Business management & development
on the one hand and the real estate owners on the other. Given the inability of the stock market to value integrated hotel owner-operators, and the differentiated valuations used by different pools of capital to look at hospitality assets and fee-based earnings streams, this split makes economic sense. However, it also creates a perpetual friction point between two sets of stakeholders with different missions and sometimes misaligned incentives. Much of the time, that does not matter too much.
When earnings are strong, the issues in franchise agreements, leases and HMAs tend to fade into the background. When earnings collapse completely, as they did for many hotels during Covid, everybody pulls together – there is, after all, little point in arguing about how to divide up an income stream that does not exist. Yet in normal times, there is clear instability in a business model where perhaps $3trn of global hospitality assets are left relatively powerless in dealing with operators and brands worth about a tenth of that, and even more so in the face of two giant OTAs worth, together, less than $100bn. This pervades everything the industry does, not just on a day-to-day basis, but also when looking at some of the key challenges the hospitality sector face going forward. These being personnel, technology, ESG and inflation.
Galvanising guest services In general, major global operators are regarded as doing a good job in recruiting, training and then retaining employees. That said, in many parts of the world recruitment is getting much harder even with salaries rising at rates well above inflation. The reality is that Covid-19 gave many young people
the chance to reassess their priorities and working unsocial hours at relatively low pay has clearly become less appealing. While increased pay can resolve some of that, a change to the working structure of the industry may be necessary – perhaps a move away from departmental silos; an ability for owners to create their own incentivisation schemes; and less hierarchal structures within hotels. Will owners be able to drive that change? Not in leased or managed hotels, certainly; but in franchises or self-managed properties, yes – which may well accelerate the move towards more franchises, white label operators and soft brands. Brands/operators are definitely very helpful in this
sphere, with their IT departments filtering hundreds of options and then picking the most suitable ones. Moreover, their scale drives significant discounts for owners, saving hundreds of thousands of dollars or more. That said, there is a natural tension here. The brands naturally want uniformity through their systems so that reports and communications are compatible; of course, many owners simply want the cheapest option that works, leading to long-running arguments as to
Hotel Management International /
www.hmi-online.com
what flexibility they can incorporate. These issues are not the fault of one party or the other – just a natural outcome of the divisions within the sector.
Hotels that help the planet In theory, everyone is aligned when it comes to meeting ESG benchmarks: the brands want to be able to tell the travelling public that they are truly green, while owners need to satisfy regulators and eventually lenders (and many institutional equity investors) that they are, and will continue to be, in compliance with the changing regulatory framework. Again, however, the bricks/brains split causes problems. Operators take the view that being service providers with limited upside, they should not take unlimited risk if something goes wrong. As a result, they are resisting legally-binding clauses in their agreements that they will comply fully with ESG-related rules. On the other hand, owners want to know that the people who are running the hotel on a day-to-day basis are complying with the rules and will take some responsibility if they do not. All of this is made more complicated by the fact that nobody has real insight into what the final rules will look like.
Balancing and budgeting Finally, we come to inflation and interest rates,
the overriding concern of hotel investors today – and again, the split structure of the industry causes additional friction. Brands and operators have been hoping to restore full services in their properties now that Covid-19 is largely behind us, which may mean more staff, or better guest amenities or experiences. However, with the costs of supplies, staff and energy all rising rapidly in many parts of the world, hotel owners are very reluctant to accept further cost increases in their budgets. This inevitably causes friction and has made 2023’s budget round has been one of the most difficult many asset managers have faced. Of course, there are many more areas where owners
and operators can disagree. Hence, the need to have a forum for owners where they can express their views openly and frankly, in our private meetings, and perhaps more subtly in our conferences like AOHIS. That said, no investment conference can be just
about owner-operator relations and so AOHIS will also look at many other topics like the rise of all-inclusive resorts, the strategies of different investment funds, the impact of big brand mergers, the changing role of hotel leases and the best markets to invest in within Atlantic Africa, to name just a few. Our intention is to make AOHIS the place to hear
from, and meet with, investors – and also a wonderful forum for brands, architects, law firms, consultants and inward investment agencies to showcase their expertise. I am sure our attendees will let us know, by the end of January, whether we have succeeded. ●
Opposite: HOFTEL provides a vital opportunity for key companies and
individuals to make their voices heard.
23
Simon Allison, chairman and CEO, HOFTEL
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