Hi! Managers: Such a different world

Believe it or not, in the hotel-management business, each country has its own character and identity. I will tell of my experiences in some of the countries I have visited over the past five years, ever since Minor International implemented a strategy of expanding internationally.

In Thailand, a hotel-management contract is plain and simple. For example, when our Anantara Hotel team submits a proposal to manage a hotel domestically, they will charge a fee based on a revenue-sharing scheme. Hotel expenses, including all human-resource functions, are conducted by us on behalf of the owner of the property. Thus, the entire property and staff of the hotel belong to the property owner who has engaged our services.

However, to manage a hotel in Japan, we must first lease the property from the developer, with either a fixed or variable rental (percentage of revenue). The hotel-management company is then required to hire the staff and employ them under its name. Thus, the majority of the risk falls with the hotel-management company, and to a lesser extent with the property owner, who gets a guaranteed rental or limited upside.

In the Maldives, Vietnam, Tanzania, Kenya and Bali (Indonesia), most of the land is leasehold, ranging from 25 years to 35 years, with certain restrictions. In some countries like the Maldives, the first "head lease" must be with a local national only.

A unique model for property management is the Management Letting Rights (MLR) model, which was developed in Australia nearly 20 years ago. This model came about due to the strength of the Australian dollar and high labour costs, which make managing and operating a traditional hotel extremely challenging, with only low returns. Hence, hotel developers have largely turned to developing residential properties. In our most recent acquisition, we acquired one of the largest hotel and resort companies in Australia, called Oaks Hotels and Resorts (Oaks), which operates under the MLR concept. Residential units are sold by the developer to individual owners, and each owner has the option to have the unit managed by Oaks under an income-sharing scheme. Hence, the MLR set-up benefits the developer, the unit owner and the management company.

MLR is considered an "asset light" proposition, with minimal investment required by the management company and all expenses paid directly by the unit owners. As the Oaks portfolio includes more than 4,000 rooms, the challenging aspect is dealing with the respective unit owners of each individual room to their satisfaction; keeping more than 4,000 owners happy at all times. By contrast, in management contracts in Thailand, we manage 300 rooms in a property, but deal with only one owner.

Diversity can be described in many ways, shapes and forms. But, because my heart and soul is in the hotel business, I chose to offer my organisation's operation as a definition of diversity.

Is your world as diverse as mine?

Pratana Mongkolkul is group chief financial officer of Minor International. Follow her articles in Hi! Managers on every first Wednesday of the month.