Staying asset-light: How the hotel industry chases growth in New Zealand
Marriott International is one of a number of giant operators and managers that are asset-light — they don’t own the real estate, but take a fee for their expertise and the customers they bring in.
Experts say given the small size of many hotels in New Zealand, there is more scope for the big brands to build their presence here.
Hotel Council Aotearoa strategic director James Doolan says the most common business models in this country are:
(1) Independent/owner operated.
(2) Franchised.
(3) Managed.
(4) Leased.
(5) Strata title.
(6) Brand-owned. Different business models have developed in response to commercial decisions made by hotel investors and hotel management companies around the following issues:
● Who owns the hotel site and building? Is the hotel part of a larger chain operating under the same brand, or is it independently branded, and who sets and enforces brand standards?
● Who accepts the majority of the risk/reward from operating a hotel business at this location?
● Who makes day-to-day operating decisions at the hotel (including selecting and training employees)?
The world’s largest hotel management companies include Marriott International, Hilton Worldwide Holdings, Hyatt Hotel Corporation, Intercontinental Hotels Group and Accor SA. These all started out as owner-operators.
However, since hotel development is capital-intensive and requires destination-specific expertise and connections, it was recognised that faster growth could be achieved by splitting up real estate ownership on one hand, and hotel operations on the other.
“To give a sense of this industrytypical split between real estate ownership and hotel operations, as at year-end 2020, Marriott International owned or leased just 66 hotels out of around 7600 hotels operating under its 30 brands worldwide.”
The largest hotel management company in New Zealand is Accor, which has 394 hotels under its brands in Australia, NZ and the Pacific Islands.
Accor owns less than 1 per cent of its global hotel portfolio.
“The largest hotel management companies now achieve almost all of their incremental growth through this ‘asset-light’ strategy, which avoids them making significant direct investment in hotel real estate.”
Instead, hotel management companies monetise their brands, economies of scale, distribution channels, operating expertise and technology by entering into long-term agreements with third parties which own the physical real estate. Management agreements and franchise deals are the two most common types of contract for this purpose.
Franchise and management agreements are also offered by small and mid-sized hotel management companies.
A relatively new entrant might look to offer third-party franchise and/or management agreements on the back of only a few successful owneroperated properties.
In this way, such companies can create strong local or regional brands, which are sometimes acquired by more established regional or global management companies.
Under a franchise agreement, the hotel owner pays a franchise fee (typically agreed percentages of revenue from rooms and food and beverage sales) to use the brand, intellectual property, technology and operational brand standards at the hotel, subject to being contractually bound to conform with various “system-wide” brand standards (as set out in the franchise agreement).
The owner makes its own day-today decisions at the hotel.
Under a franchise agreement, the owner operates the hotel and the management company supervises the owner’s performance in its capacity as franchisor.
Hotel franchise agreements should be distinguished from franchises offered in other sectors, such as food and beverage business franchises offered to “mum and dad” franchisees, says Doolan.
Hotel guests are unlikely to be able to differentiate between managed or franchised hotels.
Hotel Council Aotearoa (HCA) represents more than 140 New Zealand hotels, comprising more than 15,600 guest rooms or 5.6 million available room-nights per annum.
Doolan says hotels are key infrastructure in New Zealand’s tourist economy, alongside our airlines, airports, and road and rail networks.
“New Zealand is blessed with fantastic scenery and natural resources. However, without the right kind of tourist backbone, we can’t leverage those natural advantages to attract high-value international tourism.”
Accommodation industry consultant Horwath HTL says the industry has been hit hard during the past three years, but is experiencing a better-than-expected recovery in 2023. Historically, international travellers contributed about half of New Zealand’s total hotel room nights.
More than half (56 per cent) of the 662 accommodation places with 42,000 rooms have 50 rooms or fewer. Only 39 per cent of properties are branded.
However, these branded properties represent 66 per cent of the available room supply, with an average size of 105 rooms per property.
There are now 70 brands owned by 34 chains represented in this country. Sixteen of the brands (23 per cent) are domestic.
“This indicates the strength and importance of the New Zealand hotel industry and highlights the potential for further growth and development of both domestic and international accommodation brands,” Horwath HTL says.
While there has been an increase in boutique and lifestyle branded hotels, upscale brands still dominate the branded hotel inventory in New Zealand, representing 51 per cent of the properties and branded rooms.
“With a large number of independent properties in the regions of both the North and South Island, and no shortage of spectacular scenery across the country, the regional areas also offer considerable branding opportunities with or without the potential of consolidation.”