netrashetty
Netra Shetty
Starz (originally "Starz!", before it dropped the exclamation point in 2005) is a U.S. pay television channel that features mainly first-run motion pictures. It was founded in 1994 and it is owned by Liberty Starz. Encore, its sister channel, was launched three years earlier. Starz and Encore are considered the flagship channels of Starz Entertainment.
As of December 2008, Starz's programming is available to 17.7 million subscribers in the United States.[1]
Starwood Hotels & Resorts Worldwide (NYSE: HOT) owns and operates luxury hotels, retreats, and residences across the world. Approximately half of Starwood's hotels are outside of North America, with 397 in Europe, Africa, the Middle East, and Asia[1] and new Starwood hotels are being built in developing countries like China.[2][3] The company manages franchises that operate under its various brand names - St. Regis, The Luxury Collection, W, Westin, Le Méridien, Sheraton, Four Points, Aloft, and Element.[1] Because the company receives management and franchise fees regardless of actual hotel performance, operating as franchiser and hotel management company introduces a measure of stability into the company's earnings. In addition to its traditional hotel business, Starwood is involved in selling timeshare properties and residential properties.[1]
Starwood's markets its hotels under luxury brands, competing for customers on the basis of perceived quality rather than price.[1] This strategy works best in economies characterized by healthy levels of business travel and vacationers can afford to pay more for Starwood-branded hotels. HOT's brand name focus has been undermined by internet booking agencies that help customers select hotels based on price and star ratings instead of brand names.[4]
Contents
1 Business Overview
1.1 Business & Financial Metrics
1.1.1 2010 Fourth Quarter Overview
1.1.2 2010 Third Quarter Overview
1.1.3 2010 Second Quarter Overview
1.1.4 2010 First Quarter Overview
1.1.5 2009 Overview
1.1.6 2008 Overview
1.2 Business Segments
2 Trends & Forces
2.1 There is lower supply of available rooms while demand is increasing
2.2 Demand for Starwood's luxury hotels is cyclical
2.3 Internet reservation websites have the upper hand over Starwood
2.4 Starwood's increased presence in China means exposure to Chinese economic slowdown
3 Competition
4 References
In December 2010, Starwood Hotels announced a commitment of $5 billion to construct 35 new Sheratons worldwide by 2013. [5] Half of these are expected to be built in China. Like its rivals, Starwood is vigorously pursuing growth in China. But Starwood has made international expansion its main selling point in recent years, even hosting its most recent earnings conference call from Beijing. The company has a total of 34 Sheratons planned for Greater China -- which includes Hong Kong, Taiwan, Macau and Mongolia -- over the next several years, slightly more than half its current portfolio of 65 hotels there.[5]
Business Overview
Starwood - one of the world’s largest hotel companies - uses its nine brand names to conduct business directly and through subsidiaries.[6] The company primarily generates income through its traditional hotel business but also makes money by selling timeshares and residential properties.[1] While over half of the company's 979 properties are in North America, HOT has properties in all six habitable continents.[1] Starwood's strategy focuses on decreasing exposure to direct real estate investment and increasing hotel management and franchise agreements which management believes will be more profitable;[6] as a result, the company has sold 60 properties for over $5.2 billion total since 2006, including The Westin Turnberry in 4Q2008 for net cash proceeds of $99 million.[1]
As of 2009, 95% of all of Starwood's hotel net income comes from upper upscale and luxury hotels. The rest come from its other hotel divisions.[7] This single source of income poses risk during economic downturns such as the 2008 and 2009 financial crisis. During the 2009 recession, luxury hotels throughout the world were hit the hardest among all hotels, causing Starwood's 20% decrease in RevPAR.[7]
Business & Financial Metrics
2010 Fourth Quarter Overview
Starwood Hotels reported for the fourth quarter of 2010 net income of $339 million compared to a net loss of $107 million in the fourth quarter of 2009.[8] This upswing to a profit is due to an overall improvement in global economic conditions. In particular, Starwood's increase in net income was due to a combination of a 13% increase in management and franchise fees, a 100 basis point increase in gross profit margins, and a $13 million increase in operating income from vacation ownership and residential compared to 4th quarter 2009.[8]
With the exception of Africa and the Middle East, Starwood Hotels' REVPAR grew throughout all of the company's recognized geographic segments. In particular, the Asia Pacific and Latin America segments had 20.3% and 17.2% increases in REVPAR respectively.[8] All of Starwood's global brands had REVPAR growth.[8] However, despite the seemingly large increases in REVPAR, Starwood's revenues grew only 6.7% between 4th quarter 2009 and 4th quarter 2010.[8]
During the fourth quarter of 2010, the company signed 37 hotel management and franchise contracts, representing approximately 8,000 rooms, of which 29 are new builds and eight are conversions from other brands.[8] At December 31, 2010, the company had approximately 350 hotels in the active pipeline representing approximately 85,000 rooms.[8] For the full year 2011, the company expects the rapid growth of emerging markets, in contrast to the low growth in developed markets, to provide much of the net income growth.[8]
2010 Third Quarter Overview
Starwood reported a loss in their quarterly results, with a net loss of $5 million in the third quarter of 2010 compared to income of $36 million in 2009.[9] However, this is still an improvement of $31 million since year ago 3rd quarter which arose due to the streamlining of the business to cater to the post-recessionary economy.[9] Reported revenue was $427 million, representing a 10.1% increase in revenue.[9]
One of the sources of the increase in net income and revenue came from a 7.7% increase in management and franchise revenues.[9] Another source was an increase in worldwide gross operating margins by 140 basis points, with worldwide REVPAR increasing 10.8%.[9] The recent betterment of the economy increased Starwood's residential vacation rental and ownership operating income by $10 million compared to 2009 third quarter.[9]
Despite implementing more streamlined strategies, the company signed 20 hotel management and franchise contracts representing approximately 4,500 rooms and opened 17 hotels and resorts with approximately 3,300 rooms during the quarter.[9] This is in anticipation of the recovery of the U.S economy and, thus demand for Starwood services.[9] For the entire year of 2010, Starwood expects earnings per share before special items to be between $1.09 to $1.11.[9] Earnings per share in 2009 was $0.41 per share.[9]
2010 Second Quarter Overview
HOT's net income was $114 million in the second quarter of 2010 compared to net income of $134 million in the second quarter of 2009.[10] This is on account of revenues increasing 7.9% to $2,476 million. Much of this increase in revenue was due to a 14.0% increase in management and franchise revenues compared to year ago 2009.[10]
The increase in net income came from a few specific sources. Revenues at Starwood branded same-store owned hotels in North America increased 15.9% while costs and expenses increased 10.6% when compared to 2009.[10] Similarly, revenues at Starwood branded same-store owned hotels worldwide increased 16.0% while costs and expenses increased 10.3% when compared to 2009.[10]
Despite higher revenue increases than costs, and despite better economic outlook, net income decreased between this and year ago second quarters.[10] The decrease is attributed to the increase in SG&A costs.[10] Selling, general, administrative and other expenses increased 17.9% to $92 million compared to the second quarter of 2009, due to the timing of accruals for incentive based compensation this year when compared to last year.[10]
Starwood maintains that the economy is too unpredictable and, while remaining 'cautiously confident' in their near-term outlook, made no comment on long-term prospects.
2010 First Quarter Overview
Revenue for HOT increased to $1,187 million from $1,127 million in first quarter 2009.[11] This is an increase solely due to increased revenue from hotels. This reflects the increasing demand for luxury hotels in the post-recessionary period of 1st quarter 2010.[12] Operating income went up a substantial amount to $85 million from $61 million last year.[11] This is due to increased hotel room prices driven up by post-recessionary increase in global luxury hotel demand.<ref/ name = 1stquarter2010_item2>
As of March 31, 2010, HOT had approximately 350 hotels with construction or finishing in progress representing approximately 85,000 rooms.[12] This active pipeline of construction is driven entirely by stronger demand for Starwood brands. Of these rooms, 69% are in the upper upscale and luxury segments and 70% are outside of North America, in anticipation of increased global demand for luxury.[12] During the first quarter of 2010, the company signed 13 hotel management and franchise contracts representing approximately 3,000 rooms of which nine are new builds and four are conversions from another brand and opened 14 new hotels and resorts representing approximately 2,600 rooms.[12] During the first quarter of 2010, seven hotels left the system, representing approximately 4,200 rooms.[12]
2009 Overview
Despite the fact that Starwood was able to maintain profitability in the first quarter of 2009, there was a precipitous drop in net income of 87.10% from $31 million in 1Q08 to $4 million on 1Q09.[13] Although revenue fell by 23.74%, far less than the drop in net income, the company had a $19 million restructuring charge in 1Q09 as compared to $8 million in 1Q08, which was due to Starwood's attempt to offset slowing growth with lower costs.[13] The impact of the recession is clearly reflected on Starwood's occupancy rates and RevPAR for 1Q09 relative to 1Q08. Worldwide occupancy fell by 10.2 percentage points to 60.0% and RevPAR fell by 30.7% to $117.78.[13]
Although Starwood is in an industry that is particularly sensitive to economic recessions, the company had net income growth of 27.6% in 2Q09 as compared to 2Q08.[14] The diminution of demand and real estate prices is reflected in the 23.4% decrease in operating revenue for 2Q09, to $1.205 billion; however, operating expense for the quarter fell by 19.6%, which illustrates Starwood's ability to scale back costs when faced with an unfavorable environment. Selling, General & Administrative Expenses (SG&A) and vacation ownership and residential expenses fell by 30.4% and 38.4%, respectively.[14] The impact of the recession can be seen in Starwood's Revenue Per Available Room (RevPAR) and Occupancy Rate, which dropped by 27.7% and 810 Basis point (bps), respectively.[14] However, the damage to RevPAR is slowly decreasing. RevPAR growth for the 2nd, 3rd, and 4th quarter of 2009 were -30%, -20%, and -7% respectively.[7]
Starwood reported net income of $40 million in 3Q09, despite a 20% decline in revenue as compared to a 14% decline in expenses.[15] The global recession's effect on travel can be seen in the 44.2% fall in Starwood's revenue from vacation ownership and residential sales.[15] While RevPAR fell 23.3% in both the North America and International segments, occupancy in International fell by 7.6% as compared to the 1.5% fall in the North America market.[15] This is due to a reduction in the average daily rate of 21.8% in North America in response to falling demand, whereas internationally, Starwood reduced prices by 13.6%.[15] During the quarter, Starwood repaid $1.080 of long-term debt, which led to a reduction of the company's Debt to Equity ratio from 4.90 to 3.78 in 3Q09.[15] By the end of 2009, Starwood paid off $1.1 billion dollars of debt, leaving $3 billion in debt. [7]
For the 4th quarter of 2009, Starwood reported a 7.9% decrease in RevPAR in comparison to the 4th quarter of 2008.[16] However, management and franchise revenues increased by 0.6% due to a small expansion in number of rooms and properties - the company signed 20 hotel contracts representing 4200 and opened 24 hotels with 5000 rooms in total.[16] The company ended 2009 with a net income of $73 million, compared to $329 million in 2008.[17]
In 2009, the recession battered revenues across all the geographical segments. North American business had a 10.1% decrease in RevPAR, with Latin America and Africa and Middle east having 11.7%-11.9% decreases.[18] The company built or signed contracts for a few additional hotels despite the recession because of their forecast in rebounding vacationing for 2010 and later. Nevertheless, 2009 was plagued by decreases in most hotel metrics for Starwood Hotels.
2008 Overview
In 2008, the sale and closure of 19 hotels that had been previously wholly owned by Starwood, as well as decreased demand related to the economy resulted in revenue and net income losses for the company. Overall, revenue fell by 4%, but operating income and net income fell by 27.86% and 39.30%, respectively.[19] The decline in revenue was led by vacation ownership and residential operations, which fell 27% to $749 million.[20] In order to offset falling demand, which was manifest in an occupancy rate of 71.1% in 2008 compared to 72.7% in 2007, Starwood increased its average daily rate by 1% to 237.45. However, Revenue Per Available Room (RevPAR) still fell by 1.2% to $168.93.[20]
Business Segments
Hotels and Vacation Ownership (84.87% of total revenue):[21] Includes a worldwide network of owned, leased, and consolidated joint venture hotels and resorts.[1] These properties are generally operated under HOT's proprietary brand names like St. Regis, The Luxury Collection, Sheraton, Westin, W, Le Méridien, and Four Points.[1] Sometimes properties are owned or operated independently but HOT collects fees for the use of its brand names.[1] As of 2009, 95% of the total net income from this segment comes from the upper upscale and luxury hotels.[7]
Residential Operations (15.13% of total revenue):[21] Develops, owns, and operates timeshare properties and provides financing to its customers.[1] Additionally, this segment generates income through licensing fees from branded properties and by selling residential properties.[1]
Trends & Forces
There is lower supply of available rooms while demand is increasing
The number of available room nights in 2009 increased 3.2%, reflecting construction and redevelopment projects already financed before the financial crisis.[22] For 2010, S&P sees room night supply increasing a smaller 2.3%.[22] The room occupancy rate fell 8.6% in 2009, with occupancy of 55.1%, indicative of severe, near depressionary levels.[22]
Since the recession, new orders for rooms have come to a standstill, thus reducing the available number of rooms present for an ever-increasing global travel and hotel population. For 2010, the smaller increase in supply and higher demand should lead to a rise in occupancy to approximately 55.5% to 56.0%.[22] Higher occupancy rate is typically followed by increased daily rates. This increase in occupancy rate may continue beyond the first year since hotels are delaying or have delayed construction orders for more rooms until market has shown stability.
Demand for Starwood's luxury hotels is cyclical
Vacationers are staying home and a nationwide travel forecast survey predicted a 1.3% drop in leisure travel during 2009.[23] Fewer travelers and tighter budgets mean less business for Starwood Hotels. The company has been cutting its costs and staff in response to the economic slowdown that included the layoff of 18% of its Westin and Sheraton Grand Bahama Our Lucaya Resort employees in January 2009.[24]Since HOT primarily operates luxury and upscale hotels,[3] demand for its offerings are dropping as businesses and leisure travelers have less money to spend. As businesses looked for ways to cut costs in the worsening economic climate, business travel decreased significantly in 2008[25] - this means fewer business travelers filing into HOT hotels. Furthermore, many companies are avoiding hosting meetings at luxury hotels as the economic climate worsens to maintain good public relations.[26]
Internet reservation websites have the upper hand over Starwood
Internet bookings made by third party companies like Expedia and Travelocity have been growing at rates of up to 20% per quarter.[27] As more bookings are completed by third parties, the intermediary companies can obtain higher commissions, reduced room rates, or other significant contract concessions from hotel operators; the sheer volume of bookings they make gives them bargaining power over HOT.[28] These companies also promote the importance of price and anonymous quality indicators (like star ratings) over brand identification in the hotel selection process;[28] this prevents HOT from fulfilling its brand establishment goals.[28] Although HOT continues to generate most of its revenues through traditional booking channels and its own website, the rise of these websites impacts Starwood's profitability.[28]
Starwood's increased presence in China means exposure to Chinese economic slowdown
Between 2008 and 2012, Starwood will open 63 hotels in China and others in nearby countries.[29] As Starwood sells many of its older hotels to decrease its real estate investments,[6] the impact that these new hotels will have on the company increases. Although it enjoyed a boom during the past decade,[30] China's economy is stalling; exports fell 2.8% and imports dropped 21.3% from December 2007 to December 2008.[31] The general economic situation is causing civic unrest throughout the country[32] and millions of Chinese workers are losing their jobs.[31]
Competition
Starwood competes with global players in the hotel industry, such as:
Marriott International: A hospitality company that, under 15 brand names, operates and franchises hotels and related lodging facilities worldwide.[33]
Wynn Resorts: Develops, owns, and operates destination casino resorts.[34] Operates through the Wynn Las Vegas and Wynn Macau casino resorts.[34]
Trump Entertainment Resorts: Owns and operates casino hotel properties in the United States.[35] In its 3 casino hotel properties, it offers gaming, casino resort, and entertainment services.[35]
InterContinental Hotels: Owns, franchises, manages, and leases hotels and resorts under seven brand names in 100 countries and territories .[36]
Orient-Express Hotels (OEH): A worldwide corporation that engages in real estate and residential property development and invests in individual deluxe hotels, restaurants, tourist trains, and river cruise businesses.[37]
Companies operating in this industry generally compete on the basis of quality and consistency of rooms, restaurants, meeting facilities and services; other factors include attractiveness of locations, availability of a global distribution system, and price. Starwood seeks to maintain a global presence which will offer equal quality of service to its customers throughout the world.[6] Unlike many of its competitors that attract customers with low costs, Starwood's strategy focuses less on keeping rates low and more on the development of brand names to draw in revenue.[6]
As of December 2008, Starz's programming is available to 17.7 million subscribers in the United States.[1]
Starwood Hotels & Resorts Worldwide (NYSE: HOT) owns and operates luxury hotels, retreats, and residences across the world. Approximately half of Starwood's hotels are outside of North America, with 397 in Europe, Africa, the Middle East, and Asia[1] and new Starwood hotels are being built in developing countries like China.[2][3] The company manages franchises that operate under its various brand names - St. Regis, The Luxury Collection, W, Westin, Le Méridien, Sheraton, Four Points, Aloft, and Element.[1] Because the company receives management and franchise fees regardless of actual hotel performance, operating as franchiser and hotel management company introduces a measure of stability into the company's earnings. In addition to its traditional hotel business, Starwood is involved in selling timeshare properties and residential properties.[1]
Starwood's markets its hotels under luxury brands, competing for customers on the basis of perceived quality rather than price.[1] This strategy works best in economies characterized by healthy levels of business travel and vacationers can afford to pay more for Starwood-branded hotels. HOT's brand name focus has been undermined by internet booking agencies that help customers select hotels based on price and star ratings instead of brand names.[4]
Contents
1 Business Overview
1.1 Business & Financial Metrics
1.1.1 2010 Fourth Quarter Overview
1.1.2 2010 Third Quarter Overview
1.1.3 2010 Second Quarter Overview
1.1.4 2010 First Quarter Overview
1.1.5 2009 Overview
1.1.6 2008 Overview
1.2 Business Segments
2 Trends & Forces
2.1 There is lower supply of available rooms while demand is increasing
2.2 Demand for Starwood's luxury hotels is cyclical
2.3 Internet reservation websites have the upper hand over Starwood
2.4 Starwood's increased presence in China means exposure to Chinese economic slowdown
3 Competition
4 References
In December 2010, Starwood Hotels announced a commitment of $5 billion to construct 35 new Sheratons worldwide by 2013. [5] Half of these are expected to be built in China. Like its rivals, Starwood is vigorously pursuing growth in China. But Starwood has made international expansion its main selling point in recent years, even hosting its most recent earnings conference call from Beijing. The company has a total of 34 Sheratons planned for Greater China -- which includes Hong Kong, Taiwan, Macau and Mongolia -- over the next several years, slightly more than half its current portfolio of 65 hotels there.[5]
Business Overview
Starwood - one of the world’s largest hotel companies - uses its nine brand names to conduct business directly and through subsidiaries.[6] The company primarily generates income through its traditional hotel business but also makes money by selling timeshares and residential properties.[1] While over half of the company's 979 properties are in North America, HOT has properties in all six habitable continents.[1] Starwood's strategy focuses on decreasing exposure to direct real estate investment and increasing hotel management and franchise agreements which management believes will be more profitable;[6] as a result, the company has sold 60 properties for over $5.2 billion total since 2006, including The Westin Turnberry in 4Q2008 for net cash proceeds of $99 million.[1]
As of 2009, 95% of all of Starwood's hotel net income comes from upper upscale and luxury hotels. The rest come from its other hotel divisions.[7] This single source of income poses risk during economic downturns such as the 2008 and 2009 financial crisis. During the 2009 recession, luxury hotels throughout the world were hit the hardest among all hotels, causing Starwood's 20% decrease in RevPAR.[7]
Business & Financial Metrics
2010 Fourth Quarter Overview
Starwood Hotels reported for the fourth quarter of 2010 net income of $339 million compared to a net loss of $107 million in the fourth quarter of 2009.[8] This upswing to a profit is due to an overall improvement in global economic conditions. In particular, Starwood's increase in net income was due to a combination of a 13% increase in management and franchise fees, a 100 basis point increase in gross profit margins, and a $13 million increase in operating income from vacation ownership and residential compared to 4th quarter 2009.[8]
With the exception of Africa and the Middle East, Starwood Hotels' REVPAR grew throughout all of the company's recognized geographic segments. In particular, the Asia Pacific and Latin America segments had 20.3% and 17.2% increases in REVPAR respectively.[8] All of Starwood's global brands had REVPAR growth.[8] However, despite the seemingly large increases in REVPAR, Starwood's revenues grew only 6.7% between 4th quarter 2009 and 4th quarter 2010.[8]
During the fourth quarter of 2010, the company signed 37 hotel management and franchise contracts, representing approximately 8,000 rooms, of which 29 are new builds and eight are conversions from other brands.[8] At December 31, 2010, the company had approximately 350 hotels in the active pipeline representing approximately 85,000 rooms.[8] For the full year 2011, the company expects the rapid growth of emerging markets, in contrast to the low growth in developed markets, to provide much of the net income growth.[8]
2010 Third Quarter Overview
Starwood reported a loss in their quarterly results, with a net loss of $5 million in the third quarter of 2010 compared to income of $36 million in 2009.[9] However, this is still an improvement of $31 million since year ago 3rd quarter which arose due to the streamlining of the business to cater to the post-recessionary economy.[9] Reported revenue was $427 million, representing a 10.1% increase in revenue.[9]
One of the sources of the increase in net income and revenue came from a 7.7% increase in management and franchise revenues.[9] Another source was an increase in worldwide gross operating margins by 140 basis points, with worldwide REVPAR increasing 10.8%.[9] The recent betterment of the economy increased Starwood's residential vacation rental and ownership operating income by $10 million compared to 2009 third quarter.[9]
Despite implementing more streamlined strategies, the company signed 20 hotel management and franchise contracts representing approximately 4,500 rooms and opened 17 hotels and resorts with approximately 3,300 rooms during the quarter.[9] This is in anticipation of the recovery of the U.S economy and, thus demand for Starwood services.[9] For the entire year of 2010, Starwood expects earnings per share before special items to be between $1.09 to $1.11.[9] Earnings per share in 2009 was $0.41 per share.[9]
2010 Second Quarter Overview
HOT's net income was $114 million in the second quarter of 2010 compared to net income of $134 million in the second quarter of 2009.[10] This is on account of revenues increasing 7.9% to $2,476 million. Much of this increase in revenue was due to a 14.0% increase in management and franchise revenues compared to year ago 2009.[10]
The increase in net income came from a few specific sources. Revenues at Starwood branded same-store owned hotels in North America increased 15.9% while costs and expenses increased 10.6% when compared to 2009.[10] Similarly, revenues at Starwood branded same-store owned hotels worldwide increased 16.0% while costs and expenses increased 10.3% when compared to 2009.[10]
Despite higher revenue increases than costs, and despite better economic outlook, net income decreased between this and year ago second quarters.[10] The decrease is attributed to the increase in SG&A costs.[10] Selling, general, administrative and other expenses increased 17.9% to $92 million compared to the second quarter of 2009, due to the timing of accruals for incentive based compensation this year when compared to last year.[10]
Starwood maintains that the economy is too unpredictable and, while remaining 'cautiously confident' in their near-term outlook, made no comment on long-term prospects.
2010 First Quarter Overview
Revenue for HOT increased to $1,187 million from $1,127 million in first quarter 2009.[11] This is an increase solely due to increased revenue from hotels. This reflects the increasing demand for luxury hotels in the post-recessionary period of 1st quarter 2010.[12] Operating income went up a substantial amount to $85 million from $61 million last year.[11] This is due to increased hotel room prices driven up by post-recessionary increase in global luxury hotel demand.<ref/ name = 1stquarter2010_item2>
As of March 31, 2010, HOT had approximately 350 hotels with construction or finishing in progress representing approximately 85,000 rooms.[12] This active pipeline of construction is driven entirely by stronger demand for Starwood brands. Of these rooms, 69% are in the upper upscale and luxury segments and 70% are outside of North America, in anticipation of increased global demand for luxury.[12] During the first quarter of 2010, the company signed 13 hotel management and franchise contracts representing approximately 3,000 rooms of which nine are new builds and four are conversions from another brand and opened 14 new hotels and resorts representing approximately 2,600 rooms.[12] During the first quarter of 2010, seven hotels left the system, representing approximately 4,200 rooms.[12]
2009 Overview
Despite the fact that Starwood was able to maintain profitability in the first quarter of 2009, there was a precipitous drop in net income of 87.10% from $31 million in 1Q08 to $4 million on 1Q09.[13] Although revenue fell by 23.74%, far less than the drop in net income, the company had a $19 million restructuring charge in 1Q09 as compared to $8 million in 1Q08, which was due to Starwood's attempt to offset slowing growth with lower costs.[13] The impact of the recession is clearly reflected on Starwood's occupancy rates and RevPAR for 1Q09 relative to 1Q08. Worldwide occupancy fell by 10.2 percentage points to 60.0% and RevPAR fell by 30.7% to $117.78.[13]
Although Starwood is in an industry that is particularly sensitive to economic recessions, the company had net income growth of 27.6% in 2Q09 as compared to 2Q08.[14] The diminution of demand and real estate prices is reflected in the 23.4% decrease in operating revenue for 2Q09, to $1.205 billion; however, operating expense for the quarter fell by 19.6%, which illustrates Starwood's ability to scale back costs when faced with an unfavorable environment. Selling, General & Administrative Expenses (SG&A) and vacation ownership and residential expenses fell by 30.4% and 38.4%, respectively.[14] The impact of the recession can be seen in Starwood's Revenue Per Available Room (RevPAR) and Occupancy Rate, which dropped by 27.7% and 810 Basis point (bps), respectively.[14] However, the damage to RevPAR is slowly decreasing. RevPAR growth for the 2nd, 3rd, and 4th quarter of 2009 were -30%, -20%, and -7% respectively.[7]
Starwood reported net income of $40 million in 3Q09, despite a 20% decline in revenue as compared to a 14% decline in expenses.[15] The global recession's effect on travel can be seen in the 44.2% fall in Starwood's revenue from vacation ownership and residential sales.[15] While RevPAR fell 23.3% in both the North America and International segments, occupancy in International fell by 7.6% as compared to the 1.5% fall in the North America market.[15] This is due to a reduction in the average daily rate of 21.8% in North America in response to falling demand, whereas internationally, Starwood reduced prices by 13.6%.[15] During the quarter, Starwood repaid $1.080 of long-term debt, which led to a reduction of the company's Debt to Equity ratio from 4.90 to 3.78 in 3Q09.[15] By the end of 2009, Starwood paid off $1.1 billion dollars of debt, leaving $3 billion in debt. [7]
For the 4th quarter of 2009, Starwood reported a 7.9% decrease in RevPAR in comparison to the 4th quarter of 2008.[16] However, management and franchise revenues increased by 0.6% due to a small expansion in number of rooms and properties - the company signed 20 hotel contracts representing 4200 and opened 24 hotels with 5000 rooms in total.[16] The company ended 2009 with a net income of $73 million, compared to $329 million in 2008.[17]
In 2009, the recession battered revenues across all the geographical segments. North American business had a 10.1% decrease in RevPAR, with Latin America and Africa and Middle east having 11.7%-11.9% decreases.[18] The company built or signed contracts for a few additional hotels despite the recession because of their forecast in rebounding vacationing for 2010 and later. Nevertheless, 2009 was plagued by decreases in most hotel metrics for Starwood Hotels.
2008 Overview
In 2008, the sale and closure of 19 hotels that had been previously wholly owned by Starwood, as well as decreased demand related to the economy resulted in revenue and net income losses for the company. Overall, revenue fell by 4%, but operating income and net income fell by 27.86% and 39.30%, respectively.[19] The decline in revenue was led by vacation ownership and residential operations, which fell 27% to $749 million.[20] In order to offset falling demand, which was manifest in an occupancy rate of 71.1% in 2008 compared to 72.7% in 2007, Starwood increased its average daily rate by 1% to 237.45. However, Revenue Per Available Room (RevPAR) still fell by 1.2% to $168.93.[20]
Business Segments
Hotels and Vacation Ownership (84.87% of total revenue):[21] Includes a worldwide network of owned, leased, and consolidated joint venture hotels and resorts.[1] These properties are generally operated under HOT's proprietary brand names like St. Regis, The Luxury Collection, Sheraton, Westin, W, Le Méridien, and Four Points.[1] Sometimes properties are owned or operated independently but HOT collects fees for the use of its brand names.[1] As of 2009, 95% of the total net income from this segment comes from the upper upscale and luxury hotels.[7]
Residential Operations (15.13% of total revenue):[21] Develops, owns, and operates timeshare properties and provides financing to its customers.[1] Additionally, this segment generates income through licensing fees from branded properties and by selling residential properties.[1]
Trends & Forces
There is lower supply of available rooms while demand is increasing
The number of available room nights in 2009 increased 3.2%, reflecting construction and redevelopment projects already financed before the financial crisis.[22] For 2010, S&P sees room night supply increasing a smaller 2.3%.[22] The room occupancy rate fell 8.6% in 2009, with occupancy of 55.1%, indicative of severe, near depressionary levels.[22]
Since the recession, new orders for rooms have come to a standstill, thus reducing the available number of rooms present for an ever-increasing global travel and hotel population. For 2010, the smaller increase in supply and higher demand should lead to a rise in occupancy to approximately 55.5% to 56.0%.[22] Higher occupancy rate is typically followed by increased daily rates. This increase in occupancy rate may continue beyond the first year since hotels are delaying or have delayed construction orders for more rooms until market has shown stability.
Demand for Starwood's luxury hotels is cyclical
Vacationers are staying home and a nationwide travel forecast survey predicted a 1.3% drop in leisure travel during 2009.[23] Fewer travelers and tighter budgets mean less business for Starwood Hotels. The company has been cutting its costs and staff in response to the economic slowdown that included the layoff of 18% of its Westin and Sheraton Grand Bahama Our Lucaya Resort employees in January 2009.[24]Since HOT primarily operates luxury and upscale hotels,[3] demand for its offerings are dropping as businesses and leisure travelers have less money to spend. As businesses looked for ways to cut costs in the worsening economic climate, business travel decreased significantly in 2008[25] - this means fewer business travelers filing into HOT hotels. Furthermore, many companies are avoiding hosting meetings at luxury hotels as the economic climate worsens to maintain good public relations.[26]
Internet reservation websites have the upper hand over Starwood
Internet bookings made by third party companies like Expedia and Travelocity have been growing at rates of up to 20% per quarter.[27] As more bookings are completed by third parties, the intermediary companies can obtain higher commissions, reduced room rates, or other significant contract concessions from hotel operators; the sheer volume of bookings they make gives them bargaining power over HOT.[28] These companies also promote the importance of price and anonymous quality indicators (like star ratings) over brand identification in the hotel selection process;[28] this prevents HOT from fulfilling its brand establishment goals.[28] Although HOT continues to generate most of its revenues through traditional booking channels and its own website, the rise of these websites impacts Starwood's profitability.[28]
Starwood's increased presence in China means exposure to Chinese economic slowdown
Between 2008 and 2012, Starwood will open 63 hotels in China and others in nearby countries.[29] As Starwood sells many of its older hotels to decrease its real estate investments,[6] the impact that these new hotels will have on the company increases. Although it enjoyed a boom during the past decade,[30] China's economy is stalling; exports fell 2.8% and imports dropped 21.3% from December 2007 to December 2008.[31] The general economic situation is causing civic unrest throughout the country[32] and millions of Chinese workers are losing their jobs.[31]
Competition
Starwood competes with global players in the hotel industry, such as:
Marriott International: A hospitality company that, under 15 brand names, operates and franchises hotels and related lodging facilities worldwide.[33]
Wynn Resorts: Develops, owns, and operates destination casino resorts.[34] Operates through the Wynn Las Vegas and Wynn Macau casino resorts.[34]
Trump Entertainment Resorts: Owns and operates casino hotel properties in the United States.[35] In its 3 casino hotel properties, it offers gaming, casino resort, and entertainment services.[35]
InterContinental Hotels: Owns, franchises, manages, and leases hotels and resorts under seven brand names in 100 countries and territories .[36]
Orient-Express Hotels (OEH): A worldwide corporation that engages in real estate and residential property development and invests in individual deluxe hotels, restaurants, tourist trains, and river cruise businesses.[37]
Companies operating in this industry generally compete on the basis of quality and consistency of rooms, restaurants, meeting facilities and services; other factors include attractiveness of locations, availability of a global distribution system, and price. Starwood seeks to maintain a global presence which will offer equal quality of service to its customers throughout the world.[6] Unlike many of its competitors that attract customers with low costs, Starwood's strategy focuses less on keeping rates low and more on the development of brand names to draw in revenue.[6]
Last edited: