Mr.
Holtz: Our game plan is to continue to build the AmeriHost Inn
hotels. We look to build eight to 10 hotels during 2002. We look to sell
10-15 hotels during that same time period. The key to our brand and the
success of our brand so far has been weathering the adverse economy. With
the hotel industry down about 15% right now in revpar for the year,
we’re actually up 6%-7%, and we were able to accomplish that for the
reasons I just said earlier, and that’s corporations are now traveling
by car more and the consumers and the leisure traffic has picked up a lot.
So we’re looking at 2002 to be a very good year, and 2003 to be even
stronger. TWST:
What are the dynamics between the top line and the bottom line with
Arlington Hospitality, and what will assist in making that bottom line
grow, both on a marginal basis and on an absolute basis? Mr.
Holtz: From a hotel operations standpoint, we’ve been focusing on
reducing cost in a couple of areas. Number one, we’ve reduced time
needed to clean the rooms, about four minutes over the past 12 months. It
doesn’t sound like a lot, but that equates to about a $400,000-$500,000
savings to our bottom line company-wide. In addition, we’re going to be
focusing on more ways to save energy costs. But more importantly, we’re
focusing on ways to get the average daily rate up. Arlington Hospitality
will rent about 1.3 million hotel rooms this next year. For every dollar
we increase our average daily rate, about $1.2 million drops to our profit
before taxes. So the average daily rate is critical to the overall
profitability of the company and to the hotel industry as a whole, and so
our challenge is going to be to be able to move that average daily rate up
at faster levels than inflation. And that’s what’s really going to
drop cash flow and profits to the bottom line. TWST:
What are the keys on marketing for this company? Mr.
Holtz: It’s pretty simple. We’re mostly located in small town
America, so our whole focus is to sell the hotels to the local community
and let them become our sales force. And we do that by trying to get a lot
of the community to come to the hotel. We do that through grand openings,
every month we invite certain corporations out for tours of the hotel and
maybe cocktail parties with our staff. The key is for them to see the
product. Three analysts and top management from eight sector firms examine the lodging sector in this special 47-page Lodging Industry issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info557.htm CHINA
4 MONTHS TOURIST ARRIVALS UP 8.26 PCT YEAR-ON-YEAR Tourist arrivals in the four months to April
rose 8.26 pct year-on-year to 30.99 mln, the official Xinhua news agency
reported. Foreign tourist arrivals in the period
increased 17 pct year-on-year, Hong Kong tourists rose 2.43 pct, Macao
tourists increased 27.07 pct and Taiwan tourists increased 4.69 pct,
Xinhua said, citing statistics from China National Tourism
Administration. The number of tourists from several countries reported two-digit growth, including South Korea, the Philippines, Mongolia, Malaysia, Thailand, Russia, Singapore and Japan, it said.
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