The virtual hotel: Have major chains ‘lost their DNA’?

28-May-2013 - Last updated on 26-Apr-2021 at 18:15 GMT

Outsourcing: The management of a hotel, its staff and F&B offering is now often leased out

The move by major hotel chains to adopt an asset-light or ‘virtual hotel’ business model by franchising and managing properties has created a ‘vertically disintegrated’ marketplace, with the number of specialised firms involved in the industry continually increasing.

That was the conclusion of Professor Angela Roper, speaking at the inaugural lecture of the University of West London’s International Centre for Hotel and Resort Management, which was launched last year to bring academics and industry leaders together to carry out industry research.

More than 120 guests attended last week’s event, in which the centre’s director Roper discussed the changing structure of multinational hotel companies over the past 15 years and how corporate managers could best adjust to the evolving landscape of the industry.

The biggest change, according to Roper, has been the development of the ‘virtual hotel’ business model, when a well-known hotel chain brands a property as its own, but it is in fact owned by someone else – an individual or investment fund – who has taken out a franchise agreement with the brand.

The owner may then delegate the running of the hotel to another management firm; the building itself may be leased to a property firm; another company may be supplying most of the staff; and an outside caterer may run the restaurants.

Recession-proof

accor_mgallery_francis_bath — Accor wants more of its portfolio to consist of managed properties such as the recently-opened MGallery Francis Hotel in Bath

“Being asset-light has become a strategic, albeit imposed, choice rather than a decision originating purely from external conditions,” said Roper. “The major companies have developed into multi-segmented and multi-branded chains in order to meet differing customer needs; to get around territorial exclusions and to adapt to country-level conditions.”

A prime example of this would be global hotel operator Accor, which last year increased its 'asset-light' target and now aims to own or lease just 20 per cent of the hotels in its expanding portfolio by the end of 2016.IHG and Marriott are among the other keen adopters of the virtual hotel model.

It is by no means a new phenomenon, but it has received a boost in the past few years as chains, under pressure from shareholders to return capital, have put many of their properties up for sale.

Those chains that have adopted the virtual-hotel model should then also suffer less in the recession. But when economic recovery does eventually come, most of the gains will go to the hotel owners.

Disintegration

What has been the result of all this for the industry? Roper explained that many multinational hotel companies have given up parts of the value chain, enabling new intermediate markets to emerge which have divided a previously integrated process and enabled sets of specialized firms to enter the industry.

AngelaRoperlecture1 — Professor Angela Roper was speaking at the inaugural lecture of the International Centre for Hotel and Resort Management

“Whilst the original products, services and core technologies of the hotel industry have remained much the same and the sequence of activities needing to be done has also not changed dramatically, there have been profound implications of disintegration,” she added.

“The number and nature of firms that participate in the industry has increased - including the number of advisory and legal service firms - entry to the industry has fallen in certain parts of the value chain; and the nature of competition has arguably altered.

“Have hotel multinational companies lost their DNA? And, as specialists in branding, systems, franchising and, sometimes, managing, are the new generation of relationship building and networking corporate managers and graduates in place?”

The International Centre for Hotel and Resort Management at the University of West London seeks toresearch these issues further, establishing a resource where academic research, of relevance to the hotel and resort industry, can be sourced to inform business decisions, ultimately leading to evidence-based management.

Professor Angela Roper was speaking at a lecture entitled ‘All Change: The new competitive landscape of multinational hotel companies’ at the Institute of Directors on Pall Mall, on 20 May.

For more information, visit http://www.uwl.ac.uk/hospitality/Research_centre.jsp.