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Choice Hotels had an asset, its own property management system, and decided in 2013 to offer the solution to unaffiliated hotels, but it is always a tough sell for one brand to attempt to sell services to competitors, as Choice is finding out.
Choice Hotels created a subsidiary, SkyTouch Technology, in 2013 to offer cloud-based property- and rate-management services to third-party hotels, but the division is losing money and the chain will soon decide whether it will shutter the unit or keep investing in it.
“We know exactly what we are spending and we are in the process of investing in what we think will be a profitable venture for us,” Choice Hotels CEO Stephen Joyce said during the company’s second quarter conference call, referring to its SkyTouch division. “But I’ve also said, and I’m holding to this, that if we don’t believe it’s going to be profitable in the next couple of years, we’ll shut it down and go back to where we were or figure something else out.”
Choice has long offered a property management system, ChoiceAdvantage, to its Choice-branded properties, and more than 5,000 properties are using it.
But, SkyTouch Technology was an effort to bring the property-management system and other solutions to independent hotels or properties affiliated with other brands.
Selling to Hotels Outside the Choice Family
Since the announcement of its creation in May 2013, SkyTouch Technology has signed 50 contracts with third-party hotels, and recently added sales directors and managers to target specific market segments, officials said.
But, the division has been a money drain to date.
“With regards to SkyTouch, we are projecting reductions in EBITDA for full-year 2014 of approximately $20 million, compared to approximately $11.5 million in 2013,” Choice CFO David White said.
Joyce said he’s encouraged that SkyTouch recently signed a 500-room property.
But, Joyce told analysts that the chain needs to prove to itself the financial viability of SkyTouch “relatively shortly.”
Said Joyce: “And so from a risk standpoint, yes, we’re putting some money into it and sort of you should think it’s sort of the levels we are currently putting it in, but we are not going to do that forever. And if we don’t prove to ourselves relatively shortly, that this thing is going to go and be a significant contributor to the company then we will reverse our position, take it back in-house or figure out some other form that we think makes sense.”