Pestana, Europe in the sights

Like all hotel group worldwide, the Portuguese group Pestana prefers to forget about a difficult 2009 and move on. Fortunately, business in the domestic market seems to be taking offagain. “The year 2010 was off to a good start for our urban hotels. The major incentives are back to Lisbon. Porto is doing very well on weekends. On the other hand, our resorts on the Island of Madeira continue to suffer. The bad weather and, more recently, clouds of volcanic ash did not encourage travel. Reservations for seven-day trips were cancelled. Nonetheless, I think the summer will be good because demand is not an issue. With the crisis, the Portuguese should be many to stay in their native land and the drop in the euro with respect to the Pound could play in the favor of British tourism which represents one third of the clientele,” hopes Dionisio Pestana, president of the group founded by his father.After the British capital, Pestana has already secured the second phase of its European offensive in Berlin, near Ku’Damm and Tiergarten. The investment amounts to 25 million euros for the construction of a 137-room property. Evidently the strategy focused on the property and new construction does not allow supersonic development but Amsterdam, Brussels and Madrid are in the sights. “It took us four years to be in London,” admits the group’s president, “and in Amsterdam and Madrid, we have dedicated teams that for 5 years are exploring possibilities and analyzing opportunities to find the rare pearl.” With its Pousadas, Pestana could also open other horizons and look towards the ex-Portuguese colonies in Asia, in the Timor, Macao and Goa.The president of this 100% family owned group remains confidant, his long-term vision allows him to be somewhat philosophical regarding the current crisis. “I look at the cycles overall. We had four or five good years with the reinforcement of the country’s position in the EU and the Euro de football in 2004, and more difficult periods as in 2001-2002 and today,” he explains before admitting: “I am waiting for the next cycle impatiently.” That one will see the family saga continue that began in the early 1970s, when Manuel Pestana, the father of the current president, invested all his energy into making the Hotel Atlantico the best hotel in Funchal, the main city on the Island of Madeira. Bought in 1965, this property was transformed into a 5* and reopened its doors in 1972. But in 1974, the “Carnation Revolution”, harbinger of the country’s release from isolation, after the Salazar period, created problems that led to a black year for Portuguese tourism. Dionisio’s father then called his son to the rescue to keep the operation afloat.The hotel finally succeeded in getting through this difficult spot. And, from that date and until Manuel definitively turned the business over to his son, the two professionals worked in concert to build their empire. Hotel after hotel, Pestana grew to become today’s uncontested leader of Portuguese tourism. Starting from Madeira, the group conquered the country and its position was reinforced in 2003 when it victoriously participated in the privatization of Pousadas do Portugal. Pestana then took over from the Portuguese government and professionalized the management of forty or so historic properties. Advantage: these charming residences cover the entire country, allowing the group to now have a complete network of its original market from the Island of Madeira to the North of the country and including Algarve,and, of course, the two showcases that are Lisbon and Porto.But its footprint does not stop at the hotel industry alone. It expanded to the entire tourism sector. Like other groups specializing in resorts, especially in Spain, the company successfully pursued a vertical integration strategy. Fifteen years ago, Pestana entered the timeshare business and has six complexes, making it the number-three player in Europe at present while waiting for two new projects on the peninsula of Troia, near Lisbon, and in Algarve. “Of course we won’t sell at the same price, and probably even half as much less than three years ago. This will force us to revise the concept of the project, to make less luxurious and more functional,” explains Dionisio Pestana. The group also owns 5 golf courses, three real estate developments dedicated to the vacation rentals, a travel agency, three tour-operators and the airline EuroAtlantic. In addition to all that, the group owns the concession for operating casinos on the Island of Madeira and Sao Tomé.“Looking back, I think I made the right decisions. These very profitable businesses allowed us to diversify and grow,” rejoices Dionisio Pestana. Over the last thirty years, the hotelier seized opportunities as they arose, looking out for good real estate opportunities. Land acquired in Madeira or Algarve saw its valuemultiply by 50 in thirty years. “Hilton and Marriott began that way. It allowed them to build a solid base,” the president proudly points out. But the parallel with the glorious stops there. The Portuguese group has not yet entered asset light era and is voluntarily conservative, preferring to develop with owned properties, rarity in the world’s hotel industry.“Hotels have beenn offered to us with management contracts, but we prefer to own our properties,” admits Dionisio Pestana. “This is my fourth crisis, which makes me stronger as well as wiser in terms of investment. We are mostly interested in opportunities that are new constructions. Long-term appreciation is more important. In London, the price per room in our new hotel was 40% less than if we took over an existing hotel. We only invest in properties that meet our criteria and can deliver a good evolution at the end of a 7 to 10 year cycle,” explains Dionisio Pestana. Asked if he thinks there is a possibility of selling the family jewels one day to extract the value of the asset, the answer could not be clearer: “I have no intention. Maybe the next generation!”.But this does not prevent the group from having high hopes in terms of development. After conquering all its original market, the group began to feel a bit cramped with 20% of market shares on the 4-5* and already began its international expansion. Its first stage was one of the most logical. From the end of the 1990s, the hotelier addressed Lusophone countries, destinations that naturally attract Portuguese leisure clientele: Brazil in South America, Sao Tomé, Cap Vert and Mozambique in Africa. Today Pestana has 15 properties in these countries, bases from which the group has begun to radiate. Not far from Mozambique, in 2001 Pestana bought the Malelane Gate Resort, a lodge in the Kruger Park in South Africa and is now looking towards Angola to pursue its African adventure.The same development strategy by capillarity is pursued in South America. The group benefited 10 years ago from the end of hyperinflation in Brazil and the opening of credit to invest this promising market (see article p. 98). Today Pestana has 10 hotels in the country and is still trying to establish itself in Belo Horizonte, Porto Alegre and Vitoria. But at the same time, the Portuguese hotelier plans to expand its brand to the capitals of the sub-continent. The brand is already present in Caracas and Buenos Aires but is led to cover other territories. In addition to a second project scheduled in the capital of Argentina for an opening in 2012, the group will establish itself in Montevideo and is particularly interested in Santiago Chile to continue its march forward. On the resort segment, the group has also taken over the management lodge Arelauquen in Patagonia which will become the Pestana Bariloche, a 23-room ski resort.Brand recognition in the region led Pestana to seize an opportunity in the United States where the hotelier will open a hotel at the end of the year in Miami. Not that the group wants to attack this ultracompetitive territory head on, but this Art Deco boutique hotel, a conversion of three historic buildings is destined to satisfy a strong demand from the South American market for the destination. “There are ten Caracas-Miami flights each day,” explains Dionisio Pestana.In Europe as well, the group is counting on its primary clienteles to support its expansion. Pestana has set clear goals for the next ten years: to be present in most of the capitals of Western Europe. The first stone for this building was laid in London. The Pestana Chelsea Bridge, a 218-room property, opened last March near Battersea Park. The first results from the London hotel support Mr Pestana’s strategy: “we are already operating at 80% OR two months following the opening with a good volume of business generated by Portuguese and Brazilian TOs. The Portuguese thus represent 25% of our clientele, South Americans 20% and, for our future European properties, we can also count on British and German tourists who discovered our brand while vacationing in Madeira or the Algarve.”