Which Chains Will Emerge Smelling Like Roses to Owners Post-Covid?
Managing a business during Covid is like doing economic gymnastics, says Darryl Agon (right), managing director, Agon Hotels & Resorts. Above photo by Vardan Papikyan on Unsplash
By Darryl Agon, 22 March 2022
Covid-19 calls into question how operators and owners should work together in an unprecedented situation. This may serve as the basis for future collaboration since none of us can expect the health disaster to be the last crisis we will face.
The pandemic is unlike any other storm in recent history be it SARS, financial crises, terrorist attacks and so on. Its prolonged nature, travel constraints and unpredictability (both in flare-ups and government reactions) means hotels must be flexible and adaptable like never before.
Operators that are sympathetic and nimble in their responses will emerge smelling like roses to owners.
Flexibility
Brand standards, the no-fly-zone of strict operators, should be open to realistic adjustments in the face of such a harsh environment. For example, the fine-dining outlet, which often comes with large expat costs, could give way to a daytime bistro that’s more economically focused.
Manning guides, both numbers and remunerations, can be reviewed and adjusted.
Of course routine management controls are set out in HMAs to enable operators act with autonomy and free from owner “interference.” But drastic times call for drastic measures, and owners indeed must have more control over their assets especially when their business foundation is shaken.
In dire times as Covid-19, an “annual budget” is hardly useful. The operator should welcome the cooperation of the owner/owner’s representative to chart finances on an almost daily basis, in line with pandemic measures and government policies.
The operator’s threshold for approving major contracts ought to be reduced. Rather than the chain having carte blanche to approve expenses up to a fixed amount, the threshold should be lowered to, say, half or whatever reduced amount agreed by both parties.
FF&E (Furniture, Fixtures & Equipment) reserves could also be squeezed.
Fees
Operators ought to be mindful of the results they provide to owners for the high marketing fees they charge, which are hard to justify especially when flight bans are in effect.
And while operator fees are tied to the success of the hotel operation, mechanisms could be put in place to adjust fees in “emergency” situations. The sword cuts both ways though, as operators may seek base payments for caretaking services that come with their fixed costs.
Said another way, the usual formula of percentage of turnover plus percentage of gross operating profit may no longer be the most equitable manner to judge and reward an operator. And if competitive sets performance evaluators are included, this is even more convoluting. Other methods, such as a flat fee, may be a more straightforward and fair approach.
The owner’s interests should also extend to options for operational suspensions or business terminations within reason. Every owner would appreciate the HMA to be a tool to leverage the asset, not to be an anchor to its overall financial dynamism. With proper notice, potential compensation, planning and communication with the operator, negotiated solutions could make the best out of a poor situation for both owner and operator.
Indeed it may not be practical to set out parameters in advance of unknown situations. But even if pandemic or emergency-related clauses are not explicitly included into HMAs, there should be mutual respect and amicable measures.
Owners are project sponsors who make hotels possible with their financing and project development management. Operators help to breathe life into the projects and create goodwill and brand equity. While operators respect owners’ investment interests, owners appreciate not only the expertise but the credibility brought by professional operators.
When the world emerges from the pandemic, indeed brand credibility may be more important than ever as guests place a higher premium on hygiene and their perceptions of well-run brands. If an HMA has to be reviewed, the owner-operator relationship may already be in a poor disposition.
Managing a business during Covid is like doing economic gymnastics. Owners are well-served by flexible operators with a longterm view, that understand their role is to serve owners’ investment goals, not just their own.
Operators that understand this will be around to sign new hotel management agreements long after this pandemic, and to face whatever other storms lie ahead.
About
Darryl Agon is managing director of Hong Kong-based Agon Hotels and Resorts. The company is an end-to-end solutions provider to hotels, integrated resorts, private clubs, restaurants and bars, and attractions, acting as either on a consultancy or white-label basis.
Celebrating its 20th year of operation this year, Agon Hotels and Resorts provides technical assistance, operator services, asset management, project planning, feasibility studies, expert witness support for arbitrations and hospitality management support services (recruitment, training and silent shopper).