Soft landings

Airport hotels are getting ready to celebrate the return of the business traveller, with higher rates and occupancy levels, as well as an expected increase in investor activity. But are CEE cities the exception?

Mladen Petrov

These days Warsaw’s Chopin Airport resembles a large construction site due to ongoing extension and infrastructural work. Earlier this year a competition was held to choose the design for the urban concept of Chopin Airport City, which is to be built in the area around the airport, with the winning entry by JEMS Architekci. The plan is to turn this area into a business and retail park with leisure and entertainment facilities. Around 10-ha of the land is to be developed, eventually bringing as much as 250,000 sqm of retail and office space to the capital’s Okęcie district. Once the airport is expanded it will be able to service up to 12.5 mln passengers by 2014. 
In 2009 the airport serviced 8.3 mln passengers – down from 9.4 mln in 2008. Overall investment costs for the project are expected to come to 
PLN 1.2 bln.

Today, those willing to stay in the immediate vicinity of the airport have only one option: the Courtyard by Marriott hotel. The 234-room hotel was completed in 2003. Currently there are nine Courtyard hotels operating in the 
CEE region, with the others being located in Russia, the Czech Republic (including Courtyard Prague Airport) and Hungary. “The decision to build the hotel wasn’t an easy one. It took the owner, Polskie Przedsiębiorstwo Lotnicze Porty 
Lotnicze (PPL) – the ‘Polish airports’ State Enterprise, the sole owner of the Chopin airport – ten years to decide to go ahead with the project. For many months the owner studied the possible response to the hotel. The findings turned out to be positive and yet we didn’t know what to expect, as there had not been such a hotel prior to that in Poland. It was a pioneering market move. Therefore, we didn’t really know what the response would be,” recalls Aneta Stępkowska, the general manager of the hotel.

Although the hotel has had its up and downs over the years, today the management is content with its performance. “We are often put in the same boat with city centre five-star hotels, although we are a four-star hotel. The closeness of the city centre – 8 km away – is both a blessing and a curse. Yes, you can get there in 15 minutes by car, but we are located near the thriving Mokotów business district. More office projects, such as Poleczki Business Park, are now under construction, bringing an increasing number of business travellers to us. With the business located so close to us and the average stay being one day, our guests don’t really need to stay in a city centre hotel as they are not here for the sightseeing.”

The management of the hotel refused to reveal the current occupancy rate of the hotel, but did say that “the hotel is enjoying an occupancy rate at a level around 15 pct higher than city centre five-star hotels”, (around a 60 pct occupancy rate  for Warsaw hotels, according to STR Global’s data). “The recent occupancy rate of the hotel gives us the confidence that business travellers are returning for good. We are getting positive signs indicating this, with room rates already growing. This week (September 5th–12th) we have a few days with 100 pct occupancy of the hotel,” adds Aneta Stępkowska. Up to 70 pct of the hotel’s guests are business travellers.

Do you Skype?

Airport hotels, despite the fact that they have been around since the 50s, turned into what they are today a few decades later. As Donald McNeill, a professor at the University of Western Sydney wrote in ‘The Airport Hotel as Business Space’ (2009), an article charting the rise of the airport hotel published by the Swedish Society for Anthropology and Geography: “[Only] by the late 90s was it clear that running airport hotels could be big business.” He goes on to say that “airport hotels can now act as brand leaders... The airport itself has shifted from being a lay-over to a new central space.”

On the other hand, companies are still in a rather ungenerous mood when it comes to travel expenses. ‘Up In The Air’, a film starring George Clooney, also portrayed the current vogue for frugality: Ryan Bingham, a corporate downsizer with a thing for airline loyalty programmes, is temporarily forced to work at the office, instead of ceaselessly travelling around America. Video conferences are one solution that brings additional savings to his employer. The figures presented by the Airport Council International in the ‘World Airport Traffic Report for 2009’ agree with the film’s premise. According to the study, based on the data of 1,350 airports around the globe, worldwide airport passenger numbers fell in 2009 by 1.8 pct y-o-y to 4.796 bln. Europe and North America registered significant decreases of 5.4 pct and 5.2 pct respectively. Worldwide domestic traffic was flat (-0.2 pct), while international traffic decreased by 3.9 pct. In addition, 62 pct of airports worldwide lost traffic, at an average rate of 6.5 pct. However, the first seven months of 2010 showed world passenger traffic increasing by 6 pct with international traffic growing by 7 pct and domestic traffic rising by 5 pct.

Hans Detlefsen, the director of consultancy company HVS Global Hospitality Services, believes the golden days of business travel are not over. “As the volume of business and meeting travel declined during the economic downturn, airport hotels have adopted many of the same cost-cutting strategies. They have reduced staffing levels, deferred certain capital improvements until a later date, and they have cut their marketing budgets. In the long-run, travel costs have been declining, which has increased the volume of travellers in all segments, including: leisure, business and meeting/conference travellers. If the hotel is physically integrated into the airport terminal – rather than an off-site location near the airport – then travellers can also save on transportation costs by using the on-site hotel. As such, on-site airports have demonstrated an ability to achieve a rate premium, that is, higher average daily rates at the hotel, which makes this sort of hotel more profitable and/or more feasible to build, assuming the land is available at an affordable price,” he comments.

A 2008 HVS study, based on a survey of 15 hotels located next to major US airports, underlines some of the advantages of these hotels. Due to their convenient location they can charge higher rates as the guests prefer to save time rather than money. The performance of the 15 on-site hotels was compared to the performance data of a control group of 15 hotels located off-site near the same airports. According to the data for 2007, the aggregate occupancy for the 15 on-site airport hotels was 76.6 pct compared to 74.3 pct for the 15 off-site competitors. The aggregate average daily rate (ADR) for on-site airport hotels was USD 146.71 compared to USD 129.91 for the off-site group. “Airport authorities often see benefits in having an on-site hotel in their terminal as well, because the added amenity makes the airport more attractive as a destination and may generate travel demand for that particular airport,” points out Mr Detlefsen.

More to come

The performance of the Courtyard hotel has encouraged PPL to invest in a second hotel at Warsaw Airport. The five-star Marriott Renaissance hotel, the seventh under the brand in the region, is to feature 225 rooms and a conference centre. The hotel has been scheduled for completion in 2012, but is unlikely to be ready in time for the 
Euro 2012 football championships.

Marriott International is looking to grow further in Poland and eventually expand beyond the Warsaw market, but so far the Polish PR officer of the company has declined to comment on possible locations. As for PPL, the state-owned company does have further plans for hotel development around Warsaw airport. It is currently also considering the development of a two-star budget hotel. “Within the Chopin Airport City project we can see the potential for more hotels. PPL, however, will not be the sole investor behind these projects. We have finished with hotel development. Most probably we will participate only by providing the site of the project,” says Radosław Żak, PPL’s press officer. “As for the other airports across the country, they need to come up with their own plans. PPL also owns the airport in Zielona Góra, but in other cities we are just one of the shareholders, and so we are unable to undertake such major projects on our own,” he adds.

Hilton Worldwide is also exploring opportunities for expansion on the business traveller hotel market. As Magdalena Sekutowska, development director for Eastern Europe and Poland explains, talks with potential investors are already underway. “Currently a couple of airport hotels under our Hilton and Hilton Garden Inn brands are under construction in Germany. The on-site airport location is suitable for the majority of our brands as long as certain conditions – the state of the market, the airport’s significance – are met. As for the 
CEE region, the potential is clearly there for the development of the Hilton Garden Inn and Hampton by Hilton brands,” claims Ms Sekutowska.

Reality check

“Airport hotels have to be approached with a long term perspective in the CEE region as the locals do not yet have the buying power of their Western European counterparts, and therefore the airport issue needs to be looked from a different angle,” comments Jean-François Laporte, head of hotels at CB Richard Ellis Hotels Central & Eastern Europe. A project similar to Chopin Airport City is now also ongoing in St Petersburg, where a large office scheme and industrial park are being developed. The planned hotels there will therefore service both travellers looking to get some rest between two flights, and people visiting the city on business. A similar scheme exists in Sofia, where the large-scale EUR 250 mln Sofia Airport Center project with 165,000 sqm of office and warehouse space is currently under construction. As part of this project, which is being developed in two phases by Tishman International Development and GE Real Estate and is to be completed in 2012, a 175-room hotel will be opened about 300m from the airport.

“Size matters. Vienna is the 20th largest airport in Europe, Prague 32nd, Warsaw 43rd, and Budapest 45th. We have not looked precisely at the breakdown of users of these airports, but we feel that Vienna has a very good mix of local and international travellers – both for business and for tourism – whereas in Prague, Budapest and Warsaw the mix might not be as well-balanced. This balance of travellers will come over time with the increasing buying power of the locals, growing FDI and the further diversification of the tourist offer in these three 
CEE cities,” believes Jean-François Laporte.

Hotel development has significantly slowed down in the region due to the limited access to financing. “Airport hotels reflect a stable market. Therefore it might not be the best move in the current market to look at developing airport hotels in secondary capital cities or regional cities in the region,” thinks Mr Laporte. “We suspect that airport hotels have suffered a bit more than their city counterparts due to the lower number of airport arrivals, falling prices in the city centres and the decrease in outbound travellers in some airports.”

Donald McNeill emphasises the fact that in recent years the notion of the business traveller has evolved, with hotel companies coming up with brands that suit different demographic groups – from small companies’ accountants to big-shot media executives. “As business travel continues to evolve into multiple segments, there will therefore continue to be a broad range of airport hotels on offer,” he explains. “Obviously it varies a lot depending on the city and the part of the world, so places that are firmly on the business-tourism map – such as Zurich – seem to be getting very exclusive hotels. But I don’t want to give the impression that all business travellers are wealthy – probably quite the opposite is the case, as expense accounts have become much tighter. Conversely, that might mean that airport hotels are now more popular than city centre accommodation, with the need to cut back on the entertainment perks that sometimes accompany business travel.”