Life's changed, but we're still on a roll
By Yeoh Siew Hoon ~ thetransitcafe.com
Wednesday, 29th November 2006
Asset light doesn't mean no capital says InterContinental's Tony South. It just means you've got to be more creative and cleverer in how you grow, he tells Yeoh Siew Hoon.

InterContinental Hotel Hong Kong's Presidential Suite: Outdoor deck & infinity pool overlooking Victoria Harbour

The hotel industry's on a roll and InterContinental Hotels Group is not to be left behind. It will exceed its global growth targets this year and by 2008, it will add 50-60,000 rooms to its network, with half of the growth coming from Asia/Pacific.

This, despite "life changing for us," says Tony South, Senior Vice President, Development & Asset Management for InterContinental Hotels Group, Asia Pacific.

Having since shed its assets – it sold £3 billion worth of real estate and 150-160 hotels in the last couple of years, the group is now focusing on management contracts without equity "even though we still have plenty of capital to put into the right deals".

"But the days of the big single asset like this hotel is behind us," he says, as he sits back in the couch in the newly-refurbished US$2 million Presidential Suite of the InterContinental Hotel, Hong Kong. It's difficult to connect the image of asset-light with this suite with its outdoor deck and swimming pool with the whole of Victoria Harbour at your feet, as it were.

But South says being asset light has not eroded the group's competitive edge in expanding in Asia. "People have suggested that owners might feel more comfortable with other owners but we provide bank guarantees and we have a good track record.

"The important thing is perception. People think because we sold our assets, we have no capital. But we want to deploy our capital selectively and smartly," says South.

Everyone wants a five star hotel

The group will expand through management contracts rather than franchises because "the majority of markets around Asia/Pacific are too immature for the franchise concept".

"Even in Australia, which is a relatively matured market, there is no real supply of unbranded hotels and with franchises, you need to be sure that your partner will do a good job because you're one step removed from the action."

InterContinental's Tony South (pictured right):"You've got to be cleverer and more creative today."

It's been a learning process, growing in Asia, says South, who hails from Australia. "India's been a paradox. We have been there for 40 years – we had a great start – but we had some really poor relationships from days gone by. So we had to clean up before moving forward."

He sees more opportunities for midscale properties in India than in the higher end of the market. "There are good opportunities for Crowne Plaza. There is no reason why Holiday Inn can't be as ubiquituous in India as it is in China. Holiday Inn fits well with the big domestic market."

But it is challenge building midscale properties in India even though the destination is crying out for more budget hotels. "Land costs are high, it's a challenge everywhere. You need to make your hotel stack up in terms of numbers and increasingly, people are looking for alternate ways to put deals together, whether it be mixed-use or lease land opportunities. You've got to be cleverer and more creative today."

He acknowledges a disconnect happening between supply and demand in markets like India and China. "It's a sign of the immature market. Usually, you get an inexperienced hotel owner and the first thing he wants is a five star hotel brand. It's a sop to the ego, a mark of stature and face. Only when the markets begin to mature and people become more astute about the true economics of development, then they become more savvy and think about the product match.

"Logic says, look at the demand and supply and build to meet demand. To do the opposite makes no sense, but it's a maturation process. Do you know how difficult it is for us to convince some owners to build a Holiday Inn versus an InterContinental?"

Environmental atrocities must not be allowed to happen

Eco-friendly InterContinental Resort and Thalasso-Spa Bora Bora (left)

As InterContinental grows in Asia, South says he is seeing growing competition from Asian companies such as Shangri-La. "They are a strong successful operator in the upper end of the market. Now there is talk they may go into a third tier brand (after the group's purchase of the Novotel and they will look to organizations like us who have a number of brands.

"There are limited number of locations and markets that can support a full scale Shangri-La therefore they need another brand but it's a totally different ballgame and different skills are needed to operate a Holiday Inn versus an InterContinental."

The real competition though still comes from what South calls global adversaries. "They're doing everything we're doing. And the best way to deal with this competition is to build strong relationships with our partners so that you're their first choice when they want to grow."

With all the publicity on climate change, South is also an impassioned champion of sustainability although he admits he is caught between a rock and a hard place. His job demands he builds hotels which take their toll on the environment, yet he feels strongly that the industry needs to reduce its footprint.

But there are things hotels can do, he says, pointing to the InterContinental Resort and Thalasso-Spa Bora Bora which has put in what he calls an exemplary environmental management system.

The new resort, built with an an investment of US$70 million, has constructed an eco-friendly air-conditioning system, deploying a 7,874 foot pipe (the deepest ocean pipe in the world) to a depth of 3,000 feet off the reef of Bora Bora. The pipe pumps ice cold, deep sea water through a titanium heat exchanger, transferring the cold into the fresh water circuit that then powers the air conditioning throughout the hotel.

The system saves 90% of the hotel's electricity consumption for air-conditioning, which represents 2.5 million litres of fuel oil per year, and is perfectly clean with no impact on the environment outside of the 5°C sea water returned to the ocean at 11°C. Even the return water is re-routed to a depth of 197 feet to avoid hurting the fish and coral.

"Some of the environmental atrocities that have happened shouldn't be allowed to happen in Asia. The important thing is, we need to recognize our environment is fragile and we must not kill the goose that lays the golden egg," says South.

The SHY Report
A regular column on news, trends and issues in the hospitality industry by one of Asia's most respected travel editors and commentators, Yeoh Siew Hoon.

Siew Hoon, who has covered the tourism industry in Asia/Pacific for the past 20 years, runs SHY Ventures Pte Ltd. Her company's mission is "Content, Communication, Connection".

She is a writer, speaker, facilitator, trainer and events producer. She is also an author, having published "Around Asia In 1 Hr: Tales of Condoms, Chillies & Curries". Her motto is ‘free to do, and be'.

Contacts: Tel: 65-63424934, Mobile: 65-96801460

Yeoh Siew Hoon's other writings can be found at www.thetransitcafe.com . Get your weekly cuppa of news, gossip, humour and opinion at the cafe for travel insiders.
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