Luxury resort hotels still feeling "AIG effect"

NEW YORK Wed Jul 14, 2010 12:50pm EDT

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NEW YORK (Reuters) - Luxury resort hotels face a more sluggish recovery than their urban counterparts in part because companies remain fearful of government backlash over perceived lavish spending, the CEO of Loews Corp said.

"Our resort hotels are doing significantly worse than our city hotels and we still don't see that changing," Loews Chief Executive Jim Tisch said in an interview.

Loews, a conglomerate whose empire spans oil companies, insurance and lodging, owns or operates nearly 20 hotels and resorts in North America.

In the first quarter of this year, revenue for the Loews Hotels subsidiary rose 2.7 percent, in tandem with an improvement in the broader hotel market. But Tisch said in the company's internal documents, they compare current performance with the levels notched at the peak of the market in 2007.

"It's a constant reminder to me that even though things look a lot better, they're nowhere near where they were," he said during a wide-ranging interview with Reuters in New York.

Last year, luxury and resort hotels suffered sharp drops in room rates and occupancy as the corporate and convention business that has long been their mainstay waned.

In recent months, the U.S. hotel industry has seen an upswing in bookings and occupancy. For example, Marriott International saw room rates rise for the first time in two years in May.

But many hotels and resorts are still struggling to pay off their debt and rates are still well below peak levels. Tisch said "nobody knows" when the industry will return to its 2007 performance levels.

Tisch lay partial blame on the way regulators and politicians lambasted financial firms and other companies for their excessive spending at the height of the crisis.

In 2008, the decision by American International Group to fly top brokers and executives to a resort in California shortly after receiving a taxpayer bailout stoked the ire of many politicians and further damaged the insurer's reputation.

Industry experts dubbed the ensuing drop in bookings at luxury hotels and resorts the "AIG effect." Luxury resorts went into foreclosure as their owners struggled to pay off debt.

During the first quarter of last year, Loews wrote down its entire investment in its Loews Lake Las Vegas hotel, resulting in a $27 million charge.

Companies remain eager not to draw that kind of criticism for their spending decisions, Tisch said.

"A cat sits on a hot stove and never goes back, whether it's hot or cold," he said. "My guess is not too many firms are willing to book meetings at resort hotels not because a politician has come out recently said something about it, but because they might."

Tisch noted that many resort hotels have taken the word "resort" out of their names in an effort to appear more palatable on corporate expense reports.

"They don't want to be seen as doing lavish things with shareholders' money," he said.

"What a lot of people don't understand is that resort hotels provide a venue for meetings to take place, for networking to take place and interactions among executives," Tisch added. "My guess is resort hotels will come back, but they're still lagging behind now."

(Reporting by Deepa Seetharaman, editing by Matthew Lewis)

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