Monday, August 30, 2010

Is There Still Room at the Top?

I live in Vancouver, B.C., North Vancouver actually, but that’s not the point.
Earlier this year, a new Fairmont property opened up in the thriving and highly competitive downtown core of Vancouver. 
I toured the property just after it opened and I have since attended several functions there, and the property is, beautiful – no argument, and Fairmont says that they are going after a rating of 5 diamonds for the Hotel.
What I’m wondering is whether there is room at the top, at least in this market, if not elsewhere, for 5 diamond properties, in this economy?
A spectacular Shangri La property opened here as well, a year earlier, and, not surprisingly, they too said that they were going to be pursuing 5 diamond status.  By all appearances, the property is certainly worthy of consideration.
Interestingly though, the property has struggled since opening, when, they were determined to hold out for the average rates that they should be generating for a property at that level.  But then came the inevitable challenges from what was deemed as excessive staffing for the low occupancy that they were generating. 
Now what?
Reduce the staffing levels and you risk your run for the 5 diamonds, and, you are also no longer providing the level of service to the customers that are coming, and paying the rate, with the anticipation of a certain level of service associated with that rate, and the distinction of 5 diamonds.
Enter the new challenger into the market.
Ironically, both the Shangri La and the new Fairmont Pacific Rim are in fact owned by the same group.  Do they know something that we don’t?  Or, as I suspect is the case, is the business case made on the strength of the high-end condos built into each of the projects?  (Of course it is).
Regardless, it still begs the question, is there room for 5 diamond properties, in this economy?
I suspect the answer is less about the status of being a 5 diamond property and a good deal more about how either or both of these properties will be operated, regardless of whether they are 4 or 5 diamond Hotels.
Arguably, Fairmont has the greater challenge now that they have 3 large and distinctly different and unique properties in the downtown core of Vancouver, and in fact within only a few blocks of each other.
I assume what will happen, is what happens every time the market shifts based on a struggling economy.  The 5 diamond Hotels will slash their rates, stealing business from the 4 diamond Hotels, and in turn the 4 diamond Hotels will slash their rates to the level of the 3 diamond Hotels, stealing their business, and as usual, those that will suffer the most are those at the lower end of the (Hotel) food chain.
The Hoteliers at the top of the food chain always say that they will NOT lower their rates, run ridiculously low rated specials and packages, and/or include significant food and beverage credits included in their rates, but, when the you know what hits the fan all bets are off.
And in this economy, the you know what is already hitting the fan, and it is likely to continue to do so for some time.
Owners are focused on the bottom line, period, and they are not going to sit on their hands while a General Manager or Corporate Executive tries to tell them how fabulous it will be if they garner 5 diamond status for their Hotel, not if it means excessively high labour costs, and dwindling returns.  It just aint gonna happen.
So what’s the morale of our story?
When the going gets tough, the lines between 5, 4, 3, and even 2 diamond properties in some cases, become very blurred, and at the end of the day, there is only 1 playing field, and you’re all on it, at the same time, so don’t be naive.
Want to win the game?  Then play it better (smarter) than the other guy.

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