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Business

Banyan Tree's boss prunes his five-star hotel strategy

The rooftop of the Banyan Tree Bangkok (Photo by Nozomu Ogawa)

SINGAPORE With China's slowdown and political turmoil in Thailand, Asia's hospitality industry has seen better days. But despite the gloomier mood, Ho Kwon Ping's eyes brighten when he talks about new hotel locations.

"We have signed four very exciting deals recently in Cuba," the founder and executive chairman of Singapore-based hotel and resort operator Banyan Tree Holdings told the Nikkei Asian Review. For Ho, Cuba is packed with potential now that, thanks to its restoration of diplomatic ties with the U.S., American tourists are heading there for the first time since the 1960s. Early next year, Banyan Tree will open a resort in Cuba's Jardines del Rey archipelago, known for its pristine beaches and diverse wildlife.

In September, Banyan Tree announced it was opening a new property in Turkey in spring 2017, marking a shift toward the European market.

Banyan Tree Holdings Executive Chairman Ho Kwon Ping (Photo by Nozomu Ogawa)

Launched in 1994, the group is a major Asian hotel player, operating about 40 hotels and about 65 spas in over 25 markets. Ho has an international background to match his global ambitions. A Singaporean citizen, he was born in Hong Kong in 1952 to an upper-class family and educated in Singapore, Taiwan and the U.S. He said he became a hotelier "by accident" at 42.

His hotel business, he said, was born out of a passion to create a distinctive brand on which he could put his own stamp and add value. "If you don't own a brand, somebody will always be cheaper than you," Ho said. "I never intended to be a hotelier."

Ho's career in the hotel business began in 1994 when he and his wife, Claire Chiang, opened the first Banyan Tree resort in Phuket, Thailand. His architect brother, Ho Kwon Cjan, designed the facility.

The name was derived from Banyan Tree Bay, an island off Hong Kong where Ho and his wife lived for three years. They loved the sanctuary it offered and wanted others to feel the same way when they traveled.

Ho then turned his sights to China, scouring the country for similarly relaxing locations. In 2006, Banyan Tree opened one of the first international resorts in Lijiang, in the northwest part of the southern province of Yunnan, when other chains were more interested in developing coastal properties. Banyan Tree developed another inland Yunnan property at Ringha. The move helped the company triple its net profit on the year for 2007 to $81.8 million Singapore dollars ($57.9 million at the current exchange rate).

With minimal capital investment, the company was able to quickly ramp up its hotel portfolio by adopting an "asset-light" strategy and expanding its hotel management and design contracts in China. Between 2008 and 2015, the company's noncurrent property, plant and equipment assets declined by 33% to S$657.3 million. At the end of 2015, the company held only partial stakes in four out of the 14 hotels in China, with the rest fully owned by third parties. Only five of its resorts -- located in the Maldives, the Seychelles and Morocco -- were wholly owned.

BIG BET ON CHINA The company's timing was excellent. Banyan Tree was putting up hotels in China at a time when the country's wealthier citizens were driving a domestic travel industry boom. Ho rode the trend, offering a more sophisticated product to people looking for more than group tours and shopping. "When we travel, it's not just for shopping and swimming, but to experience different cultures and see beautiful landscapes," Ho said.

But the positive momentum came to a grinding halt with the eruption of the 2008 global financial crisis. Slowing demand in more developed economies encouraged hotel chains to enter China. Major players such as Marriott and Hilton began expanding their footprints there by leveraging powerful loyalty programs. Between 2006 and 2015, the number of five-star hotels in China more than doubled to over 800. Meanwhile, occupancy rates at Banyan Tree's flagship resorts shrank from 63% to 58% over the same period.

2015 saw Ho's aggressive bet in China backfire. Banyan Tree plunged into the red due to higher provisions for sketchy debt, the majority of which came from unpaid management fees by cash-strapped hotel owners in China. A number of hotel operators shelved new development plans, squeezing Banyan Tree's revenue from design fees. The problems were exacerbated by Russia's economic downturn, which resulted in the loss of "very high-paying guests," Ho said.

Banyan Tree responded by cutting some 160 of its 1,400 jobs in Singapore, Bangkok, Phuket and Shanghai. "This is not going to be a good year, and the environment might deteriorate even further," Ho said with rare solemnity at a news conference in February while announcing the poor financial results and staff cuts.

Today, he said, "The oversupply pressure is still going on, and it's unfortunate." The outlook for luxury properties is not rosy, with local property developers across the region pushing forward with urban development plans that include luxury hotels.

In Southeast Asia, Banyan Tree resorts have also come under price pressure amid an increase in mid-tier hotels and a surge in package tours from China, which has given travel agents more bargaining power over hotel operators. Room revenue for its Thai hotels in the first quarter of 2016 was down 3% on the year, as resorts in Phuket offered lower rates to attract Chinese tourists. Intensified price competition pushed the company to revamp its hotels in Phuket and Bangkok so that it could hold its rates steady.

Just as in the company's early days, Ho is once again on the hunt for exotic locations that offer something unique. This time around, however, he is casting his gaze further afield, to places such as Cuba, Turkey and Morocco. Why? "It's just the adventurous spirit that we bring with us when we travel to see the vast beauty of the desert, or travel to Marrakech to see the Medina," he said with a wide grin. "It's an incredibly romantic way to see the world, and that is something we want to capture."

LOOK EAST Ho also sees potential in East Asia. "Japan is a very interesting area," he said. "It is much more convenient now to move around there than before." Kyoto and Okinawa are on his list of possible locations.

Along with targeting different destinations, Ho is also aiming at a new type of customer -- someone younger and looking for something less conventional. This strategy includes the launch last year of the less-expansive Dhawa chain of hotels. Its three-star properties charge $80 to $170 per night, compared with the $150 to $400 charged by the company's Banyan Tree and Angsana brands. "We are bringing five-star attitudes to running three-star hotels," Ho said. His aim is to have 1,256 rooms in the Dhawa chain by 2019 and to double the number of rooms for the four-star Angsana brand, launched in 2000, to over 4,600.

"We have been seeing what I've always called 'rainbow tourism' -- no more one color, one culture," Ho said.

"We want a more stable footing, and to succeed as a multibranded hotel company in the international space in the longer term," the executive said. Ho said he wants Banyan Tree to promote a mix of "established places and new areas" while always emphasizing the romance of travel.

Annie Wang, director of hotels at the Beijing office of Savills, a global real estate service provider, said that to succeed, Banyan Tree must combine good timing with the right locations. "Securing loyal customers with [Banyan Tree's] strong brand will be important," Wang said. She said moving beyond five-star flagship properties fits with the trend toward "more family-orientated travelers who spend money more reasonably," especially among Chinese tourists.

In addition to running a company, Ho is an active member of the community in Singapore. He is the founder and chairman of Singapore Management University. As the creator of one of Southeast Asia's rare luxury brands, he is also regarded as a role model among young Singaporean entrepreneurs.

"In the next 50 years -- the Singapore after Mr. Lee Kuan Yew -- the line between leader and follower will start to blur," he said in a recent speech. "You and I are not cogs in a machine, or grains of sand or drops in the ocean. ... You are the entire ocean in a drop." He said he wants young Singaporeans to adopt their own stances, be brave, speak up and take control of their own futures.

That is exactly what Ho is doing as he embarks on a major shift in his business strategy. Whether those changes bear fruit before his retirement remains to be seen, but with two of his three children in the family business, the company appears poised to play the long game.

Nikkei staff writer Tomomi Kikuchi in Singapore contributed to this story.

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