Industry Update
Opinion Article19 October 2004

Small is profitable - By Steve Shellum

Swiss-Belhotel International is signing up hotels throughout Asia Pacific, from Hong Kong to Australia, as owners look beyond the global giants for management partners. President Gavin Faull tells HOTEL Asia Pacific Publisher/Editor Steve Shellum how he

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Steve Shellum, Publisher/Editor, HOTEL Asia Pacific

Swiss-Belhotel International is signing up hotels throughout Asia Pacific, from Hong Kong to Australia, as owners look beyond the global giants for management partners. President Gavin Faull tells HOTEL Asia Pacific Publisher/Editor Steve Shellum how he’s winning the deals

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If I worked for one of the global hotel companies, I might be tempted to say that you guys were dinosaurs, and that the days of the small, independent hotel-management companies were over.

There are a million opportunities - only about 25% of hotels in Asia are branded; only 50% of hotels in Hong Kong are branded. And as for China, let's just say I'm discussing several JVs there.

How do you differ from other hotel-management companies?
Unlike many international hotel-management and consultancy companies, our philosophy is one of active consultation with the property owners and investors.

An increasing number of owners wish to be fully informed on the day-to-day operations. This has tended to be discouraged by international hotel-management companies, whose policy is often to stamp their own particular brand of management and marketing on the operation, free from "outside" owner or investor involvement. While the standard hotel-management contract that is regularly used in the industry may provide the owning company with an independent management structure, it does not necessarily encourage owners, management and hotel personnel to become first-class professionals by working together as complementary management and investment teams. Our ultimate philosophy is to build a partnership with the property owner and investor so that their objectives and goals are achieved, and the success and growth of the operation and Swiss-Belhotel International is ensured.

Many of the battles in the fight for global dominance in the industry are being fought in the budget sector. Where do you fit in?
I have never wanted to be No 1, so that solves half the psychological problems. When I get to 25 or 30 hotels, I am going to have to sit down and rethink my whole strategy, because the style of our success will have to change.

We are the small guy giving personal service but, if we get too big, I won't be able to give that level of personal service any more and visit every hotel every month, like I do now. The airlines are going into the budget sector in a big way because, not only is that where the money is, but it's also the only place where there's substantial growth. There's no great revenue growth in the airlines' first-class business, nor in the 6-star hotel sector, because there will always be a set number of players in that arena, with maybe a few moving in and a few moving out. But the growth in 3-stars-plus is just astronomical.

So you are committed to building the brand in Asia, despite what the cynics among the Big Boys might think?

Sure, but it's still a hard sell. We have to sit down with owners and say, "Hey, what can we do for you?" One thing's for sure: owners want more certainty on returns.

When it comes to fees, I guess you are, let's say, "more reasonable" than other management companies?
Our fees are more performance-driven, based on gross operating profit (GOP). Our fees are pure - just base, incentive and sales/marketing fees. We don't talk about reservation fees because of our dispersed system via the internet, and we don't charge any add-on management fees for extra requests and services from the owners, which means I have to be real fast on my feet.

So what owners pay is what they pay. There are no additional charges for all the extras that the big operators put on for technical, sales/marketing, operating, etc, which often gives them up to 20% of turnover.

How do you structure your fees?

Our base fee depends on the size of the property, but 2%-3% is pretty standard. If we make 20%-plus GOP, then our incentive fees kick in.

What about distribution and reservations?
We contract out our global distribution systems, and bookings can also be made directly through our group website and the linked website of all our operations.

Our reservations and distribution system can now match those of the large international groups. We are small, but growing. I try and work with people with the same breeding history as myself, who have fought their way up. People who can move fast because they are small. Technology is available to everyone, it levels the playing field and allows you to maintain your standards.

How do you compete against, say, Best Western, which is a worldwide branding and marketing organisation, with owners paying fees but retaining control of their properties? Or SRS-WORLDHOTELS, which also gives owners worldwide marketing and reservations while keeping control?
Some of those systems are not cheap - a lot of them cost 10 bucks a booking and, if you are selling a room at $45 or $50, it's a big chunk for someone who hasn't even invested in the hardware of the hotel.

Their costs are not getting cheaper, and their rewards systems are not cheap either. When you put the sales and marketing fees on top, you are looking at 100 bucks to get 50 bucks worth of business. Do you really want that? And if you don't get it, do you miss it?

Is the Swiss-Belhotel brand well known among consumers around the world?
We've been around a long time, and we're established in our market segment. The brand has a European feel, and it feels good - when people see us, they feel they know us.

We try to exceed expectations, which sounds a bit hackneyed, but people come to our hotels and say, "Goodness, it's better than I thought it could be".

How important is the internet to your business?
If it wasn't for the internet and e-commerce, I'd be dead. But now, I can go out there and talk to 400,000 travel agents the same way a big company can. I also pick up management contracts on the internet.

We reckon we produce up to 5% of our occupancy through e-commerce lines, and the big boys are only doing about 5%-8%, although they say in the market it is now over 10%. I have cyber-clerks in northern China, Vietnam and Jakarta, and all they do is search the internet and make sure all our hotels are on there, because they fall off all the time, and check who we should buy into. We work with anyone who can bring us business. We work with all the little people starting up who can sit there at home and sell. So the internet is actually playing into our hands and we're doing well.

Are consumers becoming more price sensitive?
Consumer thinking is changing, and it's driven by the bottom line. I argue that, 10 years ago, people wouldn't pay more than $100 for a room, today they still don't want to spend more than $100 and, in 10 years' time, they still won't want to pay more than $100. They would rather spend the money on meals and entertainment.

They pay a certain rate and they know they're going to get a certain level of room size, cleanliness and security. That's what they want, rather than all the extras all the time. But even if they pay $50, they still want the marble bathroom - the key thing that makes a difference to the rate they're willing to pay is the room size: 30sqm is 3-star, 40sqm is 4-star, etc. The biggest thing you have to give is value - if you can charge $500 a night and you give value, then the customers will come back, and the same holds true if the room costs $50. In the late '80s, the industry as a whole wasn't giving value for money. The perception, especially in Hong Kong, was that if someone paid a lot for something then they were getting value for money. Now, people are realising that they can get more for their money.

Margins must have been pretty tight in recent years ...

Guests are getting better value for money all the time, and I often have fights with owners to stop them spending money. In the old days, they thought that if they employed a management company they would have to add 20% to the cost of building a hotel. But I say, "Hey guys, we're good, but we can't get 50% more of something that's not there". I try and tell the owners that their hotels should never look as if they need maintenance, but the industry has been cutting costs too much - and it's showing in the service. We always maintain market share. I had a problem a few years ago, and I had to let a GM go because he couldn't make market share for his property. As far as I'm concerned, if you can't make market share, then you shouldn't be in this business. If I can't make my market share, then I have problems, but once I achieve it, it gets me off the hook with the owners. If you manage your occupancy, then the market will tell you your room rate. That's a bit of a generalisation but, unless you are really stupid, that's how it works.

How do you control costs?

Four factors account for about 80% of any hotel's costs - payroll, energy, depreciation [capital cost] and interest [funding structures] - and if you screw those up, you're a dead duck.

The industry seems to be turning the corner following several brutal years. Is it out of the woods yet?
The challenges aren't going to go away. The fat of the '80s - when you just looked at the previous year's budget and added 10% - have gone. Hoteliers, particularly in Hong Kong, have learned the hard way how to handle it.

But, come October/November, they might start thinking they're back in 1988.

WHY WE WENT WITH SWISS-BELHOTEL – AN OWNER’S PERSPECTIVE
OWNER Marcus Lee likes to have a say in the way his first hotel-acquisition - The Knutsford by Swiss-Belhotel, Hong Kong - is run. But he doesn't always get his own way.

Lee, chairman of real-estate company GR8 Global Ventures - which purchased the Knutsford last year - did his homework before appointing Swiss-Belhotel to manage the property, which he hopes will be the first of a portfolio of 3- and 4-stars in China. "We looked at all the traditional hotel-management companies and decided we didn't want it to be another, say, Marriott Courtyard or one of the Hilton brands. "We needed to make our mark in the marketplace and develop a niche, and we were looking for a company that could help us achieve that. "Swiss-Belhotel might seem a less-obvious choice, but when Gavin Faull and (senior VP) James Tam first walked into my office, I felt the vibes. "We have similar visions for a small boutique hotel that does not have unnecessary facilities - we prefer to pass the savings on to our customers. "The emphasis, instead, is on personal service, but without any pretensions. "We also get personal service from Gavin and his team. They place a lot of importance on listening to the owners - you don't seem to get that emphasis from the big operators, who tend to dictate or ignore owners' contributions. "Swiss-Belhotel emphasises that it works very closely with its owners and respects their views. "It's all about teamwork. Owners might not be experts in the field of hotel management, but we do have valid contributions to make about our properties and our investments. "So far, the relationship has worked out really well - we don't always agree with each other on each issue, but there is mutual respect." Will future GR8 acquisitions fly the Swiss-Belhotel flag? "It will depend on each property, but Swiss-Belhotel will always be on our short-list," says Lee.

SWISS-BELHOTEL INTERNATIONAL: PROPERTIES UNDER MANAGEMENT

AUSTRALIA

  • Bass Coast Resort by Swiss-Belhotel, Melbourne (2005)

CHINA

  • Swiss-Belhotel Changchun, Jilin (2006)
  • Swiss-Belhotel On The Park, Wuhan
  • Swiss-Belhotel Suites and Residences, Shenzhen (late 2004)
  • Swiss-Belhotel Suzhou, Jiangsu (late 2004)

INDONESIA

  • Hotel Ciputra, Jakarta
  • Hotel Ciputra, Semarang
  • Swiss-Belhotel Bali Aga, Bali
  • Pat-Mase Jimbaran, Bali
  • Swiss-Belhotel Bay View, Bali (2006)
  • Swiss-Belhotel Borneo, Banjarmasin

HONG KONG

  • The Knutsford by Swiss-Belhotel

PHILIPPINES

  • The Linden Suites, Manila
  • Nova Star, Manila (2005)

VIETNAM

  • Hanoi Horison Hotel
  • VinPearl Resort & Spa, HonTre, Nha Trang
  • Mithrin Hotel Halong by Swiss-Belhotel
  • Swiss-Belhotel Abalone Resort & Spa, Hue (late 2004)
  • Swiss-Belhotel Golden Sand Resort, Hoi An (late 2004)
  • Swiss-Belhotel Cua Lo Tourism & Entertainment Complex (mid 2005)
  • Swiss-Belhotel Hung Vuong, Hue (mid 2005)

Operational: Projects:

Hotels: 12 Hotels:8
Rooms: 1,932 Rooms: 1,620
The group plans to have 25 hotels with more than 4,000 rooms under its management by 2005.

Swiss-Belhotel International was founded in 1986 by Mr. Peter Gautschi, former Executive Vice President of The Peninsula Group for whom he worked for 30 years.

Comprising many industry specialists, the company is able to offer management and consultancy in all aspects of the hotel, serviced apartments, club and golf operations, including operational management, project management and co-ordination, marketing, sales and public relations activities, technical and financial services.

Swiss-Belhotel International is unique compared to other Asian and most international hotel management and consultancy companies with its philosophy of active consultation with the property owner/s. An increasing number of owners wish to be fully informed on the day-to-day operations of their hotel, serviced apartments, club and/or restaurants. This has tended to be discouraged by other hotel management companies, whose policy is often to stamp their own particular brand of management and marketing on the operation, free from "outside" interference.

While the standard hotel management contract that is regularly used in the industry may provide the owning company with an independent management structure, it does not necessarily encourage owners, management and hotel personnel to become first-class professionals in their own right by working together as complimentary management and investment teams.

The ultimate Swiss-Belhotel International philosophy is to build a "partnership" with the property owner and investor so that their objectives and goals are achieved and the success and growth of Swiss-Belhotel International is ensured. Click here to learn more...


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Contact
Steve Shellum
Phone: (852) 2443 7352
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