Luxury Hotels Asset Management - Keeping The Rolls Royce Rolling

By Anuj Puri, Chairman - ANAROCK Property Consultants

Rising disposable incomes at the hands of the middle class, an increasing number of multi-millionaires and the growing quest to travel have given a major boost to the tourism and hospitality sector in India.

Over the last decade, this sector has accounted for nearly 7.5% of the country’s GDP. It is estimated that the Indian hospitality sector is likely to witness high double-digit annual growth by 2022.

The sector is a major direct and indirect employment generator, attracts massive FDI inflows and is the most important net foreign exchange earner for the country. Considering its potential, the Government must necessarily incentivize investment into the hospitality sector by lowering the taxes on its development and giving it industry status. Since it relies on a host of other sectors such as transportation, entertainment, aviation etc., strengthening these industries will lead to further growth and development of the hospitality sector.

Simultaneously, the phenomenal growth of the hospitality sector has led to increased expectations from the services being offered by hotels and resorts, both at a project and unit level. Given the high net-worth clientele it attracts, this is even truer in the luxury hotels segment.

The constant pressure of serving discerning clients with deservedly high expectations has compelled the luxury hotels sector to innovate and re-invent itself constantly to maintain global luxury hospitality standards. The necessity of integrating professional facility management services (FMS) among their other core areas of operations is obviously a no-brainer.

Asset Management: Luxury Hotels vs the Rest

Broadly speaking, hotels can be categorized into two types: commercial hotels which accommodate business travellers and resorts which host guests travelling for leisure. Customer experience cannot be compromised in either category, even though the requirements are different. However, the price factor plays a crucial role which eventually segregates luxury hotels from normal ones.

While expense may not be a major issue for HNI guests, the fact is that even such clients are spoiled for choice of 5-star hotels in most major Indian cities today. Like budget hotel patrons, luxury hotel customers, therefore, look for true value for money - but unlike budget hotel guests, they expect a completely uncompromised luxury stay experience.

And therein lies the challenge, because while budget hotels can be run and maintained like robust Jeeps, luxury hotels can be compared to Rolls Royces - intricate machines defined by impeccably maintained interiors and exteriors, with highly specialized and therefore fragile engines under the hood. The whole machine needs to be kept running flawlessly in every aspect.

This has given rise to the demand for specialized third-party facilities and asset management companies that assist hotels - especially luxury hotels - to manage their properties in the expected manner. The concept of luxury hotel facilities and asset management is far more established in the developed countries than in India - nevertheless, luxury hotel guests expect an international experience wherever they go and country-specific limitations are not accepted.

The increasing competition among luxury hotel operators is another factor forcing these establishments to look for a high level of expertise from the hotel asset management companies they engage.

Ideally, operating a hotel should be a smart balance between creating a great guest experience and yet keeping the expenses at bay. While luxury hotels have realized and accepted the importance of proper asset management facilities, smaller ones continue to struggle with this aspect and cut corners wherever possible.

Indian luxury hotels, on the other hand, are now completely sold on the fact that to be successful, profitability must be built around guests having superlative experiences in well-designed and maintained hospitality environments where the customer is royalty.

Luxury - No Margin for Error

Realistically, this philosophy should apply across the spectrum, from budget to super luxury, with the only difference being customer expectations that are relative to price levels. However, unlike in budget hotels where guests can shrug off certain limitations, inconveniences and even breakdowns keeping in mind the money they're saving, the margin for error in luxury hotels is literally zero.

A major differentiating factor between luxury and mid-range or budget hotels is that operators in the latter categories often adopt a cost-cutting mindset mission and do not really invest much effort to understand the need for a holistic approach to the product and service experience from a guest-centric perspective.

In contrast, the clientele of luxury hotels is invariably well-travelled globally and expects facilities which convey a global standard. Facilities management companies which come with a global label understand this requirement, so luxury hotel operators turn to these for providing their services.

Asset Management: Hotels vs Other Real Estate Assets

Of course, asset management is not limited to the hotel industry - however, hotels have rather unique challenges when compared to other real estate assets. The operational complexity and the constant peril of day-to-day inconsistencies in performance make hotels considerably different from offices and malls. Besides being pieces of real estate, hotel operators run businesses where the income generated and value created or lost is much more fragile than in an office building on longer-term lease.

Also, the capital expenditures specific to luxury hotel assets can be harder to stay ahead of that in other real estate classes, which further complicates the job. For instance, with office buildings, one is not really dealing with interior renovations on a frequent basis.

In hotels - and especially luxury hotels - one must constantly renovate guestrooms, restaurants, ballrooms, pools, etc. to keep abreast of the latest trends and ensure that there are no breakdowns. These factors make asset management in hotels much more complex and demanding.

Data & Technology in Modern Asset Management

New-age technology and data-driven concepts have significantly influenced asset management in the hotel sector today. In fact, data - both big and small – has become the backbone of most asset management companies that assist hotels in accelerating their business profits in a cost-effective way, and analyzing pricing trends, customer types, their requirements, etc.

More importantly, the seismic Internet-driven shift in the hotel industry has brought in more transparency in the pricing of hotels, facilities on offer, among others. The question that continues to loom large among many hotels is how to adapt to this new technology and data for optimal benefits - but even while they're trying to figure it out, the luxury hotel guest retains his throne and expects a flawless experience.

Therefore, the best ways in which technology can be implemented in the Indian hospitality industry is by delivering an impeccable stay backed by all the modern tech-driven conveniences. In an environment where hotel operators need to stay focused on their core competencies, this is an area where highly-evolved facility and asset management companies can make all the difference.