Diversification from a traditional business model can have its pitfalls, as Hyatt learned recently. The hotel giant has had to take a huge impairment charge related to its investment in Oasis, a homesharing platform the group bought into last year. We find out more.
Oasis posing problems
It might have seemed like a savvy move for Hyatt Hotels to branch out and get its finger in the homesharing pie. Its peers in the hospitality industry have been doing the same, but it hasn’t proved to be quite the success that Accor or Hyatt were hoping for. Last year, Hyatt made a large investment into luxury homesharing platform Oasis, but the group said at the beginning of August that it had had to take a $22m impairment charge for the Oasis deal. Hyatt chief financial officer said, “That impairment relates to Oasis, which is the alternative accommodations investment that we made last year. Oasis has underperformed our expectations as it relates to the scalability of that business and the synergies to be realized through the alliance with Hyatt. The business has consistently experienced shortfalls in operating cash flow and so, as a consequence, we felt that it was prudent to impair our investment to date.”
The traditional business model of hotels is something that Hyatt, Accor and Marriott are expert at maintaining, but perhaps the same cannot be said for their management of the sharing platforms they have integrated into their respective portfolios. As well as Hyatt’s $22m impairment charge, Accor too has had to deal with losses from their purchase of OneFineStay, writing off $288m from its investments. It seems to be the case that dealing with such distinct business models is a tricky thing for hotel groups.
The difficulty appears to lie in the nature of the type of properties – a house being effectively a private entity, while a hotel is somewhat public. Onefinestay CEO expanded on the issue, saying, “Homes are not made for industrial use … so there’s always tremendous need for professional care, maintenance of homes, and also professional service that goes on behind the scenes, to be able to solve those issues when things go wrong.” This level of upkeep on private properties is clearly something that hotel groups had not expected, and effective management of a hotel does not translate into effective management of a house.
Despite the trials facing hotel groups that have delved into the realm of homesharing, it would be unwise of them to opt out at this early stage. These offerings are still hugely popular with guests, and give these big hotel groups a competitive edge in an already saturated market. These issues could be seen as mere teething problems, and hotel groups need to perhaps rethink their strategy when it comes to managing these new endeavours, but perseverance will no doubt pay off profitably in the long run. For more information, click here.