Giving Asian hotel owners more flexibility on how they wish their hotels to be managed is a key strategy for Radisson Hotel Group to achieve its “aggressive” ambition to expand in South-east Asia and the Pacific.
In Asia-Pacific, excluding China, the chain has made its biggest impact this year in India, where it signed the most number of hotels, according to executive vice president and global chief development officer, Elie Younes.
It will be harder for it to crack South-east Asia, where chains such as Marriott, Accor and IHG are bigger and have been in the market for longer – but the flexible approach seems to do the trick.
A deal struck with Australia’s La Vie Hotels & Resorts in May, for example, is on track to bring more than 30 hotels under five Radisson brands – Radisson Blu, Radisson Red, Radisson, Park Inn and Country Inn & Suites – over the next 10 years. Key markets include Australia, New Zealand, Vietnam, Thailand, Singapore, Cambodia, Myanmar, Malaysia, Indonesia, Sri Lanka, Maldives, Bangladesh, Fiji and Vanuatu.
The first three hotels have materialised in Sri Lanka, marking the company’s entry there.
The agreement also signals a growing acceptance by global hotel chains and Asian owners of the so-called “third-party or white-label management operator” model, which is common in the US and Europe but is relatively new to the East.
Essentially, third-party operators such as La Vie are hired by hotel owners to operate their assets, yet allowing owners to have more say and control in the management, rather than leaving it in the hands of chains.
So, instead of the traditional hotel management agreement, an owner could franchise a hotel brand or remain non-branded, but use third-party management to increase their asset value and profitability.
“The agreement with La Vie is for us to collaborate and grow together as partners across Asia-Pacific. They would grow their business by signing management contracts with owners, and we would be the franchisor,” said Younes.
Another flexible approach is working with owner-operators, such as in the Philippines where it signed a master development agreement with SM Hotels & Convention Corp in April for 20 hotels across the country by 2028.
“They (SM) own and operate their hotels. This formula works when the owners are professional, have scale and the know-how, such as SM. They have a set-up inside the company similar to the set-up of the white-label operator,” said Younes.
The greater flexibility comes amid challenges for owners, which impact chains’ growth.
“You have to adjust and respond to the world around you. If the cost of developing a hotel today is 20 per cent more than 1.5 years ago, of course this impacts our ambitions (to grow). Borrowing US$10 million a year ago would have cost owners and developers, say, US$200,000 a year (based on a two per cent interest rate). Now, six per cent on US$10 million is US$600,000, so suddenly your cost of borrowing increases three times. These equations make it more complicated (for hotel development),” he explained.
“Along the way we face either tailwinds or headwinds. Sometimes the numbers (in the portfolio) increase, sometimes they decrease – what remains is we have a very aggressive ambition for this part of the world.”
The company currently has around 60 hotels in operation and development in South-east Asia and the Pacific.