Smart Business Traveller Looks for Functionality, VFM & Relevant Facilities
A disruptive force that’s still in its infancy is the rise of digital customer service, says Ashish Jakhanwala.
When Ashish Jakhanwala, MD & CEO, SAMHI Hotels, saw a gap for an institutionalised approach to develop, acquire ownership of branded hotels in India, he planned to set-up a unique platform to organise hotel ownership and its asset management. With his experienced team, Ashish has been able to demonstrate that setting up a scalable asset business is possible and profitable. Hence, all the hotels owned by SAMHI are branded and managed by some of the world’s best hotel companies such as Marriott and Hyatt. Working closely with the operating partners to optimise the return on investments by influencing product configuration during development/ renovations, operating plans and long term strategic direction, SAMHI, now has tie-ups with Courtyard by Marriott, Sheraton, Hyatt Regency, Hyatt Place, Fairfield by Marriott and Four Points by Sheraton.
With its recent expansion plans, the group has partnered with IHG to rebrand 14 hotels within India to Holiday Inn Express portfolio. While four hotels are under construction in Mumbai, Kolkata, Bengaluru and Hosur Road, the 10 operating hotels are located in Chennai, Ahmedabad, Bengaluru, Delhi NCR, Hyderabad, Kolkata, Vizag, Pune, Nashik and Mumbai. “The latest tie-up is meant to convert about 2,000 rooms in the mid-market hotel portfolio to Holiday Inn Express. The re-positioning and rebranding of more than 1,900 rooms to Holiday Inn Express will be the largest such exercise in India’s hospitality sector to date,” tellsJakhanwala.
Over the past six years, SAMHI has grown through the support of its shareholders that include marquee global institutions – Goldman Sachs, Sam Zell led Equity International, International Finance Corporation (Member of the World Bank Group) & GTI Capital Group. With a strong and long standing relationship with leading financial institutions and banks in India who have been steadfast to support the group’s growth, hotel ownership and especially buying displaced asset and their turnaround is a patient and disciplined business.
Currently, SAMHI owns 23 hotels operating under major brands. With the acquisitions of five midscale assets that were earlier owned by Premier Inn and the deal with Formule 1 hotels, SAMHI continues to evaluate several opportunities and that the portfolio will continue to grow largely through inorganic acquisitions. We spoke to him on development plans, the current scenario of the hospitality industry and the need to maintain revenue growth ahead of cost inflation. Excerpts:
When you say you bring expertise to the hotels you operate, can you share how do you turn them around to make them profitable?
First is the selection of the right asset. We like to acquire hotel assets which have high potential but are displaced due to issues such as poor capital structure, incorrect branding and poor asset management. Our development experience also allows us to re-evaluate the product configuration to improve revenues and cost efficiencies.
Over the years, we have acquired several hotels and put our turnaround plan following the above approach. Three years back, we had acquired a new hotel in Hyderabad. We believed in the future prospects of the market when perhaps everyone was skeptical, we liked the location and our development experience told us that the hard asset had tremendous potential. We invested substantial investment in the hotel for renovation, expansion of inventory and addition of new public spaces and rebranded it as a Sheraton under management contract with Marriott. The hotel has been able to reestablish itself as an upper-upscale hotel with a ARR jump of over 60% since our acquisition. Similarly, we acquired the Four Points by Sheraton Vizag and renovated the hotel especially the public areas and back of the house. We also converted the contract with Marriott from franchise to management, which allows it a stronger sale and human resources support. Consequently the hotel has seen significant improvement in its customer ranking, rates and overall perception. Similar turnaround were undertaken at Four Points by Sheraton Ahmedabad, which is now gearing towards stabilization. On several other occasions we acquired under construction but stalled projects and completed them. This would include the Fairfield by Marriott in Bangalore and recently opened Fairfield by Marriott in Coimbatore.
Indian hotels need to realise that operating costs are going up and the whole operating model needs to be rationalized. Your comments.
Agree. The key is to maintain revenue growth ahead of cost inflation, avoid kneejerk reactions in pricing and there are various rational and sustainable cost saving initiatives for both operator and owners. To name a few, operator needs to bring its cost of distribution down, similar to airlines. Manning and energy cost could be improved collectively between owner and operator with efficient design and capex along with appropriate service delivery based on product positioning. We believe that industry needs to become financially more responsible. We spend on vanity in the name of customer service and expectations without any focus on return on capital invested.
We also feel that the product configurations needs to be challenged. We continue to heavily invest in F&B spaces that are facing headwinds from standalone outlets. These areas have significant impact of both capital and operating expenditure.
Sustainability is a serious concern for the industry. How important is this emphasis in today’s hospitality industry? Do you keep this in mind while investing in hotels that you operate?
Sustainability no longer means a message, it means building a business that will remain relevant financially and socially over years. We have built a strong and committed eco-system to build and operate sustainable hotels. We were one of the first hotels to receive EDGE certification from IFC for Fairfield by Marriott, Bangalore. Later, we established partnership with BLP Stratcraft to reduce our dependence on traditional sources of power. Each of the hotel we acquire follow a strict diligence and correction plan on its environment and social impact.
What is your view of the new owners who are ready to invest in hotels for the right reason?
Hotel ownership is not a passive investment. It is active and operating business. Even though there are great hotel operators, owners need to do their job well for the business to succeed. New owners need to ensure they have experience, right capital structure, clear financial objectives and have organised a team that understands asset management. If a new owner is attempting to new development, the risks are significantly higher. Without a professional project manager, hotel development is mostly likely to result in unpleasant surprises and often disasters.
Do you think ownership of a hotel should not be merged with the management of the hotel?
The two businesses require different skill sets even though they both relate to hotels. One is about capital deployment and discipline and the other is about branding, sales and operations. Not that they haven’t been done successfully together, however financial markets prefer pure play. Globally trading multiples tend to be higher for pure asset light companies followed by ownership group and then for asset heavy operators. We do believe that pure play allows higher financial returns specially as you grow the business.
What is your perception of a typical Indian customer? What trends do you observe in the future of hospitality business in India?
As the Indian hospitality and travel sector grows and we are now witnessing a huge jump in air travel, consequently, a huge potential for budget and mid-segment hotels is now beginning to surface which needs to be serviced and fulfilled. The modern, young, smart and business traveller is looking for functionality, value for money, efficiency and relevant facilities. The need for frills is now getting outweighed by the need for relevant services.
Content and connectivity is as basic as bed and breakfast. Hotels need to create a museum of things they hang on to but are not needed. Things like alarm clocks, writing desks and telephones perhaps serve a more decorative purpose than use.
Technology has disrupted hospitality sector as well. According to you what all-new innovations are ready for the industry?
As has been the trend globally and India may not remain immune to the fast-coming changes. These would include:
· Rise of Megabrands: In recent years, we have witnessed massive consolidation among hotel companies and online travel agencies. In 2015, the three biggest hotel conglomerates – Hilton, Marriott and IHG, accounted for 37 percent of worldwide hotel construction with 11,130 development projects in the pipeline. Snapping at their heels is AccorHotels Group with more than 4,000 hotels in its portfolio and ambitious plans to grow and diversify. On the OTA front, many are growing at a much faster pace than hotel companies, commanding a virtual duopoly on an international scale. Hoteliers have many tools at their disposal, from opaque rates to metasearch advertising, and from tailor-made services to AI travel assistants and while these may be in a nascent stage in India yet, it is bound to become reality in the next few years.
· Digital Customer Service: A disruptive force that’s still in its infancy is the rise of digital customer service. Increasingly, travellers are turning to digital platforms to plan trips, make inquiries with businesses and share experiences. Whether it’s online check-in, messaging apps, chatbots or voice-activated technology an increasing number of tasks in the hospitality business that were previously performed by humans now have the potential to be performed by computers.
India may see a while before some of the above are introduced and become popular, but it will not be too long before the paradigm begins to shift.
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