by Georges Panayotis
From time to time it is wise to take a look at evolution and the change in the economic model that it brought about. In fact, at the beginning of the industrialization of the hotel industry, group developed through the juxtaposition of several different trades that result in their complexity, originality and their strength.
As builders they had to find the right locations and master building new properties while developing original and standardized concepts. The thousandth rule was invented to manage construction costs and anticipate revenue per available room (an average daily rate that is one thousandth of the unit cost of each room). The United System of Accounts made it possible to identify costs by department to better manage properties. Rigorous management based on realistic ratios proven by experience made it possible to free up the gross margin found in the operating account in the capacity of self-financing. As a result, personnel training and maintaining employee motivation became the most important for operational management along with career tracking for the quality of services and customer relations which are the pillars of the brand’s added value. Brand marketing, which is still at its beginnings, would lead to major opportunities to define an identity within a landscape that is not very populated by brands. Commercialization –backed by new software tools, GDS, CRS, and partnership with tour-operators– generated enough margin to cover operations, invested capital and shareholders. Purchasing control on a group level brought a few additional points of profitability. The model was not without a hitch, and there were major market upsets, but it had the advantage of coherence and logical complementarity.
Then, progressively, the financial logic of listed companies and the speculative bubble over real estate assets changed priorities. The pendulum has sometimes swung in favor of capital gains on sales and support the market price to the detriment of the “industrial” policy of hotel operations. Time no longer has the same meaning when it comes to freeing a profit margin from daily management or out of sales/acquisitions.
Undoubtedly mistakes were made in estimating the rising power of online sales, the opportunity to turn distribution over to actors that rapidly became unavoidable. But was it necessary to try to battle them on a field where the cost of investment and technological advancement has become prohibitive? The answer is not yet clear, although it was necessary to take protective measures and bare teeth in order to negotiate with its partners better. The most important, in my mind, is to not hold back the hotel industry of tomorrow with its deeply set roots. In each activity that makes up the hotel trade, there are margins to grow, savoir-faire to develop, added value to sustain… there is no case for transferring all the skills to external partners that are better armed, because that contributes to the gradual dissolution of the operation’s substance. Each externalization leads to the loss of the internal expertise that is needed to understand phenomena, analyze it and find a solution. If the service chain is not associated with a parallel chain of command, each void represents a risk of a break between hotelier and client.
Sooner or later, radical economic models experience a reversal of cycles… After asset light which shifted investment to owners, management light gained ground and relied more on the skills of franchisees rather than their own teams, the hotel sector finds itself excessively light. It is not so sure that concentrating priorities on marketing, distribution and assisting franchisees is the best choice for heading into the future. Between the weaknesses of marketing resources, the global strength of online distributors, and franchisees’ regular questioning of brand value, there are as many dangers as there are development opportunities.
Can uprooted hotel management that cultivates no roots flourish with respect to the quality/price ratio and value? This question must be raised regularly. Getting back to basics prevents excessive risks. There is nothing wrong with returning to origins to escape the externalization spiral. Particularly since the sharing model delightedly flirts with the lost values of the hotel industry.
