There have been a number of properties in the last year or so that we at Hotelier Towers have noticed undergoing a rebrand. To name just a few examples: the erstwhile Radisson Blu Downtown hotel is now the M Hotel Downtown by Millennium Dubai; Roda Hotels and Resorts took over what used to be the Al Bustan Rotana and the Murooj Rotana; the Ritz-Carlton Hotel Company took over two properties previously managed by Banyan Tree in Ras Al Khaimah; and an Iberotel in Egypt was taken over by Deutsche Hospitality under the Steigenberger Hotels and Resorts brand. There are just a few of the announcements we have heard.
A decision to rebrand can be taken mutually by the owner and operator — or it may not. In some cases, the owner takes the decision, while we have heard about other examples where the operator is not happy in the relationship and has decided to make an exit.
However, what causes an owner to consider changing operators of their properties? Obviously, doing so takes a lot of effort and involves concerns such as finding a new brand that will fit the ethos of the property and the audience it is trying to target.
Is changing a brand a reaction to an unsatisfactory return on investment, and will reflagging mean a change in fortune, or a continuation of problems regardless of the name on the door? And is the spate of changes in flags a sign that owners in this region are not happy overall with the owner-operator relationships they have?
Ròya International CEO Kees Hartzuiker (who is speaking at AHIC this year about ‘why owners decide to change the operator of a property’) told Hotelier Middle East: “Nowadays, we are regularly being asked by hotel owners to assist them in assessing the performance of the hotel management company (operator) vis-à-vis their hotel assets. The reality of the matter is that hotel management agreements (HMA) are typically drafted for a long 20-year term, and just as with any long-term relationship, there are ups and downs. Traditionally, the agreements are one-sided and don’t show enough recognition for the challenging periods. During the down cycles, owners often feel let down and want to see more of a two-way commitment. This can be articulated by the operator showing a greater deal of transparency, proactively conducting frequent meetings with ownership, as well as a sincere and engaged effort from corporate leadership. Sometimes this can lead to a renegotiation of terms or a relief of fees for a certain period.
“When this does not happen and owners lose confidence in their operator’s capability to look after their investment, they look at other options, up to and including termination of the agreements. Owners either may opt to run the hotel using in-house capability, or by appointing a different operator. In this region, this typically happens if the operator fails the performance test (differs — as expressed in the HMA), or upon expiration of the term (with the owner not seeking renewal).”
Additionally, once a rebrand with a completely new operator occurs, there’s so much to consider: from the interior aesthetic to amenities in rooms being up to new brand standards; from wayfinding matching the new brand through to updating all information on social media and OTAs; and so much more. All of this requires an investment from owners, so there need to be viable reasons to undertake such a massive change.
In a way, perhaps such a shake-up is a good thing and a sign of a maturing market, because now the competition for brands and operators is not just extended to new signings, but also to existing properties. That is to say: if owners are not confident in the abilities of their current operators, they will look around for those who inspire confidence, so there are opportunities for others to shine.
This means it’s now more important than ever that hoteliers stay on top of their game or face being replaced.