Strategy

Hotels: Big in Beijing

Fairmont makes headway in China as it prepares to open up a posh new hotel.

It’s shiny and sharp, its twin towers lone shots of rose-gold on Beijing’s smoggy skyline. When the Fairmont Beijing opens this summer or fall, a ray of light will extend Las Vegas–like above it, beckoning for recognition across the city. Inside, the rooms will provide robes and slippers embellished with Asian flair, and guests will dine on Peking duck at Lunar 8, the hotel’s sleekly appointed restaurant. All this might seem a far throw from such castle-like icons as the Banff Springs Hotel and the Royal York in Toronto. But the modern façade and culturally rich vibe of the Chinese capital property is about to become much more familiar in Fairmont’s portfolio.

The Beijing property is Fairmont’s first in the People’s Republic of China, and one of 30 hotel projects it has underway around the world; most of them are brand new structures. Combined with multiple projects under consideration despite a tough economy, Fairmont’s aggressive international growth strategy could double its portfolio of 56 properties in the next five to seven years. Under new ownership that stems from abroad, too, Fairmont is further than ever from its Canadian base. And perhaps that’s just what the company needs to thrive in today’s volatile hospitality market.

Taking time to chat over coffee in his Toronto office, located behind the Fairmont’s historic Royal York hotel, is a rare break for Thomas Storey. The newish president of Fairmont travels often, but he’s used to it: his previous position was executive vice-president of development for the hotel’s parent company, Toronto-based Fairmont Raffles Hotels International. Having played a key role in the company’s international growth, Storey was appointed president last April — at a time when worldwide expansion is a top priority. “The brand is transitioning from essentially a North American brand to a global brand,” he says.

That strategy follows a soul-searching decade of change for the century-old company, which included merging with Canadian Pacific Hotels in 1999, branching off into its own publicly traded entity in 2001 and then becoming a privately held company in 2006. In its most recent transformation, Fairmont was bought in a US$3.9-billion joint venture between Kingdom Hotels International, controlled by billionaire Saudi Arabian Prince Al-Waleed bin Talal, and Colony Capital, a California-based investment firm that owned hotel-and-resort outfits Raffles and Swissôtel. Both are aggressive players in the global real estate industry, which helps explain the planned wave of expansion. “They have actually accelerated the exposure of the company to other potential real estate owners, and that’s been helping to fuel the growth,” Storey explains. Prince Al-Waleed’s Middle East connections, for instance, sparked several new Fairmont projects. One in Mecca will be the brand new, 76-storey Makkah Clock Royal Tower — high-profile digs for a western business in a city that’s closed to non-Muslims. “Projects like that would be very difficult for the typical North American hotel company to gain access to,” Storey says.

Joining forces with the Raffles and Swissôtel brands also accelerated Fairmont’s growth, adding a portfolio of 30 hotels around the world. “Raffles had business connections in Asia, but they had only one product at the time that they could offer,” says Storey. “Now they can offer three.” By combining the development, sales and accounting departments for the three brands, the company has been able to improve operating efficiency. But such overlap is not something guests can expect to see: the ownership is keen to maintain three distinct brands. While Fairmonts are traditionally spacious and group-oriented, Raffles are intimate and residential, and business-targeted Swissôtels are modern and efficient. Beijing already has both a Raffles and a Swissôtel, but the Fairmont will cater to a combination of business and leisure travellers seeking a more “hip and trendy” experience, says hotel general manager Nicholas Emery. “We’re going to complement each other very well.”

Strengthening and differentiating the Fairmont brand has become increasingly important as it expands abroad, and incorporating local culture into each of its hotels is part of that effort. The Chinese art and cuisine at the Beijing property, for instance, set it apart from Fairmonts anywhere else in the world. “You may be drinking a California Chardonnay, but I don’t want people to forget that they’re in Asia, and China in particular,” says Emery. “This authentically local link is part of the charm.”

The 222-room hotel is a collaboration with Thailand-based Reignwood Group. Reignwood is run by Dr. Chan Chai, an ambitious entrepreneur whose business portfolio is extensive — it includes, for instance, the rights to Red Bull energy drinks in China. The hotel was initially slated to open in time for the 2008 Olympics, but logistical challenges forced a delay (a not uncommon occurrence in the hotel business). “We’ve been working with Dr. Chan Chai to make sure that the appropriate time is being taken,” says Storey, “so that the experience the guests have is consistent, not only with Fairmont expectations, but also consistent with what he wants.”

As many western businesses could attest, delays are a normal part of doing business in China. And there’s not just logistics to blame, but also language barriers and miscommunications. That should be no surprise for any company new to business in Asia, says David Fung, a member of the national board of directors of the Canada China Business Council. He says taking the time to understand the culture and adjust contractual arrangements and logistics accordingly is crucial. “Canada is fundamentally still very much European-oriented in terms of culture,” Fung explains. “Trying to work through the Chinese culture takes a little bit more adjustment.”

The Fairmont Beijing management team, about half of whom are new to Asia, have experienced such cultural adjustments first-hand. Emery, a native of Cambridge, England, has picked up very little Mandarin since relocating to Beijing in November 2007. More and more Beijingers now have a command of English, but despite the fact that the city has a population of more than 17 million, hiring 450 qualified, service-oriented candidates remains no easy task. “The biggest challenge for any new hotel coming onto the marketplace here will be the fight for the right human resource talent,” Emery says.

In the next five years, Fairmont will add about 30,000 workers to staff its growing roster of properties, and it is developing a computerized screening process and employee management system to prepare for that mass recruitment. Because Fairmont hires based on personality and values rather than simply skills and experience, Storey says that workers are less likely to leave. “We find people who like other people, they enjoy serving, they appreciate the kind of environment that Fairmont offers,” he adds.

When the buzz of construction simmers down and the Fairmont Beijing finally opens for business, the challenges won’t yet be through, of course. New hotels flooded the market in the two years leading up to the Beijing Olympics,adding plenty of capacity to a city that already had 658 star-rated hotels; there are now about 50 five-stars. “There’s no denying that with more than 12,000 new rooms in the city in the past two years — most at the upper end — 2009 is probably going to be a tough year,” says Emery. Fairmont might, however, have an edge in attracting international travellers, owing simply to its name recognition. “A brand in China would be unknown among North Americans,” says Mi Han, assistant director of the China National Tourist Office in Toronto.

So Fairmont’s brand familiarity among westerners could be especially beneficial — at least once conditions improve and business spending regains momentum. Like many hospitality companies, Fairmont had lower occupancy rates in 2008. But as the downturn continues, the company’s focus on growth in emerging international markets could help it mitigate some of the damage. For 2008, it continued to grow its international portfolio of hotels, and Fairmont claims that looking at comparable data for hotels in the same category, more than 70% of its properties increased revenue per available room on the year. Other industry results suggested a less sunny outlook, however. Marriott International Inc., which is more heavily dependent on the U.S. market than Fairmont is, saw its revenue per available room fall by 0.6% in 2008.

The question is whether the trend of stronger performance in overseas markets is likely to continue, given spreading economic turmoil. “Although it has become clear that no region or industry is completely immune to the present financial crisis, it is anticipated that regions that have recently achieved above-average growth, such as Asia-Pacific, the Middle East and North Africa (MENA) and Latin America, may also exhibit stronger lodging fundamentals during the current slowdown,” states a recent report on global hospitality by Ernst & Young. China, it adds, is “anticipated to be at the forefront of future growth.”

In the past decade, Fairmont has already transformed itself from a North American company into one with a 16-country reach and a much more diverse portfolio. And at the pace it’s been going recently, the next half-decade could be even more dramatic. Just ask Storey. “The definition of what Fairmont is,” he says, “is going to change fairly substantially over the next five years.”