On hotel management agreements (II)

…continued from Wednesday

Franchising is a method by which the franchisor (the owner of the brand) permits the franchisee, the hotel, to use its brand name and advertising. For the right to use the name, methods of operation and other benefits that come with a franchise; the franchisee pays an initial fee, a royalty and marketing fee to the franchise organisation.

In hotels, a fee for use of the central reservation system is also charged. Hotel management companies are important in the early stages of the hotel, as they assist in setting up operating systems and link a new company to their marketing infrastructure. Hotel management agreements and franchising tend to work very well in major destinations of business travellers and upmarket tourists.

Kenya and South Africa are examples of countries that are major destinations of both tourists and international business travellers. In these countries, one finds a number of both local and international management companies managing various hotels.

In the lease arrangement, the hotel management company becomes a tenant and assumes all operating responsibilities together with all financial obligations, but enjoys the benefits if the hotel makes profits and suffers all the losses if the hotel does not perform adequately. The hotel operator receives all the profits, after rents have been paid. Rental structures will depend on negotiations.

Hotel management agreements, franchises or operating leases are very critical when setting up new properties by investors with little knowledgeable in hotel businesses. Hotel management companies allow hotel investors with relatively little knowledge and experience in the hotel industry to reap the benefits of a well-known brand and experienced management.

In order for the hotel to derive maximum benefits from hotel management agreements, the agreements must be transparent, with performance standards and mid-term termination clauses well articulated.  It is very important during the negotiation stage to rely on expert advisers to avoid public enterprises getting bad deals.

Mid-term termination clauses should be very critical point of negotiation, to allow the owner to terminate the contract if not satisfied with performance.

The new Presidential Hotel and the Bingu Conference Hall in Lilongwe would benefit from the services of a reputable hotel management company with a good track record in the marketing and hosting of international conferences.

To fully utilise these new facilities, Lilongwe must be developed into an international conference destination. A management company with strength in marketing would greatly assist the Ministry of Tourism in marketing Lilongwe as an international conference destination.

Towards the end of 2005, the then Board of Sunbird Tourism took a bold decision not to continue with third party hotel management companies and have hotels managed by a home-grown management team. Between 2006 and 2010, a home-grown management team was put in place. Some of the positive results of this decision include: Profits for the group rose and the company started declaring dividends for its shareholders year after year, some of the profits made were ploughed back into the business by major bedroom refurbishments of Capital and Mount Soche hotels and an international conference centre was built at Nkopola Lodge in Mangochi.

Again, all hotel managers were exposed to international class hotels in both South Africa and Kenya. The aim of the exposure was for hotel managers to appreciate and wherever possible copy some “best practices” in hotel operations and management. Graduates from Malawi universities were recruited and trained in hotel operations both in house and at Kenya’s Utalii College. These graduates are now holding senior positions.

Finally, an experienced training chef was recruited from Kenya to train existing and new kitchen staff with a view of improving food quality in the group.

The author worked in various positions for Sunbird Tourism for 32 years. He is now retired. Feedback to: kwame@globemax4g.com.