FAIRMONT CHATEAU LAKE LOUISE

THE CHATEAU LAKE LOUISE

David Bayne is the general manager of the Fairmont Chateau Lake Louise. Situated within Banff National Park
in the Canadian Rocky Mountains, the Fairmont Chateau Lake Louise was a luxury resort. The Chateau Lake
Louise had been constructed by the Canadian Pacific Railway at the turn of the 20th century to service
wealthy passengers. The CLL had a total of 497 rooms in five different size or layout configurations. Rooms
were also differentiated by the side of the hotel on which they were located, with lakeside rooms offering a
better view than those facing the mountain. The hotel also operated a small spa, with massage, skin
treatment and hair care services. There were also two restaurants, which could be used for meetings or
converted into ballrooms for larger groups.

FAIRMONT HOTELS AND RESORTS

Fairmont Hotels and Resorts (FHR) was a leading North American operator of luxury hotels. FHR had 100 per
cent ownership of all its Canadian resort properties including the Chateau Lake Louise and Banff Springs
Hotel.

BANFF NATIONAL PARK

Established in 1885, Banff National Park (BNP) was Canada’s first national park, it constituted the country’s
20,000 square kilometres. Approximately four million people visited it in 1997, a number that was expected
to grow by two per cent annually for the next 10 years. Over three-quarters of all visitors were pleasure
travellers. General sightseeing was the most common activity. Peak tourist season in the park consisted of
July and August, with the third quarter of the year representing slightly over half of all overnight visits. The
second quarter, particularly the month of June, was also busy, with about 22 per cent of all overnight visitors.
The two winter quarters accounted for the remainder roughly equally.

CUSTOMERS AT THE CHATEAU LAKE LOUISE

The majority of the CLL’s guests came from outside Canada, particularly the United States, Japan, the United
Kingdom and Germany. There were three main segments: the tour/FIT market, independent travellers, and
the groups and meetings market.

A typical tour group consisted of about 50 guests on a pre-planned tour that included accommodation,
transportation and food. Itineraries were typically arranged by wholesalers or specialized tour companies
that purchased these services. Fully independent tours (FIT) were similar to conventional tour groups in that
they were pre-planned packages created by a wholesaler or tour company. Size of the party could vary from
a single family to a larger group.

Independent travellers made up approximately 24 per cent to 28 per cent of the Chateau Lake Louise’s
business. Their activities ranged from basic sightseeing to extreme mountain sports, depending on individual
interests. The average length of an international independent traveller’s stay was two to three days in the
summer and four to five days in the winter. Independent travellers usually booked their vacations through a
travel agent, the Internet or directly over the phone.

The groups and meetings (GM) market made up the balance of the Chateau’s business. Demand was
heaviest in the fall and spring, with an average stay of three days. The GM segment required large rooms in
which to hold their meetings, as well as breakout rooms for smaller gatherings.
PRICING

Average cost to service a room was between $40 and $50. The three basic types of actual pricing were retail,
contracted and negotiated. Retail rates were very close to the rack rates and were quoted to independent
travellers. Contracted rates were prices arranged by the Chateau with tour organizers and wholesalers.
Negotiated prices were quotes or bids for group and meetings organizers. These were set based on projected
demand and took into account current market prices and the competitive situation.

OPERATING RESTRICTIONS

Due to its location in a national park, the Chateau Lake Louise was restricted in ways that a typical hotel was
not. Most importantly, the land on which the hotel stood was not owned by Fairmont. Rather, it was held in
a perpetual lease with Parks Canada. As a condition of this lease, the Chateau was required to have a full-
time environmental systems manager (ESM) to monitor and limit the impact of the hotel on the surrounding
natural environment. The hotel also faced limits on how much water could be taken out of the lake, how
much sewage could be produced and how much greenhouse gas was created through the production of
electricity.

PUBLIC AWARENESS / ENVIRONMENTAL GROUPS

Another important consideration for businesses operating in national parks was growing public interest in
environmental issues. In the case of the Chateau Lake Louise, public scrutiny and opposition to development
by environmental groups was a major consideration. This had the effect of forcing the federal government
to publicly defend all project approvals and made decision-makers reluctant to agree to large or highly visible
projects. In addition, there was a risk that the Chateau itself could be challenged directly by environmental
groups if it were to propose any new activities or developments. Review of any proposal for a construction
project would have four main stages.

The simplest option was a thorough retrofitting of all or some of the Chateau’s 497 rooms. Renovation also
provided an opportunity to take smaller rooms and combine them into larger ones. Combining rooms in
existing portions of the building might be a way to deal with this issue, when considering any expansion. A
third option involved an ambitious proposal to significantly expand the hotel’s meeting facilities and add new
guest rooms to the Chateau. A fourth option was an improvement to the hotel’s leisure facilities. Finally, a
project involving a combination of all or some of these options could be undertaken. A plan that enhanced
more than one aspect of the hotel would improve the guest experience for several of the Chateau’s markets.

Bayne considering all the options, he was struck by the importance of the decision for the future of his hotel.
If nothing was done, the decline in the tour market was expected to produce a 25 per cent decrease in the
Chateau’s business within the next decade. With these issues in mind, Bayne set out to create a detailed plan
he could present. Bayne would be committing to a strategy that would have dramatic implications for the
Chateau’s future and its long-term viability as a flagship Fairmont property.