More flexible contracts that allow owners to break deals with non-performing operators are vital to keep the hospitality industry thriving, according to a leading figure in the UAE’s hospitality sector.
Michael Scully, CEO of First & Foremost and Managing Director of Hospitality at Seven Tides, also told a delegation at the Arabian Hotel Investment Conference (AHIC) today (3rd of May) that the difficulty in raising capital is putting even more pressure on properties to perform.
“I believe that in the modern day it is imperative that owners are able to get out of contracts with non performing operators. Previous contracts gave the operator the upper hand in negotiations and performed due to the economy rather than their expertise. In today’s climate they do not necessarily have the database of clients or sales expertise to achieve the maximum from these hotels and owners must therefore be in a position to move to experts in a particular market segment, whether it be business or leisure, which I believe is now becoming far more defined,” said Scully.
Scully was part of a panel discussion at the Madinat Jumeirah entitled “Owners and Operators Hard Talk – Partnerships that work and why”, alongside Jean-Paul Herzog, President – Middle East & Africa, Hilton Worldwide, Kirk Kinsell, President – Europe, Africa & Middle East, IHG and Richard Riley, Chief Executive Officer, Abu Dhabi National Hotels. The group also addressed how the industry can foster win-win owner operator relationships and improved synergies.
“Due to the difficulty in raising capital, operators will be held far more accountable for returns on investment, in an environment where benchmarks will be tougher and loan commitments take priority,” said Scully, who has more than 18 years’ experience in the hospitality industry in the Middle East. “Lenders will also be more aware of the strengths and weaknesses of different operators in different segments or markets as well as those who have saturated locations with their brands.”
As CEO of First & Foremost, Scully knows more than most of the difficulties encountered between owners and operators. Having joined forces with Leading Family Hotels and Resorts to introduce upmarket all-inclusive family breaks to the Middle East market, the company is looking for suitable properties to manage. It is key for the relationship that both parties perform to fulfil each other’s expectations.
“Generally we find that because leisure is not loyalty based nor booked through a groups system and so no booking fees this segment is largely ignored despite making significant revenue and fees for operators,” said, adding: “There needs to be more emphasis on the bottom line but in order to achieve pre-approved levels, greater flexibility of costs and profit levels is needed in order to stimulate business at the outset.”
Scully also went on to discuss the financial relationship between owner and operator highlighting key potential issues.
“Owners usually take all of the risk on a project, by investing heavily not only into their properties, but also in the form of seed capital, while many operators may not have invested at all. Operators must also invest more into bringing new customers to their properties. Generally operators bear little cost as tourism boards and airlines have in many cases already covered this outlay. This relationship must be more equitable, if the traditional relationship between owners and operators is to be sustainable.”
