Orient-Express Hotels (OEH)

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OEH's hotels, many operated only seasonally, target luxury travelers, while other luxury operators, such as Marriott International (MAR)'s Ritz-Carlton, Starwood Hotels & Resorts Worldwide (HOT), and FOUR SEASONS HOTEL (FS) primarily target business travelers. Since high-end luxury hotels can only be added in select locations, company has been pursuing growth by adding rooms to existing hotels and acquiring other luxury hotels. The firm is also selling private residences attached to its luxury properties.

Just as other luxury hotel chains, OEH's is impacted by threats of terrorism, contagious diseases, economic cycles, and swigns in airline travel. Owing to these problems, people either stop traveling to those areas or choose alternative destinations for travel, which has a negative impact on the company.

[edit] Business Overview

OEH has three main business divisions:

• Hotels and restaurants: represent the largest segment of OEH’s business, contributing 84% of revenue in 2006. OEH’s worldwide portfolio of hotels consists of over 3,600 rooms and suites in 39 deluxe hotels. Thirty-five of these hotels are wholly or majority owned and four are minority ownership. Of the owned hotels, 12 are located in Europe, seven in North America and 16 in the rest of the world. Revenue from hotels is generated from rooms, food, and beverages. ^[1]

• Tourist trains and cruises: accounted for 13% of revenue in 2006. OEH's primary train is the Venice Simplon-Orient-Express, which operates an overnight service between London and Venice and short excursions in southern England. Another train is the Eastern & Oriental Express in Southeast Asia, which travels between Singapore, Kuala Lumpur and Bangkok. OEH also operates the "Road to Mandalay" cruiseship on the Irrawaddy River in central Burma and has a 50% stake in "Afloat in France" which operates luxury boats in France. ^[2]

• Property development: accounted for the remaining 3% of revenue in 2006. OEH develops the real estate it owns adjacent to its hotels and sells deluxe residential villas and apartments. ^[3]

OEH 2006 Annual Report^[4]

Total revenue increased by 14% from $433.1 million in 2005 to $492.8 million in 2006. Hotels and restaurants revenue increased by 12.5% and the revenue from tourist trains and cruises increased by 3.9%. Real estate and property development contributed $16.1 million of revenue in 2006, up from $4.7 million in 2005. ^[5]

OEH 2006 Annual Report^[6]

While OEH generates nearly 50% of revenue in Europe, approximately 50% of customers in 2006 originated from North America, 33% from Europe and the remaining 17% from elsewhere in the world. In 2006, Europe revenue grew 12%, North America 7%, and Rest of the World 21%.

OEH 2006 Annual Report^[7]

OEH 2006 Annual Report^[8]

[edit] Trends and Forces

• Economic Conditions: The hotel industry as a whole is vulnerable to economic conditions. An economic downturn, in the US or Europe, would have a negative impact on OEH' revenues. In a down economy, people don't take as many vacations, and the people who do take vacations tend to spend less money. However, OEH caters more to higher end luxury travelers and that market is usually less affected by economic conditions. So while an economic downturn may have a negative impact on OEH, the company may not feel the impact as greatly as some of their competitors who focus on middle or low income customers.

• Airline Travel: The majority of OEG’ customers travel by air to their luxury hotels. Therefore, OEH’ future profitability and success is contingent on the overall health of air travel. Terrorist attacks or disease outbreaks, such as the Avian Flu, could reduce the number of customers willing to travel to their properties. For example, Average Daily Room Rates in US hotels decreased 2.5% after Sept 11th, but have surged nearly 25% between 2003 - 2006, after the US public regained confidence in flying.

• Weak Dollar: 73% of OEH's revenues are generated outside of the United States and thus involve foreign currency. When the US Dollar falls in value against major currencies such as the euro and the yen, foreign currency translation effects increase revenues. One counteracting force is that nearly 50% of OEH's customers originate from US, who must exchange their weaker dollar when they vacation abroad and thereby won't be able to able to spend as much money. However, this may not have a big effect on OEH since they target luxury customers who have high disposable incomes.

• Seasonality: weather conditions play a large role in determining traffic levels for tourists. Thereby quarterly revenues vary as a result of higher traffic volumes during Spring and Summer months since many of OEH’s hotels and tourist trains are located in the northern hemisphere where they operate at low revenue or close during the winter months. Any event that disrupts travel patterns during the spring or summer would have an adverse effect on OEH's performance.

• Interest Rates: in 2006, OEH had a long-term debt load of about $670 million and its properties are highly leveraged. High interest rates would make paying off the debt more difficult and reduce the cash flow available for the rest of the company, most notably the future development projects. Cost overruns in these developments, high interest rates and insufficient generation of cash flow from the completed properties would all impact the ability of OEH to meet payment obligations. This could lead to reduced financial backing for its new development and accelerated payments of the debt. ^[9]

[edit] Competition

The following table compares OEH’s performance to its competitors in 2006.

OEH is siginificantly smaller than its competitors in its geographic presence, but it operates higher end properties which have a higher revenue per available room or RevPAR, a key performance indicator within the hotel industry.

 Orient-Express Hotels

	Select All  |  Select None Metrics Number of Rooms Number of Properties Number of Company-Operated Hotels Number of Vacation Rentals & Time Shares Revenue from Vacation Rentals & Time Shares Revenue from Company-Operated Hotels Operating Income Occupancy Number of Franchised Hotels Net Income Average Daily Rate - Hotels (ADR) Cancel

	Select All  |  Select None Companies Starwood Hotels & Resorts Worldwide (HOT) Marriott International (MAR) Choice Hotels International (CHH) Home Inns & Hotels Management (HMIN) Intercontinental Hotels Group (IHG) MeriStar Hotels & Resorts (IHR) Marcus (MCS) Morgans Hotel Group (MHGC) Orient-Express Hotels (OEH) WestCoast Hospitality (RLH) Sonesta International Hotels (SNSTA) Wyndham Worldwide (WYN) Cancel

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Company	Data From	Occupancy	Number of Franchised Hotels	Net Income	Average Daily Rate - Hotels (ADR)
Choice Hotels International (CHH)	2006	58%[10]	5.38K[10]	$113M[11]	$69.7[10]
Marriott International (MAR)	2006	73.2%[12]	1.78K[13]	$608M[14]	$153[12]
Morgans Hotel Group (MHGC)	2006	77%[15]	Add	($13.9M)[15]	$319[15]
Orient-Express Hotels (OEH)	2006	63%[16]	Add	$39.8M[17]	$382[18]
Starwood Hotels & Resorts Worldw… (HOT)	2006	71.2%[19]	360[20]	$1.04B[21]	$192[19]

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[edit] References

1. ↑ OEH 2006 10k, Pg. 4
2. ↑ OEH 2006 10k, Pg. 14
3. ↑ OEH 2006 10k, Pg. 16
4. ↑ OEH 2006 10k, Pg. 45
5. ↑ OEH 2006 10k, Pg. 45
6. ↑ OEH 2006 10k, Pg. 38
7. ↑ OEH 2006 10k, Pg. 45
8. ↑ OEH 2006 10k, Pg. 5
9. ↑ OEH 10k 2006, Section 1A
10. ↑ ^{10.0 10.1 10.2} CHH,2006,10-K,Item-1,PG-8
11. ↑ CHH, 2006, Item-8, PG 54
12. ↑ ^{12.0 12.1} MAR,2006,10-K,Item-7,PG-37
13. ↑ MAR,2006,10-K,Item-1,PG-6
14. ↑ MAR,2006,10-K,Item-6,PG-23
15. ↑ ^{15.0 15.1 15.2} MHGC,2006,10-K,Item-6,PG-58
16. ↑ OEH,2006,10-K,Item-7,PG-40
17. ↑ OEH,2006,10-K,Item-6,PG-38
18. ↑ OEH,2006,10-K,Item-1,Introduction,PG-5
19. ↑ ^{19.0 19.1} HOT,2006,10-K,Item-20,PG-20
20. ↑ HOT,2006,10-K,Item-1,PG-20
21. ↑ HOT,2006,10-K,Item-15,F-4