When Owners and Operators Squabble

There's an interesting industry drama playing out between lodging owners and managers as they collectively slog through the hotel industry's worst recession. It's always been there, but the natural (and generally healthy) tension between these two sides of the hotel business becomes as tight as one of Charlie Watts' snare drums when operating results take the kind of tumble we've seen in the past 10 months.

Predictably, crisis inevitably leads to finger pointing and often dissolves into arbitration proceedings or even legal actions.  When married couples can't agree on money issues, divorce sometimes follows; the same is true in business, and the pain is similar. In good times, owners and managers are typically in sync when it comes to strategies and execution of plans. Everybody's on board when rates are up, occupancies rise and profits flow. Once the metrics flatten, smiles and hugs turn to frowns and backstabbing.

The situation can be especially dicey when the manager is the brand company. The nasty conflict between Four Seasons and Broadreach Capital, the owner of its Aviara property in southern California, has gotten a lot of press attention. I'm sure the same scenario is underway across the industry, particularly in the hard-hit luxury segment, but also in all markets and levels of service.

Brand companies are loath to relax their service and amenity standards, no matter how bad business gets. Their claims of brand integrity and the need for long-term continuity have merit. But so, too, do owners' aversion to a forced-sale or bankruptcy just to save a brand's reputation. Typically in these situations, neither side is pure: Brands often make unnecessary demands, while many owners are the victims of their own financial foibles. This seems to be the crux of the problem between Four Seasons and Broadreach. The matter is now in court and probably won't be decided for awhile.

Where this tension comes to a head is usually in the category of labor, a hotel's biggest cost center and the easiest (in the minds of owners, anyway) to chop. Laurence Geller of Strategic Hotels says his firm, which owns and operates luxury hotels, has cut 15 to 20 percent of its labor, and that a quarter to a third of it won't be back, even when good times return. That statement generated some backlash, including comments from Dr. Peter Ricci, head of the hospitality management program at Florida Atlantic University, who worries that permanent cuts in labor will decrease service, contribute to employee burnout and ultimately hurt the industry's profits and profile.

Both men are right in their own contexts, but the discussion reinforces my earlier point that healthy industry tensions in an upmarket can become unsolvable and fatal differences during a downturn. Unfortunately, while there is no easy solution to this conundrum, it's positive that these issues are in the open and up for conversation. So, if you're facing the same issues, go see a marriage counselor (or hotel industry equivalent) before divorce becomes the only viable option


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