When Robert Small took over as president and chief executive of the Fairmont Hotels chain in March, he had to come out fighting the effects of massive industry overbuilding, recessionary travel cuts and a few company miscalculations.
The Chicago Fairmont opened in Illinois Center in 1987 and has faced a troublesome market from its beginning.
It opened amid a flurry of hotel building here that will see the addition of 2,680 rooms to downtown`s 23,000-plus inventory from the beginning of this year through 1992.
”A 10 percent increase in an already glutted market,” said Small. ”Am I concerned? Yes. It`s not exactly a healthy market.”
But the Fairmont did not respond adequately to that unhealthiness, and too many of its rooms have gone empty, said Small.
”In Chicago, we joined the ranks of the upscale inventory. We came on the marketplace with a stodginess toward rates, so people thought of us (as being in) a category that was unapproachable,” he said.
The hotel`s sales staff ”quoted rack (standard) rates, and that was it,” he said.
The hotel`s weekday rack rate for a lakeside room with a king size bed is $260 per night.
To improve operating results, ”we are going to be more flexible in our pricing,” said Small.
”The perception has been that if you came to Chicago, the upscale product was unavailable. My team is flexible to say here`s an upscale experience at a reasonable rate. I want the world to know the quality is the same, but the price is approachable. I`ve told our sales managers that they can make decisions that they couldn`t make three years ago.”
When the Fairmont opened, the company offered a ”very good product” but was ”inflexible in the market and to a degree misread” it, said Small.
”I never come into a city and say, `This is the best property in the city; you`re going to pay full rack rate to get it.` I say, `For a year we`re going to have opportunity pricing.` We`re no longer in that (former) mode, and we`re doing much better.”
The new approach seems to be working, he said. For the first five months of this year, gross revenue has risen 16 percent.
For at least one local customer, awareness of the hotel`s increased price flexibility came by accident.
”I needed to schedule a meeting, and since there was a big convention in town, everything else was pretty much sold out,” said Robin Kriegel, executive director of the 1,200-member American Association of Medical Society Executives, based in Chicago.
In desperation, Kriegel tried the Fairmont.
”The Fairmont had space, and they were willing to give us a very good rate,” she said. ”I was totally shocked. The rate, while not cheap, was a very good rate for Chicago and for the quality of the Fairmont.”
The Fairmont, like the Four Seasons and Ritz-Carlton, are among hotels that ”I would never consider” for a meeting, largely because of their price category, said Kriegel.
”I think the Fairmont has a very good image in the industry; a top-of-the-line image. Their problem, if they have one, is that people may assume it`s going to be too expensive,” she said.
Another impediment for individual hotels or smaller chains such as the Fairmont, which has five hotels, is the tendency of some planners to work regularly with only a few national chains.
”Hyatt, Marriott and Westin have me on file,” said Kriegel. ”I can call them up and tell them a date, a place and the number of people, and they`ll know what I want for my meeting. They`ll do the legwork. It saves me time and work, and I can screen out cold calls from individual hotels pitching their business.”
As head of the Fairmont Hotel Management Co., Small is trying to ”get my arms around” the company`s current business before focusing on expansion, he said.
Small is first non-member of the family of Benjamin Swig, who established the company in 1945 with the purchase of the San Francisco Fairmont, to head the hotel chain.
Small replaced Richard L. Swig, Benjamin`s son, who was Fairmont president and chief executive for 38 years. Richard Swig has become board chairmam.
Small started in the hospitality industry 29 years ago as a kitchen assistant in New York. He worked for the Fairmont Hotel in New Orleans as resident manager in the late 1960s and helped open the Dallas Fairmont.
He worked for Marriott for 12 years, then was president of the Bass family`s Worthington Operating Cos., which develops and operates hotels, restaurants and private clubs in the Ft. Worth area.
Before joining Fairmont, he worked for Walt Disney World, where he was executive vice president in the resort division. In four years there, he presided over the acquisition or building of eight resort properties.
Fairmont`s difficulties are not unique to Chicago.
”There are too many (hotel) rooms in Boston, San Francisco, Dallas and New Orleans,” said Small. ”We opened a hotel in San Jose, in the Silicon Valley, in 1987, about the same time as in Chicago. It was an immature market. We came on board two years too soon. We`re first with the foremost.” Chicago, like these other locales, must respond to new forces, he said.
”For a great deal of the time, Chicago was a sparkling transient market,” said Small. ”The Midwestern associations stayed home, and other convention centers could not accommodate many of the large trade shows. Other cities are coming on line. (We`ve) got to make sure that the expansion plans
(of McCormick Place) are carried out.”
But McCormick Place must not compete merely by its physical space, Small cautions.
”McCormick Place has to be flexible on pricing. The world has become more competitive in these recessionary times. The fat cats sometimes forget from whence they came. Chicago cannot act like a fat cat any more. There`s too much competition.”
