Don’t Expect Asian Owners to Take a Back Seat now That Business is Returning. Here’s why

An audience that includes Asian hotel owners and asset managers awaiting a session on the world of hotels. Photo: Thailand Tourism Forum 2020 in Bangkok

By Raini Hamdi, 12 May 2022

As occupancies start to rise, Asian hotel owners won’t be sitting back and resting easy. They will be more hands on than ever before.

One of the hard-earned pandemic lessons for owners has to do with vulnerability. “When you haven’t got any revenue, you’re naked,” said Steve Carroll, executive managing director and head of hotels & hospitality Asia-Pacific at CBRE.

When you haven’t got any revenue, you’re naked.”

That exposure has forced owners to be vigilant in the last 12 to 24 months in protecting their assets, a point made during a recent hotel investment webinar organized by Watson Farley & Williams and moderated by Katherine Doggrell, co-founder, NewDog PR.

And what did owners find but flaws hidden like the back of the house. Among them, fees that didn’t add value. The inability of chains to quickly grasp changing customers and how best to reach them. Operators that merged in pre-pandemic but had the integration of their different operating systems only part-executed by the time the industry got to Covid-19.

Robert Williams, head of hospitality and leisure Asia-Pacific, Watson Farley & Williams, is hearing from a lot of owners that some chain mergers in 2017 had their systems integration completed only now.

“Owners who have gone down that rabbit hole would identify things that would make operators blush, and I think some of the operators would stick their hands up and say they could have done the integration better. But if you’ve got a property that was under a brand that [went] into a major [chain] in 2017/2018, and you’re just coming out of Covid and trying to access the return of corporate and leisure, and you find that your brand isn’t plugged into a global set of systems, that will concern you. Just this week, I had a couple of calls on that,” said Williams.

Performance Booster

Bankers “are now pushing for asset management,” according to Alex Sogno, CEO and senior asset manager, Global Asset Solutions, whose clients include the Rosewood Phnom Penh. Lenders want to ensure that the hotels they backed are performing, so that the owners could repay their loans. Owners are trying to shore up valuations ahead of refinancing, which is imminent.

Asset managers are getting popular because chains, having cut their corporate offices to save cost, are unable to give adequate support to properties, said Sogno. “So it’s the general manager on the ground or the owner who must push the business. But not everyone knows how. That’s why lenders are coming to us,” he said (see Asset Managers Rise in Asia as Chains Hobble to Support Owners).

Another challenge for chains is the pressure from shareholders and analysts to achieve net system size growth, which “keeps rising to a point where six to seven percent growth is par [for the course],” said Carroll.

But overall, the owner-operator relationship isn’t in tatters . Carroll sees “far more transparency” and efficiencies induced by the need to survive in the past couple of years.

“All stakeholders — bankers, operators, owners — have gotten us to this point and worked together to get us to survive [through] some give-and-take, fee waivers, fee delays, whatever it may be,” he said.

“But as we start to build up to recovery, owners will have far more granular insight into the fees charged and will demand — not ask — that they get value for each different fee stream, whether that’s market share growth, loyalty charges, IT [and others]. They really do have a better understanding today than previously on what it pays to bring a brand in and the value they should be getting from that cost. On the operator’s side, it’s apparent that there were certain fees that didn’t add a lot of value and, to their credit, operators have revised and did align [fees to owners’ expectations].”

Efficiencies

Every time the blowtorch comes on in a crisis, most operators heed calls from stakeholders for more efficient and leaner operating structures. During Covid-19, they’ve done that at corporate and property level, to a point of margin they couldn’t achieve previously, said Williams.

“There is focus and desire among owners not to see those hard-won efficiencies get lost as we get lazier again,” said Williams.

And it’s not just about any one number that shows improved efficiency; it’s a sea change that a tsunami of a crisis like Covid-19 should create: Owners taking more responsibility for themselves. Operators recognizing that relying on direct, OTAs or GDS alone is yesterday’s distribution strategy.

The use of social media by operators, or the lack of, illustrates this. Said Sogno, “You need a social media manager; this didn’t exist before. We put this in place at our hotels. If a brand doesn’t do it, the owner has to, and it generates really good money for the hotel. Operators don’t see that sometimes. It’s important for brands to get used to new customers as fast as possible,” said Sogno.

Williams also gave the example of a client talking about the need to add another sales and marketing person for social media on property. This shows that owners actually want to resource up and attack the market ahead of the competition. It adds cost but is strategic, he said.

Hands on

An audience poll clearly shows owners want to be more hands on. Asked to vote the best way to add value to their hotel, nearly 70 percent picked “hands on asset management.”

Just above 20 percent would keep to branded third-party management, while another 12 percent would keep the brand but shift to a franchise.

Does this mean an erosion of brand power in the eyes of owners?

The consensus is no. Brands will keep growing as Asia is still an under-penetrated brand market compared with mature markets such as the UK and some parts of Europe. Brands are important for their distribution and loyalty programs, and lenders are more comfortable to issue loans as generally, they believe the hotel will get a fair market share if it’s branded a Marriott, Hyatt, Accor or others, said Carroll.

What everyone hopes is that the owner-operator relationship that has been reshaped by the pandemic is a permanent outcome.

Carroll best summed this up. “There was a can do [mindset] throughout the last couple of years and decision-making was faster,” he said. “It’s all parties working together to extract value and I hope that stays.

“If you overlay transparency over efficiency, it delivers value.”

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