Luxury Business Travel Take Hit

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The luxury downturn will impact airlines and hotels in sharply different ways.

Airlines, for example, have a limited number of tools at their disposal. They can discount premium-class fares and will undoubtedly trim up front costs, eliminating some meal and wine choices and cheapening the niceties in the amenity kits. If the slump continues indefinitely, they will also embark on the costly task of reconfiguring aircraft with fewer premium-class seats and more coach chairs.

But since airlines are overwhelmingly dependant on premium-priced fliers—after all, one business-class traveler paying $5,000 roundtrip generates as much revenue as 10 coach passengers paying $500 each—a long-term shortfall of luxury customers means some flights simply won't be worth flying. That's already happening. Until the end of winter, Singapore Airlines' all-business-class flights to Singapore from New York and Los Angeles will operate just five times a week instead of daily. United Airlines has cut the frequency on its flights between Washington and Beijing. US Airways and Delta Air Lines have eliminated some off-peak flights on its East Coast Corridor runs that connect Boston, Washington, and New York.

"You look for days with low [passenger] loads where you can eliminate flights," explains Jack Foley, executive vice president of Aer Lingus, the Irish carrier that recently suspended its Los Angeles-Dublin nonstops. "But if you cut too many frequencies, you inconvenience your business-class fliers. They book away from you, you lose even more revenue, and you end up dropping the route anyway."

Luxury hotels, whick won't generate any revenue if they simply close their gilded doors, deal with the crisis by spreading the pain to both stakeholders and guests. Lenders and bondholders suffer as the hotel's underlying real-estate value plummets and the property goes into workout, but travelers do get what looks like a deal. Nightly room rates plummet—but managers make service reductions, some obvious and some subtle, that ultimately affect the quality of your "luxury stay."

It's already become a cliché that Ritz-Carlton hotels are substituting potted plants for the fresh flower arrangements in its public areas. And the recently renovated Plaza Hotel on New York's Central Park was forced to close its once-iconic Palm Court restaurant.

"Hotels are reducing housekeeping staff, which means you'll wait longer to get your room serviced," explains Michael Matthews, a consultant to luxury-property owners and managers. "There'll be less extensive and elaborate room-service menus because room service doesn't make money in the best times. One luxury hotel recently switched to a cheaper brand of bathroom amenities. And naturally they'll do unwise things like lay off switchboard operators. They'll route calls to the front desk, which means you'll spend more time checking in because the front-desk people are overworked."

And one desperate luxury hotel group recently made what Matthews called a "ridiculous and dangerous" decision: It dismissed its security staff, eliminating the dark-suited types who patrol the lobbies and scare off potential miscreants.

"I can't imagine what guests will think if they find out there's no security," Matthews said. "And wait until the hotel's liability carrier finds out."

The Fine Print…
A follow-up to last week's column on the winter woes at warm-weather destinations: The Ilikai Hotel in Waikiki may close next week if a court-appointed receiver gets his wish. The Ilikai was once the best business-travel hotel in Honolulu and gained worldwide notoriety when Jack Lord stood on its rooftop balcony during the open credits of Hawaii Five-0.

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