Sandals Resorts International's appointment of a former
Hyatt CFO as its new chief executive in March was more than a typical changing
of the guard atop a large hospitality company.
Gebhard Rainer became the first person at the company's helm
who is not a member of the founding Stewart family, led by chairman Gordon "Butch"
Stewart and his son, deputy chairman Adam Stewart, who was CEO for 12 years.
Rainer was brought on to take Sandals in a vastly different
direction than the track it's been on for almost 40 years. Most notably, that
Sandals owns all its properties, with the exception of Beaches Ocho Rios. Under
Rainer, the company is moving toward managing Sandals- and Beaches-branded
properties that it does not own.
"In order to grow a little further and faster, within the
Caribbean but also outside the Caribbean, we are looking at more of a
management model going forward," Rainer said. "We are looking at
different options in terms of how we can stimulate growth and distribute the
brands into new locations."
Sandals' current "own everything" model, Rainer
said, has been very successful. The company launched its first resort in
Montego Bay, Jamaica, in 1981 and today has five brands and 24 properties in
seven Caribbean countries. But it's a model with limitations and one that runs
counter to what the typical largest hotel companies do to grow: flag and manage
properties owned by someone else.
"Everybody loves an asset-light model," said Jan
deRoos, a professor of hotel finance and real estate at the Cornell School of
Hotel Administration. "This is a way to increase income without having to
deploy an enormous amount of capital to do that. If you're successful, this
works extraordinarily well."
Rainer said he was brought to Sandals to bring a global
hospitality view into what has always been a family organization and help
position it to compete in an all-inclusive sector that is significantly more
competitive than when the company launched. A main competitor, AMResorts, was
founded 20 years later and now has 52 all-inclusive resorts throughout Mexico,
the Caribbean and Central America.
Rainer said that despite rumors to the contrary, Sandals is
not for sale and has no current plans to go public.
Gebhard Rainer
"We are in a very strong position in terms of where we
are in the market, and we are positioning ourselves to increase our strength,"
he said. "We are also working toward positioning the organization to have
a lot more optionality in the future in terms of how we are structured and
where we want to go."
Going public, Rainer said, is one of several long-term
possibilities for any successful organization.
"I'd never exclude that option, but it's certainly
nothing of any immediate concern to us," he said.
DeRoos, however, said Sandals' pivot to a management model
is exactly what the public markets want to see.
"It's very consistent with having fee streams not tied
to the asset base, and the public markets like that story," he said. "They
pay a nice multiple. Hilton and Marriott both trade for 25 times their
earnings."
One of the things that gets investors excited about
management models, deRoos said, is that their fee is tied to revenue instead of
profit.
"Right now, Sandals' profitability is tied to how well
the resort performs after they subtract expenses," deRoos said. "With
a management contract, the fee is mostly revenue based. That is much, much less
risky than taking a position on the profits."
New distribution parameters
Sandals is also shaking things up a bit on its distribution
side. The day after Apple Leisure Group merged with the Mark Travel Corp. on
May 1, Sandals said it was terminating its agreement with Funjet Vacations, a
Mark subsidiary.
The move was not entirely unexpected. In 2015, after 34
years working together, Sandals severed its relationship with Travel
Impressions, which Apple had acquired in 2013. Apple CEO Alex Zozaya told
Travel Weekly last month that the issue came down to Apple's ownership of
AMResorts.
Rainer did not dispute that assertion.
"AMResorts is one of the largest competitors we have,
and there are certain things you have to take into consideration, specifically
in terms of the collaboration that you need to have in place and the
data-sharing that has to happen," he said. "And the positioning in
the distribution channel, as well. When a distribution channel is owned by a
competitor it becomes a very difficult proposition because some of the
objectivity, or a lot of the objectivity, gets potentially lost."
Sandals also decided recently not to list with Expedia or
any of the online giant's subsidiaries, including Orbitz and Hotels.com.
"Right now, we are no longer listing on Expedia because
we saw our business decrease on a year-on-year basis and couldn't come to an
economical arrangement that would have allowed to us to continue moving forward
with Expedia," Rainer said.
Sandals, he noted, is still listed with other OTAs.
Rainer said Sandals, like the rest of the hotel industry, is
evaluating all its distribution models to see if the return on investment makes
sense.
"There is no deliberate intent to exclude tour
operators or travel agencies or other distribution channels and only focus on
our own direct distribution," he said. "That would not be a wise
decision. We continue to work with everyone in the industry as long as there is
a fair and objective approach to it and as long as there is a benefit in the
collaboration for Sandals."