Govt refuses to renovate the oldest 5-star hotel; ranking may go down
Sayeda Akter
Reluctant to renovate the country’s first five-star hotel, Bangladesh Services Ltd (BSL) is pushing Dhaka Sheraton into a franchise arrangement away from the existing management contract system, which is likely to downgrade the hotel’s status to a three-star one.
Now instead of having a world-class company like Sheraton to run the business, the hotel may be operated by a local entrepreneur under a franchise from a second-grade international hotel operator.
Situated in a prime location, close to the downtown business district and the Prime Minister’s Office, Sheraton last year earned revenues of around $13 million, up from $11.27 million in 2007.
The hotel made an operating profit of around $4.79 million in 2008, a 10 percent rise from a year earlier, amid intense competition from its new rivals in the hospitality sector.
Despite such profitability, Sheraton is now leaving the hotel management because of BSL’s refusal to renovate the hotel.
Since last June, at least seven international hotel chains including InterContinental, Hilton, Carlson, Marriott and Wyndham expressed interest to take over the hotel management following Sheraton’s exit.
But all of them except Wyndham demanded immediate renovation of the hotel by the government, saying the hotel building and its other setups are too old.
Wyndham is likely to strike the franchise deal under the name of Ramada Plaza in mid-February, said a BSL official, asking not to be named. Ramada is a three-star hotel chain owned by US-based Wyndham Worldwide.
Industry insiders said the main reason behind going for franchise is the government’s reluctance to renovate the hotel, which means failure to appoint an international hotel chain to operate it.
But the government denied the need to renovate the hotel saying the proposal is ‘unacceptable’.
“The condition of the hotel is not as bad as being told by some international chains. We are even making profit with its present condition,” said Civil Aviation and Tourism Secretary Syed Mohammad Zubair.
“The decision over the necessity to refurbish it would be determined by the government’s own observation, not by any company’s unacceptable demand,” he added.
The official said the renovation will cost around $20 million and the government does not have enough money to bear the cost, while the hotel can make profit with its present condition.
At the same time, the government has refused to even renovate the hotel in the next 15 years, as interested chains proposed to keep the hotel closed for a year for renovation.
According to Zubair, renovations will leave 600 Sheraton employees jobless during the period.
According to the job contract, the employees are part of BSL, which will have to take responsibility for all employees. In 1983, when InterContinental left, BSL paid salaries and other facilities to all the staff for five months until Sheraton started its operation in 1984.
Finally, early this month BSL ran an advertisement seeking a franchise company, which was supposed to submit a technical proposal and a financial offer. Four companies turned in proposals by January 31.
“We have failed to find a company to operate the hotel, which forced us to look for an alternative option, such as appointing a company to manage the hotel under a franchise arrangement,” said Zubair, also chairman of the state-owned hotel’s Board of Directors.
Franchise, an authorisation to sell a company’s goods or services in a particular place, is a new idea in the country’s hospitality sector.
In line with the system, the government will appoint a franchisee, which will have a deal with an international chain and will be authorised to use the brand name in managing the hotel.
The decision to appoint a franchisee for managing the venture is instilling fear into industry people. They feel the hotel may fail to keep up its reputation or remain profitable, as a franchise arrangement is still an unfamiliar idea in the sector.
Meanwhile, several BSL officials hinted that the government has reached an understanding with Ramada over operating the hotel.
They also said the government has almost selected a company, American Property Management International (APMI), to get the franchise contract.
A BSL official requesting anonymity said a group of BSL staff is working in favour of Ramada, which lacks experience to manage any five-star hotel.
“Ramada desperately wants to operate the hotel and manage it through a franchisee, even after knowing that BSL is not ready to renovate the hotel,” he said.
Earlier, among the other international chains, only Ramada Plaza agreed to run the hotel while renovating it.
This same BSL group is pushing the government to undermine the necessity to go for renovation, making the government reluctant over the issue and finally paving the way for hiring a franchise company, the official said.
The group is now working for APMI, an inexperienced franchise company to manage any five-star hotel, and so APMI is likely to win the contract to use the name of Ramada and manage the hotel, said the BSL official.
However, Zubair denied the accusation and said: “This is the government’s duty and responsibility to finalise any decision about appointing any company.”
“Let the government do its job,” he added.
WHAT SHERATON SAYS
Trevor MacDonald, general manager of Dhaka Sheraton, said the hotel can gain much revenue if it goes into renovation, including modernisation of rooms, kitchen, conference rooms, bathrooms, lobby and bar.
“It’s urgent to renovate the hotel to attract more corporate business, now being captured by the Westin and Radisson,” he said, pointing to the fact that Sheraton has already been losing corporate business for the last two years.
“The government should have a long term plan for the hotel. The hotel may seem profitable now, but after 10-15 years the profit won’t be the same with the present condition of the hotel,” he added.
“The nature of hospitality business has already started changing and it will completely change in the next 5-7 years. Then the hotel won’t be able to generate such a growing revenue and make profit without refurbishment,” added the Sheraton GM.
He also said the government should have an ‘opportunity cost analysis’ which is an integral part of any company’s decision-making process.
The quest for hiring an international hotel chain started in May 2008, after Starwood, the parent company of Sheraton, sent a letter to BSL saying that it will renew the contract if the government immediately goes for renovation.
Starwood’s 25-year-deal with BSL expired on December 31, 2008 and the company later extended its contract with the government up to March 31.
