|
Tune Hotels Growing, Not Losing In This Economy |
 Tune Hotels Growing, Not Losing In This Economy
Tune Hotels is making sweet music in this economy, says co-founder Dennis Melka, who shared the budget hotel group’s secrets of success with students of the Master of Management in Hospitality (MMH) at Cornell Nanyang Institute of Hospitality Management (CNI), Singapore recently.
Tune Hotels was started by Melka, of East Pacific Capital, with the founders of Air Asia because they saw a gap in the market for budget hotels in South-east Asia that wasn’t being catered for by any of the big hotel chains.
Citing figures such as 700 million people in ASEAN, with incredible exports, a huge middle class and great growth prospects, Melka said the market was ripe for a brand like Tune.
Up to 67% of Tune Hotels’ customers are under 35, and 38% of them make less than US$500 per month. About 20-25% of guests are foreigners who are seeking value-based accommodation, as opposed to being backpackers. The weekends see more leisure travellers while the week accommodates business travellers.
The hotels were profitable from day one of the flagship hotel opening in Kuala Lumpur, Malaysia in 2007, said Melka.
The holding company established a US$5m property fund in third quarter 2007, along with an investment of US$18m from private equity. The founders expect the fund to grow within two years to 19 times the initial capital. The cash yield for the business is 500 to 1000 basis points multiplied over western models, which typically yield 10-15%. The chain currently makes 22% net profit and has no direct competitors in the region.
It opened its first franchised property in Kuching, Sarawak, Malaysia last week. Recently, a Tune Hotel at Kuala Lumpur International Airport opened. A hotel in Bali will soon open and hotels in Thailand are being planned.
Future developments in Saudi Arabia and the Middle East are under evaluation. Tune hotels owns six of its properties and is franchising the brand to families that own inner city properties that require commercial development, and it is making headway with a licensing business model.
With each new hotel comes lessons learned. For example, the windows are bigger and there are no televisions in the new hotels because fewer than 15% of guests cared to spend US$1 to purchase television viewing.
Melka is working on an operating model which will see the chain go completely cashless. He plans to eliminate the front desk all together with the addition of check-in kiosks, using the staff he has to assist instead. Primarily this is so that there is no paperwork, with transactions done via a palm-held device and drop down menu.
Bookings are made direct to the hotel via the internet, are prepaid and any changes incur a cost. Guests who wish to transact in cash will have to pay into a cash deposit machine and be issued with an alphanumeric receipt that they will use to punch a code at check-in kiosks to retrieve their keys. The electronic key cards require a deposit to ensure that they will be returned and can also store value for the purchase of air-conditioning, towels and soap.
Rates at the hotel are sold for as little as US$3 per room three months out up to US$19 for walk-in rates in Kuala Lumpur. Bali is expected to sell for US$30 a night, walk-in. “We figured that if we can make a profit in Malaysia we can make a profit anywhere,” said Melka, noting that the Malaysian market was notoriously difficult to sell at a decent price.
Cost management, revenue management and a focus on the core essentials – a smaller room, a high quality bed with 250 thread count duvet, a decent four-star, tiled bathroom – were the key ingredients of the Tune Hotels’ business model.
Most of the guests who stay at a Tune hotel travel with their own towels. Melka said that in their research, they found that budget hotels experienced 20% of towels being stolen. So at Tune, towels and soap are for sale, not for free. WIFI is provided throughout the hotel and is also charged, but Melka seemed to have reservations about that and stopped short of saying that they will give it away. Instead, they have free internet kiosks in the lobby of each hotel.
Apart from the rooms and what is in them, ergo, not in them, everything else is outsourced. The cleaning is outsourced and paid by the room; 24 hour convenience stores in the lobby are typically provided by 7-11 or similar brands. Food and beverage outlets are managed by local chains.
The only thing frustrating Melka is the two-year gestation period for a hotel. It appears that he may have found a way around that as well. He has sourced suppliers that are now providing modular hotel building systems. Using the system, a 2,500-room hotel can be built in a week.
Perhaps with the new building system, he will be able to attain his goals of 100 hotels in two to three years instead of the “realistic” five to six years that is presently the case.
|
