Is the Asset-Light Model Cracking in Global Hotels? Bernstein Weighs In

The asset-light model, once hailed as a panacea for the global hotel industry, is now facing scrutiny as market conditions evolve. This business model, which involves divesting properties and focusing on operations and franchising, has been a popular strategy for major hotel chains since the 1990s. However, recent developments suggest that the asset-light model may be losing its effectiveness.

One of the primary concerns is the lack of significant impact on returns, return volatility, and performance. A research note published in the International Journal of Hospitality Management in 2019 found that going asset-light had no significant effect on hotel firms' financial performance. This suggests that the asset-light model may not be as beneficial as previously thought (International Journal of Hospitality Management, 2019).

Moreover, mixed empirical evidence has raised questions about the long-term benefits of the asset-light strategy. While some studies have found a positive relationship between an asset-light/fee-oriented strategy and operating profitability and the value of a firm, other scholars have shown that the asset-light strategy had an insignificant or limited impact on the long-term performance of lodging firms (Blal & Bianchi, 2019; Yu & Liow, 2009; Sohn et al., 2013).

The asset-light model also presents potential risks and challenges that could lead to a shift in the industry's preferred business model. Asset-light firms relying on external financing may struggle during economic downturns, as fixed operating and financing costs relative to their existing assets can lead to a further decline in profits (Sohn et al., 2014). Additionally, market risk, real estate risk, lack of control, reputation risk, dependence on third-party financing, and limited flexibility are all factors that could negatively impact asset-light hotel firms (Kim et al., 2019; O'Neill & Carlbäck, 2011; Mun & Jang, 2017).

In light of these developments, industry experts are weighing in on the future of the asset-light model. Bernstein, a leading global investment research firm, has expressed concerns about the sustainability of the asset-light strategy in the current market conditions. In a recent report, Bernstein analysts noted that the asset-light model may be reaching its limits, particularly in the face of rising interest rates and a potential economic slowdown (Bernstein Research, 2022).

As the global hotel industry continues to evolve, it remains to be seen whether the asset-light model will maintain its dominance. While the model has undeniably brought significant benefits to the industry, recent developments suggest that it may be time for hotel firms to reevaluate their business strategies and consider alternative approaches. As market conditions change, the industry may need to adapt and find new ways to create value for shareholders and customers alike.

In conclusion, the asset-light model may be facing challenges in the global hotel industry, as evidenced by the lack of significant impact on financial performance, mixed empirical evidence, and potential risks and challenges. Industry experts, such as Bernstein, are weighing in on the future of the asset-light model, and it remains to be seen whether this business model will maintain its dominance in the face of changing market conditions.