I know we all hear the battle cries every day in our industry, but what's really going on with hotel brands, franchisers, the online travel agents and their war over commissions and fees? In this piece, I am going to expose an angle that I think needs some light. It gets back to a fundamental understanding of how our industry functions based on its evolved structure, with brands and owners. I also believe this is a good lesson in hotel business strategy, to understand what underpins the relationship between the warring parties and what drives the business model with hotel franchisers and brands.The first thing to know about hotel management companies and franchises is they make the lion's share of their revenues and resulting profits based on the hotels in their portfolios generating revenue. Fees based on revenues are what drive the hotel brand's business model. They also make money on reservation systems and other services, but normally these are on a cost recovery basis. The brands tell their hotels that the services they provide are on a cost-return basis and largely they are. Very little profit is generated by the brands from their other services.
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