For hotel owners looking to de-flag and make a go as an independent, the decision often comes down to whether or not you want to control your own destiny.
In the hotel industry, the brand relationship is designed as a mutually beneficial partnership: a two-way street designed to benefit both brands and owners and operators.
In ideal circumstances, that symbiotic dynamic is designed to provide hotel companies with a strong revenue stream and give owners and operators access to the power, prestige and resources of the brand—including support from established sales-and-marketing systems and expertise.
In today’s evolving hospitality landscape, however, the value calculation of those relationships may be shifting—on both sides of the partnership. Hotels are recognizing the importance of carving out a well-defined niche in the industry brandscape, and are being more aggressive about raising and enforcing more demanding brand standards—and subsequently cutting ties with properties that can’t or won’t meet them. Marriott International, for example, recently announced plans to de-flag a number of underperforming Sheraton hotel properties (trimming its portfolio by approximately 10,000 rooms by the end of 2018).
Owners and operators are also being less hesitant about de-flagging. With independents, boutique properties and niche concepts occupying an increasingly significant slice of the industry pie, there is a school of thought that suggests the value of the traditional brand alignment is, if not less valuable, perhaps less essential to the success of a given property.
Owners and operators may see de-flagging as less of a drastic step than in the past, but the determination to leave an existing relationship with a flagship owner and become an independent property is most often framed as a financial decision. Whether over frustration with operational expenses or a perceived opportunity to save money on brand fees, de-flagging is seen as an increasingly appealing bottom-line proposition for some owners and operators.
The problem with this perspective, however, is that it is inherently flawed. By limiting decision-making input strictly to the balance sheet, owners and operators are ignoring the real opportunities (and possibly missing the potential risks!) associated with de-flagging: control.
The idea that de-flagging will save owners up to 9% on brand fees is a myth. Owners and operators will almost certainly find that they have to subsequently turn around and invest that savings in a more intense marketing effort from the property level. There likely will be increased staff costs as you define your independent experience, and potentially increased third-party fees and commissions as you have to tap broader channels to drive revenue.
While I won’t dispute the math behind any individual financial decision, owners and operators need to recognize that the determination of whether or not to strike out on their own should not be made based exclusively—or even primarily—on dollars and cents. Predicting the long-term economic dynamics of a hotel is tricky and involves a number of complex and interrelated factors.
I see de-flagging as a simple choice: prioritizing control, identity and self-determination. Would you rather place your asset(s) with one of the big brands and let them dictate design, standards and capital expenditures (mandated projects); or do you want to control your guest experience from start to finish?
De-flagging allows owners to control how they want position the property (both in the market and in the industry), how they want to renovate or update the property to define its “personality,” and the quality and type of amenities they want to provide to position the hotel in the proper average daily rate or competitive set.
The desire for a level of creative freedom that simply may not be possible under the umbrella of a major brand is a big draw for some decision-makers—especially those experienced owners and hotel management professionals who see an opportunity to break out of what they feel are limiting brand standards and mandates, and sink or swim based on their own decision-making.
Ultimately, that is where the real financial rubber meets the road: not in brand fees or in how operational expenses are deployed, but in a hotel’s ability to carve out a well-defined niche in an increasingly crowded and competitive marketplace.
De-flagging requires disciplined and experienced leadership and sound business practices and instincts. But even more fundamentally than that, it requires a desire—and an ability—to successfully control your own destiny.
Chris Green is the COO of Chesapeake Hospitality. He brings more than a quarter century of successful hospitality operations experience to Chesapeake’s corporate team, including nearly a decade in the field at various Chesapeake-managed properties. For more information, visit https://www.chesapeakehospitality.com/.
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