owners and operators: Parting of ways
As the tourist industry recovers
from the ravages of war and gets ready to cater to an increase in
arrivals, The Sunday Times FT specialist writer on travel and tourism
Pani Seneviratne looks at the relationship between famous hotel
chains and local owners.
brand names are important for marketing hotels internationally,
as in the case of any other consumer product. Hotels in Sri Lanka,
particularly those located in the city of Colombo, had at one time
or the other signed management contracts with such international
chains as Intercontinental, Oberoi, Meridien, Ramada Renaissance,
Holiday Inn, Hilton, Marriot, Hyatt and Taj. Over the last few years,
the number of international management chains operating hotels in
Colombo has drastically declined. Only three of those names, Holiday
Inn, Hilton and Taj, still continue as operators. Contracts with
Meridien and Marriot were terminated by Galadari Hotel. Ramada Renaissance
(TransAsia), Oberoi (Colombo Plaza) and Intercontinental (Ceylon
Continental) have also terminated their obligations to the owners
some major hotel owners have plans for refurbishing and upgrading
hotels, there is less eagerness as in the 1970’s and 1980s
to flaunt the names of foreign operators for the refurbished properties.
tie-ups to those international hotel chains helped local hotels
to identify themselves to international visitors by there brand
names. By carrying the nametags, they could also claim to offer
their customers a product of the quality standard that those names
are associated with. Managing companies that are brand owners would
ensure that the hotels carrying their international names conformed
to the standard of facilities and services associated with the brand
discerning client, say a business traveller, who arrives on an unscheduled
visit, would look for a known name of repute in choosing a hotel
as would a travel agent making a reservation on behalf of a wealthy
individual or corporate client.
names, of course, come at a cost in kind and cash. The owner may
be asked to refurbish the hotel or make structural changes or add
new services in order to qualify for the use of a brand name. Financial
costs of acquiring the name may be embodied in a management contract
between the hotel owner and the operator, as the managing company
is known. The items of cost may be any one or more - even all -
of the following: a percentage of operating profit; a percentage
of turnover; a fixed fee per available room. Besides, key posts
in the hotels such as General Manager, Food and Beverage Manager
and Chef may have to be reserved for nominees from the managing
Hapugoda, President of the Tourist Hotels Association of Sri Lanka,
is of the view that the principle reason for the recent phenomenon
of hotel owners parting with foreign operators is the price they
have to pay for the connection.
current levels of earnings, in the context of an on-going militancy
in the island that was discouraging prospective visitors, the management
fees were taking away too large a slice of revenue. New hotels and
those previously managed by foreign operators are, however, managing
to retain a reasonably high level of skill and competence by wooing
Sri Lankan expatriates with overseas experience by offering attractive
packages of compensation.
the question of whether these hotels are missing the marketing advantage
offered by the brand names, Hapugoda feels that hotel products that
have been promoted in the past with overseas tour operators and
at trade fairs are quite well known in overseas travel trade circles.
Mohotti, Chairman, Hotels Corporation and former General Manager,
Galadari Hotel, which employed two operators, Meridien and Marriot,
in succession and subsequently operated on its own, believes that
the best thing about an international chain is that it brings in
good management practices.
whose foreign operators have pulled out may be missing both the
expertise and the support offered by the operator to the specialist
staff of the hotel.
management contract with a chain would invariably include a programme
of human resource development. In cases where a chain has pulled
out, a rapid downturn that some would anticipate may not occur because
of the quality of training imparted to the staff. Being a link in
a far-flung chain gives a new orientation to the question of accountability.
GM of a stand-alone hotel may have to comply, more often than not,
with the decisions of the owner even though the two parties may
disagree. Within a chain, the GM in Colombo may be reporting to
a regional Vice-President in Hong Kong who would apply pressure
on the owner to support a project that is considered essential.
Making contacts with international corporate clientele and wholesalers
from a stand-alone hotel would be extremely difficult if the name
sales on behalf of a chain-hotel, one finds much of the preparatory
work done by the operating company's principals Managing companies
would always sign contracts that are profitable to them. If an owner
finds the management fee too high it may be a sign of the weak bargaining
power of the owner, as in the case of a state-owned property.
prospective operator may, in such a case, push for a high fee. Many
Indian hotel owners are tough negotiators, according to Mohotti.
They have managed to get international brand names at a relatively
a stand-alone hotel has the advantage that marketing in Colombo
to high-end clients is relatively easy. Foreign visitors from multi-national
companies could be enticed with hotel packages through their corporate
branch offices. Personal contacts have often helped to maintain
client goodwill. Mohotti believes that personalised promotion can
sometimes offset the need for a chain.
De Mel, Director Marketing, Jetwing Hotels Ltd., virtually echoed
the views of the President of the Hotels Association. “For
the past 15 years, hotels in Colombo have been paying franchise
fees they could not afford at going rates of earnings.”
it as a ‘chicken-and-egg’ situation, where the owner
would look for an operator who could improve the earnings while
it is the earning capacity of the property that would attract a
reputed operator, he said that an operator like Hilton would have
developed and managed a resort property if the situation had been
different. De Mel says the problem is not merely the shortfall in
earnings. Some local owner-developers have no ‘eye for quality’.
None of the major Sri Lankan owners has developed a product of an
international quality standard to make a name for itself or to establish
itself as a brand.
itself has many facets. Having a foreign Chef makes a property more
marketable. In Bali, for example, most hotels have foreign Chefs.
But in the Sri Lankan context, there is a strong lobby from the
Hotel School Alumni for priority for the group.
Mel thinks that there is good international awareness of the destination,
pointing to the entry of the Singapore-based Banyan Tree Group with
a "Colours of Angsana" resort in Giritale. But to sustain
the demand for a quality product that commands a price of say for
example US $ 500 per bed, there is another link in the chain that
needs to be integrated. Sixty percent of Sri Lanka's tourists come
are 10 charters that operate to Sri Lanka but the best airlines
based in the continent do not fly to Colombo. Visitors who pay US
$ 500 per night would be averse to sitting in an aircraft cabin
alongside labour traffic to and from the Middle East.