New Sandals CEO, not a Stewart, will lead addition of management model

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The Sandals Negril in Jamaica.
The Sandals Negril in Jamaica.

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
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."

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