Starwood Hotels Eyes Europe, China Growth

Sunday, July 29, 2012

Despite headlines detailing economic slowdowns in China and Europe, Starwood Hotels & Resorts Worldwide will continue to tackle growth and boost performance in the two regions, CEO Frits van Paasschen said Thursday during the company's second-quarter earnings call.

"Our smart, bold approach means we have discipline about growing in the right places, with the right partners for the long haul," he said.

Asia accounts for 65% of the company's pipeline, with China representing three-quarters of that.

Frits van Paasschen Starwood Hotels & Resorts Worldwide "Some would argue that "� makes us vulnerable to the downturn in China," he said.

However, Starwood executives believe China has ample room for growth and the country's economy will catch up with the substantial amount of hotel supply being added.

"China's economy is over one-third the size of the U.S., but there are less than one-fourth of the high-end hotels to serve that market," van Paasschen said.

"There's much more risk in missing out on the growth than living through the fits and starts inevitable in an economy this large and growing this fast," he added.

Starwood has 100 hotel projects in the pipeline in China, none of which have been put on hold amid reports of the economic slowdown. "(That) says a lot about local investor confidence in China and in our brands," the CEO said.

Although performance in Starwood's hotels in eastern and central China are growing in the mid-single digits, hotel performance in the south is being hurt by the slowdown in exports, said Vasant M. Prabhu, vice chairman and CFO. "Selected cities like Tianjin, Guangzhou, Hainan, which have seen a lot of new capacity, have short-term supply-demand imbalances." The supply-demand imbalances will not be affecting the pace of new hotel openings, Prabhu said. "By the end of July, we expect to have opened 15 hotels, and the rest of our openings this year remain on track. Year-to-date, we have signed 30 hotels versus 27 at the same time last year." The company plans to support the supply growth with local sales teams in China that will build relationships with local customers.

Van Paasschen said 60% of Starwood's guests in China are Chinese nationals, which means it is crucial for the company to make its brands relevant to the local markets. "A local focus means providing slippers or tea instead of coffee, but it also means tweaking hotel design, creating Chinese language booking engines or extending (Starwood Preferred Guest) benefits for dining." Eurozone crisis Meantime, the crisis in Europe is causing acute anxiety around the globe, Prabhu said. But Starwood's business in the region is improving steadily, albeit slowly.

Executives during the earnings call said company-operated revenue per available room was up 3.4% during the second quarter. "In fact, if you exclude Greece, which was down 20%, Europe was up 4.5% during the second quarter," Prabhu said.

That growth can be attributed to the fact that Starwood hotels are located primarily in global cities, for the most part serving global corporations and high-end leisure travelers, he said.

Approximately half of Starwood's business in Europe comes from outside Europe.

However, systemwide, same-store RevPAR was down 8% in Europe during the second quarter.

Looking ahead to the third quarter, company executives expect a boost in performance from the Olympics in London, normalizing group behavior and the strong U.S. dollar, which will help drive leisure travel to Europe.

Still, the sentiment appears to be cautiously optimistic. "With the dangerous game of chicken being played in the eurozone, there is always the risk of an accident," Prabhu said.

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