Hotel Online 
News for the Hospitality Executive


 
Value-adds, a Term for Freebies, Part of the Mix for South
 Florida Hotels Attempting to Regain Competitive Edge

By Douglas Hanks III, The Miami Herald
Knight Ridder/Tribune Business News

Aug. 16, 2004 - Lemon Danishes never mattered at the Cavalier Hotel. Then terrorists attacked the World Trade Center and Pentagon on Sept. 11, 2001, tourism dried up in South Florida, and hotels like the Cavalier found their business plans upended.

The attacks and the economic fallout that followed prompted a sharp drop-off in European visitors, a key component of South Florida's $17 billion tourism industry.

The loss hit particularly hard at the Cavalier, where European tour operators used to buy up about one of every four of the South Beach hotel's 45 rooms.

Those tour operators still selling trips to South Florida after 9/11 found themselves flush with options, and most opted for hotels with free breakfasts. But the Cavalier didn't even have a kitchen.

"A continental breakfast. It shouldn't be that big of a deal," owner Ralph Abravaya said. He pointed to weekends where his competitors with free doughnuts were sold out and his hotel -- facing the Atlantic on Ocean Drive -- was half empty. "But it's gotten very competitive, I guess."

This year South Florida hotels have posted one of the strongest performances in the country, but the Cavalier has yet to share in the region's celebrated recovery as a travel destination.

Where other hotels are reporting record summer occupancies, the Cavalier is filling only half its rooms. And Abravaya said that's mainly because until now the Cavalier hasn't done much to change since Sept. 11, 2001.

While hotels across the region have repositioned themselves to chase other markets, squeezed dollars out of new profit centers and generally enjoyed the fruits of a recently rebounded industry, the Cavalier's recovery plan is just beginning.

The Cavalier recently completed nearly $1.5 million in renovations to the 1936 Art Deco hotel. The upgrades include a new kitchen that allowed the Cavalier staff to lay out a morning spread of orange juice, bread, coffee, croissants and Danishes on the bar for the first time last week.

Abravaya has converted much of his lobby and outside patio into a nouvelle cuisine restaurant in an effort to attract some local dollars to his bottom line, the kind of revenue that supported other hotels during the dark days following 9/11.

The custom-built bar, painted red and black, dominates the far end of his high-ceilinged lobby, and Abravaya hopes the extra will help the Cavalier stand out on Expedia, Travelocity and the other websites that rose to prominence during the downturn and retain their hold on the industry.

"Let me tell you, I have learned so much," the 54-year-old former Air Force transport pilot said of his two years in South Florida's hotel business. "It looked a lot easier and simpler from the outside."

The boutique hotel's slog through the nearly three years that have passed since Sept. 11, 2001, offers an examination in miniature of how the terrorist attacks reshaped the region's No. 1 industry. And the Cavalier's strategy for turning things around -- free Danishes and all -- highlights key components of the industry's unfolding comeback, and how much the economics of travel have changed since Sept. 11, 2001.

Nearly all of the Cavalier's changes lead back, one way or the other, to South Florida's loss of international tourists over the past three years. Overnight visitors to Broward and Miami-Dade from Europe and Latin America dropped 13 percent from 2000 to 2003 as travel worries, post-9/11 visa hassles and a sharp economic downturn in many Latin American countries kept travelers away.

The shift was especially hard for the many South Florida hotels that had come to rely on European tour operators, who reserve blocks of rooms and then sell them at a mark-up overseas.

"The tour-operating business just evaporated," said Hamid Abdulhafid, general manager of the Palms hotel at 30th Street and Collins Avenue in Miami Beach.

Tour operators had lulled some hotels into complacency because they push such an addicting service: buying up large blocks of rooms well in advance, then delivering high-paying guests who tend to stay a long time. After 9/11, the scramble for European tourists began in earnest, with hotels shaking off their laissez-faire attitudes and pursuing the segment with new vigor.

Ocean Five, a 56-room hotel about seven blocks down Ocean Drive from the Cavalier, made itself a regular at European travel expos after the attacks and continues the trans-Atlantic push today.

"January was Spain. February was Italy. March was Berlin. And then November, it's London," explained General Manager Kevin McLaney, rattling off his sales director's itinerary for the year.

A strong euro has helped bring Europeans back this year, hotel operators said, but the numbers still lag pre-9/11 levels. That's let tour operators be more discriminating when putting packages together, but it's also offered a nice boost for those resorts able to land their business.

One of the perks Ocean Five pitches to its European prospects is free breakfast, a bonus the Sheraton Bal Harbour Beach Resort added after 9/11 to woo trip wholesalers, both abroad and in the United States. It was the kind of giveaway the 645-room hotel was forced to embrace after the attacks.

"Prior to 9/11 we didn't have the thought of value-adds," sales executive Althea Allen said, using an industry term for freebies. "I think 9/11 set the stage for us really to think outside the box."

But Abravaya was far too boxed in. With no restaurant, no bar, no pool and basically no amenities to offer besides its location, the Cavalier found itself at the mercy of a rattled industry.

He estimates foreign visitors accounted for about a third of the Cavalier's bookings before 9/11; today, he said, that number is closer to 5 percent.

When Abravaya, a palm-tree grower and telecommunications entrepreneur from Melbourne, bought the Cavalier in March 2002 from record mogul Chris Blackwell's Island Outpost hotel group, he thought the Cavalier would have little trouble weathering the setbacks brought on by 9/11.

The five years of books he examined before the $4.2 million sale looked promising, he said. "I thought we might break even," Abravaya said. "I didn't anticipate as big a loss as we had."

In 2002, the hotel lost money; 2003 was a little better and this year has seen what Abravaya said is a modest recovery.

The previous owners "were doing half of what I'm going to do in 2004," he said. The hotel, he said, is only churning out minimal profits.

That runs counter to the statistics and anecdotal evidence now coming out of South Beach and the South Florida market in general, where optimism is high and many numbers have begun to surpass pre-9/11 benchmarks.

"The week-to-week, month-to-month improvements are pretty incredible for that area," said Duane Vinson, of Smith Travel Research in Hendersonville, Tenn.

Broward, a smaller tourism market than Miami-Dade, has actually gained visitors since 9/11, in part because it attracts a higher proportion of domestic travelers. Miami-Dade finished 2003 with the sharpest spike in room rates and occupancy among the other top 25 tourism markets in the country, and has consistently outperformed most of the list this year.

Analysts credit the recovery largely to South Florida's role as a favorite vacation destination, since leisure travel was one of the first sectors to bounce back after the attacks.

A weak dollar and international jitters have cut back on U.S. trips to Europe, with many vacationers seeing Miami as exotic and faraway enough for them. And Fort Lauderdale's rise as a hub of low-cost carriers like JetBlue and Southwest has meshed perfectly with the bargain-hunting ways during the economic slowdown that followed Sept. 11, 2001.

"I think you can make a very strong case that there has been an upside-story for South Florida in the wake of 9/11," said Scott Berman, a hotel analyst with PricewaterhouseCoopers in Miami. "Because Americans are traveling closer to home, they're looking for deals."

Monthly occupancy rates in South Florida hotels surpassed 2001 levels in all but two months this year, posting a 10 percent increase in Miami-Dade for June and a 5 percent gain in Broward. Rates continue to lag, analysts and hotel executives say, though recent months have shown considerable strength. Revenue per available room, a key industry barometer, shot up about 30 percent in June for both markets when compared to 2001.

The figures have cheered operators and analysts, but not Abravaya. What was a $150 room at the Cavalier now rents for about $100, and even that hasn't boosted the year's occupancy above 50 percent.

Left with almost no foreign guests, the Cavalier has joined much of the region's hotel industry in pursuing domestic visitors with new vigor. Much of that involved turning to websites like Expedia.com, which were flooded after 9/11 with discounted rooms from hotels hoping to snag travelers looking for bargains.

With the industry rebounding, hotels are trying to break the Expedia habit and draw guests back to their own reservation systems, where profit margins are higher.

"To take that inventory back from the dot-com industry is very difficult," said Brian Sparacino, vice president of sales and marketing for Gill Hotels, which owns Fort Lauderdale's Yankee Clipper and Yankee Trader. "The traveler that called the 1-800 number has migrated to the dot-com discount."

Fewer than 1,200 room nights at the Clipper hotel were sold through sites like Expedia in 2001, Sparacino said. By the end of 2004, he expects that number to soar to 16,000.

The online frenzy -- helped along by the broader rise in Internet shopping -- has left the Cavalier feeling largely unnoticed.

The Cavalier has only merited two stars on the Expedia site, forcing it to compete with bargain hotels. Abravaya hopes the new restaurant and bar will give him an extra star on the site. And he's hired an Internet consultant to try and drive more traffic to the Cavalier's Web page, where profit margins are much higher.

Most hotels have adopted similar -- if better financed -- strategies, largely by reducing the number of discounted rooms they turn over to the travel sites. Hotel executives say their rooms often are cheaper on their own sites than on wholesaler sites, a shift that helped contribute to a 24-percent drop in profits in the second quarter for Expedia's parent company, InterActiveCorp.

The backlash against Expedia is part of the hotel industry's ongoing campaign to move rates back to where they were before the 2001 attacks.

"Everybody discounted like crazy after 9/11 just to keep the doors open," said Scott Brush, a hotel consultant in Miami. "That still hasn't recovered yet."

Faced with lower rates, hotels did what they could to squeeze more revenue out of their operations. The Ritz-Carlton Key Biscayne converted a dressing room in its spa into a private pedicure booth, and it now charges $40 on top of the usual $55 treatment to have it done behind closed doors. (Sipping on a champagne cocktail during the session is free; having a special champagne scrub on your feet costs an extra $10.)

In fact, spas have emerged as a potent weapon in the post-9/11 years for hotels looking to attract local dollars. Most of the large resorts promoted weekend getaways as more travelers looked for short drives -- rather than long flights -- for their vacations.

The promotions also dovetailed with many hotels' sharp drop-off in corporate bookings as companies cut back on travel budgets and large groups canceled conferences and meetings.

After watching its corporate guests drop from 80 percent of its business to 50 percent, the Mandarin Oriental Miami realized it needed to push the resort in the heart of the city's financial district as a vacation destination too. So last year it hauled 130 truckloads of white sand from Orlando to create a beach on its bayfront property, where guests are offered Thai massages in gazebos ($160 an hour) and waiters serve Thai Sunrises, a rum-and-orange-juice concoction served in hollowed-out coconuts ($12).

At the Cavalier, Abravaya has no room for a spa. His front desk sits just a few steps away from the new bar, which is just across from the sleek high-backed white leather couches brought in for Lotus, the restaurant scheduled to open Sept. 1 with 20 tables on the sidewalk and another 21 inside.

Abravaya has brought on a couple, Pablo and Flor Rivas, to run Lotus. They pay a flat monthly rent of $15,000 and keep the profits. The couple's contract requires them to serve a continental breakfast each morning.

The Lotus and the Cavalier will split the profits at the bar. Abravaya sees the bar as the kind of extra that will spur online browsers to pick his hotel when it pops up on Expedia, and one that should appeal to bargain-hunting tour operators. Guests will be invited to daily Happy Hours with complimentary cocktails -- the kind of freebie he hopes will allow him to increase rates.

"Let's be realistic. A bottle of vodka when you buy it at wholesale costs $6. How much can one person drink?" he said. "For $3 worth of drinks a day, I can charge a little bit more rent and get some guests in the door."

-----To see more of The Miami Herald -- including its homes, jobs, cars and other classified listings -- or to subscribe to the newspaper, go to http://www.herald.com.

(c) 2004, The Miami Herald. Distributed by Knight Ridder/Tribune Business News. For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com. IACI, MAORY, TSG, JBLU, LUV,

 
advertisement 
To search Hotel Online data base of News and Trends Go to Hotel.OnlineSearch
Home | Welcome| Hospitality News | Classifieds| Catalogs& Pricing |
Viewpoint Forum | Ideas&Trends | Press Releases
Please contact Hotel.Onlinewith your comments and suggestions.