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Wed 26 Apr 2017 02:18 PM

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Emaar brings in new hotel contracts to drive greater profits

Emaar Hospitality Group chief says new model for hotel management agreements is 'marked departure'

Emaar brings in new hotel contracts to drive greater profits
Olivier Harnisch, CEO of Emaar Hospitality Group.

Emaar Hospitality Group has introduced a new model for hotel management agreements aimed at optimising the profits made byy operators.

The hospitality and leisure business of Emaar Properties said in a statement that the move is a "marked departure" from the prevalent fee structure in the hospitality sector.

Hotel operators normally receive a base fee as a percentage of gross revenue and an incentive fee based on the gross operating profit.

The alternative model offered by Emaar Hospitality Group is based only on an incentive fee, which is driven by the operator’s ability to generate profits rather than revenues.

In an industry where the majority of global fees earned are linked to revenue, the new model aligns the interests of the owner and operator as it focuses on profit generation, the statement said.

Olivier Harnisch, CEO of Emaar Hospitality Group, said the new management fee model sets an industry benchmark.

“There will be greater responsibility on the operator to drive operating profits that will create sustained and long-term value for hotel owners, unlike under the prevailing model, where the operator earns a base management fee regardless of operating expenses.

“The new model brings two core strengths: One, it enhances owner-operator relationships with greater onus on the operator to drive profitability. Two, it creates lasting value for hotel owners, even in the face of challenging economic conditions as the operator will focus on minimising operating expenses and strengthening profits,” added Harnisch.

Emaar Hospitality Group has already signed several management contracts to operate hotels in the UAE, Saudi Arabia, Bahrain, Turkey and Egypt for other developers and hotel owners. The new model is offered in addition to standard model and gives the hotel owners the opportunity to choose between the two.

“With the new model, we are looking to expand our footprint in the UAE and other international markets to operate hotels with a clear commitment on our side to enhance operating profits. We have evaluated the market landscape in preparing the new model, and we see it as an ideal fit to all geographies,” said Harnisch.

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