Hotel chain becomes its own service provider

Fairmont Hotels & Resorts is taking an unorthodox, if not leading-edge, approach to maintaining its US$30 million to $40 million IT budget this year, despite the sharp downturn in lodging industry revenues following the September 11 attacks on the U.S.

Unlike many of its competitors, who outsource most of their IT infrastructure support to third parties, the Toronto-based hotelier is reinvesting most of that capital to develop its own application service provider (ASP) and Internet service provider services to support its own operations.

Fairmont has acquired commercial software, such as SQL database software from Microsoft, through ASP licenses, said Tim Aubrey, the company's vice president of technology. He said the company plans to act as its own ASP to provide service to its properties in Canada and the U.S., including The Fairmont in San Francisco and The Fairmont Jasper Park Lodge in Jasper, Alberta.

The company has also installed and operates its own high-speed DS-3 (44.7M bit/sec.) North American backbone network (see map at right), which carries data from both management information systems and guest rooms equipped with broadband Internet connections. That makes Fairmont "its own ASP and its own ISP," Aubrey said, calling it a "nontraditional approach" to IT in the lodging industry.

Pearl Brewer, chairwoman of the school of hotel management at the University of Nevada, Las Vegas, said Fairmont's ASP approach puts Fairmont ahead of the rest of the lodging industry, which has been slow to adopt that approach to software because of bandwidth constraints that the company has overcome with its own high-speed network.

Independent Route

Mark Hamilton, a consultant at Evans & Chastain Consulting LLP in Houston, called the Fairmont approach to IT "extremely unusual," since most hotels tend to outsource their IT support. "I don't know of a hotel company that owns its infrastructure to this extent," Hamilton said.

Aubrey said his IT budget and development plans benefited from the fact that while Fairmont's properties are some of the oldest and most historic in North America, they now belong to a company less than one month old. Many of its historic properties were built and owned by Canadian Pacific Ltd. in Calgary, Alberta, which spun off Fairmont as a separate public company earlier this month.

That provided the hotel company with "a healthy balance sheet" that has included an equally hefty IT budget over the past two years, said Aubrey.

Still, Fairmont's IT spending will decline next year to roughly $10 million as the company finishes installing high-speed broadband access in all 20,000 of its guest rooms, with room wiring costs running up to $500 per room, said Aubrey.

Aubrey said Fairmont management views its in-house IT expertise, which spans from network management to Web development to in-house application development, as a "competitive advantage" when it comes to serving guests and making affiliate agreements with other properties. Fairmont is in the process of developing extra services for guests over its in-room broadband connections, but Aubrey declined to specify what those include.

Over time, Fairmont could parlay its network investments into voice over IP phone service to guests, said Hamilton. If that happens, Hamilton said, Fairmont could turn a high-cost service guest room phone connections into a profit center.

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