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Hub and Spoke: Bass Hotels' Alvaro Diago
Latin CEO / October 2000

By Larry Luxner

Alvaro Diago, president of Latin America for Bass Hotels & Resorts Ltd., is proud of the fact that his division has 45 Inter-Continentals, Crowne Plazas and Holiday Inns in cities ranging from Montevideo to Medellín. The only disappointment for Diago is that Bass has no properties in his native Cartagena, Colombia.

"We used to have an Inter-Continental there a few years ago, but the owners did not comply with their concession,” he says. “In order to protect the brand image, we decided it was better for us to get out.”

Diago, who got his start in the industry as a 21-year-old manager at the Inter-Continental in Medellín, is understandably concerned about brand image. London-based Bass, which took over the Inter-Continental chain two years ago, typically owns a minority interest in its hotels. Local investors supply the lion’s share of capital, while Bass ensures the hotels are operated according to its standards.

Even as a minority owner, Bass has more than US$100 million of its own money invested in Latin America (including the one exception to its minority rule, its total ownership of the Crowne Plaza in Santiago, Chile). “We have the largest hotel presence in Latin America, with 8,900 rooms and total sales of US$220 million,” says Diago. “We’re basically in every capital city in Latin America, except in Bolivia and Paraguay.”

With its multiple-brand ownership, Bass has deep roots in the region. The world’s first Inter-Continental opened in Belem, Brazil, in 1946; from there, the chain expanded throughout South America, and later to Europe, Asia and Africa. Now, says Diago, “We want to double our portfolio by 2006.”

Bass intends to achieve this with a “hub-and-spoke” strategy of positioning Inter-Continental, Crowne Plaza, Staybridge and Holiday Inn properties in the same markets to capture different types of business travelers. “We want to increase our presence in capital cities where we already have hotels,” says Diago. The center of each hub is a top-of-the-line Inter-Continental, followed by the entry-level luxury brand Crowne Plaza. At the end of the “spokes” are Holiday Inns, with the long-term accommodation Staybridge products falling in the middle.

Holiday Inn, the least expensive Bass brand, represents the greatest growth opportunity in Latin America, says Diago. Holiday Inn’s average rate in Latin America is US$73 a night – up from US$71.50 a year ago – while the combined average rate for Inter-Continental and Crowne Plaza is US$125, down from US$135 a year ago.

A typical joint venture for Bass is its deal with Brascan Inmobiliaria S.A., which gives Bass a 40 percent interest in existing and future hotels in Brazil. Properties include the Inter-Continental Rio (433 rooms), the Inter-Continental São Paulo (194 rooms) and a 356-suite Staybridge Suites now under construction in São Paulo.

Bass will face tough competition across Latin America, which is experiencing a renaissance of hotel building. In São Paulo alone, an estimated 20,000 rooms will be built during the next two years. “In São Paulo, the increase in supply, especially flats, is just swamping the market. It’s already driving prices down,” says Diago. The average room rate at the São Paulo Inter-Continental has already dropped from US$250 to US$230 this year.

Nonetheless, says Chuck Bedsole, Latin America practice leader for Ernst & Young’s Hospitality Services Group in Dallas, “Bass has some good products, and their co-branding strategy will probably differentiate them from their competitors . . . But it can also cause some confusion.” All the more reason why Diago remains obsessed with brand image.

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