Luxury Hotels Fighting to Stay Relevant

(MoneyWatch)  With luxury hotels bearing the brunt of the hotel industry's troubles, some are downgrading their ratings so they can offer lower rates with fewer amenities -- just until the recession is over, they say. Hilton, InterContinental and Starwood are some of the companies that have recently lowered the ratings on some of their five-star and five-diamond hotels.

This strategy will likely lead to the same quandary high-end clothing stores and other retail outlets are facing, which is how to convince customers to pay full -- i.e., higher -- price once the recession is over. Consumers have a short memory when it comes to price tags, and it will take a while to get them back into the swing of things.

The struggle between keeping up appearances and actually being able to afford those appearances has no doubt led to this downgrade in level of service. When prestige brands are grappling with occupancy rates of less than 60 percent, reductions in room rates, amenities and staff are inevitable.

But the struggle doesn't stop there. Four Seasons, which operates hotels but doesn't own them, has been battling with owners who want to downgrade their hotels' offerings to save money (registration required). Four Seasons doesn't want erosion of its brand, but not all owners can afford to keep providing such a high level of service.

However, even as far back as February, the Four Seasons Beverly Wilshire hotel, which sits at the foot of Rodeo Drive in Beverly Hills and is probably best known as the hotel in Pretty Woman, instituted a hiring freeze amid a 20 percent drop in its occupancy rate and a decrease in business at its restaurants (registration required).