One of the many engaging conversations at the 2018 edition of the Arabian Hotel Investment Conference (AHIC) were two consecutive sessions on the second day: one with owners on the hot seat, and the next with operators taking centre stage.
There have always been a few polite and private clashes between owners and operators certainly, but there have been some more public statements and actions by owners in recent times — but I am not sure that those would necessarily have the desired effect. Talking to each other seems to be the best way to solve any problems, don’t you think? Anyway, during the panel discussions, owners and operators had a chance to air out their grievances and thoughts, and a few points caught my attention.
Quite a few owners discussed the need for change, whether it was in services offered or management contracts.
Majid Al Futtaim CEO – Hotels Jalil Mekouar put it this way: “I’m struggling with the fact that with all the investment on the hardware, sometimes we end up trying to fix the software. The software provider needs to come up with the solutions.” The software providers, Mekouar noted, were the operators.
He continued: “I am struggling with the differentiation, with the number of different brands out there. When is Version 2.0 or 3.0 coming up? I feel like it needs something of an update.”
He pointed out that with the rise of the OTAs and Airbnb, the hospitality industry has in general been complacent and let that happen instead of leading the change itself. He continued later: “I’m really asking what are brands doing to gain back control of brand advantage, the very reason why we choose these brands.”
Certainly, there seems to be a trend of owners either looking at changing operators — evidence being the number of reflaggings happening in the regional market right now — or operating the properties themselves, or looking at ‘manchising’ and so on. Operators seem to have to really showcase why exactly they should be signed on.
Ròya International CEO Kees Hartzuiker also said that visibility is an issue. “On both sides there has to be more visibility on the actual investment and expectations. The operators seem to have very little connection to the level of investment being made and down the line it hurts.” The question came around to whether operators need to have a stake themselves, an investment. But the operators did not agree.
Marriott International president & managing director MEA Alex Kyriakidis made what I thought was a valid point on this issue. He said: “There is greater risk in an operator taking a piece of a project than a benefit. The reason being there’s a lot of good things with the line being clear and the owner being able to point the finger across the room. If you are wearing both hats — owner and operator — that line becomes blurred.” Others pointed out that hoteliers are experts in service, not real estate.
And if you look at the overarching market right now, you will see that the asset-light model for operators is increasingly being favoured. It made sense for operators to shed assets and generate revenues with more fees, allowing them to compete more efficiently in what is now a largely asset-light business model.
Hilton president EMEA Simon Vincent summed it up: “In reality, our business works at its best when we are in partnership and our interests are aligned.” So, both sides of the table, start talking!