Emaar Hospitality Group, the hospitality and leisure business of Emaar Properties PJSC, has introduced an industry-defining model for hotel management agreements. This is a marked departure from the prevalent fee structure in the hospitality sector, where hotel operators receive a base fee as a percentage of gross revenue and an incentive fee based on the gross operating profit.
The alternative model offered by Emaar Hospitality Group is based only on an incentive fee, which is driven by the operator’s ability to generate profits rather than revenues. In an industry where the majority of global fees earned are linked to revenue, the new model aligns the interests of the owner and operator as it focuses on profit generation.
Olivier Harnisch, CEO of Emaar Hospitality Group, said the new management fee model sets an industry benchmark. “There will be greater responsibility on the operator to drive operating profits that will create sustained value for hotel owners, unlike under the prevailing model, where the operator earns a base management fee regardless of operating expenses,” said Mr Harnisch.
“The distribution landscape in the hotel industry has changed dramatically and we feel that profit is a more powerful indicator of operator performance than revenue. We are leveraging our experience as a hotel owner and operator in developing the new model. With ten years of history in developing and operating three industry leading hotel brands, we understand the operations side of hotels.
“The new model enhances owner-operator relationships with greater onus on the operator to drive profitability, and also creates lasting value for hotel owners, even in the face of challenging economic conditions as the operator will focus on minimising operating expenses and strengthening profits.”
Emaar Hospitality Group has already signed several management contracts to operate hotels in the UAE, Saudi Arabia, Bahrain, Turkey and Egypt for other developers and hotel owners. The new model is offered in addition to standard model and gives the hotel owners the opportunity to choose between the two.
Unlike many international hotel operating companies that are shedding their property and focusing on hotel management agreements, Emaar Hospitality Group is expanding its management contract expertise and also strengthening its own development pipeline with a total of 26 hotel projects.