Hotel Franchising – The Future in Australia - Axsia HTL
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Hotel Franchising – The Future in Australia - Axsia HTL
According to David Simpson, Managing Director, Axsia HTL, Hotel Franchising is not new, the first occurred in the USA over 80 years ago.
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David Simpson, Managing Director, Axsia HTL.
Hotel Franchising is not new, the first occurred in the USA over 80 years ago. Today Franchising represents over 90% of all Hotels in the USA. Europe did not join the Franchise trend until much later and today is estimated at over 50% of all Hotels. In Australia this is just gaining momentum with Accor leading the trend and most of the other major brands also offering this option as well as the traditional Hotel Management Agreements (HMAs).
This trend overseas is largely due to three key factors:
- In USA, and to a lesser extent also in Europe, there are many very capable independent third-party hotel management companies.
- Fees paid by owners for HMAs are higher so splitting the role between the brand and the operator makes commercial sense.
- The ability to take control of the hotel operation and drive returns.
Even if the cost of franchising under third party management is higher in this market, the benefits are considerable. Under a franchise, the owner of the hotel (who is taking the profit risk) also has control of the hotel operation. They can secure operational support through asset management or white label management. That support is independent of the brand. That support can be at risk/accountable for achieving certain KPI’s to Owner’s financial return, to maintain their tenure.
Under a franchise, the Owner can implement a bespoke, strategic solution to achieve superior investment returns. COVID-19 has highlighted the issue more than ever before.
Hotel Management/Brand companies can also achieve significantly better returns on franchise contracts versus HMA’s due to the lower cost of their management and more certain cash flows attracting a lower discount rate. This has been supported by published Cornell research. If that is true and if an Owner can drive superior returns through a bespoke, targeted approach to drive experience, reputation, and profit, then now is the time to address the challenges and make the change.
The views expressed in this article are an opinion only and readers should rely on their independent advice in relation to such matters.
