Pursuing sustainable hospitality

Cultural, environmental and social responsibility shape the core strategy through which Aitken Spence Hotel Holdings of Sri Lanka (ASHH) operates its various properties. In their case study, Professors Wee Beng Geok and Ivy Buche (Nanyang Business School, Singapore) look at the successes and challenges of the strategy.

Aitken Spence and Company was founded as a trading company in Ceylon in 1868. In the first half of the twentieth century it moved into the shipping and insurance businesses and then added tea plantation management. It was in the 1970s that it entered the tourism industry. It has since grown into Sri Lanka’s second largest conglomerate with hotels and services businesses contributing much of the growth. In a case study (see reference below) Professors Geok and Buche delve into Aitken Spence Hotel Holdings’ (ASHH) sustainable tourism strategy.

Cultural and environmental heritage
The company built its first 3-star hotel in 1974, Neptune Hotel, on a southern coastal stretch of Sri Lanka. It then made a first upscale move by building a 5-star hotel, the Triton Hotel. This was followed by a move to ground its hotels in the region’s cultural heritage and ecological wealth.

Two examples of this are the Heritance Kanadalama and the Tea Factory. The Heritance Kanadalama is situated in an area renown for its five UNESCO heritage sites and for its high- biodiversity tropical forests (for details on the development of the hotel see box). Over the years, environment management systems were built into the hotel’s operations and in 1999, Heritance Kandalama became the first Asian hotel to receive Green Globe 21 certification in sustainability. When the Triton Hotel was severely damaged in the 2004 tsunami, it was rebuilt using the newly acquired social and ecological experience, and rebaptized Heritance Angullah.

The Tea Factory constitutes another example of heritage-based hospitality. ASHH took an unused tea factory in the mountain ranges and turned it into a hotel, retaining the original style, architecture and machinery. With every nook and cranny of the hotel containing a story of tea waiting to be told, the hotel appealed to tea afficionados throughout the world.

But the ongoing civil conflict in Sri Lanka made it increasingly difficult to attract tourists and so ASHH decided to expand in the Indian Ocean area.

Spreading its wings
By the mid 1990s ASHH moved into the Maldives, positioning itself as committed to environmentally sustainable hotel operations. While the 2004 tsunami did not destroy any of the Maldive properties, it did cause a two year drop in tourist arrivals. By 2008, ASHH had built a body of eight resorts making it the fourth biggest hotel operator in the Maldives. Furthermore, its strategy of spreading risk by building a geographical portfolio had proven successful with the Maldivean properties providing the bulk of company revenues and profits during the worst years of the Sri Lankan civil conflict.

One effect of the tsunami was to focus the Maldivean government’s attention on the impact of all the development on their ecology. Hence, their next tourism master plan (2006-10) enforced greater local integration into the tourism boom. The plan mandated that locals be employed in the Maldivian hotel industry to increase employment levels. Such a community mindset was not foreign to ASHH. As part of its commitment to social development in Sri Lanka, it had instituted a policy whereby 60% of a hotel’s staff was drawn from people living in close proximity to the resort.

Having made one successful geographical diversification, ASHH embarked on a second one in 2007. With changes in India’s foreign investment policy in the tourism sector, many foreign hotel investors were now able to enter a market which lacked neither cultural nor ecological riches. Hence ASHH targeted the Indian hospitality industry. Indian investors also showed a keen interest in ASHH’s capability in developing and operating cultural and environmental sites.

ASHH took a 15 per cent stake in two resorts and management contracts to run them in two ecologically unique sites. The Poovar Island resort in Kerala offered lush greenery, diverse geography as well as an Ayurveda treatment and rejuvenation centre. Barefoot at Havelock was located on the beaches of Andaman Islands. In keeping with the green tourism mindset, the philosophy here was to use natural materials – the 18 cottages were made completely from indigenous materials.

Its next contract was a joint venture in the temple city of Madurai for the renovation and running of an old British club. The architect of this property, Geoffrey Bawa was the same as that of their much-acclaimed Kandalama property. Here too the magic word was eco-friendly. Biodegradable materials were used for the renovation.

In 2008, after the Maldives and India, ASHH turned to Oman. The region demonstrated great potential with 15 million visitors projected for 2010. Here ASHH won a management contract for four hotels, two located in the capital of Muscat and two located in more remote settings suitable for heritage hotels.

The geographic expansion provided ASSH with an opportunity to exercise social responsibility. ASSH created the Aitkens Spence School of Hospitality to train uneducated rural youths for entry level hotel jobs. It also set up Aitkens Spence Resources making it easier for experienced hospitality professionals to work in the new South Asian properties

Branding the portfolio
Professors Beok and Buche explain how, as a way of organizing and furthering its growth, ASHH  began a branding process in 2005 . It organized all its properties under three brands- Heritance, Adaaran and Aitken Spence Hotels and Resorts.

The signature hotel for Heritance brand was the Kandalama resort. The idea here was that the customers could get a feel of the local tradition and flavors in an eco-friendly environment. Heritance Ahungalla was also part of this brand. In the future, they planned to run the Tea Factory, hotels at Madurai and Cochin and a Desert Night Hotel in the Wahiba desert in Oman as heritance resorts.

To reflect Maldivian culture, all the resorts there were grouped under the Adaaran brand. The hotels under this brand catered to clients from different segments/ age groups offering a variety of experiences. Four sub-brands made it easier to market these hotels to tour operators.

All the other hotels operated by ASHH were placed under Aitken Spence Hotel and Resort brand. Several popular beach/ ayurveda resorts here catered to a diverse client base.

Financial sustainability
ASHH’s strategy of geographical and brand diversification has worked out well to date. Net profits for the year 2007-08 increased by 108 per cent to $ 7.2 million (Rs 790 million), making for a healthy profit margin of 12.3%. Revenue increased by 49 per cent to $ 59 million (Rs 6.4 billion). The South Asian hotels contributed 80% of the revenue and all of the profit while the Sri Lankan hotels contributed 20% of total sales.

Part of the improved financial performance was attributable to an improvement in the average occupancy rate to 70%, up from 61%. In the high-performing Maldives, average occupancy rates stood at about 80 per cent.

Having shown how a concern for the natural environment and the social community had sustained ASSH, Professors Geok and Buche leave the case readers with a couple of questions. Would ASSH be able to export the Heritance brand overseas without diluting its essence? Would the sustainable development philosophy be feasible in new locations?

Reference:
ECCH 309-051-1
“Aitken Spence Hotel Holdings plc of Sri Lanka: Sustainable Tourism as Competitive Strategy”
Wee Beng Geok and Ivy Buche
Nanyang Business School, Nanyang Technological University (Singapore)

By Sunaina Anand

Published February 2010