Hotel Owners vs Hotel Brands: Trouble in Thailand

Hotel Owners vs Hotel Brands

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The Peninsula Bangkok. The JW Marriott Phuket. Both of these hotels are embroiled in lawsuits between the hotel owner (or part-owner, in the case of The Peninsula Bangkok) and the brand. Typically these disputes are resolved via arbitration, but the public court fights of these properties shed light on the very real tension between hotel owners and hotel brands, particularly in a challenging local market.

Luxury Hotel Brands: The Long View

Most hotel brands, especially since the 1980s, have become very asset light, and don't own the hotels in their brand portfolio. Instead, they have a management contract with the hotel owner, earning a percentage of the hotel's revenues and incentive bonuses. Management contracts tend to be longer for luxury brands, often 30 years or more, with Four Seasons management contracts often 60 years or more, reflecting the power of the Four Seasons brand at the negotiating table. Hotel owners generally prefer shorter contracts, giving them the freedom to switch hotel brands if they find the contract terms too onerous or the branding incompatible with the hotel's actual client base.

Hotel owners are also often loathe to invest in expensive renovations or to completely close a property undergoing major renovations, since the costs reduce profitability. This of course is at odds with what the hotel management company wants, since a hotel that isn't maintained properly or kept up to date will also cause guest dissatisfaction, poor reviews, and ultimately tarnish the brand. I can think of several hotels right now that are in the midst of this kind of struggle between the owner (“Occupancy and room rates are still good!”) and the luxury hotel brand (“We're getting poor feedback from guests–it's time to renovate guest rooms and suites!”)

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JW Marriott Phuket: Owners Blame Marriott for Decreased Profitability

Minor International, which owns the JW Marriott Phuket and also operates over 500 other hotels worldwide under the Anantara, Tivoli, and NH Hotels brands among others, filed a lawsuit last July claiming that the 20% drop in gross operating profit in 1H 2019 over 1H 2018 was due to several factors:

  • Changes in Marriott's Bonvoy loyalty program reimbursement for award stays, such that Minor was reimbursed only $47 per night instead of $120 per night previously
  • Oversaturation of the hotel's Phuket market with other Marriott properties, which reduce demand for the JW Marriott Phuket
  • Poor purchasing, sales and marketing decisions made by Marriott

Interestingly, Minor International is quoted as saying that the only hotel brand/management company they (Minor) is still prepared to work with is Four Seasons.

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The Peninsula Bangkok: Thai Owners vs. The Peninsula

Bangkok is a challenging hotel market, with an abundance of hotel rooms and an increasingly crowded luxury hotel segment: witness the new Four Seasons Bangkok, the Rosewood Bangkok, Park Hyatt Bangkok, etc. joining existing stalwarts such as the Mandarin Oriental Bangkok and The Peninsula Bangkok.

The Peninsula Bangkok is owned 50% by the wealthy Phataraprasit family and 50% by the Bangkok subsidiary of The Hongkong and Shanghai Hotels, which is The Peninsula.

The Thai Phataraprasit family went to court after failing to end the Peninsula Hotels management contract in a board meeting in January 2019, since it was blocked by the Peninsula subsidiary, which has a voting majority on the board. But in September 2019, the local Thai Thonburi Civil Court ruled that the Peninsula subsidiary shouldn't have been allowed to vote on a resolution regarding the termination of the management contract. The Peninsula is appealing the case.

Meanwhile, the Phataraprasit family claims that The Peninsula hasn't run the hotel profitably over the past 20 years, which is why it's trying to end the management contract, while The Peninsula for its part insists that it has always acted with integrity and the decline in financial results has been due to political uncertainties and events outside its control, such as the challenging Bangkok luxury hotel market as well as fewer visitors from mainland China following a tragic boating accident in Phuket in 2018.

We'll see what happens, but if the Peninsula loses this contract, I think it would actually be a good thing, since it's clear the property hasn't received the investment it needs in quite some time. When there's such a significant gap in the hard product between the Peninsula Bangkok and a newer property such as The Peninsula Paris, no amount of great service will overcome the guest disappointment.

As a guest, have you encountered hotel underinvestment issues that could be the result of a hotel owner vs. hotel brand/management company dispute?

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2 Comments on "Hotel Owners vs Hotel Brands: Trouble in Thailand"

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Cliff
Guest

The Pen BKK should not carry the Peninsula name at all! There were expired yogurts and hams turned sour at breakfast buffet. Discriminatory dress code practice (Caucasians can wear shorts and flip flops as they like but not Asian guests). Bell staff did not assist with guests but were gossiping about guests openly.

Hilary Stockton
Guest

Cliff, agree with you and have been steering clients away from The Peninsula Bangkok to other Bangkok luxury properties for some time now. What you describe is unacceptable for a hotel, let alone a luxury hotel of any brand. Hope that you’ve found a new favorite hotel in Bangkok, although in Paris, I do still recommend The Peninsula Paris, it’s a lovely property worthy of the brand.