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Originally Posted by austlar1
(Post 8242640)
It's never been clear to me what entity actually "operates" a branded hotel property. I know that the property's owners co-ordinate with the brand's reservations and rewards program and is responsible for maintaining the brands's standards at the property. I am not as certain that the brand, in this case Fairmont, actually operates and staffs the property. Do you know this to be the case with the Austin Fairmont? Is the management team from the Fairmont corporate stable? I am pretty certain that White Lodging operates and staffs their own properties under various brands. In Austin most, but not all, of their properties are Marriott brands. I am not trying to be argumentative. I am genuinely interested in knowing more about this subject.
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No worries at all. It IS fascinating stuff; it's taken me a long time to understand the dynamics of the industry and how local markets work, and I've worked in three of them in the last decade.
I can't say I've seen the Fairmont management agreement but I'm sure they're managing the property. When they tried to recruit me, all of my communication came from corporate reps or the local Fairmont team. I also know that they've pulled talent from around the Fairmont/Accor system globally to help open the hotel. This was a really big deal for Fairmont/Accor -- a very high profile new-build convention hotel in a scorching hot smaller market. That's a lot of risk for a company like Fairmont, that normally specializes in gateway markets, has a well-traveled, global clientele, and is most comfortable managing mostly historic center city luxury properties. So you can be sure they pulled in as many of their stars as they could to make this completely different project work.
This is my knock against the Fairmont, BTW, and why I think they'll eventually negotiate their way out of this deal. They built a 1000 room luxury convention hotel in a hot but immature secondary market, and now have to fill those 1000 rooms every night with average daily rates far above what their direct competitors are getting. Luxury convention hotels typically can survive only in the biggest and most international convention cities -- Orlando, Vegas, Chicago. But here they are, in Austin TX.
They are so large, the only way they will ever get close to filling those rooms is with convention business, almost none of which will support the rates they have to get to be a Fairmont. And that's the weird thing. They very specifically built the thing to be a convention hotel, and to support the conventions that Austin gets. So why force it -- by dint of its brand -- to have to be too expensive for those conventions?
And besides all that, Fairmont also doesn't have any real corporate experience running convention hotels. They don't have a national sales force that will source/support those opportunities, or relationships that run into that branch of the business.
At core, what they built is not what they know how to do, and inevitably they're going to have to realize that. All my opinion, of course.
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My inconclusive research on the subject comes up with this information about hotel operations.
There are generally 3 ways a hotel chain operates:
1. Franchisee: most of the big hotel chains prefer this. In which hotel is managed and operated by building owner. However, brands do conduct regular audit in order to keep a check on standards and facilities provided. These facilities can be surprise visits as well and brands charge certain percentage of profit/ flat amount to the owner.
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This is all spot on. In this case, the Franchisee essentially rents the brand identity (and sales infrastructure, and loyalty network) from the Major Brand, and makes sure the property hits as much of the brand touchpoints as it can. If it degrades in quality, the Major Brand has a variety of different sanctions available against the Franchisee, but the worst of which is always pulling the flag.
White Lodging is one of Marriott's premier Franchisees. They are doing something virtually no one else is doing -- building very large group/convention hotels (almost exclusively JWs) in emerging markets. Big hotels are usually one-offs -- built by cities to support convention centers like our Hilton -- so if you can keep building these things successfully in different cities you'll be pretty popular in Marriott development circles. And so it is with White Lodging/Marriott.
White Lodging prefers to manage all of its properties under the White Lodging umbrella -- so if you work at the JW or the Aloft Element or the Westin -- despite those being different "brands" -- you work for White Lodging. They have their own HR dept, White Lodging benefits and healthcare, corporate trainers, etc.
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2. Owned properties: very rare, but hotel chains do own certain number of hotels and retain all the profit (or loss).
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The big Major Brands are all going in this direction -- being "asset light" or "recycling assets". Meaning, selling the real estate and focusing on franchising and management fees. There's one major exception to this right now -- Omni currently develops, owns and manages all of their properties. And it's a model that's working for them. They've won a lot of exclusive contracts to new convention hotels: the Nashville Omni is one that's been around for a few years, Louisville just built one, Oklahoma City and Boston both have ones announced. They also just opened one in Frisco at The Star.
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3. Managed properties: these are the properties which are owner by different people but managed by brands, and the owners do not interfere in terms of operation. Owners and operators get to share profit from revenue stream per negotiated terms.
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Franchising is acceptable, but this is the most popular option right now, and vastly preferred by the Major Brands. It give them the most control over the brand identity, but none of the up front development costs.
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