Hotel industry returns to owner-operator model

18 June 2008 by
Hotel industry returns to owner-operator model

The hotel industry has come full circle, with the owner-operator model now returning to prominence, experts said last week.

In recent years, many large hotel operators such as InterContinental Hotels Group, Marriott, Travelodge and Accor have favoured the franchise, leasehold or management contract approach.

But, speaking at the World Economy & Budget Hotels Congress at the Hilton Tower Bridge, industry leaders said that the market was returning to the owner-operator model favoured in previous decades, in a movement dubbed "bricks to brains".

Patrick Dempsey, managing director of Premier Inn, which owns 85% of its hotels, said franchising was "not for me ­ I like to own assets, not management contracts".

"We own and operate and are not interested in changing the structure," he said. "I believe the industry trend has come full circle and it¹s all about owning your assets now."

This viewpoint was backed up by Jason Briggs, director of accountancy firm BDO Stoy Hayward, who said leases were making a comeback.

"Leases will overtake management contracts and will be much more aggressively funded than management contracts," he said.

"Banks are withdrawing to the security of people they know and trust. But Rod Taylor, head of hospitality and tourism at Europe Arab Bank, insisted that this point of view was short-sighted and showed a lack of knowledge of the industry.

"There are no problems with management contracts as they require the lender to look very closely at the running of the business," he said.

Tim Helliwell, head of the hotels team at Barclays Bank, agreed, insisting that the finance sector was "increasingly comfortable" with funding management contracts and franchise agreements.

"The ‘bricks-to-brains' movement has been about the cost of capital, but at the end of the day the hotel¹s value lies principally in the cash-flow," he added.

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E-mail your comments to Gemma Sharkey here.

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