Luxury travel industry regroups amid downturn

There’s no denying that times are tough for the travel industry right now. Everywhere you turn, a hotel or resort is offering a reduced price, a free night or some other incentive. Airlines are locked in price wars and issuing rock- bottom rates even as they charge for everything but the seat cushion.

In the luxury market, things are no better, and in some ways even worse. Mid-tier and luxury travel volumes have dropped off dramatically. Average Americans (even average well-off Americans) feel less inclined to splurge, and there’s been a massive drop-off in corporate travel. With Wall Street firms feeling the heat, and companies everywhere looking to save, the sales retreats, meetings and client wining-and-dining that formed the backbone of the industry have virtually disappeared.

So if you’re a luxury travel professional, what are you supposed to do?

A bunch of movers and shakers in travel and related industries gathered recently at the Montage Beverly Hills for the Travel + Leisure Marketwatch event to try to figure this out. After all, while many of them expected and predicted some shrinking of the luxury market, none really thought, as Ray Brunner, CEO of Design Within Reach, aptly put it, that it was possible to “drop off a cliff without leaving skid marks.”

The best defense is a good PR offensive

The first order of business was a few PR salvos. Much in the same way the private aviation industry has had to remind people that it isn’t just about fat cats in fancy suits winging off to Turks & Caicos for the weekend, it’s about men and women who build, fly, repair and maintain planes, so too the travel industry is starting campaigns to remind the public of the jobs connected to travel. According to the U.S. Travel Association, one out of every eight jobs in the U.S. is linked to travel and tourism. Business travel alone accounts for 2.4 million American jobs, many of which could be in peril as companies eliminate their travel budgets. To encourage business travel, Travel + Leisure announced it’s offering pro-bono ads that promote business travel and tourism.

Panelists pointed out that it behooves embattled companies to reposition the idea of traveling so it doesn’t feel like too much of a guilt trip. Part of this seems to involve changing the perception of the word “luxury.” In the past few years, “luxury” was slapped on anything possible in hopes of increasing marketability; it was considered a badge of honor. But now it’s almost a pejorative. Going on an exotic vacation is no longer seen as a well-deserved break or a reward for accomplishment, but an indulgence. Corporate travel, which a year ago was accepted as the cost of doing business, is now seen as something to be avoided or hidden. (Case in point: Ford’s launch of the new Lincoln at the Montage Laguna Beach, which would have been considered a sophisticated marketing ploy six months ago, now raises eyebrows.)

So what can luxury travel brands do to regain the momentum in the battle of perceptions? At the event, Laura Begley, deputy editor of Travel + Leisure interviewed Alan Fuerstman, founder of the Montage Hotel & Resorts brand. The Montage Beverly Hills opened at what might be considered the worst possible time — November 2008. As such, the resort has had to readjust its expectations in line with the new spending habits of its customers; for example, the hotel opened with a special opening rate of $395, planning on keeping it for only a short time. Now that rate has been extended for much longer.

Luxury hotels have a particularly tough task when it comes to reducing rates. Once a discount is in place, it can be very hard to push a rate back up. Reducing the price below a certain point also sends a message to the consumer that the hotel is not really a luxury brand. But another, even more vital issue is keeping the hotel appropriately staffed. The luxury hotel experience is more than just high-thread-count sheets and spa tubs, it’s the people and the high level of service they provide. And when rates (and thus budgets) are cut, the high guest-to-staff ratios that make such service possible is often the first thing to go. (One cheery note: While customers may be spending less on rooms and services, anecdotal evidence is that they’re still tipping as well as ever.)

For Fuerstmann, part of the answer for Montage has been keeping the size of the hotels small. The first Montage in Laguna Beach, California had 250 rooms, the Beverly Hills hotel has around 200 and future planned Montage properties will have even fewer than that. A couple of years ago as the ranks of the wealthy and the aspirational swelled, luxury expanded to meet the demand. Now we seem to be seeing what Cartier CEO Bernard Fornas recently dubbed the return of the “real, true luxury.” Luxury is shrinking to embrace only those who can afford it and who could always afford it. Expectations of businesses that expanded too fast to meet the ephemeral demand will need to be trimmed. In describing his hotel strategy, Fuerstmann stressed that “luxury is a long-term commitment.”

The “end of shopping”? Say it isn’t so!

This was the same message stressed in a later panel discussion. No one believes that luxury is going away, but all seem to believe that it is shifting — and potentially for quite some time to come. Trina Turk, the fashionable head of the Trina Turk design line, declared that “it’s entirely possible shopping as we know it has ended.” (By that, we hope she doesn’t mean acquiring a $2,000 it bag merely for the thrill of it. But, alas, we’re afraid she might.) While retail brands stress what is classic or enduring to keep customers, for travel the focus is on the experience. If it met or exceeded what customers expected, then they feel it was worthwhile. If not, any price, even a discount one, feels too high — and the brand is likely to hear about it. Social media sites like Trip Advisor where customers can leave reviews have become big influencers on luxury travel decisions. On the site, one common source of debate is whether or not a hotel or resort is “worth it.” Luxury consumers are still spending, but they’re doing so in a far more methodical way, and logging onto and contributing to the online vetting is a key part of the process.

The bottom line, though, is that luxury travel will always have its appeal. For those who can afford it, the resorts will still be there and offering the same services they always have, just perhaps on a somewhat more scale than over the past few years. As David Cush, Virgin America’s CEO puts it, “it’s still about luxury, still about enjoying life, just a bit calmer.”