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Running A Hotel Group Without Owning A Building

The way the hotels and resorts business operates is changing rapidly and in these changes there are both opportunities and issues for local investors that need to be considered. The
22 Apr 2017 11:00
Running A Hotel Group  Without Owning A Building
Amunuca Island Resort and Spa..

The way the hotels and resorts business operates is changing rapidly and in these changes there are both opportunities and issues for local investors that need to be considered.

The new way the international management operators want to run their business also has interesting implications for the Fiji government.

The management groups now want the provide services only for the operation and have no interest in owning any brick and mortar assets.

In other words they will look after all aspects of the operation of the property but not the property itself.

 

Why do they want to run their business this way?

The answer is reasonably simple. They have come to understand that there is no need for them to have the vast amounts of capital tied up in the building, that it is easier and better to have someone else invest into the property side of the equation and carry out the task of running the business on a daily basis themselves.

They do what they do best and at the same time they don’t have vast amounts of capital tired up because they can basically run the business on their daily cash flow. Of course occupancy does go up and down but the operational expenses follow the pattern fairly closely.

The management operation performs and controls all the things that need to be done to keep the hotel going. They have accounting systems that have been developed within the operation over a number of years and they generally manage a tight financial control in an industry that is notoriously leaky financially.

They have a strong and experienced international marketing group that can promote each property internationally and there is certainly a huge reduction in the brand advertising and promotion costs as the budget is spread across so many properties located around the world.

The hotel management group fees are low, averaging somewhere around eight percent of the net profit. And they generally do a very good job of the property.

For investors in Fiji this change in the business model, placing properties on the market that are already doing good profitable business, with the current owner becoming the management group and staying to continue the management.

For investors who want to get into the hotel and resort business, but have no experience in this type of operation, the management company will take all the pain out of starting up and will quickly deliver a good level of business. For Fiji the concept represents a potential boost to the local economy as most of the revenue stays in Fiji.

This is not the case if the property is owned by an overseas operator or by a foreign investor, in either case a significant percentage of the money will be repatriated overseas as fees. A local property owner will also persevere longer and harder when the industry goes through hard times

In Fiji in the last year or two there have been a significant number of new hotels and resorts built and most of these are locally owned and are under an international management company for the operation and marketing function.

The P Meghjit-owned Amanuca resort, at the time of purchase privately managed, is now under the Sheraton Fiji banner, and from all reports doing very well. Marriot has taken control of the Momi Bay resort built and owned by the FNPF, and has started well, although there are still a number of things to be completed.

There is still a need for the privately owned and operated resorts but these are generally less up-market, smaller and less expensive than the internationally managed brands.

 

So do the international management operators really bring worthwhile benefits?

The answer is simple; would almost all of the world’s premium branded properties have decided to sign with a hotel manager if there weren’t significant advantages? No. They wouldn’t.

The international operators are managing hundreds (in some cases thousands) of different locations owned by different people and they have a vast pool of experience, so they bring technologies and practices that have been developed world wide to be the best practices both for the brand and (importantly) for the customer.

They have trialed just about everything that man could conceive in the way of service innovations and rejected anything that does not ensure excellent service, is not foolproof and customer proof, does not add to the experience for the guest rather than simple making it easier for the operator, is able to be universally replicated at the desired standard and has the potential to set the brand apart from competitors.

In addition, each management brand has a database of loyal customers, sometimes tens of millions of them, who provide a superb pool of potential guests for other locations through cross selling.

The international managers also have a vast pool of experienced and well trained staff in all areas of the operation that can be used to bolster locations where there is a skilled staff shortage or where the locals simply need more high level training.

They can (and do) simply transport their accounting, measurement, planning and booking management technologies to all the properties they are involved with, instantly bringing these areas up to world standard.

And by simply placing their brand on the property they instantly create a brand with promises of service and excellence that are understood and accepted worldwide by both their loyal customers and by everyone else in the world.

For example, a Marriot that was established sixty years ago in the USA will be regarded in the same way as one (such as the property at Momi Bay) that has absolutely no inherent history of operation.

None of the major management groups now own a single piece of bricks and mortar, that is left to their partners, who have no involvement in operating the hotel or resort.

And that is the way the management groups like it.

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