The county’s luxury coastal hotels have laid off workers and made other cuts amid a downturn in visitors and corporate events that is shaping up to be worse than after the terrorist attacks of 2001.
The hotels, which overlook the ocean and charge $400 to thousands of dollars a night, have laid off or not hired as planned an estimated 550 workers, according to hotel operators and market watchers.
They’ve also shortened work weeks and left unfilled positions open.
“All signs point to this year being very difficult for the entire hotel industry,” said Alan Reay, president of Atlas Hospitality Group, an Irvine-based hotel consultant. “The luxury segment will be hit the hardest.”
The downturn at the luxury hotels,the Ritz-Carlton, Laguna Niguel, St. Regis Resort, Monarch Beach, Montage Laguna Beach and The Resort at Pelican Hill,shows the extent of how the recession is hitting the hospitality market.
In past downturns, luxury hotels saw a degree of insulation by catering to the wealthy. They continue to come, according to hoteliers. But the super rich can’t make up for bigger losses in corporate travelers and the moderately wealthy, who stretched during the boom years to spend on all things luxury.
“Hotels are a luxury item, and luxury items right now are really being pounded,” Reay said.
Revenue at high-end hotels was down 20% to 25% in November and December from a year earlier, according to Reay.
Irvine Company’s Resort at Pelican Hill, which opened just weeks after Wall Street’s fall meltdown, has seen some of the biggest impacts because of timing.
Irvine Co. hired 1,000 people for the sprawling, Italian-themed resort and had plans to add 400 more in the weeks after opening in November.
It since has opted not to bring on 400 committed workers in waiting and laid off some who had started, according to Arthur Nathan, vice president of human resources for Irvine Company Resort Properties.
“We were forced to call them and explain the situation that we didn’t have the hours for them,” Nathan said. “We hired the right amount of staff for what we anticipated initially.”
The hotel now is at about 950 people.
Nathan called the lower employment the result of bad timing that won’t have a long-term impact on Pelican Hill, which, unlike other hotels, doesn’t have outside investors and is believed to carry minimal debt.
“Pelican Hill was built for the long term,” he said.
Other luxury hotels have been able to gradually adjust employment in the past year in anticipation of a slowdown, even if the extent of the fall’s downturn still surprised many.
“We were in the midst of restructuring in 2008 and were attempting to create new methods to deliver the Ritz-Carlton level of experience with fewer people,” said George Munz, manager of the bluff-top Dana Point hotel. “I don’t want to say we had a crystal ball. It just worked out that way.”
The hotel employs an estimated 800 people.
Up the road in Dana Point, the St. Regis has let several workers go. As with the Ritz-Carlton, the hotel expected a slowdown last year, said Michael Mustafa, director of sales and marketing.
“We’ve had layoffs, but not significant layoffs because we staff to demands and saw the downturn coming,” he said.
The St. Regis employs an estimated 850 people.
The Montage Laguna Beach also has seen layoffs, according to a source familiar with the hotel. Montage executives declined to comment for this story. The hotel employs an estimated 600 people.
The biggest hit to the hotels has been a loss of corporate travelers and meetings as companies cut expenses,or go out of businesses.
Bankrupt investment bank Lehman Brothers Holdings Inc. was a key source of business for the St. Regis, according to general manager Johnny So.
Companies also have pulled back on luxury hotel stays after an uproar over struggling insurer American International Group Inc.’s meeting at the St. Regis in October, just days after securing federal bailout money.
Drastic Moves?
Rumors of a St. Regis sale have been circulating.
“I wouldn’t be surprised if they came up for sale,” Reay said. “But financing is virtually impossible for a hotel of that size these days.”
The only buyers in the market are bargain hunters looking to pick up hotels on the cheap, according to Reay.
Most in the industry see the downturn continuing through 2009 and possibly into early 2010.
The outlook for the year is that it is “going to be very challenging,” Ritz-Carlton’s Munz said.
“I think things will begin to loosen up as we move into 2009 and better occupancy sometime around the first or second quarter of 2010,” Mustafa of the St. Regis said.
