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Interview with Karl-Anton Schattmaier, Chief Executive Officer Steigenberger Hotels & Resorts: “2006, a challenging year for the Steigenberger Hotel group”

After 75 years of history, the Steigenberger family is still the main shareholder of the hotel group which manage 82 hotels in Europe, and now the Middle- East, split among two brands: Steigenberger and InterCity. Karl-Anton Schattmaier explains the latest developments of the company, eager to accompany its international and German guests outside its national boundaries.

{{HTR Magazine: The German market was rather depressed after the year 2000 and the times were difficult for the German hotel industry. Do you experience a steady improvement in the market since last year? Had the World Cup a significant and lasting effect on your activity?The first quarter of 2006 shows that the Steigenberger Hotel Group continues to show positive growth. The Group’s turnover rose by 5 million Euros to 86.3 million Euros compared to the same period last year (last year: 81.3 million Euros).Karl-Anton Schattmaier:}} 2005 was a very successful year for the Steigenberger Hotel Group and the German hotel industry in general. The economic improvement in our country has now a significant impact on the financial performance of our hotels. Even former difficult destinations like Berlin are booming. 2007 also has good prospects of success. The World Cup, during which we were Fifa partner, was an excellent experience for Germany. The country demonstrated its ability to host a mega event like that. Germany presented itself as a warm and hospitable place to visit and customers who have been in our properties learnt what Steigenberger is all about. So we are convinced that although this event lasted only one month it has changed the image of Germany and motivated people to visit the country – this will have a sustainable development. The World Cup created a feel-good factor.{{HTR: After a period of great expansion and the launch of several brands such as Esprix and Maxx, you have decided to concentrate on two major brands Steigenberger Hotels & Resorts and InterCityHotel. Did you find that widening the portfolio of brands was too difficult to manage for a group of your size?K-A.S.:}} The company first modified its market policy in 2004, adapting it to changing market conditions – with considerable success. The concentration of the previous four-brand strategy to one of just two brands brought positive results. The brands Exprix and Maxx never reached the critical mass and so it made sense to integrate them into our successful branding. The company continues to take its successful brand duo Steigenberger Hotels and Resorts and InterCityHotels forwards into the future.{{HTR: Would you consider, in the future, to segment your portfolio of hotels in more than two brands?K-A.S.:}} We don’t see the necessity for Steigenberger of doing a further diversification. The market does not demand it. We have an excellent market penetration with our two brands Steigenberger Hotels and Resorts as 4- and 5-Star hotels and InterCityHotels in the middleclass segment.{{HTR: Among your portfolio do you privilege the ownership and management of hotels as opposed to simple management contracts?K-A.S.: }} We are a management company and do not own any real estate. We have 82 hotels with leasing, management and even 18 franchise contracts in our portfolio. Franchise is not only a way of expansion for our middleclass brand InterCityHotels, it also applies to more upscale properties.{{HTR: Since the beginning of this century your development was almost frozen. Are the recent openings of two hotels in Dresden and in Zingst the sign of a new period of expansion?K-A.S.: }} This year we added six hotels to our portfolio: Steigenberger Hotel de Saxe in Dresden, Steigenberger Hotel Therme Meran, our first hotel in Italy, Steigenberger Strandhotel Zingst on the Baltic Sea, the Steigenberger Hotel Treudelberg Hamburg, and our two hotels in Hurghada in Egypt – Steigenberger Al Dau Beach Resort (5-Star) and Steigenberger Al Dau Club (4-Star). So you might say 2006 was a challenging year for us. In the last few years, the hotel group has opened, among others, the five-star Steigenberger Hotel Metropolitan in Frankfurt/Main and InterCityHotels in Bremen, Munich, Düsseldorf, Halle and Hamburg. You need to understand that besides the openings it took some time to restructure the company in terms of the new brand philosophy, new sales structure, new management structure.{{HTR: If it seems natural that you entered your neighbouring Austrian, Swiss and Dutch markets, culturally close to your national market, why did you decide to open your first hotel in Italy? Would you go even further South?K-A.S.:}} Our expansion strategy concentrates on destinations which are interesting for Steigenberger clientele. So Meran in South Tyrol in Italy is a highly interesting place for our guests. And we found a good partner to realize the hotel in Italy. So as you mentioned we are interested to go further South to offer our German speaking clientele Steigenberger hotels.{{ HTR: You are also present in Egypt. Is it also an exception in your portfolio or would like to further develop your presence in the emerging tourist destinations such as the Gulf States?K-A.S.:}} The Mediterranean with Spain and Majorca, but also the Middle East, are target destinations for new resort hotels. But we are as well interested in prime locations as major European cities.{{HTR: Do you find it is still possible and efficient to stay completely independent to develop the company internationally and to maintain the continuous ownership of the Steigenberger family? K-A.S.: }} Yes, sure we do.{{HTR: Could you be interested in forming an alliance with other “medium size” hotel groups, like Kempinski did with Pan Pacific, Omni and Rydges? We don’t have any plans to do that at the moment. HTR: Do you consider that your visibility on the international scene is sufficient, compared to the size of the company?K-A.S.: }} Interesting is that we were voted No 1 in the upper upscale segment in JD Power’s Customer Satisfaction Index. The study measures the overall satisfaction of 12,000 European travellers based on seven factors: reservations, check-in/checkout, guest room, food and beverage, hotel services, hotel facilities, and costs & fees. Forty-five hotel brands were measured and ranked in four segments, including upper upscale, upscale, mid-scale full service and economy. Steigenberger Hotels & Resorts ranks highest in the upper upscale segment, receiving top ratings from guests in all seven key factors of guest satisfaction.{{HTR: Since the rebranding of SRS Worldhotel in Worldhotels alone, what are your financial relations with this distribution company?K-A.S.:}} Steigenberger was the founder of Worldhotels, former SRS. But we sold our interests so that Worldhotels is not financially related to Steigenberger anymore. But we are the biggest client of that company with 82 hotels. Steigenberger Hotel Group The Steigenberger Hotel Group has ended its financial year 2005 with positive results. Average occupancy rates increased by 1.7 point to 63%, their highest levels since 1991 (The InterCityHotels, with an increase of 2.9 points, reached their best ever OR of 67.5%).In 2005, the German portfolio was reduced by one hotel in Baden- Baden, but nevertheless, the group, through management and franchise operations, managed a slight 1.1% rise in room nights to 2.93 million. The group’s global turnover, including franchise operations, rose by 4.8 million euros or 1% (2.4% same perimeter) to 429.8 million euros.The turnover of the core hotel operations rose by 1.9% to 334.8 million euros. The city hotels made a significant positive contribution (6.5 million euros), the InterCityHotels saw a rise of 1.3 million euros, but the resort hotels had to absorb a fall in turnover of 1.7 million euros, because of the loss of the Gran Canaria hotel from the portfolio. Otherwise, this division also saw a rise of 4.4%. The GOP of the hotel operations managed to reach 28.5% of the turnover.In the 2005 financial year the pressure on room prices remained as high as ever. The adjusted average room revenue fell slightly to 76.90 euros. It was stable for the Steigenberger City hotels (93.4 euros), but a more difficult situation for the resort (80.6 euros -1,25%) and for the InterCityHotels (52.2 euros -1,35%). The RevPAR across the group benefit from an improved occupation and rose by 2.1% to 48.3 euros, and even better after adjustment to 49.44 euros.This improved situation is the result of two major changes in the sales organisation and the corporate image. A new Global Sales Structure was introduced, tailored to looking after individual enterprises and major customers at home and abroad. One important step was made in 2005 by the introduction of a redesigned corporate identity. Under the slogan “Younger, Bolder, Fresher”, the Steigenberger Hotel Group was newly launched with a contemporary image. Central to the newly developed CI is the strengthening of the umbrella brand Steigenberger Hotel Group, as well as the promotion of Cross Selling for the two brands Steigenberger Hotels & Resorts and InterCityHotels.To sustain this move and to improve the quality of the portfolio, 150 million Euros will be invested by 2008 to secure the foundations for growth and income through the extensive remodelling and modernisation of key hotels. In preparation for this investment programme Steigenberger Hotels AG, using the increased cash flow and an injection of funds from disinvestments, significantly reduced its net credit level of debt from 23.8 million Euros to 3.4 million Euros by 31st December 2005.The first quarter of 2006 shows that the Steigenberger Hotel Group continues to show positive growth. The Group’s turnover rose by 5 million Euros to 86.3 million Euros compared to the same period last year (last year: 81.3 million Euros).

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