Paul Mcmanus of LHW answers our favorite questions on Luxury Travel 2008: Luxury loves the Internet! Faux Brands! Business booking down -and More!

What makes a luxury hotel brand "faux"? Leading Hotels of the World CEO Paul McManus tells us that as well as what will keep luxury hotel development buoyant, why corporate travelers rarely "trade down," and how LHW itself will be in the market to buy hotels.


 

As the world of luxury hotels swirls with clusters of new brands, seismic shifts in distribution and crazed competition, Leading Hotels of the World seeks to maintain its place at the center of it all. Coming off a record breaking year, CEO Paul McManus doesn't hesitate to air his views about the luxury hotel market - and some innovative plans for Leading's own future. Among the highlights:

• Many of the new luxury brands are "faux brands," according to McManus, lacking the depth and heritage of a true luxury product.
• Sovereign investors - such as Prince Alaweed of Saudi Arabia and the Sultan of Brunei - have enough capital to develop luxury hotels, no matter the economic conditions.
• Luxury travelers love the Internet - resulting in soaring LHW online bookings. While travel agents still account for 80% of business, McManus says they have to prove their value as consultants and advisors.
• Talk of corporate travelers "booking down" in price category is usually just that - talk.
• The economics of spa operations are elusive to McManus who's not sure how they make money - but he realizes they are an expected amenity.
• LHW has entered into a partnership with Madison Dearborn, an equity fund, to form an entity for the acquisition of hotels - the first time LHW will be an equity player - first deal expected later this year. 

LT360: Why are so many luxury hotels at least being discussed in this marketplace?

McManus: The demand is there and there are many projects in the ground. With the debt situation, some projects will be delayed. But there is so much capital available. An investor recently came to us wanting to spend $1.5 million per key on a hotel in downtown Manhattan. Many of these projects will move ahead.

LT360: Where is all this capital coming from?

McManus: Sovereign investors -- like Prince Alaweed of Saudi Arabia, the Sultan of Brunei, the government of Abu Dhabi – they just roll over any economic factors – and they all play in the luxury arena.

LT360: What about the dozens of new brands that call themselves luxury?

McManus: There are many “faux” brands out there. Often they provide a glimpse or a taste of luxury but without the training and depth of knowledge it really takes. That’s where we bring value – in our 80 years of history and tradition.

LT360: Every luxury hotel has to have a spa; how does that add to a hotel’s success?

McManus: The economics is not something I’m sure of, but having a full-service spa allows hotels to enhance the guest’s luxury experience.      

McManus: There is always a lot of talk about that but luxury travelers get around corporate travel management policies. Don’t tell the investment bankers they have to trade down – not when they’re doing a billion dollar deal. It just doesn’t happen.

LT360: You had a strong increase in online bookings. Wasn’t it supposed to be the case that luxury products would not be booked online?

McManus: The Internet is an amazing story. It turns out the Internet was made for our customers. They are sophisticated travelers. They know where Como is and they simply go into the hotel’s inventory to see if there is space. And they invariably buy up online – given a choice they buy up 100% of the time.

LT360: What does that mean for travel agents?

McManus: More than 80% of our business ultimately involves agents.   We are flexible in insuring that an agent gets credit if they are involved in a booking. But agents do have to continue moving to a role as a motivator, advisor and consultant for luxury travel.

LT360: You’ve extended your brand into a number of areas including spas.

McManus: As far as brand extensions we will remain with Leading Small Hotels and Leading Spas. However, we also have a number of services like Leading Quality assurance, which has been very successful and has 600 non-LHW members as clients. Many like that ability to benchmark themselves not only against other four-star properties but against five star hotels – even if they never aspire to be five star hotels themselves.

LT360: What’s next on brand extensions?

McManus: We’ve been very successful with our Quintess, The Leading Residences of the World residence/destination club. In December we had our biggest membership sales month ever – and that’s for residences costing on average $4 million. These are mostly freestanding homes, in some cases suites in hotels. Sometimes it’s ideal for a hotel that might have just 100 rooms or so, but with extensive property for development of villas, homes or suites.

LT360: In 2007 LHW had a record number of applications for membership as well as a record year for revenue and rates. How do you explain a record year in the face of a softening economy?

McManus: We actually benefit in some ways because hotels in soft markets look to us for the revenues and average rate we deliver, and for our brand recognition.

LT360: What’s the overall outlook for the luxury hotel business?

McManus: It’s soft globally. Europe is starting to feel it because they are losing the American market. I recently spoke to an Italian member of Leading and he said occupancies were holding up but fewer Americans meant less money spent on shops in the hotel, restaurants, etc. Unless you’re a very special kind of hotel you will feel it. Hotels individually and we as a company have to look more closely at offering added value; we have to be more innovative.

LT360: How do you do that?

McManus: There are destinations where it’s becoming more difficult – like London which is breathtakingly expensive for Americans. You have to look at the value received, and service has to play an expanded role, along with innovative marketing programs such as our Guaranteed Dollar program. Some luxury hotels in London and elsewhere are tired after years of sustained high occupancy, and they are under pressure to make capital investments – so they have to kill with service to compensate and add value.

LT360: How is Leading itself doing?

McManus: We had more applications in 2007 than ever before in our history – more than 1,300. Of those we will accept about 40. Many simply don’t fit our plan geographically. But the number of applications is an indicator of the general health of our business.

LT360: How do you account for that?

McManus: It’s a combination of factors including many newly built hotels, many aspirational hotels which aim to tap into the luxury market and the breakup of assets from recent deals that involved multiple hotels. Individual assets will be sold off and will seek affiliation. Also, we are reasonably priced and a good value for our members. www.leadinghotels.com