Hugh Taylor is chief executive of hotel management consultancy Michels & Taylor. He tells Janet Harmer why the change in hotel ownership has led to the rise of asset management.
In the days when Sir David Michels [the co-founder of Michels & Taylor] headed Hilton, the owners and operators of hotels were the same entity. The global hotel companies were largely made up of just one or two brands and were either at the top or bottom end of the market, while the middle ground was dominated by domestic brands, such as Swallow, Jarvis and De Vere - apart from Holiday Inn.
Hotel companies then divested their assets and predominately became brand companies, concentrating on distribution, loyalty programmes and reservations systems. They went from owning hotels to managing or franchising properties. Almost all the domestic brands have now gone. Even a company like Jurys Inn - a local brand - is working with Hilton Worldwide and adding a strong, international brand [Doubletree by Hilton] to
its portfolio to ensure good returns. QHotels is perhaps the best and most respected among the domestic brands today.
This offloading of properties has enabled the major hotel companies to expand into a spectrum of brands. When David was chief executive of Hilton, there were just the Hilton and Conrad brands - today there are 12 Hilton Worldwide brands. Even if a hotel doesn't want a brand, they can team up with a collection of hotels, like Curio from Hilton Worldwideor Autograph from Marriott International, which enables them to enjoy the benefits of being part of a club but without the name.
As the hotel companies no longer own hotels, there are now a whole host of other owners. Some owners, such as private equity company Lone Star Funds, which has just launched Amaris Hospitality to operate Hotel Collection and Jurys Inn, are very knowledgeable. Lone Star has John Brennan as chief executive of Amaris Hospitality and Grant Hearn, former chief executive of Travelodge, is chairman of the Hotel Collection.
How has the change in hotel ownership resulted in the growth of asset management?
A lot of owners today don't have hotel expertise, which has led to the creation of asset management, which has enabled companies like Michels & Taylor to flourish. We act as the hotel experts on behalf of the owners.
In many cases, hotel groups no longer manage many of the properties that carry their brand and, as a result, there is a growing number of hotel management companies - BDL Redfine, Interstate and Kew Green are the largest in the UK.
Michels & Taylor is a niche business in the market - it works with around 45 hotels; the majority in an asset management capacity and the rest in a full operating capacity. The reality is that Michels & Taylor only exists because of the changes in recent years in the way hotels are owned and operated.
Why did the hotel companies sell their assets?
It was driven by the City and shareholders and was down to return on capital employed. Hotels are a capital-intensive business and owners should invest an average of 7% of their turnover per annum on capital programmes to maintain and develop the properties. But because of this, and to ensure a return, money can be very tight. By selling the property, the hotel company can focus on developing the brand, their people, the management expertise and their systems while releasing the asset value to shareholders. This has enabled the hotel groups to dramatically grow their portfolios and, in the long run, get a better return with no capital requirements.
It is a model deemed to be more attractive to investors. Millennium & Copthorne is one of the few global hotel groups that continues to be both owner and investor, while in the UK Whitbread owns a large number of its sites [65% of Whitbread's 700-strong Premier Inn estate is freehold, the remainder leasehold].
How would you sum up asset management?
Asset management is one of the most important areas regarding the way hotels operate, yet it is not often spoken about. As asset managers, we act as the eyes and ears for owners and investors and make sure that all parties, including the brand owners, have the same focus and are working towards the same aims.
By using our specialist teams to analyse and support the work of the operators, we can identify any areas where profitability can be enhanced. Management companies can't spend on capital projects without the owners' approval. When there is a request for expenditure, we as asset managers look at what is required and decide whether the expenditure is necessary today, next year or not at all. If it is justified, we can advise on ways of undertaking the project and at what cost.
What makes a good asset manager?
There are those asset managers that scream and yell and tell the hotel managers that they are doing a rubbish job. They tend to write reports and analyse a hotel's data, but make little difference to results. We decided to redefine asset management and work with the operator, rather than against them, and, by doing so, engineer a change in behaviour that ultimately makes the business more profitable and therefore more valuable for the owner.
How does Michels & Taylor's asset management team work with hotels?
We don't actually have any asset managers on our payroll; instead, we employ senior people who know their subjects. So for each hotel that we are involved with on an asset management basis, we have senior specialists in revenue, finance and property. These experts talk to the operators at the highest level and always with the intention of adding value to the business.
For instance, our commercial vice-president, Kym Kapadia, was previously revenue director at Marriott UK & Ireland, and our vice-president of finance is Ian Noble, who was a regional finance director for Hilton.
What are the key areas where you can help hotels improve their profitability?
Yield management is very important and also very complex. There are many strategies you can employ to yield maximum rates, but the key is making the right decision for a specific hotel.
It is always necessary to look at the costs, which are generally dominated by the payroll. We look at the size of the team and its flexibility. How do rosters work? Are agency staff used? Does the team fluctuate seasonally? All these need to be considered when making the operation more efficient.
We also consider the strategic perspective. For instance, does the hotel have the right brand and are the contractual terms regarding the brand the best that can be achieved?
One of the biggest challenges facing hoteliers is the growth of online travel agents (OTAs). What advice do you give to hoteliers regarding their dealings with OTAs?
Like it or not, OTAs are a reality of life. Like any distribution channel, they should be treated with respect, a good relationship should be built with them, and they should be used when required to optimise revenue for your hotel.
At the same time - and importantly - there are plenty of effective ways in which a hotel can drive direct business through its own sales, marketing and distribution channels, and this should be the number one focus to minimise the overall cost of a sale.
Now, with the internet, reaching customers has never been easier. When I started in the industry, I had to direct mail everyone! The more hotels concentrate on direct methods, the less important OTAs will be to a business.
Is there a future for family owned and operated hotels?
Yes, I think there will always be a place for them, but there are certain things they need to ensure success, such as a good business plan and the right skill-set. They also need to have the necessary distribution to reach customers and for customers to reach them, they need to understand the power of sales and marketing, and to have solid cost disciplines. Without these, a hotel will fail - whether it is a B&B in Brighton or a large hotel in London. It is, of course, more challenging now for family businesses, as the market is more focused on branded products which have the strength of distribution.
Can independent hotels operate successfully without a brand?
Yes, they certainly can, but the same principles apply. If the hotel doesn't understand what needs to be done, the business won't succeed.
How did you get together with Sir David Michels to form Michels & Taylor?
I had known David for many years, having worked at Hilton as vice-president of marketing in the UK before becoming vice-president of operations for the southern region. At the time, David was chief executive of Hilton. After the sale of Hilton in 2007, David initially got me involved in asset
management, which at the time was not particularly well respected as a business.
I had learned influencing skills from being chairman of VisitEngland and as a director of VisitBritain. In those roles, you work closely with government but you have no control - you just have influence in making things happen. Those three angles to my career - marketing, operations and investment - mean I have a good perspective across the sector, which helps in my role.
How would you describe the position of Michels & Taylor within the hotel sector?
We are very much at the centre of the industry, as we work with investors, banks, brokers, brand companies and management companies to drive value.
How do you help hotels select the right brand? It is important to consider how a brand can add value to an existing property. The commercial terms of a brand agreement need to be sensible and give a good return. Will the distribution of the brand bring more business to the hotel? Is the cost of meeting the brand standards going to be too high? For instance, some brands require all hotels over four storeys to install sprinkler systems.
How are brand terms drawn up? Every deal is different. The basic contract is likely to include an incentive fee dependent on the level of business. There will be a capital reserve provided by the owner for fixtures, fittings and equipment (FFE). This usually equates to around 4%-5% of turnover and is in the brand's control. I like to reduce FFE to as low a level as possible, to allow the owner to control the investment reserve rather than the brand. Some brands also provide key money up-front to help with the conversion costs.
Then there are performance tests, which can be a problem if the hotel does badly. If it appears that it is impossible for the two parties to work together, we will provide a solution. It can be very costly and difficult to get out of a contractual agreement, as it is very unusual for a brand agreement to end early. The brands are generally pragmatic and professional when it comes to sorting out an issue, but they don't respond well to threats or the suggestion of litigation - if an owner goes down that route, they become very defensive.
Are we reaching hotel brand overload?
I don't think we are yet at the point where the market is saturated, but we may see some of the weaker brands being swallowed up by the larger ones. What we are seeing more of is the growth of the brands that enable hotels to retain their own identity, but to also enjoy the benefits of working with the big hotel companies.
You started in the hotel industry as a marketer. Has the practice of hotel marketing changed with the advent of a digital platform?
I believe the principles of marketing have remained the same. The first thing I was taught, but is so often forgotten, is that the most important thing in a marketing message is the headline. So much marketing material fails to carry a headline.
What are the key principles of sales?
Sales should come from four directions. The first is conversion of direct enquiries. On average, the industry converts only 32% of direct enquires to a confirmed booking. Why is that not higher? Second is bringing back old business - the customers who you know and who were happy at your hotel. This is often the best chance of getting business, but many hotels don't have a system in place to capture it. Third is new business from existing clients. For instance, if IBM uses a hotel close to its Milton Keynes office, there is the opportunity for a sister hotel near IBM's Swindon office to capture that business. Finally, it's going out and getting new customers. Too many hotels concentrate on this area when the other three options are more likely to achieve positive results.
After Sir David Michels' announcement of a £200m fund to acquire hotels, which will be managed by Michels & Taylor, how are these plans progressing? We have been actively looking at a number of hotel opportunities - probably around 35 properties in total - and now have active bids on a number of them. We will be ready to take over their operations once the bids are accepted.
How do you regard the legacy of your father, Derek Taylor, who was a leading specialist in hotel marketing?
Dad has often been described as the best salesman in the business. One of his claims to fame is that he was the pioneer of short-break holidays. He was a very direct businessman - he said things others would have said differently. And, annoyingly for me, he was always right. For many years I was described as Derek Taylor's son, but I think I have now become my own person. But I'm very proud to be my father's son.
Hugh Taylor's CV
Hugh Taylor joined the hotel industry in 1989 after graduating from Penn State University in Pennslyvania with a masters' degree in marketing. He has worked as marketing director of Radisson Edwardian and Ramada Jarvis and was vice-president of marketing for Hilton UK & Ireland.
Taylor later moved into a general operational role as regional vice-president for Hilton with overall responsibility for 30 hotels, before becoming chief executive of a private company owned by Israeli entrepreneur Igal Ahouvi, which owned more than 100 hotels.
Together with Sir David Michels, former chief executive of Hilton, he launched the hotel asset management, consultancy and hotel management company Michels & Taylor in 2010. Its portfolio of 45 hotels includes the asset management of Hilton Manchester Airport, Hilton St Anne's Manor in Bracknell, Hilton Hyde Park and the Crowne Plaza London-Battersea, which is owned by Fabiano Hotels and managed by InterContinental Hotels Group. The company also manages hotels, including Ellenborough Park in Cheltenham and Five Lakes, a Crowne Plaza resort near Colchester, Essex, on behalf of their owners.
In the wider hospitality sector, Taylor has held a number of roles, including as chairman of the Hotel Marketing Association, chairman of VisitEngland and a director of VisitBritain. He was awarded an OBE for services to tourism and hospitality in 2008.