Luxury Hotel Operators & Investors View Current Conditions
The Four Seasons hotel chain has spent a lifetime developing and
maintaining the power of their brand. Now with the tough economic
times (less occupancy & less income) at hand, some of the investors
who own the hotels are very concerned about spending too much money
to keep up appearances by the management (operator) of the hotels.
Hotel operators like Four Seasons, Marriott and Hilton, typically
receive about 3% of a hotel�s income for management fees. From
another 17% of revenue they pay all the costs of operating the hotel
including employee wages and benefits, utility bills, food and
beverage costs, marketing, reservations system, and a host of other
Operators also dictate the owner/investor�s spending on capital
improvements such as carpeting, wall coverings, televisions,
furniture, linens, towels and other operating supplies and
equipment. In total, about 12% to 14% of a branded hotel�s gross
income is controlled by the operator. This formula becomes
problematic for owners when hotel income drops, as the owners still
have to make the loan payments on the hotel property.
Based on what is going on with resort hotels today, there is no way
the property can cover debt service. So investors are looking to get
rid of the operator; thus a lot of the expenses. One dilemma with
Four Seasons is that their contracts are among the toughest for
property owners to break. (Four Seasons expect that properties they
manage will remain Four Seasons for 100 years.)
The issue revolves around what each entity views as most important.
The owners are all about the bottom line. Four Seasons operators are
all about brand integrity. In one situation the two sides are in
U.S. District Court � the owners want to terminate their agreement
with Four Seasons for failing to operate in a financially efficient
and cost-effective manner.
More tension between owners and operators is likely as the
hospitality industry struggles through its most troubled period
since the Great Depression.