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Leading Hotels experiments with removal of transaction fees

Posted on 21 Feb 2012 at 10:55 am by Yeoh Siew Hoon

Three-and-a-half years after he took up the reins at Leading Hotels of The World and shook things up at the 84-year-old luxury hotel collective, Ted Teng (left) may be shaking up things again.

He is piloting a project to remove transaction fees and move to a flat membership fee. With transaction fees accounting for 45% of revenues currently, there is of course a lot on the line and Teng is naturally cautious about the move.

On a visit to Singapore, he told WIT, “We are essentially experimenting with it. We will see how far we go and how we replace it but this is the general direction – to go towards a flat fee.”

He thinks this is the right way to go for a marketing and representation organisation because “there is inherent competition in a transaction model”.

“Pay for performance sounds good and it works if you are given the task to perform. In hotels, there is no exclusive distribution. People find you through many channels or they can call a hotel directly – this creates competition. Should a travel agent book with a hotel or through LHW?”

Teng’s appointment three-and-a-half years ago at LHW raised eyebrows. This was a conservative European-centric brand, representing independent hoteliers some of whose families have been in hospitality for generations. Teng, who’d worked with Starwood and was at one time heading the Asian operation, is an Asian-American, never worked in Europe, “I don’t know how to pick a wine” but “they told me they wanted someone who could look at their business model – they were celebrating their 80th anniversary and they wanted to stay in business another 80 years”.

He added, “It’s been a learning curve, working with 430 owners, some of whose families have been in hotels for six generations. It’s a bit like an association, everyone is fairly comfortable sharing their opinions. I learnt to listen and I try and make 80% very happy and 20% satisfied.”

One of the first things he did was put together a five-year plan to improve the quality of the portfolio, re-invest in the business and generate more revenues to the hotels.

“A market of expats to a market of Asians”

“In the past, they grew the company by adding more hotels and not by generating revenues,” said Teng. And to him, the biggest mindshift that’s taken place at LHW is “from looking at Asia as a market of expats to looking at it as a market of Asians”.

In his fourth year, he says he has increased revenues to LHW’s hotels by 19%, above the industry average. In Asia Pacific, where the office is led by Philip Ho, revenues have grown 25% year on year.

He admits part of it is catching up and growth is from a low base “but we have developed several new revenue streams, strengthened our Leaders Club (currently at 100,000 members) and got closer to the travel agents”.

Up to 75% of its business is touched by travel agents. While this continues to be a growing and important channel, LHW is also investing in online direct. It is redesigning its website for a September launch and the new site will have more social and mobile features.

In the last three years, about 100 hotels left the network. “Half left because of quality, a quarter left because we were not delivering value and the rest because of their own brand strategy.”

Teng started with 475 hotels, currently there are 430 in the fold. “It was tough to cut hotels during a recession. It cost us US$6 million in membership fees but we had to do it for the future of the company. We had to catch up.”

And now he feels it’s timely to explore alternate pricing models, hence the experiment with removing transaction fees.

He said the fee model worked for a different time but new technological advancements meant it had to be reviewed. “The consumer is now channel agnostic, they don’t really care how they book, our business model needs to reflect the current environment.

“I think you can’t afford to just have incremental improvements when the world has changed so much.”

And even though LHW is a not-for-profit organization, Teng said “the danger is you can become complacent so we need to push ourselves even harder”.

The hotel distribution and marketing landscape has changed so much, he said. Citing the new site, a collaboration between six major hotel brands – Choice, Hilton, Hyatt, InterContinental, Marriott and Wyndham – Teng, said, “These mega chains are not going to stop flexing their muscles. We need to review how we can remain relevant, differentiate and offer added value to our members.” (Read about here

The area where LHW adds most value is with hotels that can already produce 80% of its own business. “We help them to top up and our pricing reflects that. We can reach global markets. In a survey of our Leader Club members, we found the average distance between where they live and the hotels they visit is 4,000 miles and they stay at many different hotels on their holidays.”

He feels consumers today want more than the cookie-cutter type of hotels. “These did well when standards weren’t there but people in general are looking for different kinds of experiences. The Chinese travellers still want their branded goods but the new emerging travellers want something different.

“As they say, when you have nothing, you want what others have. When you have everything, you want what no one else has."

Tags: Leading , Hotels , Of , The , World , travel , hotels , transactions