Thursday, January 23, 2020
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    The Hidden Dynamics of Hotels – TechinTravel

    Having worked in the hospitality industry for 15 plus years I have seen a lot and I have been thrown more questions than I can possibly write about. Obviously the most asked question is “can you get me a discount?” and the reality is probably not. It may come as a surprise to the general public but hotels are for profit businesses and I can almost ensure you are asking me for a stay during your hotel of choice’s busiest time. But I am not here to talk about that.

    The second most asked question is on Marriott and Hilton and ownership. Its a mystery to most how hotel ownership branding and operations works. Its honestly both boring and convoluted but not entirely useless information. At any rate I recently had to to a brief overview for a grad class I am currently taking and thought a basic breakdown will add to your understanding of the world of hospitality (which is often less than hospitable).

    Things were much more straightforward 50 years ago. The hotel industry has seen major changes in overall ownership and operations. Owners had a fairly straight forward choice of how to manage their investment however as markets have grown and crashed expanded and recessed everyone wants to be shielded by risk while still having a positive cash flow. With higher costs and grater risk and riches there have become more and more options as to how a hotels finances and operation are structured.

    Hotel owners still have the option to Own and Manage properties, ownership calls all the shots holds all the power and the HR and fiscal responsibilities. There are however 2 major categories should you choose not to own and operate your hotel. These are an owner leasing the hotel to another company, or retaining a hotel management company (HMA) to run and operate the property. The option of using a HMA is further broken down into running as an independent hotel or flagging a hotel with a branded product ranging from the Marriott’s and the Hilton’s of the world to smaller brands such as ACE. Deciding to move into the branded field again breaks down further either franchising the hotel or having the branded company actually run and manage the property. 90% of the time when you see a Hilton logo that hotel is not owned by Hilton its is most likely owned by a real estate company or REIT that pays Hilton for its name and the marketing and systems that come along with it.

    ACE Hotel Portland

    I have been lucky enough to have experienced all of the overarching structures and experienced the pluses and minuses involved, along with the decision-making process. While this a broad view of the overall ownership/management choices the variations can be far more complex.

    One might then ask how an ownership group goes about weighing the various options to choose the most profitable structure for their hotel. Each structure has both benefits and risks and owners must weight what will for best for the property, its clientele, location, and the overall vision for the property. Various choices lend to certain clients. If you know your client is a short-term business traveler it may be best to brand your property as a recognizable logo provides a certain level of comfort to those who travel a great deal. Once an owner has decided to move forward with a flag the question of franchise or managed hotel come into play. Again, owners must consider long term goals for the property contracts and the overall costs. Franchise fees can vary greatly from a property managed by the brand however as in the case of Hilton, Hilton Managed properties have far more tools and insights than Hilton offers to a franchised property. On the other hand, an owner gives up a great deal of power with the various options. Brand standards are strict and costly, Management contracts tend to restrict an owner’s voice and authority over the hotel while a leased property completely removes the owner from having any say in the operation of the hotel at all. On the other hand, going independent is often a costly and risky proposition leaving the ownership to decide everything from systems to staff to marketing if you are not experienced in hospitality it can be a daunting and risky venture.

    I have seen some very simple straight forward hotel ventures working with Hilton in both franchised hotels and managed hotels and the decisions by the ownership are relatively clear and concise. The ownership made the decision that with a long term financial investment given location and cost that branding was a solid and fiscally responsible strategy. The biggest variation between the decision of Managed or franchised was how much control of various departments an owner wanted and the differential in fees. On the other hand opening ACE in NYC was by far one of the most convoluted projects I have seen. An SRO being converted into a hotel in NYC is no small venture on its own but then you add in a property owner that rented to a third party which contracted with a management group/Brand (ACE) which was ultimately controlled by Atelier which was a design and branding company. So, the dynamics of ownership choices can go far deeper than the umbrella initially discussed. In the end there are an endless number of calculated financial and branding decisions that must be made that are all dependent on what ownership wants out of the hotel and how much risk they are willing to take on.

    This is really an oversimplified 30,000 ft view of hotel ownership and in future articles I hope to expand further on hotel ownership dynamics and dive into more interesting topics like Expdia and Airbnb. Feel free to ask questions that you have about the industry and its ins and outs. While I probably cant get you that hotel discount following along in future articles may help you maneuver through booking and obtaining that cheap room on your own.

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