Marriott, Hilton, Four Seasons, Ritz-Carlton… the great names of the hotel industry are familiar to millions. Stop anyone in the street and they’ll be able to reel off a selection without trouble.
How about Aimbridge, Pyramid, or HVMG? Unless you happen to bump into a hospitality insider, ask about those in the street and you’ll likely be met with a blank face.
Although they fly under the radar of the typical hotel guest, these might just be some of the most important hospitality companies you’ve never heard of. Why? Because without them, much of the hotel industry as we know it today wouldn’t function.
Hotel management companies – usually referred to as third-party or ‘white label’ operators – specialize in running hotels as efficiently and effectively as possible, thus maximizing the bottom line for the property’s owner.
In some cases this task is performed by the hotel company that also has its brand name on the property – all the major groups, such as Marriott, IHG and Accor, have standalone hotel management divisions. However, often the owner/investor will choose to appoint a third-party specialist, thus creating a three-way structure of owner>brand>manager.
A good career move
It's a world that Nicholas Northam knows very well. And it’s a world he believes is an excellent potential career path for a hospitality graduate.
“There are two reasons why I say that; the first being the sheer variety of brands you’ll get to work with,” he explains. “If you’re employed directly by a hotel owner or a brand itself, this restricts you to the properties within the owner’s or brand’s portfolio. But if you work for a third-party management company, you’ll be engaged with all the brands that it’s contracted to manage. It’s an incredible way to gain experience across multiple brands and, as I discovered for myself, that certainly helps to make life more interesting.
“The second big advantage is that, especially if you work for one of the larger management companies, you’ll have more opportunities to transition and transfer across roles and brands – and that means more opportunities for promotions.”
That said, to earn a place in the world of third-party hotel management means bringing something to the table in terms of skills and experience.
“As third-party managers, we are selling our expertise in operating a hotel. You could say that in this business you are only as good as your last P&L (profit & loss account). So naturally you have to build an excellent level of professional knowledge to appeal to recruiters, especially if you are looking at specialized areas such as revenue management or sales. But there are what I’d call more ‘entry level’ positions too – perhaps in finance or HR,” Nicholas says.
At the helm
Though he maintains close connections to the industry – not least as a member of our Hospitality & Luxury Insight Council – Nicholas’ frontline career concluded after a period in which he ran the international division of what is today far and away the biggest player in the market, with more than 1,500 properties across 20 countries: Aimbridge Hospitality.
“I was actually working for the international arm of Interstate, which at that time was the second biggest of the third-party management groups. We were then acquired by Advent International, the investor which already owned the market leader, Aimbridge. The combined company thus became the dominant force in the sector,” Nicholas continues.
Though the name has now disappeared, Interstate will always be remembered by industry veterans as a true pioneer in the field. Indeed, the company was one of the first to sign a third-party management contract, back in 1963.
The ‘asset light’ catalyst
But for Interstate and its competitors, what really supercharged the white label management sector was the strategic decision taken by leading hotel groups to go ‘asset light’ – selling off the vast majority of their owned properties to real estate investors, in order to adopt a much less capital intensive managed or franchise approach.
“From the brands’ perspective, it’s an awful lot more efficient and effective putting your name above the door and collecting the various franchise or royalty fees than it is to actually run the hotel,” Nicholas continues. “Because running a hotel successfully is pretty hard work, and the decisions you take as an operational manager, where you are incentivized on the bottom line, are not always going to be aligned with a brand whose primary incentive is to drive topline revenue.”
This tension lies at the heart of the owner>brand>manager triumvirate we referred to earlier. Nicholas adds that it’s one reason why third-party managers are closely aligned with the hotel owners.
“I’ll give a practical example from my time in the business. We were working with a brand that wanted its hotel beds to look spectacular, with lots of extra pillows and scatter cushions on them. And what did people do when they arrived in their room? They threw 90% of these pillows and cushions on the floor, which meant they had to be laundered every time, even though they hadn’t been used.
“We were managing something like 70 hotels under this brand for a particular owner. So we calculated the extra cost for laundering all this material each year, and it was into the hundreds of thousands of pounds. When you can talk those sorts of numbers, the owner is going to take your call. And that’s part of the reason why third-party management is still growing within the hospitality industry, because when you combine expertise with scale it can transform the owner’s bottom line.”
Give the customer what they want
Nicholas is quick to add that, while questioning the status quo is important, a third-party manager must always respect the standards associated with the brand name carried by the hotel, “because that’s what the customer expects”. He adds that 99% of the time the guests will neither know nor care who is actually managing the property in which they are staying.
“As the manager you are incentivized to deliver what the owner wants, but at the same time to ensure that the hotel is being run in a professional manner, following the brand standards that are appropriate whether it’s a Marriott, an InterContinental, a Holiday Inn Express or whatever.”
An added challenge – and opportunity – for third-party hotel managers is the extraordinary proliferation of owners and investors now active in the market.
“We now have pension funds, private equity companies, family offices and even sovereign wealth funds all looking to invest in hotel assets,” Nicholas continues. “As a third-party manager you could be working for a vast spectrum of different owners, and the pressure is on for every one of these properties to perform. At the end of the day, owner A does not care less how owner B’s hotel is performing, they’re only interested in their own assets.”
With the task of operating a hotel profitably getting no easier in many countries, Nicholas sees a continued ‘flight to quality’ that will be good news for the respected third-party management companies.
“I do believe that third-party management is going to continue to grow,” he concluded. “But the important thing to remember is that these companies are not competitors to the hotel brands, because as a guest the brand is still what you see above the door. I like to think of it more in terms of us being colleagues and partners looking to deliver what’s best for the hotel owners and guests. We have a mutual dependency on the hotel being successful.
“I have no doubt that anyone looking at this sector as a future career path will be going into a growing market.”
Photo credits
Hotel sign: Thinkomatic/Getty
Housekeeping: Pressmaster/Getty
Hotel management: M.photostock/Getty
