The Waldorf=Astoria has stood at its Park Avenue location in New York for 75 years epitomizing luxury and grandeur.
Now, Hilton Hotels Corp. has its own grand plans for the iconic hotel expanding the Waldorf name to a series of existing and new hotels across the country, including a lodging near Walt Disney World to be finished later this decade.
The question is: how far can the company go with an Old World property in a luxury sector where other hotels such as the Four Seasons have already spent years building customer loyalty?
“Everyone has asked, ‘How many of these (luxury hotels) can you do?’ The answer is we don’t really know,” acknowledged Matthew Hart, president and chief operating officer of Hilton, which has owned the Manhattan landmark since 1949.
That hasn’t stopped Beverly Hills-based Hilton from announcing ambitious plans, though.
Last January, the company said it was establishing the Waldorf=Astoria Collection, a group of high-end, independent properties that would pay a fee to use the legendary name and gain access to Hilton’s reservation system and other corporate benefits.
The iconic name could eventually be associated with around 50 properties, though so far the collection only comprises the Grand Wailea Resort Hotel & Spa in Maui, Hawaii; the Arizona Biltmore Resort & Spa in Phoenix, and the La Quinta Resort & Club in La Quinta.
But just a few weeks ago, Hilton went a step further and announced it would be constructing the first new Waldorf=Astoria from the ground up in Orlando, Fla., in an attempt to faithfully extend the singular hotel’s ambience and legendary name.
“There is a bigger opportunity for the Waldorf=Astoria Collection than for new Waldorf-Astorias,” Hart said.
The Waldorf=Astoria near Walt Disney World will be jointly owned by Hilton and Merrill Lynch Global Principal Investments, an undisclosed private investment company and GEM Realty Capital Inc., which also has a stake in L.A.’s Sofitel Hotel. Construction on the 500-room Waldorf=Astoria is scheduled to begin in the first quarter of next year and conclude in the summer of 2009.
Analysts praised Hilton for extending Waldorf=Astoria’s reach. They point out that the name hasn’t been sufficiently leveraged, and Hilton’s presence in the luxury sector pales in comparison to its rivals. The Conrad, currently with 16 hotels, is another Hilton upscale entry, but the company’s portfolio is heavier in the lower tiers of the market with Doubletree, Hilton Garden Inn and Hampton Inn among the main brands.
“They have lacked a luxury brand, and it has been a noticeable vacant shelf,” said hospitality attorney Jim Butler, partner at Jeffer Mangels Butler & Marmaro LLP. “With Hilton’s muscle power and with the need in the marketplace for another luxury brand, the timing is excellent and the move is great.”
Other hotel companies have pushed forward quickly into the luxury hotel sector and have been able to boost revenues from travelers willing to plunk down more on hotel rooms. There are currently 70 Four Seasons Hotels Inc. properties; 61 Ritz-Carlton hotels, a brand under the Marriott International Inc. umbrella; and 10 St. Regis locations, a chain which Starwood Hotels & Resorts Worldwide Inc. expects to double by the end of the decade.
Indeed, the luxury sector has outpaced the rest of the market since travel rebounded following a post-9/11 slump. According to data provided by Smith Travel Research, the average daily room rate at luxury hotels was $274.70 dollars year-to-date through April, an increase of around 9 percent over the first four months of 2005. At the same time, the daily rate for the total U.S. market increased 6.5 percent to nearly $97.
With hotel rooms costing so much, it is probable that rate hikes will slow down in the future. But the consensus is that the luxury sector will stay strong. With the economy healthy, business travelers are expected to continue to shell out for nicer accommodations. The demographics are also in luxury hotels’ favor: aging baby boomers with disposable income are looking to spend their hard-earned cash at top-notch facilities when they travel.
“We are in an age of indulgences and people who want to reap the benefits of their work, so we see that upper-end resorts are doing well,” said Jan Freitag, a vice president at Smith Travel Research, based in Hendersonville, Tenn.
Risks abound
Wading into the luxury waters can be a risky enterprise. Luxury hotels cost hundreds of millions of dollars to put up, take years to build and require an army of staff to run.
With that in mind, Hilton is expected to proceed cautiously with Waldorf=Astoria expansion. New construction is likely slated for a few marquis cities, with most Waldorf=Astoria hotels being added through the branding of existing hotels and the co-branding of hotels under Hilton or Conrad nameplates.
In those places where new hotels will be built, Sean Hennessey, chief executive of Lodging Investment Advisors LLC in New York, said the power of the Waldorf=Astoria name will attract prominent investors and developers who might have turned elsewhere. That’s important because, despite the interest, it is still difficult for luxury properties to pencil out: construction costs are high and real estate is tight.
These barriers to entry in the luxury market have led demand to eclipse supply, another factor in the rising room rates. And it also suggests that luxury properties entering the market could be cushioned if a travel downturn does pop up. As compared with lower-end properties, which are rapidly unfurled across all sorts of markets urban and suburban alike the competition in the luxury market isn’t as fierce, and there remains just a small number of serious contenders.
Still, a major challenge of pushing Waldorf=Astoria outside of its New York home is maintaining the integrity of a brand that signifies urban elegance. Important questions to be answered as expansion unfolds: Will the brand jibe with resort venues? Can it be successfully transplanted to properties without the architectural decadence of the original?
Smedes Rose, an analyst with Calyon Securities (USA) Inc., said diluting the brand is a concern, but one that Hilton should handle well. “The kinds of properties they are talking to are already in the luxury segment and are not turnaround stories,” he said. “They would have tight controls over what standards would have to be met to maintain your inclusion in the (Waldorf=Astoria) Collection.”
Hart concurred, saying that Hilton isn’t rushing into deals and is very aware of the need to protect the brand.
“You pick the right partners to build them. You make sure you are in the right locations,” he said.
