Starwood Hotels Expects ‘golden Age' Of Travel

Wednesday, April 25, 2012

Starwood Hotels & Resorts Worldwide CEO Frits van Paasschen has yet to hear from a client who plans to travel less in 2012 than in 2011.

For that reason, among others, van Paasschen is "as bullish as ever" about the prospects of the travel industry and Starwood's brands in particular.

"Last quarter we suggested 2012 has more potential to surprise on the upside, and we still believe this," he said Thursday on the company's first-quarter earnings call. "Our corporate clients and leisure guests tell us the appetite for travel is quite robust." Frits van Paasschen, CEO of Starwood Hotels & Resorts Worldwide Van Paasschen said the supply-demand imbalance is another reason he's optimistic about the global travel industry. Even if developers were to start building new-construction hotels now, he said, supply wouldn't catch up to demand for at least three years.

"And, in all likelihood, construction won't start tomorrow," he said. "If you want to own a hotel right now you're better off buying one than building one. (Real-estate investment trusts) are going to be selective in buying hotels. Banks are still paring back their real estate.

"So supply is tight and it looks to stay that way for a while." Meanwhile, demand continues to build�particularly in the United States as the economic picture is steadily improving, van Paasschen said. Europe remains a global travel destination, and in Japan occupancies already have bounced back to pre-Tokyo-earthquake levels, he said.

"For the first time ever, China will be Japan's top feeder market," van Paasschen said.

He said the positive economic outlooks will translate to increased performance metrics at Starwood hotels.

"We believe we're on the cusp of a golden age of global travel," he said.

Luxury market Three of Starwood's nine brands reside in the luxury space (The Luxury Collection, W Hotels & Resorts and St. Regis Hotels & Resorts) and Le M�ridien and Westin Hotels & Resorts play in the upper-upscale segment.

Van Paasschen is confident about the outlook for luxury travel, citing rising wealth around the world. He said the number of high-net worth households globally was up 30% since the downturn.

"Today's global road warrior is looking for great accommodations. Luxury is no longer one-size-fits-all. New experiences matter more than status," he said.

Van Paasschen said Starwood's position in the luxury segment allows the company to lead the market in taking advantage of that global growth of wealth. Starwood's luxury pipeline is mostly overseas; after New York, Dubai has more Starwood hotels than anywhere in the world.

Starwood's luxury brands, van Paasschen said, have seen 11 consecutive quarters of revenue-per-available-room growth.

Buy mode? Vasant Prabhu, Starwood's vice chairman and CFO, said the company is keeping its eye on the market for another brand to add to its repertoire. There is no one brand that jumps out to Starwood, he said, but the company will investigate opportunities should brands come to market.

"Still to this day the Le M�ridien transaction represents the perfect idea of what we'd like to do," van Paasschen said, referring to the April 2005 transaction where Starwood acquired he brand and Lehman Brothers acquired the assets. "We'd like to find an asset-light brand, and we'll continue to look at the marketplace to see if there is an opportunity like that." Starwood also will look to sell a handful of assets in 2012.

"There are conversations happening," Prabhu said. "There is a market out there for asset sales. I do think there will be sales this year, and that's something you can anticipate."

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