Too Much Room

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The lunch crowd at the Beverly Wilshire hotel’s the Blvd restaurant one recent Friday afternoon was a lively one.

Beverly Hills businessmen filled tables and the bar, chatting over plates of Kobe beef sliders and truffle risotto. A group of women armed with gift bags and expensive purses convened at a large table to celebrate an event.

But the activity on the ground floor of the iconic hotel at the end of Rodeo Drive belied the scene upstairs at the Beverly Wilshire, which has seen a drop in demand for its plush rooms.

Occupancy is down about 20 percent from last year. People are spending less in the hotel’s restaurants. And a hiring freeze is now in effect.

But the Beverly Wilshire isn’t alone.

As the economy has fallen into recession, Los Angeles County’s hospitality industry has taken a hit across all geographical areas and price points, but it’s the high-end inns that are getting whacked particularly hard.

The slide was fast. In November, hotel occupancy in the Los Angeles area was down more than 13 percent just from the previous month and down 9 percent from one year earlier, according to PKF Consulting. Room rates were also trimmed nearly 8 percent from the previous month and a little more than 1 percent from a year ago.

Because L.A.’s hotels tend to be frequented by vacationers even locals taking weekend trips, which has become a trend as people spend less on faraway leisure many upscale hotels are courting tourists.

“Leisure travelers can make their own decisions, they have more flexibility,” said Bruce Baltin, senior vice president with PKF in Los Angeles.

“Business travelers are affected more by the economy because their travel is determined by their companies. They’ll recover later than leisure travelers. But overall, the bottom (of the hospitality market) will be softer here.”


High-end erosion

Of course, leisure travelers tend to spend less than business travelers with expense accounts. That partly explains why the high-end segment is forecasted to see declines of at least 3 percent to 5 percent in occupancy this year in L.A. County, while the overall market is projected to experience a decrease of only 1 percent to 2 percent.

Another reason for the decline in the upper end: an increase in supply. The Montage Beverly Hills, the SLS Hotel at Beverly Hills and Andaz West Hollywood all opened recently. W Hollywood is also slated to open in November.

Yet another factor is a trade-down effect. Just as restaurant diners may buy a lower-priced bottle of wine, travelers are choosing less-expensive hotels.

“They’re trading down from known luxury brands to something that’s a little more under the radar,” Baltin said. “The demand is there, but it’s soft. It’s not P.C. to book with luxury brands right now.”

As a result, many upscale hotels have created booking specials, such as offering a third night free, which the Beverly Wilshire is doing, or extending a 50 percent discount on a second night when booking one night at full price, as SLS is doing. Andaz, which opened last month, is offering a rate of $295 a night for all its rooms through Feb. 18. Normal rates range from $295 to $625.

“We have to have integrity to our rate,” said Radha Arora, general manager of the Beverly Wilshire, which recently underwent a $40 million renovation. “So we created value-added packages. But we cannot reduce our rates because we still provide the same product and service. Once you start doing that, there’s just no end to it.”

One hotel that has reduced its rates is the Sheraton Universal Hotel in Universal City. The property recently spent $25 million to renovate, but some of the upgrades, including those to the pool and meeting-room area, were put on hold last year as the economy worsened.

The hotel, whose starting room price normally ranges from $409 to $1,500, has a history of catering to Hollywood executives and celebrities due to its proximity to the Universal Studios lot.

Brian Jago, the hotel’s director of sales and marketing, said the Sheraton’s rates have experienced some “erosion.” Rooms now can go for $289 a night and a search on the hotel’s Web site revealed a rate as low as $165.

Jago also said the hotel’s occupancy has held steady so far this year due to group bookings made months ago, but new reservations have dropped off.

To entice businesses and other organizations to hold events at the Sheraton, the hotel has taken to customizing packages based on each group’s budget.

“We’ve been trying to focus on not just the rate but on their total budget, looking at ways of assisting them through food and beverage and meeting-room rentals,” Jago said. “New group business has become more competitive.”


Package deals

To attract leisure travelers, the hotel has put together value packages and has even repriced some of its existing ones to make them more attractive.

Beverly Hills-based Hilton Hotels Corp. is also offering special deals throughout its entire system to attract all kinds of travelers.

Through March, Hilton brands ranging from Waldorf Astoria to Hampton Inn are offering up to 20 percent off a 14-day advance reservation.

Hilton Universal City is offering a Universal Studios Hollywood theme park package that includes a three-night stay, breakfast buffet, self parking and a buy-one-get-one-free theme park ticket starting at $317 a night. The Sheraton Universal’s theme park package starts at $259 a night for a room and two two-day tickets to the park. (The package previously included front-of-the-line passes, which were more expensive.)

Whether these discounting and value-adding tactics work remains to be seen. Baltin said that the hospitality industry traditionally lags the recovery of a recession by about six months, and he doesn’t anticipate seeing growth in the industry until first or second quarter 2010.

Until then, the Beverly Wilshire’s Arora is staying optimistic.

“We’re hoping for good news, but for now, we’ve got to remain positive,” he said. “We’re doing more innovation with fewer resources. We’re thinking differently today than we would have six months ago. So in the end, when the business does come back it will be a bigger pie, and we’ll all be better businessmen.”

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