David Elsen adds another lonely voice to join the chorus of those thinking there needs to be a change in Hotel Management Agreements. With a few notable exceptions, very few hotel operators are willing to operate someone else's hotel on the basis of a share of the profit only. The operator's argument usually goes something like "it's the owner's asset; we're just managing it and we're not going to take on the risk for owner".
The problem is that - for the most part - all of the operator's overheads of running the hotel (and often a proportion of central overheads as well) are borne by the owner and deducted from the hotel's revenue at source anyway; so the base fee (usually a % of revenue) is profit and the operating costs pose no risk for the operator. Where there is an incentive fee (usually a somewhat larger % of gross operating profit) as well, it is usually only of limited impact as a driver to drive the operator to minimise costs and increase profitability.
Owners need at the negotiating stage at least to request remuneration by incentive fee only as an option. As a German friend of mine is fond of saying, "Fragen kostet nichts" (asking costs nothing).
