First Free Story (1 of 3)Join Skift Pro
Marriott International has failed to halt a lawsuit against it in a Thai court filed by Minor International. The parent company of Minor Hotels Group advised investors of the outcome on Thursday.
Minor, however, is still unable to proceed with the legal case in Thailand, pending another outcome later this month of a temporary injunction to block it, which Marriott Thailand managed to obtain in Singapore.
Minor is suing the U.S. hotel giant for alleged non-performance of the JW Marriott Resort & Spa in Phuket, Thailand, which it fully owns. The hotel has been managed by Marriott since its opening in December 2001.
The case is riveting for the Asian hotel industry and beyond.
It’s not because of the amount being claimed by Minor, which at $19 million (571 million baht) is a pittance, but because it opens a can of worms in the public arena on issues that have surfaced as a result of global chains’ consolidation.
Chief among these issues is whether the asset-light model of these companies is sustainable. As the behemoths, with their rain-shower of brands, fiercely compete for management fees and guest loyalty, a question on conflicts-of-interest, and of the real costs to hotel owners of being in the system, arises.
An example of this can be seen through a Minor complaint, which it outlined to investors, that Marriott is forcing the JW Marriott Phuket to accept high volumes of low-margin business through Marriott’s loyalty program Bonvoy.
According to Minor, Marriott unilaterally sets the rate it pays to the hotel for stays booked through Bonvoy. “Following the merger of the Marriott and Starwood loyalty programs in 2018, we were informed by Marriott that the base redemption rate for the JW Marriott Phuket would decrease from approximately $120 per night to $47 per night,” said Dillip Rajakarier, group CEO of Minor International and CEO of Minor Hotels Group.
“In effect, Marriott was requiring us to sell rooms at a below-market rate. This business [Bonvoy] is some of our lowest-margin business, yet we are forced to honor these redemptions — which hurts our profitability. We requested to cease participating in the program, which we consider to have an overall net negative effect on our hotel, and Marriott refused to consider this.”
Marriott Asia-Pacific in Hong Kong issued a statement reiterating the case is “meritless” and “should be heard in confidential arbitration.”
Marriott wants the dispute resolved through Singapore International Arbitration Centre, saying Minor has a binding agreement with it on this.
It said its Thai subsidiary recently secured an interim injunction in Singapore arbitral proceedings to stop Minor from pursuing action in Thailand. Minor’s Rajakarier said the company is challenging that temporary injunction. A further hearing is scheduled in Singapore this month.
“Once the Singapore hearing is concluded and it’s clearer how to proceed in Thai court, the Thai proceedings will move ahead,” said Rajakarier.
“Our efforts to find good faith solutions with Marriott have fallen on deaf ears, hence we have no alternative but to seek legal recourse to protect our interests.”
What’s at Stake
Some observers believe Minor is fighting tooth and nail possibly because it wants to boot out the Marriott management contract.
“Minor no doubt is done with Marriott and wishes to take over control,” said a hotel consultant. “The only operator they are still prepared to work with is Four Seasons. [Note: Minor has one other hotel managed by Marriott, The St. Regis Bangkok, and a Radisson Blu in Mozambique.] Minor is now a serious operator of scale in their own right, so such conflicts are inevitable.”
Minor owns and/or operates 536 hotels worldwide. Its owned brands include Anantara, Avani, Oaks, Tivoli, NH Collection, NH Hotels, nhow, and Elewana.
But the Phuket hotel has been managed by Marriott for slightly over 18 years, which makes no sense for Minor to go through this process to break a contract — if it is a 20-year contract, that is. Still, the term could be 30 years, or that the renewal was on Marriott’s option.
Minor would not reveal the duration or comment on the speculation.
In the wider industry, one impact of the case could be that other owners would attempt to resolve disputes in open courts despite having agreed to confidential arbitration in the hotel management agreement, according to several hotel investment consultants, who spoke to Skift on the condition of anonymity as they do work for either Marriott or Minor.
“Arbitrations are most often closed door. Open courts are public and no company wants to air its dirty laundry in public. If this had gone to arbitration, you’d probably not heard of it,” said one.
In its note to investors, Minor said the JW Marriott Phuket has suffered a steep decline in performance as a result of Marriott’s poor purchasing practices, high staff turnover and bad sales and marketing decisions. Total hotel revenue decreased from $30 million in 2013 to $29 million in 2019. Marriott was unable to achieve the agreed budget for each year from 2013 to 2018 and since the end of 2018 the property has operated without an approved budget in place, it said.
Minor said the hotel remains under Marriott’s management “for the time being.”
But Marriott’s statement to Skift maintained: “We consider JW Marriott Phuket Resort & Spa has performed well compared to the market. The dispute will have no impact on operations at the hotel, which continues to offer guests with world-class service and accommodations, a beachfront location and eleven culinary options.”
Minor also claimed that not only the JW Marriott Phuket competes with other Marriott hotels in Phuket, it is using the facilities of the JW Marriott Phuket to promote them. Marriott operates 11 hotels in on the island.
Asked how, Rajakarier said: “It is clear that these other properties are competing for the same business as our hotel, using shared Marriott resources and under the management of a single Marriott regional team. We do not believe that Marriott is properly taking our interests as a hotel owner into account as it grows its own business in a manner that directly undermines our business. There is a clear and harmful conflict of interest at play and we believe that this has had a direct impact on our operating results.”
A hospitality consultant expects this “dilution issue” to be raised and debated more frequently in the industry. “It sure has an impact, but the synergies in some markets have illustrated that there are definite cases where multiple properties can result in positive as well as negative impact,” he said.
“I also think owners are having issues with loyalty programs, not just Marriott’s Bonvoy but others, over charges, redemption rates, et cetera,” he added.