The Brancatelli File



August 12, 1997 -- Before you can even begin to comprehend why Ritz-Carlton abandoned guests at four of its hotels in the middle of the night earlier this month, you have to accept one crucial fact about today's lodging industry:

Everything you know about the hotel business is wrong.

Take, for example, your perfectly natural assumption that when a chain like Marriott or Hyatt or Hilton or Sheraton or Ritz-Carlton puts its name on a lodging facility, it not only manages that property, but it also owns the building that houses the hotel.

Wrong and wrong.

Once upon a time, men named Hilton and Marriott did build hotels and manage them. But that stopped being the business model years ago.

In what is the lodging industry's equivalent of airline code-sharing, today's hospitality business usually works something like this:

+ The hotel buildings--the "bricks and mortar" in real-estate parlance--are owned by real-estate investment trusts, banks or wealthy individuals. America's largest owners of hotel buildings are companies with names travelers never hear: Starwood, Patriot American, CapStar, FelCor, etc.

+ Since the firms that own the bricks and mortar often know nothing about the day-to-day operations of a hotel, they must hire hotel-management firms to front for their buildings. These are the companies whose names you do recognize: Hilton, Hyatt, Sheraton, Ritz-Carlton, Four Seasons, Inter-Continental, etc.

+ Unfortunately, most hotel-management firms now believe that the big money in hotel-keeping isn't in managing hotels, but in managing "brand names" and operating reservations services. So they frequently franchise their name to third-party management companies and these tertiary firms actually run the hotels. A case in point: Hospitality Franchise Systems. HFS controls the names of some of the world's most familiar hotel chains--Do the monikers Days Inn, Howard Johnson, Ramada, Super 8 or Travelodge mean anything to you?--yet does not own a single hotel building or manage a solitary hotel anywhere on the planet.

All that said, let's double back to the Ritz-Carlton situation because it is a perfect example of how this name game always ends up screwing business travelers.

Ritz-Carlton is a management firm that no longer owns any of the hotel buildings that bear its brand name and lion logo. So at midnight on August 2, Ritz-Carlton terminated its agreement to manage the hotel buildings that carried its name in New York; Washington; Houston; and Aspen, Colorado. While its guests slept, Ritz-Carlton checked out, taking its brand name, its lions, its flags, its reservation system and probably the device that embosses the lion logo in the sand of the ashtrays in the lobby.

Ritz-Carlton president Horst Schulze insists the company acted to protect its standards and its guests--Hey, Horst, did you just forget to protect the guests who checked in a few hours before you de-Ritzed the joints?--but it is clear that Ritz-Carlton pulled its name off the hotels in a common brawl over cash.

Ritz-Carlton says it is owed about $4 million in management fees and the owner of the four buildings won't pay. The principal owner--a sheik originally recruited by Ritz-Carlton when its relationship soured with the previous owner of the New York and Washington buildings--won't pony up because he says Ritz-Carlton is ripping him off. Like the owners of several other buildings that have housed hotels managed by Ritz-Carlton, the sheik thinks Ritz-Carlton is profligate in how it runs up costs that have to be paid by the owners. In fact, the sheik filed sued against Ritz-Carlton in 1995.

Somehow, Ritz-Carlton managed to work with the sheik for more than two years while his suit wound its way through the court system. Only after the sheik stopped shelling out the shekels did Ritz-Carlton feel its standards and its guests were being compromised.

By now, of course, you may logically be wondering what you buy when you rent a room in a hotel with a recognizable brand name. The answer, unfortunately, is not very much.

A hotel brand name should represent a recognizable set of products and services, a constant level of quality and property-by-property consistency, but the presence of so many players with so many conflicting agendas guarantees constant chaos. And, as Ritz-Carlton pointedly proved, a hotel-management company will abandon you while you sleep if its suits its bottom line.

Meanwhile, just to show you how meaningless the hotel name game has become, guess what the sheik is calling his properties now that Ritz-Carlton has left the buildings?

Yep. As of Sunday, he was calling them the hotels "formerly known as the Ritz-Carlton."

This column originally appeared at

Copyright 1993-2005 by Joe Brancatelli. All rights reserved.