In role reversal, tour operators find success in hotel ownership

Thomas Cook's Sunwing Kallithea Beach hotel in Rhodes, Greece. Photo credit: Thomas Cook

A role reversal of sorts has been afoot in the hotel sector: as global brands shed owned assets, traditional tour operators are stepping in to become hotel owners.

At traditional UK-based tour operator Thomas Cook, the company has moved into ownership creating a hotel investment platform with LMEY, a Swiss hotel development group. The pair launched the fund with five owned and directly-managed hotel properties, with a combined value of around £150 million and has since added three more sites. 

The agreement also saw Thomas Cook acquire a 42-percent stake in Aldiana, a premium club and activity-focused tour operator and hotel management company based in Germany from LMEY, adding a further brand to the tour operator’s stable. The group launched a further flag in Cook’s Club, described as offering a boutique hotel at an accessible price point.

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On the group’s most recent earnings call, CEO Peter Fankhauser updated analysts on the fund, commenting: "Our fund and our new Cook’s Club is an innovative concept for a new segment, which is much more design-lead, giving us the tailwind to really grow our own branded hotels, and to have even bigger reach than what we have before.

"We have now put all the seed assets that we have planned into this fund and we have big ambitions to have by 2020, 10 to 15 managed hotels in the fund. This is our opportunity to really have more control with the management of those hotels. We have the right partner. He is as pushy as me. We have proven the capability from our side to really launch attractive new concepts, and we know how to manage hotels and we have the distribution power. And this combination of the three factors, I’m convinced, is an absolute success model. This is going to attract investors to put their money in."

A Thomas Cook spokesperson said that, in line with its asset-light approach, the fund sits off the balance sheet. "Thomas Cook Hotel Investments owns the hotels; we own 50 percent of the fund. We can now use the fund to leverage third-party capital through debt in the first instance, and equity. We have eight hotels in the fund and what we're doing at the moment is talking to third parties. We've got the experience in hotel management and we have the customer base to fill them, while LMEY has good experience in hotel development so we don’t necessarily need people who also have hospitality experience. We have talked about it as means by which we can use it to accelerate and grow our own-brand hotels. Our own brand hotels' portfolio is mostly franchised or managed. We also have a programme of opening new hotels, which are not in the fund. We are also deflagging hotels which don't meet up to our standards."

At rival TUI Group, the company used its Capital Markets Day in May to outline plans to expand its hotel portfolio, with the intention of growing predominantly through management contracts or through joint ventures, adding that: "In unique destinations or in destinations with an all-year round business, we perceive ownership to be a superior strategy."

Fritz Joussen and Peter Long, joint CEOs, said: "We are in an excellent position. We do not just act as travel agents; TUI actually owns more than 300 hotels, cruises and an aircraft fleet of around 140 planes. This differentiates us from our competition. We will therefore be able to shape market entry into new destinations ourselves, setting travel trends for the future."

The company underlined this by acquiring Stella Polaris, owner of land on the southern coast of Crete, to open a new Robinson Club, earlier this year. Sebastian Ebel, TUI Group executive board member in charge of hotels and resorts, said: “We are aiming to deliver substantial growth in our own hotel brands TUI Blue, RIU, Robinson and Magic Life in the next few years. The expansion of our portfolio in the trending destination Greece marks a further step towards that goal.”

Earlier this year, in January, RIU Hotels & Resorts reached an agreement with the Baraka Group to purchase emblematic Edificio España on Madrid's Plaza de España and subsequently carry out the necessary refurbishments to turn it into the first Riu Plaza urban hotel in Spain. The Baraka Group had acquired the hotel from China's Wanda. 

"We are very excited about this new project. It will not only signify our Riu Plaza brand’s début in Spain but will also be a worldwide reference for the company thanks to its excellent location on Madrid's Gran Via and the singular nature of the building. We believe that this partnership with Baraka is an excellent opportunity to strengthen our brand’s positioning in Spain and in the world," said Carmen and Luis Riu, the CEOs of RIU Hotels & Resorts.

Competing in key markets such as Spain has driven these companies to bet their strategies on their bottom lines. The competition is not slowing; in May, Apple Leisure moved to bring its AMResorts’ brands to Europe through a deal with Spain’s NH Hotel Group. 

Apple's AMResorts division will oversee management and sales of the hotels, while NH will maintain operational management. The deal will see the companies jointly operating a number of beachfront resorts located in Spain, including the introduction of the all-inclusive Amigo Hotels & Resorts brand. 

“Spain is the gateway to the leisure segment in the Mediterranean Europe,” said Javier Coll, EVP and chief strategy officer of Apple Leisure Group. “As the second most visited country in the world in 2017, the time was right to expand our footprint across the Atlantic Ocean and into Europe, beginning in Spain. Through this partnership, NH Hotel Group is helping us enter the most competitive and popular destinations in this country, as well as in the rest of the Mediterranean markets, such as Italy where NH has a strong presence.”

The expansion into Europe marked the next phase of a long-standing partnership between AMResorts and NH, which began in 2011 when the companies established a similar model to open three resorts in the Dominican Republic.

The deal will not include an ownership element for Apple, or, it is expected, NH, which has been moving toward a focus on management. At the group’s investor day in September last year, NH reported that it owned 21 percent of its 58,472 rooms, down from 24 percent in 2013, as it sought to exit ownership and reposition its portfolio. This may yet change. At the time of writing, Thai-backed group Minor International had taken a significant stake in the company that could lead to full ownership. For now, under new CEO Ramón Aragonés, the priorities are asset-light growth and deleveraging through selling assets.

Does this dabbling in hotel territory mean that the tour operators are now hoteliers? "We're a holiday company," the Thomas Cook spokesperson said. "We have an airline and a tour operator, but, at the heart of the company are our own-brand hotels. "We have 180 hotels open and they are at the heart of the strategy. We get better customer satisfaction, better loyalty and better margins. We want to take more of the value chain: if we own more of the hotel, we get more of the revenue and more of the control.”

Whether yes or no, expect to see more of it in the future. 

Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.