Measuring and Understanding Hotel Profits;  Profit and ProfPAR Defined

by Kristin Rohlfs, Hospitality Research Group of PKF Consulting

April 2003 - An issue developing within the lodging industry is whether or not Profit Per Available Room (ProfPAR) is a better way to measure hotel performance than the well-known Revenue Per Available Room (RevPAR) statistic.  Specifically, the main question is – Does RevPAR miss some important economic phenomena that ProfPAR reveals?  Arguably, the first steps in gaining insight about the ProfPAR vs. RevPAR debate are to clarify the definition and measurement of profit and to obtain a better understanding of how historical revenue and profit movements differ.

Profit and ProfPAR Defined

Profit may be defined in many ways to address particular business topics.  Operating profit from hotels represents the operating decisions made by an owner, or in many cases the management team employed by the owner.  As a result, operating profits show how successful managers have been in generating income from property operations.  RevPAR however, only reflects rooms revenue, which is heavily influenced by factors managers cannot control, such as business travel and the general economy.

The following definitions of profit measures are used:
 

Average Hotel Profit Over the Past 20 Years

To provide historical perspective on operating profit, we use three samples from our Trends in the Hotel Industry survey, which has been conducted annually for close to 70 years.  We examined total revenues, total operating expenses, operating profit, and the operating profit margin for an all-hotel sample, full-service hotels, and limited-service properties.  The data in the three samples reflect the average unit-level, dollars per-available room of hotels for which we have 20 years of comprehensive information.  2002 figures have been estimated.

When examining the all-hotels sample, revenues increased over time, with operating expenses logically following due to the variable nature of expenses in the hotel business.  However, the gap between revenue and operating expenses is the not constant beginning in the early 1990s.  This gap represents operating profit, and the larger and more sustained the gap, the more unit-level managers have controlled operating expenses regardless of total revenue (and RevPAR!).  The profit margin line simply translates the operating profit dollars per available room to the percentage of total revenues that falls to operating profit. 

The operating profit margin for all-hotels has trended upward since 1991, and peaked at 32.9% in 2000, meaning that almost 33% of the total revenue of a property went straight to the bottom-line.  The 2002 operating profit margin is estimated to be 28.1%, which is higher than the operating profit margin generated in 14 of the 20 years studied.  This indicates that while we know RevPAR has been declining at rates not seen over the past 15 years, managers have effectively handled operational expenses. 

The sample of full-service hotels shows a similar pattern to that of the all-hotels sample.  Revenue increases are followed closely by operating expense increases until the early 1990s, when the gap widens and operating profit increases.  The operating profit margin for full-service hotels peaked in 2000 at 30.6% and registered an estimated 25.7% in 2002, one of the more operationally challenging years in the past two decades.

Limited-service hotels also show an increasing operating profit over time as the gap between total revenue and total operating expenses has widened.  The operating profit margin for limited-service properties peaked in 1997 at 42.6% and registered an estimated 35.6% in 2002. 

Operating Profit Insights 

High operating profits and profit margins can mean two things:  sales are increasing faster than expenses or operating costs are controlled effectively.  Based on the data examined by HRG, it appears that both of these explanations apply to the average hotel in each sample.  Revenue began to increase in the 1990s and expenses followed at a lower growth rate.  However, this discrepancy in revenue and expense growth rates was sustained over a decade, indicating that managers have been effectively controlling costs since the early to mid-1990s. 

While we have not delved too deeply into the RevPAR vs. ProfPAR issue, the data suggest that ProfPAR will uncover economic phenomena that RevPAR will not.  ProfPAR is based on operating profit, which accounts for movements in both revenues and expenses.  Examining a 20-year trend of profit margin illustrates that profit and revenue do not always follow the same trend.  As a result, examining unit-level profits is a logical next step in establishing ProfPAR as the industry standard for measuring hotel performance.

Kristin Rohlfs is a Senior Research Associate in the Atlanta office of The Hospitality Research Group of PKF Consulting (HRG). 

Robert Mandelbaum
PKF Consulting
3391 Peachtree Road
Suite 420
Atlanta, GA  30326
phone  (404) 842-1150
robert.mandelbaum@pkfc.com

Airlines slump, but hotel chains still making profits

New York Times  -  The same forces that are mauling the airlines are taking a heavy toll on the hotel business.

"We're seeing an unprecedented drop in demand," said Paul Whetsell, chief executive of Interstate Hotels and Resorts, the largest independent operator of hotels in the United States and Canada. "This is the worst I've seen in 30 years."

There is a big difference between the industries, though: While the sour economy, the terrorist attacks, the war in Iraq and now severe acute respiratory syndrome (SARS) have pushed some airlines to the brink of insolvency, hotels are, comparatively, thriving.

"Despite the fact that the business has never been in worse shape and the demand for hotels rooms has never been weaker, the industry is surprisingly financially healthy," said Michael Rietbrock, an analyst who follows the lodging sector for Smith Barney. PricewaterhouseCoopers projects the sector's earnings this year at $15 billion, down from $16.1 billion in 2002 but still a startling performance when measured against the airlines' expected losses of $10 billion and the hotels' own losses of $5.7 billion in 1991, in the aftermath of the Persian Gulf War.

Business travelers do not have to look far to discover the reasons for that success -- an almost obsessive drive to slash costs and an equally grim determination to stop self-destructive price-cutting.

Consider Interstate Hotels and Resorts, which manages nearly 400 hotels, including Hiltons, Westins, Sheratons and Hampton Inns. Whetsell said room rates at his hotels have eroded steadily in the past three years, and the hotels often are just two-thirds full.

In response, the company has eliminated 15 percent of 38,500 jobs (many of them part time) and has trained many of the remaining employees to handle multiple tasks.

Whetsell, who acquired Interstate Hotels last summer and merged it with MeriStar Hotels and Resorts to add more than 100 properties to its management roster, also has reduced staff, and costs, by centralizing reservations and purchasing for all hotels.

Such belt-tightening has been so effective that last year, the industry's break-even occupancy rate dropped to 47 percent, down from 60 percent in the mid-1990s, a PricewaterhouseCoopers study found.

Guests are grumbling about service cutbacks, but hotels have little choice. They cannot raise rates. The war was almost the last straw in a tough year, forcing some hotel companies to abandon their already-modest earnings forecasts for this year.

Nobody foresees an early rebound. The number of business trips this spring is expected to fall 2.5 percent from the spring of 2002 and 13 percent from spring 2001, according to the Travel Industry Association. Occupancies have fallen to an average 60 percent from 63 percent last year, and the average room rate to $83, from $84 in 2002, Smith Travel Research says. Hotel loan delinquencies are at their highest level since the early 1990s, according to PKF Consulting.

In response, hotels are aiming at new markets. Interstate, for example, is going after more group and government business, such as trade associations and the military, though they typically pay lower rates. It even is offering local residents discount cards at its restaurants.

More important, hotels are acting to stop the widespread discounting of the past three years.

"Hotels are realizing that discounting doesn't stimulate demand," said Bjorn Hanson, hotel analyst at PricewaterhouseCoopers. "It just shifts market share around."

Hotels also are trying to rein in the sale of their rooms at steep reductions on Web sites such as Hotels.com and Priceline.com.  

InterContinental Hotels Group Adds Two New Hotels in Thailand  Through Relationship with President Hotel and Tower

Hotels to be Re-branded as InterContinental Bangkok and Holiday Inn Bangkok

Singapore, April 22, 2003 – In a major boost to its long-established presence in Thailand, InterContinental Hotels Group (IHG) today announced that it will assume the management  of two hotels in central Bangkok, to join its InterContinental and Holiday Inn brands as InterContinental Bangkok and Holiday Inn Bangkok.

IHG will commence management of both hotels from July 2003. The 381-room Le Royal Meridien Bangkok will then be rebranded to become InterContinental Bangkok. The second hotel with 377 rooms, Le Meridien President Bangkok, will undergo a US$13 million renovation and reopen as Holiday Inn Bangkok in early 2005.

The deal marks the start of a long term relationship between IHG, President Hotel and Tower (PHT) and the Srivikorn and Charoen-rajapark family group of Thailand. It continues IHG’s heritage of lasting associations with prominent Thai partners, notably the 40-year Siam InterContinental Bangkok partnership that was finalised last year with the closure of that hotel for site redevelopment.

Chalermbhand Srivikorn, Chairman of PHT said “After a long period of very careful deliberation and review of our options, PHT has decided to join the IHG family of hotels. We have found an alliance that respects and shares our values and that is committed to building and strengthening our relationship. IHG’s strong brands, first class support systems, focussed business strategy and experienced management team will enhance the revenues and returns we enjoy from the properties. We look forward to a very long and fruitful relationship with InterContinental Hotels Group”.

 A. Patrick Imbardelli, Managing Director, InterContinental Hotels Group Asia Pacific said, “We are honoured and proud to have secured a long term relationship with the Srivikorn and Charoen-rajapark families and are delighted to be adding these two important properties to our portfolio. The PHT properties enjoy an imposing presence in the heart of Bangkok, while the owning families have a very strong track record of successful, long term ventures in hotels, property and other sectors. Through our collaboration with PHT, we can again offer our guests superb InterContinental accommodation in Bangkok and begin a renovation programme that will lead to an exemplary Holiday Inn hotel”.

The InterContinental Bangkok and Holiday Inn Bangkok are located in Bangkok’s central business district and are ideally situated for both business and leisure travellers. The two new hotels will further enhance the wide range of destinations and experiences IHG offers its guests travelling to or within Thailand, and will further extend IHG’s industry leadership in Asia Pacific.

The new properties will each benefit from access to Holidex Plus, IHG’s state-of-the-art reservations system which generated US$3 billion in room revenue last year. Both hotels will also welcome guests who take part in Priority Club Rewards, which, with its 15 million members globally, is one of the largest loyalty programmes in the hotel industry. 

The two new hotels will add to IHG’s established portfolio in Thailand, which includes Crowne Plaza Bangkok, Holiday Inn Resort Phi Phi Island and Holiday Inn Resort Phuket.  

News @ PATA

PATA AND INDONESIA CELEBRATE WELL-ATTENDED CONFERENCE Despite the impact on travel of the SARS virus and conflict in Iraq, PATA Annual Conference delegates celebrated a highly successful 52nd PATA Annual Conference in Bali, Indonesia. The Conference, April 13-17, attracted 971 delegates (including 74 spouses). There were 572 international delegates (64 percent of total) and 325 local (36 percent). Delegates represented 486 organisations from 42 countries. In his opening presidential address, PATA President and CEO, Mr. Peter de Jong, acknowledged the exceptional circumstances which kept some delegates away. "We regret but respect the difficult decision that some of our most faithful PATA members and loyal Conference attendees have had to make this year. Some of our members are absent, either for personal health reasons or because the SARS situation is particularly challenging in their country. To them I say: our thoughts are with you."

MEGAWATI HAILS ROLE OF TOURISM Her Excellency, President of the Republic of Indonesia, Mrs. Megawati Soekarnoputri, officially opened the 52nd PATA Annual Conference by striking the gong of peace on stage in front of nearly 1,000 delegates. In her official opening remarks to Pacific Asia's tourism leaders, she praised the official Conference theme - Culture and Tourism: From Heritage to Legacy. President Megawati told delegates: "In my view, to link culture and tourism with heritage and humanity is absolutely right and touches the very essence of tourism." The President said that tourism which respects the diversity of Indonesia's ethnicity, religion and culture "advances the quality and self-esteem of our life - intellectually, emotionally, morally, and spiritually". After her 15-minute speech, President Megawati and the PATA delegates enjoyed a radiant 25-minute Indonesian cultural performance by 300 colourful dancers representing the diversity of Indonesia's cultural heritage.

PROFESSOR KOH CALLS FOR CULTURAL UNDERSTANDING In the PATA Annual Conference opening keynote address, Singapore's Ambassador-at-Large, Professor Tommy Koh, brought the full measure of his 30-year experience as a global diplomat to call for reason and humanity in international affairs. In his speech entitled "Culture and Tourism: From Heritage to Legacy," Professor Koh made three key points: 1) we live in a globalised world, but the world is not culturally homogenous 2) there is no fundamental contradiction between East and West or between Islam, Judaism and Christianity, and 3) the tourism industry can make an important contribution to the dialogue among civilisations. On the SARS outbreak he said: "We should listen to medical advice, take sensible precautions, but try to lead normal lives. I am glad that PATA did not cancel this Conference."

BALI IS BALI FOREVER   
On April 14, opening day of the 52nd PATA Annual Conference, Chairman of the Indonesia Organising Committee, Mr. Setyanto P. Santosa, asked delegates for forgiveness in case there were any shortcomings in the Conference organisation - and then delivered what PATA President and CEO, Mr. Peter de Jong, described as an "immaculate" Conference. Mr. de Jong said: "The enthusiasm, charm and attention to detail by our Indonesian hosts was a great credit to Indonesia. It was an enormous achievement and they should be proud." Mr. Santosa told the delegates: "When you find things [in Bali] which make your days bright and lovely, tell your friends and family so they can come to Bali. It is still the old Bali you knew, where serene nature and culture make you wish to return to this Island of the Gods. Bali is Bali forever."

CONFERENCE SPEECHES AVAILABLE TO PATA MEMBERS
PATA Communications department is gradually uploading all PATA Annual Conference speeches and presentations (that it has) to the PATA members-only area of www.pata.org. It will take a few days before all available speeches are sourced and uploaded.

PATA AND SPTO SIGN MEMORANDUM OF UNDERSTANDING
PATA and the South Pacific Tourism Organisation (SPTO) signed a Memorandum of Understanding (MOU) at the 52nd PATA Annual Conference. The MOU's objective is to pave the way for streamlined communications between the two organisations, ensuring that they work together as much as possible to deliver maximum benefits to their respective members. The agreement was signed on April 15 by PATA President and CEO, Mr. Peter de Jong and SPTO Deputy Chairman, Mr. Bill Gavoka. The signing was witnessed by Tonga's Tourism Minister, Mr. Mussao Paunga, and Fiji's Tourism Minister, Mr. Pita Nacuva. For further information, e-mail PATA Senior Advisor-Pacific Division, Mr. Ian Kennedy. E-mail: pata@pata.org.au.

PATA AGM APPROVES CULTURAL DECLARATION
On April 15, the PATA Annual General Meeting approved a Declaration on Preserving Social and Cultural Resources. The Declaration resolved that PATA shall 1) encourage communities to cherish, preserve and invest in their cultural heritage and indigenous language 2) educate destinations and visitors on the importance of cultural and heritage preservation 3) work to alleviate poverty through enhancing tourism's impact at the community level 4) empower women and youth to become an integral part of the tourism workforce, and 5) promote global understanding and peaceful relations through cultural exchange in tourism.

PATA FOUNDATION TRUSTEES ASSESS PROJECT BIDS
Under the chairmanship of Mr. David Paulon, the newly appointed Trustees of the
PATA Foundation conducted their first meeting during the PATA Annual Conference in Bali last week. The Trustees carefully reviewed submitted proposals for Foundation funding. Three projects were chosen. These will be announced shortly The Trustees praised PATA Singapore Chapter which raised funds in support of Balinese arts and crafts. The handicrafts were then donated to the PATA Foundation Silent Auction which took place during the Conference.

THAILAND AND MALAYSIA TO HOST PATA TRAVEL MARTS
Bangkok, Thailand has won the bid to host the 2004 PATA Travel Mart. Kuala   Lumpur, Malaysia will host the 2005 event. The PATA Board of Directors meeting in Bali approved the decision on April 13. PATA President and CEO, Mr. Peter de Jong, said: "Both destinations put in excellent package bids which covered all the fundamentals necessary to host a prosperous and exciting Mart. PATA's aim now is to continue the great momentum of our Conference in Bali and make this year's Mart in Singapore a resounding success." For information on the PATA Travel Mart, October 1-3, 2003 in Singapore, contact events@pata.th.com. 

PATA ANNOUNCES AWARD WINNERS
PATA is proud to announce the following awards which were presented during the 52nd PATA Annual Conference in Bali, Indonesia.
** PATA Life Membership. There were two awards: Pakistan-based Walji's Travel Bureau Chairperson, Ms. Shirin Walji; T&TG Consulting President, Mr. Terry Francis. PATA Life Membership is the Association's highest honour.
** Awards of Merit. There were three awards: Tourism Malaysia Director General, Datuk Abdullah Jonid; Langham Hotels International Vice President of International Operations and Development, Mr. Kevin Murphy; Swan Gold Tours' General Manager, Ms. Margaret Wilson. The award is reserved for individuals who have demonstrated leadership and long service to the Association and who have made contributions to PATA at the local level.
** Chapter Awards. The PATA Sri Lanka Chapter earned an Award of Excellence; the PATA UK Chapter won the Spirit of PATA Award.
** Face of the Future. The first PATA Face of the Future Award went to Mr. Vivek
Sharma. Mr. Sharma is SITA World Travel's Sales Manager in the Eastern United States.
** PATA Gallery of Legends. The 2003 inductee was Mr. F. Marvin Plake. Mr. Plake was PATA's first Executive Vice President, serving from 1959 to 1975.
**  Honorary Life Membership: Mr. I Gede Ardika, Honourable Minister for Culture and Tourism, Republic of Indonesia.
** Travel Journalism Award: Mr. Don Ross, Managing Editor of Mekong-region focused Travel Trade Report.
** PATA Chairman's Award, awarded by 2002/2003 PATA Chairman, Mr. Bo W. Long, went to PATA Director of Board Relations, Ms. Ratana Poopitakchatkaew.

PATA NAMES NEW OFFICERS FOR 2003/2004
** The PATA Chairman for 2003/2004 is Cabinet Secretary of the Philippines Department of Tourism, Mr. Richard Gordon; the 2003/2004 PATA Chairman-Elect is Founder and Managing Director of New Delhi-based Creative Travel, Mr. Ram Kohli; PATA Secretary/Treasurer for 2003/2004 is Accor Asia Pacific's Senior Vice President, Mr. Brian Deeson, based in Bangkok.

PATA STRATEGIC INTELLIGENCE CENTRE WORLDWATCH
** Canadian officials indicate that the corona virus may not be the only cause of SARS, since only 50 percent of cases examined showed that the virus was the infecting agent.
** Leaders of the Association of Southeast Asian Nations (ASEAN) will meet in Bangkok on April 29 to discuss measures that can be taken to counter the effects of SARS.
** A recent survey of companies in the U.S. found that almost half of those polled have banned non-essential business travel to SARS-affected regions. Some estimates put the forecasted loss in business revenue for those regions as high as US$11 billion.
** Malaysia stands to lose around MYR200 million (US$52.5 million) a month in tourism revenues from China (PRC) Hong Kong SAR and Chinese Taipei if the SARS problem is not resolved.

Travel Slump Drives Cendant's 1st-Quarter Profit Down 9.6%

The Cendant Corporation , the travel and real estate services company, said first-quarter profit fell 9.6 percent as a slowing economy and looming war in Iraq led to a drop in its travel businesses. The company also cut its profit forecast for 2003.

Net income fell to $309 million, or 30 cents a share, from $342 million, or 34 cents a share, a year earlier. Revenue rose 56 percent, to $4.1 billion from $2.6 billion. The drop in profit was tempered by a decline in interest expenses and higher earnings from Cendant's real estate-related businesses.

For 2003, Cendant said it would earn $1.35 a share to $1.37 a share, below the $1.42 a share estimated by analysts surveyed by Thomson First Call.

The company blamed reduced travel from the Iraq war and the outbreak of severe acute respiratory syndrome, or SARS. Cendant also said earnings would be reduced by $290 million to consolidate its final off-balance-sheet affiliate, the direct marketing company Trilegiant Corporation, in the third quarter.

Profit at the travel unit, which owns Galileo, the second-biggest provider of travel reservation services behind the Sabre Holdings Corporation , fell 12 percent, while real estate profit rose 24 percent. Hotel and resort earnings rose 29 percent, reflecting the purchase of a timeshare company,Trendwest Resorts, while vehicle services units, including Avis, fell 29 percent.

In an email survey of Business Traveller Asia-Pacific subscribers, more than four out of five respondents have said that the Sars outbreak has affected their travel. The survey was emailed to 912 selected subscribers on April 11, with 182 responses received by April 17.

Several respondents added a personal note. One California-based reader said: "My work is starting to get backlogged because of Sars. But I will not travel [to Asia] until health officials have a test for Sars and a vaccine is found. Believe me, the risk is much greater than the reward."

Some respondents criticised official responses to the spread of the virus. "China should be held responsible... due to their lack of responsibility in reporting the Sars problem when it first surfaced by trying to sweep it under the carpet," said a reader from Bangkok, whose comment was echoed by several who completed the survey.

One respondent in Hong Kong said that the local government "should take this thing more seriously and take drastic measures to put an end to the problem, especially with visitors from China," while a Singapore reader noted: "The problem... is not only not being able to travel to affected areas, but [that] businessmen in other countries may not be in the mood to receive your visit."

Not all comments were gloomy. "Personally, I think there is too much panic," said a reader in Italy, while another in Belgium said that he had decided not to cancel travel to Singapore, judging "the fear [to be] exaggerated and amplified by the media".

"As long as the airports are open and the airlines are flying, I will go on with business," said a reader in Switzerland. But not even he was as bullish as the Singapore-based subscriber, who is treating Sars as a unique business opportunity. "No risk, no business," this optimist wrote. "Good at the moment, no competition, space to expand!"

We hope you find the results of this survey useful. Should you require more details, please feel free to contact us.

Peggy Teo   , Publisher, Business Traveller Asia

Email: peggy.teo@businesstravellerasia.com  

www.businesstraveller.com  

NZ Hotels catch chill over Sars scare

Stuff.co.nz  -  Hotels are feeling the pinch as hundreds of Asian visitors cancel trips to New Zealand because of the severe acute respiratory syndrome (Sars) scare.

Bookings for April and May are down, with major tour groups too scared to travel for fear of catching the deadly Sars which has killed more than 200 people and infected nearly 4000 worldwide.

Future group bookings are also slowing, with overseas markets wary of planning too far ahead.

The bookings reflect tourism figures previously released that bookings from Asia for April to June were down 15 per cent.

Rotorua's Millennium Hotel general manager Tracey Thomas said his hotel had noticed a major downturn from the Singapore, Taiwanese and Japanese markets and the Hong Kong market had dried up completely.

Usually there would be about 550 guests a month from Asia.

Japan had cancelled the country's annual school trips to Rotorua, which Mr Thomas said usually saw Rotorua "hum" at this time of year.

"The Japanese are very, very nervous travellers," he said.

"They are usually the first to stop travelling and this is no different.

"But I can understand where they are coming from. Would you send your 12, 13 or 14-year-old to the other side of the world while all of this is going on?"

Mr Thomas said it was fortunate the Sars scare had happened during the New Zealand tourism "down" season. The impact in summer would have been far greater.

"It doesn't mean we have to lay staff off," he said. "We are just encouraging staff to take leave during this slow period." 

Malaysia lifts ban on tourists from three countries

TravelWeeklyEast.com  -  Malaysia has lifted its ban on visa issuance on three SARS-hit countries with immediate effect following strong criticisms and protests from Hong Kong and Taiwan, slamming the curbs as “unnecessary” and harmful to bilateral and tourism links.

China previously retaliated to the original move, by banning all organised tours to Malaysia, Thailand and Singapore.

The lifting of Malaysia’s curb, imposed on April 8, applies only to visitors from Canada, Hong Kong and Taiwan making social visits. They do not need health certificates to enter the country.

The restriction for travellers from China and Vietnam remains.

Acting Prime Minister Datuk Seri Abdullah Ahmad Badawi said in a statement issued Thursday evening that the decision to revise the temporary travel restrictions was made because some of the countries had put in place effective screening procedures for travellers.

He added that consultations are being held with China and Vietnam to request them to strengthen the pre-departure screening measures for travellers to Malaysia.

Visitors from these two countries will still be allowed to enter Malaysia with visa and medical certification saying they are SARS-free.

Hoteliers and travel agents have welcomed the lifting of the curbs, hoping it will boost business, which has been seriously affected firstly by the SARS outbreak and exacerbated by the ban.

A recent survey by the Malaysian Association of Hotel Owners (MAHO) showed hotels in Kuala Lumpur reported an average occupancy average occupancy of only 46.47 percent this month compared to 67.31 percent in March.

Individual hotel occupancy ranged from above 70 percent for a few of Kuala Lumpur’s leading hotels to about 20 percent for hotels outside the city.

Sabah hotels are the worst hit, with a 25 percent drop in average occupancy for this month; Kuching between 10 percent and 15 percent, Penang about 15 percent, Johor Baru about 10 percent and Langkawi less than five percent

Compensation & Corporate Governance in East Asia

Written By:  Keith Kefgen  & Mark Keith,   HVS International

Not to long ago Eastern Asia’s economy was lauded as a financial miracle. Foreign business leaders and academic’s admired and studied the concept of Guanxi, (cooperation through personal networking). Then came the crash, the revered guanxi revealed itself as crony capitalism. Poor credit decisions and inadequate banking supervision was seen as the root of the crisis.  According to the World Bank, the crisis was a direct result of excessive borrowing to finance an unsustainable buildup of poorly performing investments. The Bank concluded that an obvious conflict of interest existed and began to speak out on the issue of corporate governance.

The guidelines that make up corporate governance are central to the on going restructuring in East Asia and are designed to protect stakeholders.  One of the primary elements of good corporate governance is a compensation philosophy based on pay-for-performance.  Historically, Asia has relied on low labor costs to deliver strong financial returns but with payroll costs rising dramatically, change is necessary.  We believe that appropriate compensation management is vital for the region’s economic recovery. This article examines the principles of sound compensation strategy and highlights areas where abuse typically occurs.

Compensation philosophy and individual pay scales in organizations are often a result of history, hierarchy and corporate culture. In other words pay levels simply evolved.  As such, pay structure can be based on outdated beliefs, inaccurate market data or the vested interests of those executives administering the compensation practices. A well conceived compensation strategy is the product of independent analysis and experienced design executed to aligning the interests of the stakeholders and executives.

To achieve this within the framework of good corporate governance recommendations it is essential that compensation philosophy is overseen by an effective independent Compensation Committee, which will assist the board of directors discharge their fiduciary responsibility to the stakeholders.  This committee should be made up of independent and appropriately experienced members; their independence is vital for the committee to be able and willing to monitor and keep check on payroll excesses by non-performing executives and ensure that the compensation strategy motivates employees and executives, including the CEO towards the best interests of the company and its stakeholders.  

The Compensation Committee will oversee, job and organization design, base pay, variable pay, long term incentives and management succession, along with reward strategy and performance measurement.  Whether a large or small company the quality of board performance is closely linked to the quality of its outside directors, the compensation committee should be composed of these directors, care must be taken in selecting these individuals not merely for their work on the compensation committee but primarily for their role as independent directors.  In the climate of crony capitalism it is not uncommon to find these appointments going to friends, paid consultants, retirees and even competitors.  Ideally the appointment should be guided by appropriate experience, independence and competence. 

For service on the compensation committee training and education is required, members should understand the company’s key activities, strategies, organization chart, resumes and remuneration of the key people, the customers and competitors and their compensation practices.  Outside advisors or experts can be invited to provide data and make contributions, but they should be engaged and compensated by the committee rather than the management, again for obvious conflict of interest reasons.

In Hong Kong a recent survey commissioned by the Hong Kong General Chamber of Commerce revealed that civil service compensation had risen to alarming levels when compared to the equivalent job in the private sector.  Some reports indicated that the disparity ranged from 17 percent to as much as 229 per cent when all the benefits were taken into account; whatever the actual number the survey revealed, what many had known all along, that the disparity was unsustainable and was a result of a civil service administering their own pay adjustment mechanism over a number of years. 

The message for companies is clear an effective, well functioning compensation strategy doesn’t happen by accident, it’s a result of quality design and implementation; it communicates more than words what the stakeholders can expect for it influences the behavior of the employees, the executives and the CEO and ultimately determines the future of a company.

Keith Kefgen
President 
HVS Executive Search
372 Willis Avenue
Mineola, NY  11501
1-516-248-8828 Ext. 220
1-516-742-1905

Mark Keith
Managing Director
HVS Executive Search
Hong Kong
852-2791-5868

EuroTulip Hospitality acquires 6 hotels in the Netherlands 

Golden Tulip is proud to announce its participation in the shareholding of a new company called "EuroTulip Hospitality Management BV". The first acquisition of the company, represented by the takeover of the lease agreements of the former "Euroase" hotels, was finalised today, 17th April 2003.

All six hotels are located in The Netherlands and have been associated with Golden Tulip Hotels, Inns & Resorts since 1st January 1994. The new company EuroTulip Hospitality Management B.V. will be operated under the guidance of Martin Paardekooper, former Director of Operations for Krasnapolsky Hotels & Restaurants.

Golden Tulip Hospitality BV, the parent company of Golden Tulip Hotels, Inns & Resorts, will be 20% shareholder. The other parties involved are the AHM Hotel Groep BV with 30% of the shares, Franmar Holding BV with 20% of the shares and Hooge Raedt Groep B.V. (HRG), the owning company of the real estate of the six hotels, with a 30% stake.

The hotels operated by the EuroTulip Hospitality Management are:

Hotel City Rooms
Golden Tulip Residence Victoria Hoenderloo 109
Golden Tulip Landgoed de Wipselberg Beekbergen 90
Golden Tulip Epe Epe 138
Golden Tulip Loosdrecht Loosdrecht 68
Tulip Inn Beekbergen Beekbergen 78
Tulip Inn Amersfoort Amersfoort 74

Hans Kennedie, managing director and CEO of Golden Tulip states: “Being primarily a franchise company, this step is extremely significant to the brand. By having direct control over a number of hotels, we are able to set the standards for existing and new franchisees by showing flagship properties.”

“This step is strategically very important for AHM”, states Job Heilijgers, owner and managing director of the AHM Hotel Groep. ”AHM currently operates 14 hotels and 4 conference centres and it is our goal to continue to grow our position in the hotel and meeting market. Through EuroTulip Hospitality, we have created a new vehicle for expansion, which will accelerate our growth plans.”

Henk Sterk, managing director of the HRG, comments: ”We are very pleased to have joined forces with this consortium of investors. We feel that the strong background of all parties with Golden Tulip as such and with the management and operation of hotels represents a high value adding potential to the real estate of the hotels.”

Martin Paardekooper, owner of Franmar Holding B.V., adds:” The operation of these hotels will continue under its current management, however we see a high potential revenue improvements in the operations, through the synergies created by the group of investors and expertise available in the EuroTulip.”

Golden Tulip Hotels, Inns & Resorts is a privately owned franchise company with its head office based in Amersfoort, the Netherlands. Since the recent takeover of TOP International Hotels, a German based hotel consortium, the portfolio comprises over 45,000 rooms in approximately 450 hotels across 46 countries, with the majority of hotels being located in urban destinations across Europe.

HFTP’s Club and Hotel Controllers Conference to feature an Important Session on the Recently-published Uniform System of Financial Reporting for Clubs, 6th Edition

To emphasize the important changes to the newest edition of the Uniform System of Financial Reporting for Clubs, Hospitality Financial and Technology Professionals’ (HFTP) Club and Hotel Controllers Conference will feature a session that exclusively covers the amendments and expansion to this important reference text.

The book was released in mid-February, and was the result of a joint effort between HFTP and the Club Manager’s Association of America (CMAA). Ian D.N. Fetigan, CCM, the sub-committee chair representing CMAA, will lead the session at the conference being held April 28–29 at Marriott San Diego Mission Valley in San Diego, Calif.

"Together with a team of experienced club professionals, we were able to produce a reference that is pertinent to today’s accounting needs within clubs," said Fetigan. "The session will provide club controllers with a great opportunity to understand the evolution of club accounting by listening in on a comparison between the new edition and its previous version. These changes were based on the most current practices of individuals who work day in, and day out in the club industry, and were made to better suit the current system."

The interactive session, will be held Monday, April 28 from 1:15–2:45 p.m. with time allotted for questions and answers. The discussion will focus on the major changes and expansion from the previous edition published in 1996. This edition includes the addition of several recommended schedules, explanation of virtually all line items on the recommended schedules, an expense dictionary, illustrated statements and schedules, a taxation issues section and a widely expanded accounting numbering system that provides detailed accounts in both numerical and alphabetical order. The recommendations set forth in the sixth edition are based on a consensus of club industry financial executives, public accounting authorities and club general managers, and are consistent with generally accepted accounting principles.

To order the sixth edition of the Uniform System of Financial Reporting for Clubs, which costs $49.95 US for HFTP members and $59.95 US for non-members, contact the Educational Institute of AH&LA at (800) 752-4567 or (517) 372-8800 or contact CMAA at (800) 847-6977 or (301) 705-9940.

About HFTP:
Based in Austin, Texas, HFTP is the professional association for financial and technology personnel working in hotels, resorts, clubs, casinos, restaurants and other hospitality-related businesses. The association provides continuing education and networking opportunities to more than 4,000 members around the world, and produces the premiere hospitality technology shows HITEC and ONHTEC. HFTP also administers the examination and awards the certification for the Certified Hospitality Accountant Executive (CHAE) and the Certified Hospitality Technology Professional (CHTP) designations. HFTP was founded in 1952 as the National Association of Hotel Accountants.

Queensland  tourism looks to locals

The Mercury  -  Queensland (Australia)  tourism operators are relying on domestic holiday-makers this Easter to fill a void left by a drastic drop in international visitors.

Queensland Tourism Industry Council chief executive officer Daniel Gschwind said international arrival figures had dropped by between 25 and 30 per cent recently.

Mr Gschwind attributed the drop to the international outbreak of Sudden Acute Respiratory Syndrome (SARS) and the war in Iraq. "Forward bookings have also slowed which is concerning," he said.

Mr Gschwind said the Queensland tourism industry had been struggling since the September 11, 2001 terrorism attacks on the United States. "We can not afford now to live under the SARS cloud for too long," he said.

Mr Gschwind said the domestic market had become more important than ever to Queensland tourism operators. "We are facing a very difficult period with international tourism," he said. "So we are attaching even greater hope on domestic tourism at the moment."

Mr Gschwind said Easter bookings from domestic holiday-makers seemed to be quite strong in most parts of Queensland. "It's the bigger picture - we have to have business beyond Easter," he said. "We need an industry that can work well way beyond Easter and that's what we are concerned about."

Cornell’s Center for Hospitality Research Partners with TravelCLICK to help Hoteliers Improve Revenue Management Strategies

Soon hoteliers will get answers to key questions affecting reservation booking performance thanks to a new strategic data alliance between The Center for Hospitality Research and TravelCLICK, a firm that provides exclusive knowledge and tools to effectively benchmark hotel booking performance in the electronic marketplace. The new alliance between The Center for Hospitality Research (CHR) at Cornell University’s School of Hotel Administration and TravelCLICK is an opportunity for researchers to have access to a comprehensive database for study.

Hotel School Professor Cathy Enz, executive director of the CHR, said:  “One of the Center’s objectives is to help the industry understand distribution-channel management, and access to the TravelCLICK database will enable our researchers to explore a variety of important aspects of reservation booking.”  Based at the School of Hotel Administration at Cornell University, The Center for Hospitality Research conducts and sponsors research studies aimed at improving the hospitality industry’s fundamental operating knowledge. The Center’s mission is to bring together the best insights of scholarship in hospitality and industry expertise.  Development of the CHR’s research efforts is augmented by an industry perspective through its Advisory Board, and its 26 corporate sponsors. All studies are posted on the CHR web site: http://www.chr.cornell.edu.

“TravelCLICK has a responsibility to provide hoteliers with tools to manage their performance in the GDS and Internet channels," said Ray Cohen, president and co-CEO of TravelCLICK. "We are pleased that Cornell’s CHR will now be utilizing our extensive electronic databases to provide new insights and help that hoteliers can use in making their hotel more successful in the electronic marketplace."

About TravelCLICK
TravelCLICK (www.travelclick.net) is the leading provider of solutions that help hotels and other travel industry suppliers maximize net revenue from electronic distribution channels. TravelCLICK's competitive benchmarking reports provide hotels with price and booking performance information unavailable through any other source. The company's exclusive electronic marketing networks allow hotels and other travel related suppliers to target promotional messages to specific travel agents, consumers, and group meeting planners when they are booking travel. 

Vietnam: New company licensed to develop and implement master plan for Lang Co Peninsula and Lap An Lagoon in Thu Thien Hue province

The Vietnamese Central Government and the Provincial authorities of Thu Thien Hue Province recently licensed the Lang Co Master Planning Management and Infrastructure Development Corporation (“ Lang Co”),a Vietnamese joint stock company which will be 70% owned by the province and local investors and 30% by foreign interests. Lang Co has been entrusted to prepare and implement a master plan for the whole of the Lang Co peninsula and the adjoining Lap An lagoon.

The development area will be 1200 hectares and will include a comprehensive range of accommodation, tourist facilities, and entertainment and sports venues. The development will be comply with international standards and will take 10 to15 years to complete.

Lang Co will control the development and will work closely with the province in issuing the  individual licenses for the various projects included in the Master Plan. Lang Co will also be responsible for all infrastructure in the development projects.

This is a new concept for Vietnam, and has been identified by the central and local authorities as necessary to compete successfully internationally for tourists, particularly with resorts such as Bali and Phuket.

The company has been initially capitalised at USD 23 million with the provincial and Vietnamese investors’ contribution being in the form of cash. Thirty percent of the shares are reserved for foreign investors.

For further information contact Ken Atkinson, Partner, Grant Thornton (Vietnam) Ltd.        Tel: 848 -  821 9277     Email:    kena@gt.com.vn

William “Bill” Otto Elected Chairman of the Advisory Board for Preferred Hotels & Resorts Worldwide

The Advisory Board of Preferred Hotels® & Resorts Worldwide, a prestigious brand of more than 116 distinctive, independent luxury hotels and resorts, announced today it has elected Mr. William “Bill” Otto as Chairman.  Mr. Otto serves as President and Chief Operating Officer of Marcus Hotels and Resorts, the full-service lodging division of The Marcus Corporation (NYSE: MCS) based in Milwaukee, Wisconsin.  Following the resignation of Mr. David Benton, Vice President and General Manager of The Rittenhouse Hotel and Condominium Residences in Philadelphia and Preferred’s Chairman of the Board for two years, Mr. Otto’s new appointment is effective immediately.

Prior to joining Marcus Hotels and Resorts, Mr. Otto worked for the Stouffer Group of hotels for 15 years in positions including serving as general manager of the Stouffer Nashville hotel in Nashville, Tennessee.  He began his career with Hyatt Hotels in Chicago in 1978.  A highly recognized leader in the Wisconsin hospitality industry, Mr. Otto is currently serving as Chairman of the Governor’s Council on Tourism.  He is the past Chair of both the Greater Milwaukee Convention & Visitors Bureau and the Wisconsin Innkeepers Association, and was an appointed Wisconsin delegate to the 1995 White House Conference on Travel and Tourism.  He currently serves on the boards of the Greater Milwaukee CVB, IAHI-Six Continents, Spirit of Milwaukee and Junior Achievement of Greater Milwaukee.

“Bill has a proven track record in and passion for historic hotels.  The highly successful Pfister Hotel in Milwaukee, a Preferred member property and the Hilton Milwaukee City Center showcase how he has helped breath new life into classic hotels,” said Rob Cornell, Managing Director of Preferred Hotels & Resorts.  “These ‘grand dames’ not only were restored to their former glory but were creatively injected with innovative concepts that have led to new levels of sustainable profitability.  We are looking forward to working with Bill to continue the ‘Standards of Excellence™’ that Preferred has been known to extol.”

Mr. Otto received a bachelor’s degree in hotel and restaurant management from the University of Wisconsin-Stout and has earned the Certificate Hotel Administrator designation from the American Hotel and Motel Association.  Mr. Otto, 47, resides in Wauwatosa, WI with his wife, Michele and sons Christopher, Nicholas and Jonathan. 

Founded in 1968, Preferred Hotels® & Resorts Worldwide is a global brand of 116 of the world's finest individually owned and managed luxury hotels and resorts. Every member hotel shares the same dedication to service and must qualify for membership by adhering to Preferred's Standards of Excellence™, an exhaustive quality assurance program that includes an annual, third party unannounced audit of 1,600 standards and practices.  Preferred Hotels® & Resorts Worldwide is a wholly owned subsidiary of IndeCorp Corporation, an organization dedicated to providing independent hotel brands with the resources needed to compete effectively with global hotel chains and preserve the diversity and distinctiveness of the world's independent hotels.

Australia: Takeover activity ahead as hotels face empty beds

smh.com.au  - Hotel and resort owners are hoping the SARS virus, Iraq worries and general economic unease will be enough to convince Australians to holiday at home this year and help offset the slump in inbound tourists.

The sudden slide in international visitors is already affecting occupancy rates at hotels - adding further pressure to revenues hard hit by a sluggish global economy and a world-wide drop in international tourist numbers.

Analysts expect takeover activity to increase within the listed hotel sector if the trend is prolonged as declining cash flows put businesses under stress.

There are only a few listed hotel trusts, including Grand Hotel Group, as well as the diversified trusts such as General Property Trust, Mirvac and Thakral which also have hotel interests.

The latest woes to the tourism sector come only weeks after GPT paid about $165 million for Hamilton Island.

In addition to takeover activity, it is expected owners and managers will begin battling for management rights such as the recent stoush between Grand Hotel and Touraust.

Deutsche Bank said that a review of the latest Jones Lang LaSalle Hotel digest showed that while fundamentals had improved in Sydney, there were concerns about supply issues in Melbourne.

"Australia's close ties with the US, the war in the Middle East and geopolitical concerns in some locations could lead to questions over the safety of Australia as a tourist destination.

"And while the Rugby World Cup this year should bode well for domestic hotel operators, it is our opinion, such one-off events do not help alleviate the long-term lumpiness of cash flows," Deutsche Bank's property team says.

Deutsche also points out that there have been mixed performances in hotel markets across Australia. And corporate travel has been under pressure in the past six months as international visitor arrivals have declined.

"Against this, domestic leisure demand has remained strong due to continuing economic growth, low interest rates and the fear of terrorism attacks in some international location."

Deutsche said it remained concerned about the outlook for domestic hotel operators.

According to Jones Lang LaSalle Hotel, average room rates for Sydney declined 3 per cent in calendar 2002 to $135.54 a night with only a 1 per cent rise forecast for 2003.

Occupancy rates rose by about 4.8 per cent last year to an average 71.4 per cent with a forecast gain to 76.7 per cent in 2003. But the figures have been distorted by the conversion of older hotels into apartment blocks.

In addition, the numbers have been bolstered by the removal of Sydney Hilton's 585 rooms while the hotel is rebuilt. With no new hotels planned for the Sydney CBD, the current level of room supply in the CBD is lower than during the 2000 Olympics.

"These factors are likely to see room rate growth flat until staging a recovery in mid 2003 (when, hopefully tourists from the Northern Hemisphere venture south during their the long summer holiday). "We would argue that there is still uncertainty over placing a precise time frame on such a recovery, especially in the current economic and geo-political environment," Deutsche said.

On an individual trust basis, Deutsche said it was concerned about the consequences of Crown Casino's expansion on Grand Hotel and it had placed a "sell" on the trust. But other analysts said possible takeover activity could keep unit prices high.