ADHM 360 Lecture 11: Ch 11
20 Jun 2018
School
Department
Course
Professor
Ownership & Affiliation
Independent hotels
No identifiable ownership or management affiliation with other
properties
§
Advantages: autonomy, flexibility, no fees
§
Disadvantages-limited advertising exposure, limited management
consultancy, limited economies of scale
Economies of scale = savings in cost due to level of production
□
§
○
Chain hotels
Hotels affiliated and operated with a group of other hotel
properties under an identifiable brand name
§
Branded hotels
§
○
•
Management Arrangement
Management Contract
Agreement between hotel owner and hotel management company
under which, for a fee, the management company operates the
hotel on behalf of the owner
The owner:
Legal owner of the property
®
Retains the financial and legal responsibility for the
property
®
□
Management company
Serves as an agent of the ownership
Operates the property on behalf of the owner
◊
®
□
§
Types of management companies
Type 1 (Brand Operators)
High level of name recognition
®
Manage some properties but primarily serve as a
franchise
®
Ex: Marriott, Hilton, intercontinental
®
□
Type 2 (Independent operators or third party operators)
Do not provide name recognition
®
Usually operate properties as franchised hotels
®
Ex: First call Hospitality, Discover Lodging management,
TMI Hospitality
®
□
§
Advantages:
Management companies can grow with a low level of
investment
□
Rarely does the operator participate in operating deficits
Owner assumes the financial risk
®
□
Owners can benefit from expertise and know-how of
management companies
□
§
Disadvantages
The operator will not gain financially if the property is sold
Retains little control over the transfer of ownershio
®
The creditworthiness of the owner is critical to the
management company
®
There may be a cancellation provision by either party
®
□
§
Agreements:
Management fees
Specified rates are set each year
®
Graduated fee structure tied to the financial success of
a hotel
A fee can be calculated in different ways based
on…
Total revenue
}
Gross operating profit
}
A combination of total revenue and gross
operating profit
}
◊
®
□
Length and Durability of contract
The owner typically wants a short-term contact while
the operator always prefers a long-term contract
®
The brand operator (type 1) operating an upscale
property requires the longest contract term (at least 20
years)
®
Independent operator (type 2) generally offers more
versatile contact term length
®
□
Technical services
A review of architectural and engineering designs
®
Advice and technical recommendations on interior or
exterior designs
®
Assistance and advice in purchasing and installing FFE
and supplies
®
□
Pre-opening services
HR functions
®
Pre-opening promotion and advertising
®
Procurement of licenses and permits
®
Negotiation of leases, licenses, and concession
agreements
®
□
Operational Duties
Hiring, promotion, discharge, and supervision of
employees
®
Generating and maintaining financial statements
®
Procurement and maintenance of contacts for services
®
Maintenance and repairs
®
□
§
Key factors in selection management company
Cost (Fees)□
Market strengths□
Reputation□
Efficiency of operations□
Flexibility in contract negotiation□
Company growth potential □
§
○
Franchise Agreement
A business strate
§
Largest francised chains
McDonalds□
KFC□
Burger King□
Subway□
Eleven 7-
§
Reasons to join a hotel franchise
Operational assistance- operating manuals, training programs,
job descriptions, quality assurance
□
Technical .□
§
Marketing a franchise
Marketing assistance
Nucleus of any lodging franchise program is the central
reservation system
®
An extensive integrated advertising program
®
A sales network- regional and national sales office
®
Brand reputation
®
□
§
Advantage
Buy a proven formula□
§
Disadvantage
Loss of autonomy; brand standards are required
Physical characteristics
Size of rooms and beds, the amount of furniture,
F&B outlets, parking spaces, amenities, ect.
◊
®
□
§
Franchise Fees
Initial fee
Non refundable
®
A dollar amount plus a per room add-on
®
□
Continuing fee
Usually paid monthly
®
Types of continuing fees
Royalty fee
◊
Advertising contribution fee
◊
Reservation fee
◊
Frequent traveler program fee, etc.
◊
®
□
§
Franchise Selection
Impact on the long-term profitability
Other factors in selection:
®
Guest perception
®
Market segment
®
Reservation system bookings
®
□
§
○
•
Ch 11
Thursday, January 25, 2018
11:57 AM
Document Summary
No identifiable ownership or management affiliation with other properties. Disadvantages-limited advertising exposure, limited management consultancy, limited economies of scale. Economies of scale = savings in cost due to level of production. Hotels affiliated and operated with a group of other hotel properties under an identifiable brand name. Agreement between hotel owner and hotel management company under which, for a fee, the management company operates the hotel on behalf of the owner. Retains the financial and legal responsibility for the property. Operates the property on behalf of the owner. Manage some properties but primarily serve as a franchise. Type 2 (independent operators or third party operators) Management companies can grow with a low level of investment. Rarely does the operator participate in operating deficits. Owners can benefit from expertise and know-how of management companies. The operator will not gain financially if the property is sold. Retains little control over the transfer of ownershio.
