Hotel brands and developers have paid attention to the dual-branding model mostly due to its ability to save development and construction costs.

However, the possible operating synergy of dual-branding is less explored despite evidence that suggests dual-branded hotels could gain efficiency by sharing operating resources and driving revenues from multiple market segments.

Our research investigated hotels’ dual-branding synergy in two dimensions: operating synergy and marketplace synergy. Specifically, we aimed to answer the following questions:

• Do dual-branded hotels have lower operating expenses and better market performance than their stand-alone competitors?
• What is the best mix of hotel classes to create positive synergy?
• What are the property characteristics that are most conducive to dual-branding?

With data provided by STR, CoStar's hospitality analytics firm, we compared 318 dual-branded properties to their stand-alone, single-branded competitors. Using econometrics and a matched-sample analysis, we compared the income statement data and performance data — average daily rate, occupancy and revenue per available room — of the dual-branded hotels to their stand-alone competitors in the United States over 12 years, from 2008 through 2019. We further divided the dual-branded hotels into two groups: the same-class pairs — for example, a pair of two upscale hotels — and the different-class pairs, such as a pair of an upscale hotel and an upper-midscale hotel for a more nuanced comparison.

The analysis showed that dual-branding could reduce operating expenses only when the dual-branded hotels are from the same hotel class. Specifically, food and beverage expenses and indirect expenses — also called undistributed expenses — are the expenses that are lowered. Indirect expenses include general and administrative expenses, telecommunications, total marketing expenses, total utility expenses, total property, operation and maintenance expenses. Although the same-class pairs of dual-branded hotels face higher room expenses and distribution expenses — for example, reservation system fee and travel agent commission — they still outperform their stand-alone competitors in gross operating profit per available room.

We also found that the room revenue volatility and total revenue volatility of both same-class and different-class dual-branded hotels are lower than that of their stand-alone counterparts. A stable revenue stream could reduce the risk of cash flows, thus the required return, leading to an enhanced present value of the property.

In terms of marketplace performance, we found that although the same-class dual-branded hotels have higher ADR than their stand-alone competitors, they still underperform their stand-alone competitors in RevPAR due to the loss in occupancy rate. Furthermore, both the same-class and different-class pairs of dual-branded hotels underperform their stand-alone competitors in occupancy and RevPAR.

Further analysis on the performance of the different-class pairs revealed that the higher-class hotel is anchored down in occupancy and RevPAR by the lower-class hotel in dual-branded pairs. Moreover, the lower-class property’s ADR does not benefit from pairing with a higher-class hotel. It suggests that an asymmetric anchoring effect skewed to the downside regarding dual-branding’s market performance. Nevertheless, this result should not be understood as all dual-branded hotels would underperform. Our detailed analysis of market performance by property characteristics revealed that the effect of dual-branding varies by property characteristics. The hotels that could benefit most from dual-branding are chain-owned or managed, located in urban, with more than 500 rooms, and upscale or upper midscale.

Our analysis showed that dual-branding lowers revenue volatility for all dual-branded hotels. This finding could inform the net present value calculation in the project development process. The reduced revenue volatility could lead to reduced cash-flow volatility, thus providing a justification for lowering the required return used in the NPV calculation.

We also found that dual-branding generates cost-saving only in the context of strategic fit. We would recommend hotel operators pursue same-class hotel pairs if operational cost-saving is important. Moreover, the cost savings of dual-branding occur only in indirect expenses and food and beverage expenses. Operators of same-class dual-branded hotels still need to work on reducing room expenses and distribution fees. Operators of different-class pair dual-branded hotels need to pay attention to their franchise and management fees.

One unexpected finding is that dual-branding does not improve market performance. Furthermore, when different class hotels are paired, the higher-class property’s market performance is anchored down without benefiting the lower-class property in the pair. This is another reason to avoid pairing hotels from different classes in dual-branding.

Overall, for developers considering the correct mix of two brands in a dual-branding project, our analysis supports that same-class dual-branding is a better mix than different-class dual-branding. Additionally, developers would be better off focusing on dual-branded hotels that are chain-owned or chain-managed, located in urban, with more than 500 rooms, and in the upscale and upper-midscale groups.

Dr. Minsun Kim is an Assistant Professor of Management and Marketing in the College of Business at Louisiana State University Shreveport.

Dr. Chun-Hung (Hugo) Tang is an associate professor in School of Hospitality and Tourism Management, Purdue University.

This article is based on academic research, submitted in partnership with STR’s SHARE Center, which provides support and data resources to professors and students in hotel and hospitality fields of study at colleges and universities worldwide. The assertions expressed in this article do not necessarily reflect the opinions of Hotel News Now or CoStar Group and its affiliated companies. Please feel free to contact an editor with any questions or concerns.