The Hotel Times - September 2008 - (Page 29)

FRANCHISE UPDATE become more painful for franchisees to do when times are tough,” he said. Jitu Ishwar, who is Central Pacific regional director of the Asian American Hotel Owners Association and owns several franchises, agrees. “It’s not hard to maintain standards, but when upgrades are imposed—like new bedding or full breakfast—then it’s difficult in terms of cost,” he said. “When standards go up, it means higher expenses and narrower profits,” he said. “We’re all running on very thin margins as it is.” And another area of tension may come when franchisees don’t generate enough cash flow to pay their monthly royalty fees. “They may need to seek some kind of relief from the franchisor,” said Neff, who cites a precedent set after Sept. 11, 2001. “If the economy stays down for a long period and hotels perform poorly, there are going to be a lot of franchisees in that situation.” “ The economy segment generally doesn’t feel the impact of a downturn until midscale properties lower their rates. That hasn’t occurred yet. ” DEAN SAVAS , SVP OF FRANCHISING, ACCOR NORTH AMERICA Opportunity remains But that isn’t happening yet. Gus Stamoutsos, SVP of franchise sales and new construction at the Wyndham Hotel Group, hasn’t seen franchisees negotiating for financial relief. What he has seen is an uptick in requests for information about franchising the Wyndham brands. “I can’t put a number on it,” he said, “But we are getting calls, particularly from resort and hotel owners in specific areas of the country.” Other franchising executives agreed. “We’re not getting requests for reduction of royalty fees or to be let out of a contract,” said Dean Savas, SVP of franchising for Accor North America. “It’s just the opposite. I’ve seen people wanting to buy and reposition with a new franchise.” “The short answer to whether franchisees are asking for financial concessions is no,” Anhut said. Instead, he’s seeing the owners’ organization at IHG work close- ly with the company to maintain or build market share in the down environment. “That means looking at how to leverage our Priority Club Rewards program more effectively at a time when we might gain share from a weaker competitor,” he said. “If we can drive more business to brand websites, it’s a money-saving endeavor for franchisees.” Rate integrity appears so far to have been preserved. “Most people are maintaining rates overall,” Stamoutsos said, crediting that to hoteliers being better prepared for this downturn. “We sort of saw this one coming, beginning with the real estate market about a year ago.” Accor’s Savas agreed that while occupancies may be down, rates have not been reduced. “The economy segment generally doesn’t feel the impact of a downturn until midscale properties lower their rates. That hasn’t occurred yet,” he said. As to why rates have been maintained, he offered another reason. “The industry learned some lessons during the last downturn,” he said. “We realized how long it took to bring rates back up. Now that we have regained the 2000-2001 levels, we’re not so quick to lower them again.” Asia rising “The sideways economy and the over-saturation of hotels in the U.S. has created a lemming effect,” said San San Lee, a lawyer based in Southern California whose clients are major hotel companies expanding into Asia. “I see companies running down the cliff toward Asia. Success on the other side depends on flexibility and the ability to create and maintain relationships, in part because in Asia, what we often see are licensing and strategic alliance arrangements, which permit a local party to have the exclusive rights to operate or sublicense certain brands in a given geographical area,” she said. For example, the China Economic Review recently reported that Wyndham has licensed three of its brands to master franchisees who then sub-franchise those brands to independent owner-operators. “The master franchisees have the local know-how and connections,” Lee said. Despite the enthusiasm for branded hotels in Asia, Lee has noticed that the financial crisis here is having an impact. “We’re starting to see a significant slowdown, in that projects are getting harder to finance,” she said. “And, as projects get harder to finance, it will likely affect these licensing relationships.” Back in the U.S., this economic crisis may, in fact, provide opportunities for those in the hotel industry, as Savas and Anhut have noted. “It’s a time when individuals can position their asset to a more competitive brand or change their flag if the franchise is not performing for them or change positioning if they cannot afford the property improvement program costs for their brand,” Stamoutsos said. “Everyone should consider taking advantage of market conditions.” hmm@questex.com www.TheHotelTimes.com September 2008 The Hotel Times 29 http://www.TheHotelTimes.com

Table of Contents Feed for the Digital Edition of The Hotel Times - September 2008

The Hotel Times - September 2008 Business Outlook Editorial Outlook Contents In The News Transactional Facts Hurry Up and Wait Capital Outlook Development Outlook Brokerage Outlook International Litigation: Who gets sued? Insurance Outlook Economic Crisis: Stress or Opportunity for Franchisees? Franchise Outlook Ad/Edit Index In Closing

The Hotel Times - September 2008

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