Starwood 2003 Annual Report Download - page 3

STARWOOD HOTELS & RESORTS
2003 ANNUAL REPORT
:
IN THE LATTER PART OF 2003, WE WITNESSED THE RETURN
OF THE BUSINESS TRAVELER AND WE BEGAN TO SEE A
PICKUP IN NEARLY EVERY MAJOR MARKET IN WHICH WE
OPERATE, PARTICULARLY IN ASIA AND THE UNITED STATES.
It is with mixed emotions that I write what
will likely be my last letter to you, Starwood’s
shareholder partners. I am delighted to report
about your company’s performance in 2003
and my optimism for our future. Personally,
however, as I prepare to leave my position as
Chief Executive Officer, I am saddened and a bit
nostalgic. I created this great company just nine
years ago. I have seen it flourish from a nearly
bankrupt REIT with less than admirable assets
and a “domestic only” focus with an enterprise
value of less than $10 million, into a global
enterprise with 110,000 associates in 80 countries
owning six powerful brands. Starwood is now
the world’s largest hotel company measured by
cash flow and owns a truly extraordinary array of
magnificent assets throughout the world. Our
enterprise value today exceeds $11 billion.
The New York Times called 2003 the bounce back
year. Starwood’s 2003 performance supports that
view. Since the September 11, 2001 attacks,
the hotel and travel industries have suffered
through the most tumultuous period in their
history. Global synchronized recession, war, SARS,
terrorist threats, airline upheavals, volatile currency
and energy markets have all impacted our
performance. However, while to the outside world
Starwood successfully and dramatically reduced
operating costs and our capital spending to reflect
the reality of the marketplace, quietly and
without fanfare, we never faltered from investing
in our people, our brand innovations, Six Sigma,
and critical technology that would enable us to
emerge from this period in a significantly better
competitive position. In the latter part of 2003, we
witnessed the return of the business traveler and
we began to see a pickup in nearly every major
market in which we operate, particularly in Asia
and the United States. General optimism spread
across much of our customer base and business
travel, combined with already powerful leisure
trends, boosted our fourth quarter performance.
These trends have continued into early 2004 as
corporate profits rebounded dramatically,
in turn driving the world’s equity markets higher.
Starwood has outperformed our peers in this
nascent economic rebound. All of our major
brands realized significant market share and
revenue gains. I am particularly proud of our
W Hotels brand, with 17 hotels open (22
announced), which was founded just five years
ago and posted the best RevPar growth (8.4%) of
any brand that we know of in the world in 2003.
And despite trying times, our guest satisfaction,
management and associate satisfaction scores
held steady or rose. Importantly, New York City
bounced back in the fourth quarter. Starwood is
the largest owner/operator in New York City with
no fewer than five W’s (four owned), three
Sheratons (all owned), two Westins, one
St. Regis (owned) and one Four Points hotel. In
addition, our vacation ownership business,
which cushioned our business decline these past
years, performed wonderfully in the recession
fueled by strategic investment which contributed
to our relative outperformance.
We believe that our recent performance is a
product of the multiple strategies we deployed
these past years. Our product innovations are
resonating with the customer and the
development community.The W brand and all of
its innovations (cordless phones, duvets, great
bars, and on and on), the Heavenly suite of
products for Westin (the Heavenly Bed, Bath and
Crib) and new in 2003, the Westin Workout, the
Sheraton Sweet Sleeper, the Sheraton Service
Promise and the just launched Lo Carb Lifestyle
program are positively impacting loyalty and
creating a differentiated product. These product
innovations have been accompanied by a suite
of technology improvements. Innovations in
guest recognition, call center and sales technology
are just beginning to be implemented and are
yet to bear their expected fruit. Of course our
PR programs, such as the “Love That Dog”
campaign and our award winning and
revolutionary no blackout loyalty program,