At Motella we have been scratching our heads and wondering about the sanity of investing in the hotel business at this time? Do Tainui know something that we don't or have some inside knowledge?
...Err, probably not! With a little bit of investigation, we found the imortal words of Sir Bob Jones written several years ago that appears to explain what is happening here:
"Talk to hotel owners and you will find they live on eternal optimism. Always they'll explain about next year, how the new marketing plan, the new chain alliance, the new wing, the refurbishing plan will make them come right. But with hotels next year never comes. In an unfettered competitive environment, hotels like airlines are programmed to lose money and over any sensible period of assessment, say ten years, they all do."
Hmmm... so Hotels are not a good investment at the best of times?
Is the Rugby World Cup an example of missplaced optimism?
And, why would Tainui invest in a hotel development now?
"The players become captivated by what they are doing. When assessed over any period of time they never make any money but the owners don't care that much. They become satisfied with mere survival so long as they can carry on. And of course, once involved, they're locked into their financial predicament compensated only by their addiction.
Some major players - the big names, Sheraton and the like - are in fact awake to the realities. Consequently they no longer own hotels. Basically they're a franchise operation, renting their name, offering a pooled marketing service and clipping the actual hotel owners ticket for a piece of their turnover, only they are not hoteliers as everyone assumes but hotel provisioners. They all started out as hotel owners but eventually they woke up. Generally the actual hotel owners wouldn't swap place with them as they love owning their hotels so much. Owning a hotel is a highly addictive pursuit and for some affluent individuals an ego gratifying hobby.
Hotel owners envisage themselves in a sparkling chandaliered hotel lobby; greeting celebrities, politicians and the like when they arrive. The cruel reality is that the owners spend most of their time in backyard financial crisis meetings."C'mon Sir Bob, surely you can't be suggesting that Tainui will be investing $80 million simply because they are addicted to the sparkle, glamor and ego enhancement of hotel ownership?
