Hotel management agreements
Up to the late 70s and early 80s there were several major hotel groups in Malawi, including Malawi Hotels, Blantyre Hotels, Capital Hotels, and Hotels and Tourism. Major shareholder for Malawi Hotels was Malawi Development Corporation (MDC) and the hotels under this group were, Mount Soche Hotel, Lilongwe Hotel, Nkopola Lodge, Kuchawe Inn and Airport Caterers. During this period, Malawi Hotels were managed by Hallmark Hotels. Hallmark Hotels set up Malawi Hotels on behalf of MDC. The contract expired in 1979. Blantyre Hotels was originally owned by Mandala Limited. The hotels under this group were Ryalls and Shire Highlands Hotel. Mandala Limited managed the hotels themselves by employing trained and experienced general managers. The ownership of the two hotels has since changed. For Capital Hotels, the major shareholder was Capital City Development Corporation (CCDC), and properties under Capital Hotels were Capital Hotel and Causerie Restaurant.
Since inception in 1976, Capital Hotels were managed by a British Company known as Hotel Management International (HMI). The contract expired in 1986. Finally, Hotels and Tourism was a government parastatal that owned Club Makokola Grand Beach Hotel (now Livingstonia Beach) and Hotel Chisakalime. This group was privatised and all its units were sold off separately to private investors. Later, Livingstonia Beach reverted to another government parastatal, the MDC. Mzuzu Hotel was opened in April 1982 as a stand-alone hotel directly managed by MDC. The owners and I had the privilege of opening and running the Mzuzu Hotel on behalf of MDC. In 1986, Mzuzu Hotel became part of Capital
Hotels, which at that time had also acquired Lingadzi Inn. In 1987, Malawi Hotels and Capital Hotels were combined to form a company known as Tourism Development Investment Company (TDIC) and was later renamed Sunbird Tourism. The merger came about after CCDC went into voluntary liquidation soon after Lilongwe was established as the capital city of Malawi. The enlarged hotel group was initially under the management of Tourism International (TI), a British hotel management company. The TI management contract in expired 1993. From 1994 to 1999, the group was managed by Protea Hotels of South Africa. From 2000 to 2005, Le Meridien of France managed the group. And from 2006 to 2010, the group was placed under the management of a home-grown management team and I had the privilege of serving in the team as director of operations. Probably the question in people’s mind is how the country’s biggest hotel group has benefited from these various international hotel management companies over the years.
Perhaps a brief write-up on the various hotel management contracts will help. In hotel management agreements (HMA), a hotel owner hires or enters into contract with an operator to manage the hotel at a fee, the standard fee structure is a management fee of two percent or more on total revenue and an incentive fee of 10 percent on gross operating profit. Often a fee is also charged on all bookings that originate from the management’s reservation’s system.
The fee arrangements depend on negotiations. In this kind of contract structure, the hotel owner carries all the business risks. Generally, the advantages of HMA to the owner of the hotel include quality management recognition as the owner has access to the operator’s brand name, its marketing infrastructure and its training programmes. HMA also forms a strategic alliance for the hotel owner. A dvantage to the management company is basically low risk business model, i.e. even if the hotel does not make a net profit, the management company is guaranteed income through fees based on total revenues and marketing fees. Of late, HMA has evolved so as to bring parity in the risk exposure to some extent. Hotel management companies may be required to buy stake in the hotel that they plan to manage, so as to share the risk of running the business.
To be continued
The author has worked in various positions in Sunbird Tourism for 32 years and is now retired. Feedback: kwame@globemax4g.com.
