Leasing Hotels: More tour operator power

It has slipped under the radar, but the announcement by the Mallorcan hoteliers federation that tour operators have been negotiating new types of lease arrangements with the island's hotels demands rather more attention than it has been given.

Tour operators have always entered into contractual arrangements with hotels that grant them exclusivity, and sometimes these arrangements have gone beyond the mere guarantee of custom to the hotel. What is different about the arrangements that are now being sought is that tour operators will in effect lease hotels lock, stock and barrel for seven-year periods. They will assume responsibility for employing and paying staff and for managing hotels and paying suppliers. In return, hoteliers will receive a fixed sum that will be determined by the specifics of the agreement.

The hoteliers federation says that for hotel owners such arrangements would previously have been unthinkable. It doesn't go on to say why they would previously been unthinkable, but the advantages to the hotel owner that will come from such arrangements seem pretty clear - the guaranteed sales and marketing clout that come from exclusivity but without the costs and hassle of administration.

Tour operators which are entering into these arrangements are the big ones, TUI for example. Another is Alltours, which has also been buying up hotels. Purchase of hotels by foreign tour operators and now these new leasing arrangements shift ever more the control of Mallorca's hotel and tourism industry offshore. It may be the thought of this that had made the leasing strategy previously unthinkable.

This control is the logical conclusion of a process that has been ongoing for years. Once upon a time, the hotels held the aces in the holiday distribution chain. Notwithstanding partnering agreements between hotel groups and tour operators that in some instances date back to the 1960s, it used to be the case that hotels could demand more or less what they wanted because of the relative weakness of tour operators. This situation has now changed; it is the tour operators who have the power.

Reasons why tour operators are adopting this leasing strategy include the fact that they won't need to engage in the annual round of price negotiations, assuming, that is, that their fixed payments to the hotel owners don't become an issue. Another reason is that the tour operators will be in a better position to commercialise the hotels; commercialise them to their own ends, be they markets or style of hotel. If ever confirmation were needed that it is not the hotels and not the regional government to which complaints about issues such as all-inclusive should be referred but to tour operators, here it now is.

It doesn't follow that the four-star hotels in different resorts which will come under these leasing arrangements will automatically be all-inclusive (they may already be; the hotels have not been identified thus far), but the degree of control that tour operators are now seeking is surely no coincidence, given the liberalisation as to what hotels can offer that is contained in the new tourism law.

With leasing as well as with hotel ownership, tour operators are moving further towards a model of vertical integration of the holiday process. And with more vertical integration comes less direct financial benefit to the destination - Mallorca, in other words. The tourism spend statistics that include a good chunk of spend on hotel accommodation bought through a holiday package are now, unless the tourism secretary of state really does change the basis for measuring these statistics (as she has said she will), about to become even more ridiculous than they already are, as leasing would take out the contribution by tourists on local hotel spend.

And what might leasing mean for the length of time that hotels are actually open and for employment? Terms may well vary, but if the tour operators are going to assume costs of employment and for suppliers, one might imagine that they would be paying close attention to when they can maximise their returns. This said, the arrangements might be beneficial as the tour operators will promote the hotels they lease to their maximum and so extend the periods that they are open.

We will find out fully what this leasing will mean in other ways. Might hotels become branded under tour operator names, for instance? Even if they are not, there is a clear trend happening, which is that Mallorca's tourism industry is being taken over more and more by foreign companies. Is this a bad thing? There is no reason why it should be. And by committing to seven-year periods, which will probably be renewable, the tour operators are sending out a positive message - of confidence in the Mallorcan holiday market.


Any comments to andrew@thealcudiaguide.com please.