News for the Hospitality Executive
|By Suzanne Marta, The Dallas Morning News
Knight Ridder/Tribune Business News
Dec. 2, 2003 - Despite a protracted travel industry slowdown, Omni Hotels Inc. just completed a $100 million expansion in Atlanta.
The new 600-room tower at its CNN Center facility reflects the Irving-based chain's ambition to dominate Atlanta's convention hotel business. It's the kind of aggressive investment that has helped Omni increase its market share during what's been the industry's worst downturn ever.
Next year, the company will add two other high-profile properties: the $175 million Omni Orlando Resort in the ChampionsGate development and a $124 million hotel across from the San Diego Convention Center and the new San Diego Padres ballpark. Each is in a major business center with a vibrant convention industry, like the project in Atlanta.
Better visibility can help Omni, which has 40 properties across North America, compete against some of the best-known hotel brands, company officials said.
The company also has an ambitious plan to expand up to 100 properties. Omni executives say they're going to be careful not to rush the push too much.
While the chain's parent company has plenty of available capital, "we're only going to do that as good real estate contracts become available," said James Caldwell, Omni's president.
One of the hallmarks of the chain's sole Atlanta property is its prime location. The Omni Hotel at CNN Center is the only hotel connected to the city's convention facility, the Georgia World Congress Center, said Peter Keim, an Atlanta-based hospitality analyst for PKF Consulting. "All the other hotels are several blocks away."
The hotel, now the chain's largest with more than 1,000 rooms overall, is also within two blocks of Philips Arena, the Georgia Dome and Centennial Olympic Park -- Atlanta's visitor artery.
Though the chain is relatively small, some analysts say, it's in high-traffic areas that offer good visibility. "They're in key markets and most high-end business travelers know about the brand," said Will Marks, an analyst with JMP Securities in San Francisco.
The economic downturn has proved difficult for the lodging industry, as many companies slashed travel budgets. U.S. hotel occupancy has fallen 7 percent from 2000 to around 60 percent. But occupancy fell faster for upper upscale hotels as cost-conscious travelers traded down to less-expensive properties, according to Smith Travel Research.
That leaves fewer business travelers willing to pay for upper upscale rooms.
"The pie has shrunk," Mr. Marks said.
Revenue has also shrunk. For the first nine months of the year, room revenue declined 16 percent for upper upscale properties compared to the same period in 2000. That compares to a 2 percent decline for limited-service hotels, such as La Quinta or Marriott Courtyard. Across the industry, room revenue has declined 9 percent, according to Smith Travel Research.
Omni officials declined to disclose details about the privately held company's financial results, but said the business is getting its "fair share" of bookings compared to its peers for the first time in years.
"Even during the downturn, we've gained market share," said Caryn Kboudi, Omni's vice president of marketing, though she declined to discuss specific figures.
The Omni brand has been around for decades, but its current owners -- TRT Holdings Inc. -- took over the North American operations in 1996. TRT -- led by billionaire Bob Rowling -- has global rights to the brand except in Asia. For now, Omni's hotels are limited to North America. Mr. Rowling named Mr. Caldwell president and moved the company to Irving in 1997.
Less than a year under its new ownership, Omni set to work building three new hotels. The company has added six hotels in as many years. Since 1996, the company has spent $800 million in new construction and renovations to existing properties.
Omni has three hotels in North Texas -- the Omni Dallas Hotel at Park West, the Omni Richardson Hotel and the Omni Mandalay Hotel at Las Colinas.
The company has taken steps to set itself apart from other brands.
The chain has worked to transform itself in to a mostly AAA-rated "4-diamond" chain -- the level held by chains such as Four Seasons and Fairmont. In 1997, less than a third of its hotels had the prestigious ranking. The positioning is important because it puts the chain in direct competition with a smaller group of hotels. There are fewer than 1,000 U.S. hotels and resorts with AAA's 4-diamond rating, compared to more than 16,300 with 3-diamonds.
In 1999, Omni removed adult movies from all its hotels -- typically a significant revenue source for lodging companies. Omni spent $4 million to replace televisions in 9,100 rooms under the effort, which attracted more than 70,000 letters of support from customers.
Omni has also maximized its financial strength to launch high-profile projects like the ones in Orlando and San Diego.
In Orlando, Omni invested some capital for the project that will be owned by Apollo Real Estate Advisors and RIDA Associates LP. Omni will manage the project when it opens.
The San Diego project was started by another company, which dropped out after the 9-11 terrorist attacks. Omni partnered with JMI Realty to finish the project, which is now scheduled to open next spring.
Even with a strong financial base, Omni had to shift gears to cope with sluggish hotel demand over the last 2 1/2 years.
"Before the end of the boom, our sales force were mostly order-takers," Mr. Caldwell said. "The phones were ringing all the time."
But once the recession took hold, "some accounts stopped traveling altogether," he said. The company refocused its energies onto group business to attract bookings.
With little debt, Omni wasn't pressured to save money by cutting service -- a move that helped the company hold onto existing customers at a time when many hotels lost regular accounts to less-expensive brands. As a chain with only one brand, Omni can't cross-market properties at different price points like a Hilton Hotels Corp. or Marriott International to hold onto customers who want to trade up or down.
"We can't do a lot to drive people in the door during a downturn," Ms. Kboudi said. "But they won't come back if they don't have a good experience."
Although a strong recovery for business travel hasn't quite taken hold, analysts say, there's a strong upside for hotel companies like Omni.
"It's just a question of when it will take place," Mr. Marks said.
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