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Rather like the burger industry in recent years, it’s an arms race to get as many toppings into a hotel building – the meat – as possible. A modern hotel operation can include all or some of the following: a franchise, a third-party manager, a brand, owners in many forms, advisers in many forms. The era of the hotel which is operated by the owner is long behind us, although remains popular in the independent hotel sector. Owner/operators are traditionally pale and haven’t had a holiday since 1976.
The most popular measurement for success in a hotel; revenue per available room. So if you have a night where you bring in revenue of £500 and you have 250 rooms which people can sleep in, your revpar is £2 and you need to get out of the hotel business. There is much fighting in the sector over moving towards:
Gross operating profit per available room. Like the above, but more eye opening. Instead of revenue you subtract operating expenses from gross revenue and get an idea of what’s going wrong and where and, unlike just looking at bedrooms, it looks at other things, like labour and the F&B. So if you want to have the vaguest idea why you bothered putting in a bar, look here.
Average Daily Rate
Unlike revpar, this is revenue divided by the rooms which actually have people sleeping or whatever in them. For fans of maths, this means that you can also calculate revpar by multiplying ADR with:
If you’re the type who wants to know who is where and what they’re up to, without having to rely on border guards and a rigorous and possible oppressive regime, then hotels are for you. You’ll always know how many heads are on beds – in fact your finance department will insist on it every single night.
Just like McDonald’s, the majority of hotels out there with a brand on aren’t owned by that hotel (any more). Instead they have a glowing sign and a massive, fancy book telling them how to run that hotel and how the club sandwich should be displayed on the room service tray.
A little bit more involvement in the hotel than a franchise on the part of the brand. A lot more like hard work than just taking a fee, so you can see why many brands would really rather not.
Third Party Operators
But what happens when neither the brand nor the owner wants to run the hotel? Enter the third-party operator, which also has an eye on costs and, so the theory goes, has the owner’s back in those times when the brands start wanting to fluff up their pillow menus.
Where the tenant – sometimes a brand – pays rent to the owner and takes plenty of the risk too. Lots of fun for the investor and lots of fans in the institutional investment community, until the pandemic, when paying rent fell out of vogue.