Is Hotel Asset Management a necessary component to the successful outcome of an owner’s investment?

Do Hotel Management Companies (“HMC”) provide the partnership for a successful outcome for the owner? 

Owners need the HMC’s brand and distribution systems. HMC in Australia will typically engage under a Hotel Management Agreement (“HMA”) because the owner either doesn’t have the experience or desire to operate under a Franchise Agreement. They operate the hotel under the chosen brand to ensure that the brand experience is delivered.

The HMA engages the HMC as an agent or service provider for the Owner. Under an HMA, the Operator/Service Provider role is “all care but limited responsibility”. It is not a lease! The owner is fully exposed to the business operating risk.

The challenge with an HMA is that it will confer authority and control over the hotel business to the HMC/Operator. If the owner exerts due influence to align the interests of the parties and to ensure their strategic plan is executed through effective asset management, then yes, the HMC’s/Operators can provide a successful partnership.

Asset Management, when done correctly, is like adding a turbocharger to a standard engine. You may have bought a great car from a reputable brand with safety and reliability features, but its performance dramatically improves with the turbocharger. The same is true for a hotel with the engagement of a suitably experienced hotel asset manager. The hotel asset manager will ensure that the owner’s asset has a bespoke strategy that leverages the strength of the brand rather than submits to it.

What is the role of an HMC?

HMCs usually bring significant value to the relationship through their brand, reservations and distribution systems, loyalty programs and other infrastructures such as policies, procedures, standards, group purchasing and internal controls.

Has there been a shift in the roles of an HMC, and why?

Due to the size, scale and limited experienced talent in an HMC, it isn’t easy to focus on individual hotel assets apart from maintaining systems and policies. Limited human resources (even before Covid) are due to two factors: The (un)available talent to match the increased volume of hotel openings and the financial impost of expanding the resource base, especially when revenues are lower than usual.

Having worked with major HMCs, I know the increased pressure of both. Maybe that is why HMCs are shifting their inventory to Franchise Agreements in many parts of the world rather than Hotel Management Agreements.

Can you explain the services an HMC provides?

An HMC generally provides the following services:

1. Franchising/ Licensing of the brand
2. Management under an HMA

I contend that the HMC’s natural strength and value come from the Franchising/Licensing of the brand, coupled with their distribution systems and loyalty networks.

HMCs have limited capacity in management under an HMA apart from supervising and executing systems, policies, and standards. This is primarily due to the lack of resources and the skill variability at both a corporate and hotel management level. Management is not just about executing policies and systems; it needs to be broader.

Is following the guidelines of an HMC enough?

Many GMs have grown their careers relying on HMC systems and do not have the experience or background to look beyond the words in a policy manual and transition into the broader aspects of the required management to support an owner’s investment. They may be dedicated and passionate, but many do not have the depth of experience or exposure to the more considerable challenges across multiple hotels.

Hotel management is “basic” if you believe the system will “take care” of business. However, with the increased reliance on systems, managers can forget that hotels are ‘individual beasts’. While the HMC provides the brand framework at a property level, management must consider elements not necessarily within the HMC guidelines.

‘Individual beasts’ need to embrace the values and standards of the brand but also develop its subtleties and deliverables. It needs to cater to the unique demographic and geographic customer bases and compete in its locality by creating a mini brand and identity. Individual beasts require individual solutions to optimise results.

What are some things to consider to ensure the success of a hotel?

I am a strong advocate for the HMC franchise elements and delivery. In my experience, HMCs generally deliver 20% to 50% of room revenue through the HMC systems and Brand.com, with local management to find the remaining balance and build property specific customer loyalty.

Every hotel requires Individual solutions and plans to optimise sustainable market share, profits and value; but we must also consider the following:

• How do we make a hotel experiential?
• Where does the hotel fit in its competitor set and environment?
• What are the capital expenditure requirements and resource investments to capitalise on future profit enhancement?
• What are the owners’ investments, cultural objectives and resources?

What are some misconceptions from hotel owners?

Many owners:

• Do not know that an HMA does not guarantee superior/optimum delivery.
• Do not comprehend many of the issues raised in this paper.
• Do not believe that an independent resource of a skilled hotel asset manager (with multi-functional discipline) can deliver a substantially enhanced return on investment (ROI) to the owner.
• As first-time investors will tend to rely on HMC as the proxy business owner. However, they don’t know what they don’t know, and hotel asset managers can integrate themselves to bridge that knowledge gap.
• Do not realise that hotel asset managers that are respected by the HMC’s assist in gaining focus of the HMC and creating greater alignment across all four main stakeholders: owners, HMC, employees and customers, creating a solid basis for profit growth, benefiting all stakeholders.

Any final comments?

In summary, I am not anti-HMC. HMCs create a tremendous framework and platform for owners, while good strategic hotel asset managers will bridge the void with bespoke focus to build the owner’s value.

Experienced hotel asset managers will provide solid strategic advice to both owners and the HMC, which allows the HMC to focus on the daily operational business. In performing that duty, the hotel asset manager will:

• Align the objectives and strengths of both the owner and HMC
• Ensure the thinking is outside of the brand framework to create a superior ‘mini brand’ to boost market share and profits
• Create a harmonised relationship that translates to employee satisfaction and confidence to deliver a superior guest experience, which further supports the establishment of the mini brand

About Bill

Bill Edwards is a co-founder of Axsia HTL. He has experience across all facets of hotel business, including finance, development, marketing and human resource, with an extensive career within the hotel, tourism and leisure industries. Having led hospitality groups like ITT Sheraton and IHG in the Australasian region, Bill’s speciality lies in repositioning hotels to improve investor returns. His craft in optimising the human culture beats the competition, and his consideration of alignment with the owners delivers success for his clients. Bill works with other Axsia HTL directors and team members to ensure that our asset management advisory incorporates the views of key functional specialists.

“Sales are down, but it’s a difficult market”. “Our sales team isn’t performing”. “The opposition are too cheap”….

There’s usually a lot more to it, but it does sound like you need some help.

A number of studies over the last 20 years, particularly an ongoing study by the Corporate Executive Board (“CEB”)1have shown that B2B buyer behaviour has changed. Business customers are now more unsure, more risk averse and less able to discern the differences in offerings of suppliers, particularly complex offerings.

Yet high functioning salespeople and teams have identified the opportunity and adapted their sales and marketing techniques and methodologies so that their businesses continue to enjoy success in all types of economic conditions. In fact, the tougher itgets the more the gap between sales success and failure widens.

Research highlighted in “The Challenger Sale”2concludes that this style of salesperson is more successful in complex sales environments than all other types of salesperson. Notably, they state, that “in these types of environments, the Relationship Builder style of salesperson is the least effective of all styles”. This is not to say that relationship building is not important in sales, because it is. However, it is simply not enough anymore.

Importantly, developing and embedding a more successful style of sales and marketing behaviour is far more than changing the corporate attire of the sales team. It requires training, changes and development of behaviours, techniques and methodologies of the sales and marketing team in a manner that is supported and adopted by the organisation.

CEB’s research also highlights for your salespeople to be effective, “it is assumed that your products are well branded, differentiated and supported by high service standards”.

Critically, these factors have “less than 40% influence over customer loyalty and price has less than 10% influence over customer loyalty”.

Less than 50% is about price and product. Essentially these attributes simply get you in the game.

If you or your business is asking itself questions like those posed above, is it worth considering that it is time for change. Time to help your sales team be successful.

Axsia Advisory has specialist advisors that can assist your journey. It’s worth a call.

¹ Corporate Executive BoardCompany(USA)
² CEB. Dixon and Adamson. 2011. The Challenger Sale. Penguin Group (USA)

The progressive lifting of intrastate and interstate border restrictions, combined with the desire of many metropolitan residents to “get out of the city”, is expected to generate considerable growth in domestic drive tourism through the balance of spring and throughout the upcoming summer.

To find out more, download the full article below.

There are few industries that have been impacted more than the hospitality and tourism sector. Apart from a few hotels that serviced returning quarantined travellers many have had zero revenue for 3-6 months depending on which state they are located and are still operating below historical levels with most state borders remaining closed.

With depleted cash reserves, reduced asset values and international borders 10+ months away from opening who will make the distance to get to cashflow positive and eventually restoring asset values.

Owners and operators will have to navigate a bumpy road with most likely pockets of outbreaks of Covid continuing for some time. Also, the extent of assistance from Brands will be constrained with so many of their portfolio hotels seeking assistance and with many of the Brands having significantly reduced staff over the last 6 months.

Hotels will also need to devise new strategies to meet the evolving demand, in many cases they will need to be appealing to a different market than they previously have attracted. Be it hotels that historically attracted international guests needing to refocus on the domestic market, or regional accommodation that will be experiencing unprecedented high levels of demand from guests used to international service levels, or many other challenges of operating outside the norm.

The decisions of Owners and Financiers are critical in determining the ability to trade through the next couple of years and to fund the underperformance as businesses recover. But do they have the right strategy, who will be the winners, and therefore who are worthy of continued financial support notwithstanding breached covenants.

Should you require an assessment of your strategy or if you are seeking additional capital either from your bank or other sources, Axsia is able to assist in completing a strategic review for internal use or for 3^rd parties such as lenders or investors. Furthermore, through our extensive domestic and offshore client base we can also access additional equity to bridge you through to full recovery.

As Australia starts to open borders, we expect to see increased business travel along with increased holidaying particularly as the weather improves and Christmas holidays beckon.

But is the Hotel, Tourism & Leisure industry ready for this influx – have they reassembled a suitable team? are they marketing to previous guests? are they leveraging off government and Brand promotional campaigns? do they have property specific campaigns? are they ‘on-market’ with their offering? have they developed Covid safe cleaning and hygiene protocols? These are just a few of the questions that need to be considered with clear implementation strategies developed to deal with the re-opening.

What will be the new ‘norm’? This is very hard to predict. With the potential of further outbreaks of Covid altering the potential market on a daily basis, this means that operators will need to be nimble. Furthermore, with many Brands having substantially reduced their teams, the level of assistance and mentoring available to GMs will be somewhat reduced. As such, owners need to be aware of this raised isolation and work with GMs to establish mentoring networks or bring in specialist asset managers to assist them through the transition.

Whilst it is always an easy strategy to reduce rates to win business, this simple approach can often lead to long term revenue pressure when you try to return to historical rates. As such it is important to have a clear strategy as to how and to whom this is delivered and what the offer includes as this is not just a simple chase for immediate revenue. Decisions need to also consider the impact on the underlying asset value.

As the international borders are opened, the rush to travel is likely to be slow with many travellers wanting to see sustained low levels of Covid before they are willing to pursue international travel, notwithstanding the strong performance (overall) that Australia has achieved in the battle against Covid. This will mean that accommodation usually focussed on international guests may take longer to recover and therefore need to refocus their attention in the shorter term to domestic markets.

In summary, the road to recovery is likely to have many potholes and bumps. It will be those that have a strong strategy and can communicate that to key stakeholders in a clear and concise manner that will get to the end of the road. Those that struggle to adapt may fall by the wayside.

Coming out of COVID, banks will categorise Hotels as those that can fully recover and those whose recovery is less certain. They’ll continue to support those who can and move to reduce exposure where they need to.

If you believe in your ability to recover you will be required to demonstrate that with a well-articulated and robust recovery plan. Who is your target market customer, what do they want and how can you deliver the experience better than your competitors. Strong cost management is a given, however, recovery in a more competitive market will depend on your ability to align guest expectations.

Are your hotel clients breaching bank covenants? Are they going to be one of the survivors? Can they get back to pre COVID-19 performance? If so when?

Axsia is a specialist Hotel, Tourism & Leisure advisory company. Our team has deep operational experience in the hotel and hospitality sector combined with legal, accounting, property, debt and equity financing capability. We also hold an AFSL and a Real Estate Licence.

Axsia has curated specific expertise to support hotels through their full lifecycle, including:

• investment and market evaluation
• acquisition and development
• operator selection
• pre-opening strategies and implementation
• ongoing asset management
• asset optimisation – operational and overall asset value

Axsia can at your direction provide a tailored evaluation report on an existing hotel (see sample report), support the implementation of recommended corrective action, manage day-to-day operations, mentor staff and provide asset management services.

For more information contact David Simpson or Ian Knight on 03 9013 6991 or email contact@axsiaorg.com

The hotel, tourism and leisure sectors have endured considerable hardship over the last 6 months. Having experienced a devastating summer bushfire season on a national level, the sector then became the first significant casualty of the COVID-19 pandemic.

The impact of current lockdowns and travel restrictions over the last six weeks has been disastrous for everyone involved in hotels, tourism and leisure.

The difficult times are expected to continue well past the relaxation of current travel restrictions and lock-down regulations.

Government financial support is assisting hotel owners bridge some immediate costs. However, the support is not able or sufficient to protect Hotel Owners and Financiers from the anticipated hardship envisaged over the next several years.

Pre COVID-19, we saw many hotels that were operating well only because the market was so strong. COVID-19 has changed that. While we expect recovery will take two to 3 years and during that period, competition will be intense.

Hotels that are not well positioned, who don’t have a clear understanding of their target customer and are not delivering product and service that meets customer expectations will struggle to regain market share. Hotels that have their house in order will dominate market share.

Is your Hotel ready?

#Hotel #Hospitality #tourism #recovery