Perhaps you’ve heard the topic discussed recently or in the past: “hotel deflagging.” But what does it mean to deflag, and why do owners do it?
Big hotel brands are known in the industry as “flags.” (Most likely due to the company flag fluttering on the flagpole outside a hotel.) Flagged hotels are not owned by a brand, but rather they operate under a franchise agreement with the brand. The definition of deflag refers to the practice of hotel owners becoming independent of their brand franchisers.
In an ideal world, the relationship between a hotel and its brand is a mutually beneficial one. Hotels brands enjoy a constant revenue stream, and hotel owners enjoy the prestige and resources of the brand. In today’s shifting hospitality landscape however, the value of this relationship is changing.
In some cases, brands may decide to deflag a hotel because hotel owners can’t or won’t meet the brand’s exacting standards. For example, Marriott International is deflagging a number of underperforming Sheraton hotel properties, eliminating about 10,000 rooms from its portfolio by the end of this year. In other circumstances, it’s the hotel owners who decide to deflag their property.
Why Owners Decide to Deflag a Hotel
Hotel owners may make this decision for a variety of reasons. Perhaps there is negative consumer response to a brand, or owners may desire to save money on franchise fees, which averaged 7.2% of revenue in 2016. An increasingly popular reason hotel owners are striking out on their own is due to the growing acceptance of independent hotels by today’s travelers. With the new market demand for boutique hotel experiences, many hotels are parting ways with their flagship owners to pursue dreams of carving out a unique, well-defined niche as a successful indie. Research shows that in certain markets, independent hotels actually outperform flagged properties in terms of ADR and RevPAR.
How to Deflag a Hotel
Once you’ve decided to deflag, consider your timing. Plan your transition to coincide with property updates or hotel technology improvements. Your costs will likely be recouped by the elimination of franchise fees and increased ADR resulting from the updated property enhancements. And be sure to complete renovations and brand separation prior to your high season, when guest traffic is expected to increase.
As a hotel owner, deciding whether to deflag or not often boils down to your personal goals. Evaluate whether you prefer to let the brand take the lead on your hotel’s design, capital expenditures, and standards, or whether you prefer complete control over your hotel’s destiny.
Contact us for a free assessment to see whether deflagging may be right for you.