1. Economic Outlook® Four Seasons and the Hospitality Industry
Team Synergos
Presents
Economic Outlook® Four Seasons and the Hospitality Industry
March 3, 2006

2. Agenda Introductions Hospitality Industry Analysis Firm Analysis
Forecasts, Projections & Recommendations
Economic Environment
Macro Summary

3. Hospitality Industry Analysis

4. U.S. hotel industry consists of about 48,000 companies with combined annual revenue of $90 billion.
Market Structure
What is the Hosp industry?
Structure of industry
Focus area is Lodging
Quick Breakdown 4

5. The Hospitality Industry
(includes lodging operations, food/beverage service, and travel/tourism)
5 Basic Types of Hotels
commercial, resort, residential, extended-stay, and casino
Luxury Hotels determined by room rates, which are at the top 15% of rate structure.
The hospitality industry is extremely broad and includes lodging operations, food and beverage service, and travel/tourism.
Our presentation today will concentrate on one aspect of the hospitality industry-the luxury lodging segment. Some of the biggest brand names in this segment include the Four Seasons, Fairmont Hotels & Resorts, Starwood Hotels & Resorts Worldwide, and the Ritz-Carlton. In the luxury lodging segment, hotels provide opulence, truly superior customer service, and inspiring physical surroundings.
HIGHLIGHT should be the top two sections. The bottom section will shown later to bridge into the firm analysis
Luxury Chain
Upscale Market
Mid-Price Food Service
Mid Price Limited Food Service
Economy/Budget
Extended Stay
Luxury Lodging Segment

6. Hotel Property Locations
Market Structure
Types of Rooms
Room Rates
Hotel Property Locations
Locations
Urban - Urbanized areas in metropolitan areas of 150,000 and up. Population size can vary dependent on market orientation Suburban - Suburbs of urbanized areas. Distance from center city varies based on population and market orientation. Airport - Properties in close proximity of International Airports that primarily serve demand emanating from airport traffic. Distance from airports varies. Interstate - Properties in close proximity of major interstate highways whose primary source of business is through interstate travel. Interstate properties located in suburban areas have the suburban classification. Resort - Properties located in resort areas where the primary source of business is from leisure destination travel. Small Metro/Town - Metropolitan small-town areas with less than 150,000 people. Size can vary dependent on market orientation. Suburban locations do not exist in proximity to these areas. Income
Business income for business travelers-
Household wealth
Currency Fluctuations-
Price of Related Goods
Transportation\Airline Industry
Oil
Tastes
Hotel Amenities
Location
Expectations
Weather
Terrorism
Demand: include age
Source: U.S. Department of Commerce, International Trade Administration, Office of Travel & Tourism Industries
Hotel Base: 48,000

7. Distribution of Lodging Customer Base
Year
Biz Travel
Leisure Travel
Age/% of Total
Average Income (HH) in USD
Average Number of Nights
2004
50%
35-54/52%
72,600
=> 3 (37%) Biz
=> 3 (27%) Leisure
2003
52%
48%
35-54/53%
82,800
=> 3 (36%) Biz
2002
54%
46%
35-54/54%
81,600
=> 3 (33%) Biz
2001
57%
43%
69,147
=> 3 (26%) Leisure
Corporate policies have tightened over period, which helps explain the shift in leisure travel.
Socio-demographics factors play an role in the lodging market. Age distribution, income distribution, occupation and gender are significant variables in determining hotel room demand.
Demand changes for different days of the week
Strong tourist markets have a higher demand during the weekend while business center have a higher demand during the week
Could result in price discrimination
Leisure travel has increased and business travel has decreased as a percent of travel
Source: AHLA, 2004

8. Lodging Industry Spending (as % of Real GDP)
Primary research indicates that the most influential factors that affect the lodging industry is the overall condition of the economy, gasoline prices, security concerns consolidation among the meetings and events industries and US government-imposed travel restrictions/requirements.
According
Impact of World Events (such as 9/11, SARs), Tech Bubble Burst, Travel Anxiety, Tightening of Security, Visa Restrictions
Source from: Bureau of Economics, 2005

9. Expense Structure of the Lodging Industry
Lodging Expense Composition
Labor comprises 45% of the lodging industry annual expense.
Source from: PKF Hospitality Research

10. Industry Expense Challenges

11. 11

12. Market Profile – Demographics & Tastes
Captive audience – inelastic service 12
Source: Cornell University

13. Major Players in Luxury Segment
Four Seasons Le Merdien
Ritz-Carlton The Peninsula
Fairmont Loews
Starwood St. Regis
Luxury hotels currently make up 17.6% of the total hotel market share. The luxury segment is the fastest growing segment in the late 1990s and the trend continued into the 2000s. According to the Urban Land Institute Property Performance Forecast survey “the luxury segment of the industry has significantly outperform the mid-priced and economy segment through mid 2000s.
Currently, eight hotel companies account fore two thirds of the branded hotel proprieties.
Top players comprise 17% of total hotel market share
Source from: Urban Land Institute Survey, 2004

14. Luxury segment enjoys higher profit margins
While profits margins have shrunk from 01 to 03, there was a rebound in 2004.
GOP Margins 14
Source from: Four Seasons Investor Relations

15. Welcome to Four Seasons
Mingalaba
Willkommen
Welcome to Four Seasons
Ukwemukela
Beinv'nu
Maliu mai
Willkommen
Akwaba

16. Four Seasons Mission and Overall Goal
Focus on management of properties and not ownership
70 hotels and resorts with more than 46 different owners
Leverage Brand as a competitive advantage
Enhancing industry position and overall profitability through international expansion
29 announced development projects
Employee staff is greatest asset – highest employee satisfaction; low turn-over
Source from: Four Seasons
TEAM SYNERGOS FOUR SEASONS 16

17. Four Seasons Mission and Overall Goal
Highest Employee Satisfaction
Low Turnover
Focus on management of properties and not ownership
70 hotels and resorts with more than 46 different owners
Leverage Brand as a competitive advantage
Enhancing industry position and overall profitability through international expansion
29 announced development projects
Employee staff is greatest asset – highest employee satisfaction; low turn-over
Source from: Four Seasons
TEAM SYNERGOS FOUR SEASONS 17

18. Four Seasons Mission and Overall Goal
Value of the Brand
Global Presence
Operations Expertise
Focus on management of properties and not ownership
70 hotels and resorts with more than 46 different owners
Leverage Brand as a competitive advantage
Enhancing industry position and overall profitability through international expansion
29 announced development projects
Employee staff is greatest asset – highest employee satisfaction; low turn-over
Source from: Four Seasons
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19. Four Seasons Mission and Overall Goal
Industry Leading Margins
Smart Investments
Focus on management of properties and not ownership
70 hotels and resorts with more than 46 different owners
Leverage Brand as a competitive advantage
Enhancing industry position and overall profitability through international expansion
29 announced development projects
Employee staff is greatest asset – highest employee satisfaction; low turn-over
Source from: Four Seasons
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20. Four Seasons Mission and Overall Goal
Selection of Property Sites
Preferred Partner
Focus on management of properties and not ownership
70 hotels and resorts with more than 46 different owners
Leverage Brand as a competitive advantage
Enhancing industry position and overall profitability through international expansion
29 announced development projects
Employee staff is greatest asset – highest employee satisfaction; low turn-over
Source from: Four Seasons
TEAM SYNERGOS FOUR SEASONS 20

21. Four Seasons Mission and Overall Goal
Significant Growth
Leverage Expertise
Focus on management of properties and not ownership
70 hotels and resorts with more than 46 different owners
Leverage Brand as a competitive advantage
Enhancing industry position and overall profitability through international expansion
29 announced development projects
Employee staff is greatest asset – highest employee satisfaction; low turn-over
Source from: Four Seasons
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22. Four Seasons Mission and Overall Goal
The Golden Rule
Focus on management of properties and not ownership
70 hotels and resorts with more than 46 different owners
Leverage Brand as a competitive advantage
Enhancing industry position and overall profitability through international expansion
29 announced development projects
Employee staff is greatest asset – highest employee satisfaction; low turn-over
Source from: Four Seasons
TEAM SYNERGOS FOUR SEASONS 22

23. Business Model: Management vs. Ownership
Management allows lower capital expenses.
The Four Seasons believes that emphasis on management services vs. hotel ownership is the best use of their expertise and provides the company and shareholders with premium returns and manageable risk.
Revenues from management services are derived from long-term, broadly-based contracts. With a relatively low corporate cost base, this continues to result in a high-margin business. In 2004, for example, the management operating margin (excluding reimbursed costs) was 69.3%.
Since the corporate cost based is relatively small, the infrastructure generally does not require major expansion as new hotels are added. The management business for the Four Seasons is not capital intensive, and the vast majority of capital to fund their growth program comes from strong, local capital partners who bring opportunities to the Four Seasons.
The Four Seasons business model, continues to enhance its industry position and overall profitability through a focused, international expansion program that capitalizes on their strengths of its core management operations and the value of its brand name. The Corporation believes that the strength of its brand name, its global marketing presence and its operation expertise result in RevPAR premiums and strong operating profitability for luxury hotels under its management and provide Four Seasons with a competitive advantage in obtaining new management contracts worldwide.
The company’s gross margin is significantly higher than the hospitality industry average of 26.7% and the luxury lodging sector average of 43.3%.
TEAM SYNERGOS FOUR SEASONS 23
Source from: UBS Investment Research, 2006

24. Firm Analysis - Corporate Expenses
Increase in corporate expenses to support new hotel growth and expansion - mainly staffing.
Four Seasons Corporate Expense ($US)
TEAM SYNERGOS FOUR SEASONS 24
Source from: Cornell University – Four Seasons Analysis

25. Brand Strength and Strategies
Four Seasons Hotels and Resorts ranks highest in overall guest satisfaction
Company Values
Employees focus on customer service
The Golden Rule
Strategic Partnership with Investors
Marketing Strategy
Outperformed all competitors – highest RevPAR
Four Seasons Hotels and Resorts ranks highest in overall guest satisfaction
45% of customers mention Four Seasons unaided vs. next closest competitor (Ritz-Carlton at 27%).
Company Values
Employees focus on customer service
The Golden Rule
Strategic Partnership with Investors
Find local investors to finance ownership of properties
Arranges management contracts with Four Seasons
Faster expansion into emerging markets around the world
Limits expenses and exposure
Marketing Strategy
Outperformed all competitors – highest RevPAR

26. Forecasting Projections Recommendations26

27. Forecasting

28. GDP Forecast
Less business income for the business traveler and slowing demand among business travelers for luxury hotels
Slowing GDP
The GDP growth slowed in GDP growth is expected to continue to decline over next three years and flatten out in What does this mean for the hotel industry? Slowing GDP growth will mean less business income for the business traveler in the US. Slowing demand in the business traveling segment change the demand for higher priced hotels during the next three years.
TEAM SYNERGOS FOUR SEASONS 28
Source from: Economic Forecast of the Nation; Dr. Rajeev Rhawan

29. Hotel Industry Supply
US. Hotel Supply Forecast
Supply slows in alignment with GDP
Remains higher than industry due to inelasticity of price
Industry supply trends growth is expected to slow in alignment with the GDP forecast. The luxury segment will growth trends will align with rest of the hotel industry trends. It will also continue to remain higher than other segments in the industry due to the inelasticity of price when it comes to the affluent leisure traveler.
Growth trends align with rest of segment.
Source of segment data: PriceWaterhouse Coopers (December 2005)

30. Hotel Industry Demand TEAM SYNERGOS FOUR SEASONS 30
The slowed growth in supply will increase demand and occupancy rates in the coming years. In 2002, the demand for the Luxury and Upper scale segment hotels were neck in neck averaging 74%. When the economic downturn in 2001, business incomes diminished and prompted business travelers to downgrade choices from higher priced luxury hotels to upper scale hotels as their travel budgets were tightened. We expect this trend to continue during the next three years but at a slower growth rate that aligns with GDP expectations.
Primary research indicates that the most influential factors that affect the lodging industry is the overall condition of the economy, gasoline prices, security concerns consolidation among the meetings and events industries and US government-imposed travel restrictions/requirements.
TEAM SYNERGOS FOUR SEASONS 30
Source of segment data: PriceWaterhouse Coopers (December 2005)

31. Demand Forecast of Hotel Industry
The four seasons kept their room rates higher than their competitors during the economic downturn of Although their occupancy suffered slightly, the Four Seasons was able to maintain higher Revenue per Average than their competitors. Other Luxury segment competitors not only suffered declines in occupancy as you saw on the last slide but they also suffered from lowering their rates.
Source of segment data: PriceWaterhouse Coopers (December 2005) Source of Four Seasons: 2003 and 2004 Four Seasons Annual Reports
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32. Expansion Opportunities
US markets are mature necessitating a growth for increasing returns to scale. 1/3 of Four Seasons business is comprised of individual business travelers. Our first recommendation for the Four Seasons is to continue to expand their hotel management service business in emerging business markets with high potential of growth and price it more competitively to attract the business traveler. What markets do we recommend that they expand? Middle East, China, and Japan
Because business travelers demand services such as
Technology access
Good Room Service
Business Facilitities
Amenities and Services targeted toward making guest feel at home, we should suggest the focus is these markets should be geared to business traveler demand rather than leisure travel.
Business Traveler Market - Expand hotel management service business in emerging business markets:
With high potential for growth
Leisure Market
Attract High Income Leisure traveler through the combination of SPA and Leisure activities in beachfront locations
Penetrate further into Middle East, North Africa, and Eastern European Markets and Asia/Pacific
Influence of Politics:
Taxes, regulations and legislation related to the hotel industry differs from one market to another.
Hotel’s impact on the environment
Government regulations and social activisim could restrict development
Politcal unrest could affect demand
Recommended Expansion
*Source: Four Seasons Investor Relations
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33. Macro Summary 33

34. Factors Influencing Macro Economic Impacts
Terrorism
OIL Prices
TERRORISM
Growing Global Uncertainly About Safety and Security
Airplane safety
Terrorism
Considerations (Risks)
Influence of Politics
Cultural Relationships
Currency Fluctuation
Competition from other Properties The Lodging Industry is linked to the Tourism Industry
Travel and tourism is the nation’s largest services export industry, and one of America’s largest employers.
In fact, it is the first, second, or third largest employer in 30 of the 50 states.
The tourism industry includes more than 15 interrelated businesses, from lodging establishments, airlines, and restaurants to cruise lines, car rental firms, travel agents, and tour operations
The United States receives a larger share of world international tourism receipts than any other country in the world.
In 2004, 46.1 million international travelers visited the United States, a 12 percent increase in travel from 2003.
Figures for 2004 reveal that international visitor spending in the United States increased by 17 percent, resulting in $93.3 billion in total travel receipts.
American spending was a record $89.3 billion (a increase of 14%) outside the United States.
Influence of Politics:
Taxes, regulations and legislation related to the hotel industry differs from one market to another.
Hotel’s impact on the environment
Government regulations and social activisim could restrict development
Politcal unrest could affect demand
OIL PRICES
Source: PKF Hospitality Research

35. Employment Growth Rate
Employment in hospitality follows trend of the overall employment growth rate but remains above rate
TEAM SYNERGOS FOUR SEASONS 35
Source of segment data: PriceWaterhouse Coopers (December 2005)

36. US Dollar to World Currency
If dollar weakens, business travel could decrease affecting international demand 36

37. US Dollar to World Currency37

38. Thank You!
Questions?
Wish You Were Here?