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NEW DELHI : As the third wave of the covid-19 pandemic rages, hotel companies are innovating ways to survive. For Patanjali Keswani, chairman and managing director of publicly-listed Lemon Tree Hotels, one such survival strategy has been to franchise his brands. Lemon Tree, which operates in the upscale, midscale and economy segments, will take the franchise route to expand in smaller cities. In an interview, Keswani said the pandemic has put the spotlight on reducing fixed costs to make businesses profitable. Edited excerpts:

You have started to franchise hotels. What does that entail?

In this, we just provide owners of hotels our brand. With this, we are monetizing our brand. So, we can either monetize our brand or management capabilities. And that is the way to grow without deploying capital. Of our 87 operational hotels today, three hotels are franchised and one hotel is man-chised (a model where the general manager is on the payroll of the corporate). We have, so far, signed two more hotels under the franchise model. It is profitable. So going forward, we will either manage or franchise.

Was this something you always planned to do?

Of course, but first we had to build a certain network and create a wide enough customer base to provide the right distribution channels for these hotels, and second, we had to achieve the scale and bandwidth required to ensure that when we sign franchise/man-chise hotels, we would be able to audit them to ensure that they are not operating against our brand standards. 

To me, franchising is the formalization of the informal hotel business. Over 80% of hotels today in India are either unbranded or standalone. 

Franchising is a way to get the benefits and the advantages that come with this formalization, which will also lead to an improvement in standards.

Is this going to be a small-town strategy for you or will you go into big cities with franchise?

Every hotel company that manages hotels, works with numerous owners who ask for something called exclusion zones. The owners of hotels ask for these zones so that they are not impacted by competition from the same brand. So, there is a limit to our ability to manage/franchise/man-chise more and more hotels within specific geographies. We have been widely present in all the big hotel cities. So, yes, there will be more franchised hotels in cities where we don’t have existing hotels.

How has travel been affected in January?

Travel has more or less shrunk by 50-70% in the past few days, and I reckon it will continue for this month. After the first wave in April-July of 2020, it took a lot of time to come back to a reasonable level of operations. It went on till February or March 2021 till the second wave, which was devastating for three to four months. But then, recovery was faster.

In the first wave, it was an L-shaped recovery, while the second wave saw a V-shaped recovery. We expect that this third wave will also have a super-fast recovery time. People are too tired of how they’ve been living in the last two years. So, my broad estimate is that there will certainly be an impact on January, on February, too, possibly, but by March, it will be completely over.

What are your pandemic learnings?

A few things: First, what we have learnt is that companies should minimize fixed costs and maximize variable costs (food costs, raw materials etc.). Second, always have liquid cash available that can enable you to mitigate risk. The third, which is true for the entire hotel industry, is that we needed to be more efficient in our cost structures. So, there is an enormous reduction in operating expenses now and will be when covid is over. Basically, what I’m saying is that all hotel companies to an extent will have their costs permanently reduced and so will be that much more profitable. I have openly said this, we will save over 100 crore a year with our optimized cost structures.

What are your expectations from 2022?

There will be a phenomenal bounce-back by October this year for the hotel sector. It could be better than pre-covid levels within eight months from now.

Business travel will 100% come back. Leisure will be an add-on to it. I think Indians have now gotten used to the idea of taking holidays. This was not necessarily the case earlier. Yes, there will be incremental demand in the leisure segment and I don’t think the business hotels will really lose significant amounts of business because my theory is even work from home is getting on the nerves of everybody and companies are recognizing it, at least those companies which I have spoken to. Collaboration, camaraderie, and stuff like this doesn’t happen during work from home.

 

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