Plight Of Independent Luxury Hotels

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Other luxury brands have huge corporate parents too. St. Regis is owned by Starwood, best know for its Westin, W and Sheraton hotels. Ritz-Carlton is owned by Marriott. And some luxury hotels you may think of as independent are actually part of a chain. The Plaza in New York, which reopened last year, is managed by Fairmont. The Pierre, which reopens in New York this spring, is operated by Taj. The newly renovated Mauna Kea Beach Hotel on the Big Island of Hawaii is run by Prince Hotels of Japan. The Dorchester in London? It's part of the Dorchester Group, which is aligned with the Beverly Hills hotel, the Plaza Athenee in Paris, and the Principe di Savoia in Milan.

"Chains always outperform" independent hotels, says LodgeWorks' Tony Isaac, a man who knows the industry from both sides of the fence. LodgeWorks manages hotels in the Hyatt and Hilton chains, helped create the Residence Inn brand (now owned by Marriott), and is building its own Hotel Sierra chain.

But Isaac has just built an upscale independent hotel too. The Avia opened in January in Savannah and was promptly named a great romantic getaway by Travel & Leisure magazine. Why does a guy who admits chains outperform independents go ahead and open an independent anyway?

"Chains add about 10 points to your occupancy rate. But if you're part of a chain, you pay 12 to 14 percent for the frequent guest plan, the reservation service, and other brand programs," he explains. "If you're in the right market, it's not too much of an economic disadvantage to be an independent—and then you have the flexibility to do what you wish and manage as you choose."

That's the argument made by Sean Hehir, managing director of Trinity Investments, a real estate firm that purchased Honolulu's iconic Kahala Resort in 2006. The beachfront property opened as a Hilton hotel in 1964 and spent most of its recent history as a Mandarin Oriental. But Hehir believes the Kahala has unique advantages that appeal to the luxury traveler who isn't interested in brands.

"We're not subject to a brand policy that may not have any relevance to a particular property," he says. "We manage for the long-term best interest of us as owners and the luxury travelers as guests."

But even Hehir admits you need the right combination of factors to survive as an independent in today's chain-dominated world. In the Kahala's case, it's the unbeatable location on a sandy beach in Honolulu's choicest neighborhood and the fact that another Trinity principal, Chuck Sweeney, has a long history as a hotel manager. (Sweeney founded the company that became Embassy Suites, now a Hilton brand.)

For James Bermingham, managing director of the spectacular Montage Resort in Laguna Beach, the advantage is a laser-like concentration on guest services and proximity to wealthy, sophisticated travelers in Southern California. Both the five-year-old Laguna Beach property and the new Montage in Beverly Hills (it opened last fall) can tap into millions of upmarket buyers within 60 miles of the resorts.

"The 'staycation' trend helps Montage," he says. "Guests who want an extraordinary luxury experience very close to home see the Montage properties and they know they won't be getting a chain hotel."

The Fine Print…
Most observers think fewer luxury hotels will still be independent after the current recession, but there is a notable dissenter. Michael Matthews, who has been the general manager of top-notch chain hotels (the Ritz-Carlton in Hong Kong) and independent deluxe resorts (the Ventana Inn in Big Sur) thinks high costs will drive some luxury properties out of the major chains. "If you're 'flagged' as a chain, you have no independence at all," he says. "A lot of hotels will drop the flag and take the 14 percent fees they pay and use that money to do what they think makes most sense for their own hotel."

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