L5: Risk Management in the Hotel Sector

● Department of Environmental Affairs and Tourism: concerns over safety and security
constitute the primary reason for not wanting to visit a destination.
● Pizam (2010): guest safety is a primary concern in the hotel sector of the hospitality
industry.
● Critical question for safeguarding guests:
○ Who will update management on the latest technology to ensure a safe
environment?
○ Who will establish fire safety and security procedures?
○ Which parameters decide safety/security policy and general guidelines?
○ How are the various risks communicated to guests and staff?

Risks of Hotel Sector:

● Physical environment
○ Natural adversities depend largely on geographic aspects: earthquakes, floods,
landslides, hurricanes etc
○ Reduce disruptive impacts: Awareness, education, preparedness, and prediction
and warning systems
○ Mitigation measures (prevent/reduce ACTUAL damage from hazards): adoption of
zoning, land-use practices, building codes
● Social environment
○ Human behavior, values, norms, standards, and state of social structures involve
crime, improper conduct, civil unrest, riots and strikes.
○ This is also related to different cultures. Some cultures put more emphasis on
workers' loyalty towards the employee, whilst others do not.
○ This is furthermore reflected through attitudes towards co-workers and ultimately
customers.
● Political environment
○ In all countries the political environment poses a risk to some degree, particularly
in an international aspect because several external factors can play a significant role
to any organization or business.
○ It is also more difficult to anticipate changes in an international arena.
○ To try to impact the political environment in other countries is seldom to be
expected from any single organization.
○ Acts of war, global trade, and sudden changes in policies toward businesses are
examples of this source of risk.
● Operational environment
○ Daily activities in the operation of any business involve uncertainty and creating
risks.
○ Unfavorable working conditions for employees might be one such operation. For
example, if front office personnel are not well equipped in terms of training or if
technological tools, such as the property management systems, are inadequate
then the result is likely to be negative for guests, staff, and consequently for
management.
○ Failures of installation or production processes are other examples as to how the
operational environment can constitute a source of risk.
● Economic environment
○ The economic environment is always characterized by risk.
○ Global Market: Economic recession/currency rates.
 ○ Local/Regional Market: credit rates or credit policies.
○ Within Business: liquidity/cash flow not managed properly, if expenditure far
exceeds earnings, or due to lacking understanding of effective resource utilization.

Managing risks in Hotels

: exterior, public interior areas, semi-private areas- for authorised gsts, FOH, BOH
● The ‘House’:
○ Front-of-house: fully public, semi-public, guest areas
○ Back-of-house: kitchen, service stairs & tunnels, offices, operating equipment rooms
● SOPs in public areas:
○ Use logos or stripes to mark glass doors.
○ Maintain and monitor automatic and revolving doors.
○ Place barriers on wet floors or those being repaired.
○ Check banisters and carpet rods on stairwells.
○ Anticipate crowd control and security requirements.
○ Ensure those who conduct the maintenance and repair of elevators are licensed
personnel.
○ Anticipate use by children and large guests when inspecting hotel furniture.
○ Ensure strength and quality of hardware used to secure wall hangings and framed
art.
● SOPs in semi-public areas:
○ Ensure alcohol is not served to guests showing signs of intoxication.
○ Control traffic of passers by in the area where a flambé is being prepared.
○ Ensure washrooms are clean, have safe flooring and are regularly inspected
● Areas around the guest room:
○ Hallways should be free of obstructions, including vacuum cleaner cords and room
service trays.
○ Any changes in floor elevation should be marked.
○ Wet, slippery floors around ice or vending machines.
● Inside the guest room:
○ Cleanliness
■ Turnovers
○ Physical plant issues
○ Child proofing etc
● Fire safety:
○ Fire Code Regulations
○ Legal regulations (e.g. signages):
■ Emergency exits
■ Fire alarms – testing
■ Fire extinguishers
● Maintenance
○ Ensure qualifications and licensing of workers on jobs requiring specialized skills.
○ Ensure permits and inspections by government officials occur when required.
○ Document and retain ongoing maintenance records to show consistent attention
and responsibility.
○ Adjust general maintenance if seasonality is a factor.
● The grounds:
○ Inspect for safety - Lawns, walkways
○ Signage - changes in elevation on sidewalks, steps or ramps.
○ Outdoor staircases require good lighting, handrails
 ○ Snow and ice removal.
○ Address dangers posed to guests and staff due to isolation and potential for attack –
do what?
● Hotel Pools:
○ Especially dangerous
○ To reduce risk:
■ Disclaimers, Signages (transfer risk)
● DIsclaimers & Waivers:
○ The language on waivers must be clear and not hidden among other languages.
○ The waiver must be brought to the guest’s attention.
○ The waiver must be written in a language which the guest can read.
○ Staff must not minimize the importance of the waiver document.

In the case of International Hotels Group (IHG):

● IHG has an effective risk management system and internal controls which provide
assurance to its shareholders.
● These are well established and help IHG to protect against known and emerging risks and to
cope with the unexpected.
● The group develops the risk management system, strategies and controls as a result of
continuous learning by management, which in turn drives the focus of the Major Risk
Review and Global Internal Audit program.
● The internal controls and risk management system aims to support the achievement of
business objectives and protect the business, in particular:
○ The brand, business model & reputation across key stakeholders.
○ The delivery of corporate strategy, commercial targets & plans for change.
○ Safeguarding of physical assets, people, systems & processes.
● Key features of IHG risk management system:
○ Embedded risk management processes to consistently identify and manage key
risks to the business.
○ A holistic approach to risk assessment applied through Strategic, Tactical and
Operational risk perspectives.
○ Risk strategies, controls and outcomes that support the business & reduce
unnecessary risk exposure
○ A proactive risk and crisis management culture, through leadership & training
● IHG conducts risk assessments to identify, prioritise and distinguish risks it wishes to take
from those it must mitigate.
● IHG thinks broadly about potential threats:
○ Strategic risks
■ Risks that arises from IHG’s relationship with the external environment
■ Can impact IHG’s long term ambition and strategy
■ Key feature of Board & Executive Committee agendas, regional &
functional strategy setting, considered during decision-making on strategic
issues like:
● Selection of future growth markets
● Selection of strategic business partners
● Decisions pertaining to potential new initiatives
○ Tactical risks
■ Can impact the delivery of IHG’s one to three-year targets including
implementation of projects.
■ These include factors influencing IHG’s ability to sign and open new hotels,
the performance of existing hotels and delivery of projects.
 ■ Managed by senior operators and overseen by the Regional Operating
Committees.
■ Project risks are managed by project management teams and business
sponsors with oversight provided by the Program Office.
○ Operational risks
■ Day-to-day risks faced by front-line (deal w guests)/corporate teams (ensure
corporate systems and processes are smooth)
■ A critical aspect of this is managing the safety and security of IHG’s people
and assets and the continuity of the business.
■ Include managing third-party service providers and the wider supply chain.
■ Manage with use of internal controls, operational and business processes,
systems and tools.
■ Oversight roles exist through the management line, the Regional Operating
Committees and functional leadership teams.
● Risks Actions and Outcomes
○ Fundamentals of IHG approach to risk management: Action-oriented, yields
tangible outcomes in the business -> reducing risk exposures.
○ Risk management programs and activities: hotel safety and security action plans,
business continuity plans and crisis management programs.
○ First-hand experience helped in developing plans & programmes: Events managed
at their hotels e.g. natural catastrophes and civil unrest etc which may impact IHG’s
central operations, brands and reputation.
○ IHG’s Risk Management team working in conjunction with Oxford Brookes University
was awarded the 2013 Best Partnership of the Year at the Institute of Risk
Management Global Risk Awards
○ IHG’s risk management training programs were awarded the Gold Award for the
Best e-Learning Widespread Adoption at the 2013 LearnX Impact Awards.
L6: Bed Bugs Crisis Management

The 4Rs Model for Crisis Management:

- Proposed by Pacific Asia Tourism Association (PATA)
- Pragmatic (practical) utility
- Facilitates in-depth analysis of crisis situation
- Useful & comprehensive framework

4 Phases (steps) of Managing Crisis:

1. Reduction (^ Organisation’s awareness of crisis, identify potential risks, seek ways to reduce
crisis impact)
● SOPs should be created:
○ E.g. monitor social media for perceptions of crisis/reactions. Based on
guests’ opinions, can assess situation related to existing crisis
event/determine if an unaddressed crisis requires attention
● Important for hotels to budget & plan who will manage an issue on daily basis
○ Person shld be part of hotel crisis management team that monitors and
respond to perceived and real crises

2. Readiness (^ Organisation’s preparedness for crisis & create contingency plans)

● Establishes crisis management plan, sets up health & safety measures
● Enhances resilience to crises -> reducing vulnerability of organisation
3. Response (Activities & movements following a crisis; Social media)
● Appropriateness & timing is key to success of a response strategy
● Provide time for social media expert to monitor, respond & report back to
management
● Continued until management deemed crisis no longer needs attention on social
media channels
4. Recovery (movement to resume normal business)
● Offers opportunity to restore the problem & image to pre-crisis lvl
● Business continuity plans & resource reallocations e.g. human resources
● Hotels shld address monitoring role in recovery plans

Managing a Bed Bugs PR Crisis:

Applying the 4Rs to the bed Bug Case - Implications
● First, it is expected that the hoteliers forecast and use plans to be more comprehensive.
● Second, such plans must consider the role of monitoring and messaging.
● Third, this is a rising problem in the hotel industry, which deals with managing health-
related crises. Given the unexpected nature and the profound impacts, it becomes
imperative for the hotel sector to pay attention to health-related crises and increase their
preparedness toward these crises.
● Fourth, providing quick, clear and personalized feedback to concerned guests as a way to
mitigate the adverse consequences that are associated with the crisis.
● Lastly, expanding the scope into other health-related crises, such as Legionnaire’s disease
or Ebola or Covid 19, can also make significant contributions to our understanding of hotel
crisis management.
L8: Natural Disaster Risk Management

Overview
● According to the World Bank, disasters hurt the poor and vulnerable the most.
● From 1998 through 2018, 91% of storm- related fatalities were in low- and middle-
income countries, even though these countries experienced just 32% of storms.
● Since 1980, more than two million people and over $3 trillion have been lost to disasters
caused by natural hazards
● Total damages have increased by more than 600% from $23 billion a year in the 1980s to
$150 billion a year in the last decade.
● The Bank’s Shock Waves report finds that almost 75% of the losses are attributable to
extreme weather events, and climate change threatens to push an additional 100 million
people into extreme poverty by 2030.
● The Bank’s Unbreakable report finds that natural disasters have had large and long-lasting

impacts on poverty.

● Population growth and rapid urbanization are driving the increase in disaster risks.
● The United Nations estimates that more than two-thirds of the world’s population will live

in cities by 2050.
● The Bank’s Aftershocks report explains that these trends could put 1.3 billion people and
$158 trillion in assets at risk from river and coastal floods alone.
● On the other hand, investing in more resilient infrastructure can provide a net benefit in
low- and middle-income countries of $4.2 trillion, with $4 in benefit for each $1 invested,
according to the Bank’s recent Lifelines report.
● Such investments can improve the quality and resilience of essential services – such as
transport, or water and electricity supply – and thereby contribute to more resilient and
prosperous societies.
● Mainstreaming disaster risk management into development planning can reverse the
current trend of rising disaster impact.
● When countries rebuild stronger, faster and more inclusively after disasters, they can
reduce the impact on people’s livelihoods and well- being by as much as 31%, potentially
cutting global average losses.
● If countries act decisively, they can save lives and assets.
● However, many developing countries lack the tools, expertise, and instruments to factor
the potential impacts of disasters into their investment decisions.

Disaster Risk Management (DRM: implementation of DRR; describes actions

that aim to reduce risk)
 ● VS DRR: policy objective of anticipating and reducing risk
● Deals with disasters; focused on emergency response
● Disasters are not natural (even if associated hazard is), so to prevent losses & alleviate
impacts:
○ (X reduce severity) Reduce and manage conditions of hazard, exposure and
vulnerability by tackling (reduces disaster risk & impact of climate change +
maintains sustainability of development):
■ poor economic and urban development choices and practice
■ degradation of the environment
■ poverty and inequality
■ climate change
● Part of sustainable development: involves society, govt, non-governmental orgs,
professional & private sector
● Ppl-centred & multi-sector approach: Build resilience & prevents hazards
● DRM strategies help:
○ Avoid construction of new risks
○ Address pre-existing risks
○ Share & spread risk -> prevent disaster losses absorbed by other developmental
outcomes + create additional poverty
● Successful DRR: combination of top-down, institutional changes and strategies, with
bottom-up, local and community-based approaches.

● Disasters are an indicator of failed or skewed development, unsustainable economic and

social processes, and ill-adapted societies.
○ Hence, DRM programmes should not be standalone but be integrated within
development planning and practice.
DRM
1. Prevention
 ○ Activities and measures to avoid existing and new disaster risks (often less costly
than disaster relief and response).
○ E.g. Relocating exposed people and assets away from a hazard area.
2. Mitigation
○ The lessening or limitation of the adverse impacts of hazards and related disasters.
○ E.g. constructing flood defences, planting trees to stabilize slopes and
implementing strict land use and building construction codes.
3. Transfer
○ The process of formally or informally shifting the financial consequences of
particular risks from one party to another.
○ A household, community, enterprise or state authority will obtain resources from
the other party after a disaster occurs, in exchange for ongoing or compensatory
social or financial benefits provided to that other party.
○ E.g. insurance.
4. Preparedness
○ The knowledge and capacities of governments, professional response and recovery
organisations, communities and individuals to effectively anticipate, respond to,
and recover from the impacts of likely, imminent or current hazard events or
conditions.
○ E.g. installing early warning systems, identifying evacuation routes and preparing
emergency supplies.
● Activities for reducing risk can be described as:
○ Structural: land use planning and implementation of building codes
○ Non-structural: awareness raising, policy-making and legislation
● How governments, civil society and other actors organize DRM
○ Through institutional arrangements, legislation and decentralization, and
mechanisms for participation and accountability is termed risk governance.
● Low-income countries with weak governance= more vulnerable and less resilient to
disaster risk

Disaster Risk Reduction (DRR)

● Designed to increase resilience of ppl & communities to resist, absorb, accommodate &
recover from hazards
○ Reduce risk by building strengths, attributes & resources avail within their capacity
(community, society & org)
● Integrated across sectors, including climate change & conflict

1. Risk Identification
● Losses (historical disasters) are not known, hence DRM is given low priority
● Appropriate communication of risk info @ right time= raise awareness & trigger action

2. Risk Reduction (2 broad categories)

a. Improve building codes & design risk reduction measures
○ Flood & storm surge protection
b. Carry macro-level assessments of risks to different types of building
○ Prioritise investment in reconstruction & retrofitting (add _ to smth that did not
have when it was built)

3. Preparedness
● Plan evacuation routes, create shelters, run preparedness drills
 ○ Requires understanding of the geographic area affected, along with the intensity
and frequency of different hazard events
● Providing a measure of the impact of different hazard events (to establish detailed &
realistic plans for better response to disasters -> reduces severity of natural disasters)
E.g. potential num of damaged buildings, fatalities and injuries, secondary hazards

4. Financial Protection
● Micro-insurance or household earthquake insurance -> For govt to manage
sovereign financial risk or support programs that manage individual financial risks

5. Resilience Reconstruction
● Risk assessment can play a critical role in impact modelling before an event strikes
e.g. typhoon
○ Can provide initial and rapid estimates of human, physical, and economic
loss in an event’s immediate aftermath.
● Rarely time to collect info needed to inform resilient design & land-use plans

However! Cost Opportunity

● Altho we know how to reduce disaster risk, there’s often a lack of incentives to do so >
tendency to discount low-probability future losses & reluctance to invest in DRM
● There’s more prominent risks to be taken care of > fiscal stability, unemployment, inflation
● BUT! Cost-benefit analysis can ^ visibility & attractiveness of investment in disaster risk
reduction (DRR)
● Can ideally benefit & avoid cost (reduced poverty & inequality, environmental sustainability,
economic development & social progress)
● Investing in DRR/DRM may not be immediately, may take decades; Need to assess:
○ Costs and benefits of DRM
○ Perform risk governance
○ Move from risk information to knowledge
○ Strengthen accountability

CASE STUDY
● Due to ^ of natural disasters & heavy loss, the intl community begam paying attention to
research on prevention & control of natural disasters (DRM)
● In 2003, World Tourism Org (WTO) published “Guide to Risk Management of Tourism
Industry” to specially instruct treatment & management of industry

After the 5.12 WenChuan Earthquake, some common probs can be concluded in
research:
A) Confusion in Management System
● Disaster prevention and control in the tourist destinations is generally the responsibility of
the local government and the tourism administration bureau
● Most scenic areas can cooperate with relevant organizations to conduct safety supervision
and management (to prevent, control & manage natural disasters)
● However, rapid increase in tourists & frequent occurrence of natural disasters resulted in:
1) Multiple management and unclear system (many govt branches -> messy admin r/s, lack
mgmt systems & operational mechanisms in case of disaster)
2) Emphasis on rescue above prevention (leads to unnecessary losses to travelers &
industry)
 3) Misunderstanding of the work on disaster for tourism administration (lack active
awareness & action for prevention of disaster)
4) Information system construction lags behind other work (low lvl of shared info resources
-> unclear alarming channels, blocked/slow info transmission)
5) Lack of strength in training on disaster reduction and prevention (for tourists, tour
guides, relevant working staff)
6) Professional disaster rescue teams are scattered in various departments and not
sufficient in number

B) Dependency on Forecast
Success rates for short-term impending earthquake forecast is rather low
1. Forecasting earthquakes
Place: Meaningful if error falls below several hundred kilometres
Time: Meaningful when the error is abt 1 week
Magnitude: Meaningful when error falls below lvl 1 (1 lvl is 32x the energy released than
the lvl below it)

2. False report of an earthquake will result in srs losses

● False report leads to chaos in public & social turmoil, example:
○ Reported wrong city -> If predicted in City A, but earthquake happens in City B=
leads to ^ loss of lives
○ Reported on wrong day -> ppl return home & earthquake happens on that day
○ Reported wrong magnitude -> schs, shops govt close bc of magnitude 7, but actly
only magnitude 3

3. Earthquake forecasting is just one part in disaster reduction and preparation against
disaster
● Disaster forecasting is focused on assessment, monitoring just first-phase pre-warning,
then response.
Risk Management Framework for Natural Disaster
● 3 Elements of Disaster: Hazard, Exposure, Vulnerability
● Risk Assessment & Risk Treatment:
Step 1:
○ It requires identification and analysis of risk, that is to determine the geological
location, scope, strength and possibility of hazard
○ Further, it requires determination of the vulnerability of the disaster-bearing body
system and elements.
○ System vulnerability includes susceptibility, resilience and coping capacity, and
exposure and loss evaluation.
Step 2:
○ It requires analysis and profiling of a risk scenario, including 5 aspects such as:
■ Space (site and scope)
■ Time scale
■ Situation
■ Loss/influence
■ Possibility of occurrence.
 ○ The purpose of such an analysis is used to answer three basic questions:
■ Why did it happen?
■ How large is the possibility of occurrence?
■ What is the influence or consequence?

Disaster Risk Management Contextual Framework

● Includes 4 parts: scope & context definition, risk analysis, risk evaluation, risk management
(treatment).

1. Context Definition: used to give a definite risk object for a tourist destination that usually
involves tourists, local residents, tourist administration and tourist enterprise.

2. Risk analysis: used to find the possible risk of a disaster according to historic records and
modern technology.

3. Risk evaluation: used to determine the risk level i.e. risk that can be accepted, and
subdivide risk scenarios and measurement as well as conducting social and economic cost-
benefit analyses and providing options for action points and the level of priority to risk
assessors.

4. Risk management (treatment): means to take some measures as transfer risk, retain risk,
avoid risk, reduce risk according to the risk evaluation.
L9: Competitive Risk
● Third aspect of strategic risk (out of 5)
● Competing with other companies for higher position & consumer ratings to gain max
benefits
● Associated with risk of declining biz rev/profit margins due to competitors
○ Indicators of overcoming competitive risk: ^ mkt share, sales, degree of penetration
into intl mkts
● 7 Types of Competitive Risk:
○ Pricing - lower cost; steep discounts -> due to excess inventory/aggressive pricing
strategy can start price wars
○ Innovation - new innovations by competitor can threaten biz
○ Locations - competitor opens biz next to urs/secure better location; may b a good
thing -> drive cust traffic
○ Human Resources - competitor viewed as more attractive employer -> loss of skilled
HR
○ Promotions - attract ur cust away; may put ur brand/pdts in bad light
○ Distribution - competitor may achieve preferred position w ur partners e.g. retailers,
suppliers
○ Intellectual Property - competitor may secure I.P. that's impt to current/future pdts

Global Hotel Alliance (GHA)

● Largest hotel alliance in the world
● Strongest in Europe traditional mkts
● Successful in achieving unique loyalty prog (DISCOVERY rewards prog)
○ Offered across all brands
○ Aim: ^ cust loyalty to GHA member brands & improve cust exp
● What they offer: Local adventures, personalised cooking lessons in native
cuisines, local mkt tours, spa services (Not readily accessible to general public)
● Direct Competitors: Leading Hotels of the World, Five Star Alliance
○ Poses threat to long-term sustainability & mkt share of GHA due to
their extensive global presence, especially in luxurious hotel sector
● Indirect Competitors: Lower Scale Alliances
○ Poses threat due to their fast-growing rates & localisation, able to
compete more effectively on home turf
L10: Governance Risk
● First aspect of strategic risk (out of 5), acts as foundation for org functions
● Governance establishes a system to maintain order
○ Determine goals, create tactics, control variables & monitor results
○ Facilities good decision making, steer company into future
○ Clarifies top leader’s expectations:
■ Directly: Use of policies (why, what) & Procedures (how)
■ Indirectly: Unspoken Norms & Taboos (aka company culture)
○ Every management team needs control over outcomes + a planning process

Governance Risks occur due to:

● Inadequate formation of their strategic plan (VMVOM):
○ Vision
○ Mission
○ Values
○ Objectives
○ Measures
● shared control between several business entities.
● Risks disappear when goals & objectives are obvious, rules r clear, uncertainty is reduced

From the hotel operator’s perspective:

Risks for Hotel Operators:
● Risk of Opportunism: negative actions of economic agents (lying, cheating, violation of
agreements & promises)
● Risk of Bounded Rationality: lack ability to foresee ALL knowledge & skills (as not all info is
avail)
● Risk Impacting the Brand Name (behavioral uncertainty): unsure if 3rd pty can deliver svc
thats in line w/ their brand standard; monitoring & enforcing contracts & legal agreements +
controlling agent’s actions
● Risk of Creating A New Competitor: former agent (aft learning operational process from biz)
may end agreement & start own biz

High _above factors_ = Internal governance becomes more advantageous than market
mechanisms

● Asset Specificity (transaction cost economics); Consideration of risks of opportunism &

bounded rationality:
○ Refers to the degree to which physical and human assets are locked into a particular
use and the consequent difficulty of redeploying these assets for another use
without affecting the productive value of the asset.
● Imperfect imitability (the resource-based view); Consideration when transferring svc
standards associated w/ the brand to an agent:
○ For a sustained competitive advantage to be achieved, a firm must have a bundle of
firm-specific resources that in combination are imperfectly imitable (resources
cannot be imitated by competitors).
○ E.g. Managerial skills, knowledge of industry, trng/org routines of org, resources not
held by 1 person shld be imperfectly imitable
Risks for Hotel Owners:

● Financial Risk (Management Contracts)

○ Were developed to favor the hotel organization at the cost of the owner
○ Allows the hotel organization to expand its brand without the financial risk
(Economy & Consumer demand)
○ Unprofitable biz: suffered by hotel operator & owner
○ Profitable biz: enjoyed only by hotel operator
○ Fee structure: base fee + incentive based on rev

● Risk of being exploited

○ Hotel Organisations have a large advantage in negotiation of governance structure
due to brand recognition, economies of scale, unified reservation & loyalty
programme
○ Can result in distrust between the hotel orgs & owner in the governance structure.

CASE STUDY OF PANDOX (Europe’s leading hotel company)

Business Model:
● Acquire or divest hotels to establish good portfolio of larger, full-service hotels (upper-med
to high-end segments) -> attracts biz & leisure demand
● Acquire underperforming hotels & invest in them by refurbishments/repositioning
● Managed under a few types of agreements:
1. Property Management (2 Pandox Hotels):
■ Management Agreement: Intercontinental, Hyatt
2. Operator Activities (Majority of Pandox Hotels):
■ Independent: Hotel Berlin, Hotel Bloom! In Brussel
■ Franchisee: Crowne Plaza, Hol Inn, Hilton

Agency Theory:
● A relationship where one pty (Agent) acts on behalf of another (Principal)
● When goals, risk appetite & interests differ, such relationship may be problematic:
1. Franchising: (Agent) is expected to operate a branded biz in line with interest of
franchisor (Brand owner principal)
2. Separation of hotel ownership & operation: Hotel owner is the principal of hotel
companies that manage the owner’s property as their agent

Modal Choice:
● For hotels, they need to decide whether there is one “best way” for them to expand, while
retaining control over brand standards, key personnel and other intangible assets
● Over the years, hotels are employing “multi-modal”/”Plural-form” organisation structures:
1. Sale and Leaseback
Hotel companies sell their properties to 3rd party, only to lease the building back
from the new owner to continue & operate it

2. Sale and Manage back

Original owner will also continue to operate the hotel, but this time on new owner’s behalf.

Sale and manage back is preferred by most hotel companies as leaseback option
would create long term liability for the operator (in addition to uncertain hotel
income).
 ● Most hotel organisations prefer signing management/franchise agreements for hotels
owned by 3rd party as they can grow faster

● Trend: Asset-light trend

○ This would lead to a decrease in the num of international hotel organisation
management contracts, leaving them with only a franchisor role

Asset-heavy: hotel org will own real estate of their hotels

Asset-light: hotel org will only be involved in a hotel operation as a franchisor
● Hotels can use more than one agreement (combination)
○ E.g. a real estate owner could lease the property to a tenant, who in turn could
hire the services of an independent management company to run the hotel on his
behalf, and sign a franchise contract with a brand.

The Dilemma
CEO OF Pandox (Mr Anders Nissen)
● Ardent promotor of the lease model as a way to structure the relationship between a hotel
owner and a hotel operator
● Believes that management agreements do not create an equitable partnership as owner is
taking 100% of the risk while operator reaps benefit on the upside (unequal share of risk)
○ 2 Pandox hotels under management contract; majority being leased to operator
Pandox Director of International Operations (Mr Aldert Schaaphok)
● Not logical for a manager who is:
a) Rewarded (thru mgmt fees; largely on basis of hotel rev)
b) Claiming full control of actual operation
:., can make/break a hotel's profitability. Hence, compensation shld be based more
on bottom line than on revenue
● Believes that mgmt of hotel ops shld be separated from branding & distribution svces
● Owners should hire local/independent mgmt companies if they dw operate themselves
● Large brands develop innovative hospitality concepts too slowly