Friday, June 05, 2009
Glenn Haussman

It’s no secret times are tough. Truth is, even the most seasoned professionals are experiencing plenty of angst these days. And it’s especially true for those tasked with keeping track of all that cash coming into and going out of lodging company coffers.

Basically the last nine months have presented some of the most complex challenges faced in decades. To respond, the industry’s financial leaders are in essence reinventing the way they do business every day. Defensive maneuvers are in, big risk is out. Creative cutbacks rule the day, a major departure from the “give the guest everything” attitude that was en vogue as recently as last year.

So what are the challenges the industry’s CFOs are dealing with, anyway? Well, there are plenty and it was a major discussion that carried through this week’s 31st Annual New York University International Hospitality Industry Investment Conference.

“It’s been a baptism by fire,” said Harmit Singh, CFO of Global Hyatt, a privately held hotel company. Singh said he has been putting most of his emphasis on aligning costs to what he called a “declining revenue base” without putting in danger the company’s long-term goals.

To make that happen, he said the company is working to create value for guests wherever possible in order to drive brand preference among Hyatt-branded hotel owners and customers. “We look at crisis as opportunity to emerge a lot stronger,” said Singh.

Singh said that, to become stronger, Global Hyatt is putting money into improving guest satisfaction and investing more in their top employees.

So is Denihan Hospitality, a New York-based hotel company. “The biggest risk we all have is the people that work for us,” said David Duncan, CFO of Denihan Hospitality. “We are really active in communicating with our best people so they stick with us during this downturn and we can take advantage of having them during the upturn.”

Sean Mahoney, CFO of the ownership group Diamond Rock Hospitality, said he spends a lot of his time assessing data to make sure their hotels are well positioned against others in their respective markets.

“We saw storm clouds on the horizon a year ago. Markets had established there would be winners and losers, and we spent last year focusing on being in the win category. No one has a perfect balance sheet but we are in good shape and can now focus on opportunities as they arrive. We’re in a position to be opportunistic when the time is right. We’re focusing on maximizing the bottom line in this environment. We have to make sure our hotels aren’t losing their share of the pie,” said Mahoney.

At Intercontinental Hotels Group (IHG), CFO Richard Solomons said it’s critical as a franchisor in these times to help owners of IHG-branded hotels. “The message we get very clearly from owners is to get revenue into hotels. That’s what we get paid for and we want more of it,” said Solomons.

Fair enough. To drive revenue the company is investing more in marketing. This year IHG will spend close to a billion dollars in this arena. The company is also hiring many more sales people globally at the corporate level to help get bigger fish that can send business to many hotels at once and also putting more emphasis on their customer loyalty program.

But the biggest move happening in the company is the re-launch of Holiday Inn, a more than $1 billion program hotel owners are investing in through 2010. He said hotels that have been through the refreshment process are getting rate premiums and that it’s easier for hotels to make changes when they’re not full. “It’s also a fantastic time for brand trial as people are trading down to midscale hotels. No one gets into trouble for staying at Holiday Inn. We talk to big companies who traditionally didn’t put senior people into [midscale] hotels. They do now,” said Solomons.

But it wasn’t just the top money men sharing their secrets. Laurence Geller, President and CEO, Strategic Hotels & Resorts, said this downturn is helping the company make changes he never thought possible during the rich days of the last few years.

“For the first time I think we’ve had systemic operational changes. We lost 15 to 20 percent of labor and one-third of that won’t ever come back, so margins will be higher,” said Geller.

Finally, IHG’s Solomons said things have irrevocably changed and it’s critical to plan in advance for any number of possible future scenarios. “There is a new normal with much less activity and predictability and you have to run business that way and not make assumptions,” he said.