Hotel brands take too much profit and too little pain of market conditions, says Hoftel founder

Hotel brands continue to make healthy fees despite hotel owners losing money, leading them to opt for unbranded operators, according to Simon Allison
Hotel brands take too much profit and too little pain of market conditions, says Hoftel founder
By Lubna Hamdan
Fri 16 Feb 2018 04:50 PM

Dubai hotel owners are opting for a new group of unbranded 'white label' operators to run their hotels, as opposed to international brands who take too much of the profit, and too little of the pain of slow market conditions, according to Simon Allison, the founder of hotel owner investor group Hoftel.

They then pay a franchise fee to the brand. And while the overall cost might be higher, owners' general perceptions are that those operators are much more focused on their bottom line, Allison said.

This is also due to most of the distribution in Dubai is being done by online travel agents such as booking.com and expedia.com.

"One of the things owners pay a lot for is distribution, and online travel agents do a lot of the distribution. So owners are questioning why they are paying the brands these fees for the room nights when actually, someone else is effectively selling them," Allison said.

He added that the current business model in Dubai grants hotel brands 2-3 percent of revenue, as well as a percentage of the operating profit.

"Hotel brands are not affected by what happens under the operating profit, such as the insurance, the property tax, the debt etc. You can actually have a situation where the hotel owner is losing money, but the brand managing the hotel is still making a healthy fee," he said.

While experienced owners know how to negotiate contracts so they are better aligned with the brand, a lot of new owners don’t.

"The brands will usually offer them an initial template which is very favourable to them," Allison said.

However, Tony Ryan, managing director at JLL Hotels and Hospitality, said brands are just as important as travel agents when it comes to distribution.

"That's the critical thing that a brand will bring to a hotel. For a location that is relying particularly on inbound traffic in the Emirates, that is where an international brand can really come to the floor and provide much better occupancy, which will reflect on a much higher rate," he said.

Nevertheless, Ryan insisted that it is critical that hotel owners get the best possible return on their investment.

"And that requires an understanding from both sides as to what they can contribute," he said.

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Last Updated: Fri 16 Feb 2018 04:07 PM GST

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