Now in bed with Tune Hotels, Bangkok-based Red Planet Hotels is charging ahead with one deal a week, one opening a month. CEO, Tim Hansing, tells Timothy France he believes the marriage will be a harmonious one
Red Planet Hotels
From an initial franchise agreement, Red Planet recently became Tune Hotels’ third-largest investor with a 16.05 per cent stake. What attracted you to the brand in the first place?
When we set up Red Planet (in 2010), we came across Tune and thought it was a great niche in the market. There is a very obvious gap here in Asia, where there is no quality branded budget product across the region, and we saw an opportunity (to be a major franchisee).
In this day and age, people are looking for a value connection. There needs to be a relationship between what you are buying as a consumer and the amount of money you are being charged for it. Two or three years ago, that value connection did not really exist in the marketplace in terms of the hotel space.
Why the need for such a major investment?
We acquired shares from a seller in return for cash and shares in Red Planet. It was part of the long-term strategy in terms of “it would be a great opportunity if this happened”, but we did not include it in our business plan because it was too good an opportunity to count on. So we are very happy about it.
We’ve invested in Tune because it’s a global scalable business, which means the pie that our shareholders now own is going to get fairly substantial and fairly large. Tune Hotels plans to do an IPO at some point, and the bigger and more diversified a platform you have, the more valuable your business is going to be.
Where will the company be in the near term?
Our business plan states that we should have 80-100 hotels within the next three years. We are planning to raise an additional US$100-US$120 million of capital (primarily from Japan) by the end of this year. With that money, we will effectively be doing one hotel deal a week, so we are ramping up. What we’ve got now is a good dress rehearsal, opening one hotel a month; we’ve got the structure in place, so really it’s just a case of a few extensions.
Now that you have a share in Tune, how do you plan to further the relationship?
We’re great friends with Tune, and we’ve had a number of discussions about how we can move forward together. Obviously the acquisition of shares was the best way to do that.
Would we merge with Tune? We would never rule that out. We could also develop regional platforms together.
The franchise agreement was the engagement, the share acquisition the marriage, and then the kids after this. So it’s a blue-sky future and we’re not ruling out anything.
How many times have you stayed in a Tune hotel and what were your experiences like?
I can’t remember how many times. It’s a hotel that I helped design, so I think it is fabulous. If you go onto TripAdvisor, some people call it a “nest”, and I just shout with joy when I see that because (the hotels) are comfortable, they are small, but everything is around you. For example, there is a little fold-down table and next to that there is an international plug at table height. It’s the little things that count for so much. That’s why I like staying there because it’s just so easy.
The one thing our customers are asking for is a refrigerator in the room, so we might do that in some markets, but that’s amenity creep and I’m not sure we like that.
How do you keep a lid on costs yet still maintain standards?
Our fixed overheads are very low. We outsource housekeeping and security, so housekeeping is effectively cost per occupancy. We have no F&B outlets, no expensive chefs. We have receptionists, security, a couple of maintenance guys, and that’s it. We can survive quite a severe winter on what we have without any impact on the quality of service and customer experience whatsoever.
To maintain standards we’ve put in place a number of physical (promises) that the brand delivers on, namely a five-star bed, feather pillows, high-quality linen, a power shower, TV channels that you actually want to watch and quality Wi-Fi. That’s on the product side. Then of course, the hotels are spotlessly clean, we have high levels of security, and the girls at the reception desk know what they’re doing and we have a rigorous training programme.
“Scale can often hit without you planning for it, and as a result you can get growing pains as a company. We’ve not had that because we’ve known that we were going to expand this quickly and this rapidly.”
Broadly speaking, many low-cost models have left travel consultants out in the cold. How will you be working with the trade?
The reality is that we’re in markets where local travel (consultants) dominate, so how stupid would you be to ignore them? We’re here to service demand,
and places like Hat Yai, Pattaya and Patong are heavily reliant on travel (consultants), and it would be foolish not to realise that. So travel (consultants) are our friends.
We have very good working relationships with them in Hat Yai, and we are starting relationships with them in Pattaya. We need them and they are a force in the business.
The issue is that if you come from a four- or five-star background travel (consultants) are not your friends because they are low-cost, high-volume, but that’s what we want.
But will low cost mean low returns?
I spent eight years working for Kingdom Hotel Investments, where I did US$3 billion worth of deals in emerging markets, all at the five-star level. What is clear is that if you want to make money, it is the low-cost budget hotel sector that will deliver faster returns. We are expecting anywhere between 15-20 per cent return on capital deployed a year on these hotels. Most upmarket hotels will struggle in the first year to make even a three per cent return.
The drawback with the budget space is that you have to develop scale quickly. We have US$180 million of projects under construction at the moment, which is effectively one Four Seasons (property), so we have to get it done quickly otherwise corporate overheads will eat us alive. Building scale in the budget business will give us the returns.
How dangerous is it to expand so aggressively?
We’ve managed to do it effectively because we’ve got a team of people who have done it before, so none of us are new to it. We knew we were going to do this on such a scale, so we’ve built a structure that can cope with it.
Scale can often hit without you planning for it, and as a result you can get growing pains as a company. We’ve not had that because we’ve known that we were going to expand this quickly and this rapidly.
Are there any challenges that you have not been able to foresee?
There is always someone somewhere in the world doing something stupid that you can never foresee. There are licensing issues in Indonesia; you’ve got people making up planning regulations as they go along. It’s a lot of small things, but there has been nothing major so far. You can usually see things coming on the horizon and form a contingency plan.
What other interests does Red Planet have?
None at the moment; we are keeping focused. That’s the key: keep focused, keep it simple, do it properly, do what you know. We have no plans to diverge.
We could as we’ve got a lot of hotel expertise and about 150 years’ experience within the company in terms of buying buildings and operating hotels. But at the moment, with this acquisition particularly, it wouldn’t be something we would look at. However, the door is always open.
This article was first published in TTG Asia, August 10, 2012, on page 8. To read more, please view our digital edition or click here to subscribe.