When Cendant Walked Out on AAHOA: The March of Folly

In 1998 the Asian American Hotel Owners Association identified fair franchising standards for franchisees, only to have their largest franchisor sponsor march out during annual conference in protest. The parting didn't last long.

The following article is a reprint by permission of Stan Turkel. "Cendant’s AAHOA Decision: The March of Folly" appeared in Lodging Hospitality in June of 1999. Cendant’s impressive portfolio of hotel franchise chains has since been spun off as the Wyndham Group, with hotels such as Ramada, Super 8 Motels, Days Inn, Knights Inn, Howard Johnson and more. - Editor

When I read about Cendant’s withdrawal of support as sponsor of the Asian American Hotel Owners Association (AAHOA), I thought, “This must be a misprint.” No franchisor would willingly antagonize a group of entrepreneurs that owns more than half of the properties in the economy sector, and nearly 35 percent of all hotels in the U.S., unless that franchisor was planning to go out of business.

Then I received a copy of Cendant’s letter to AAHOA members dated March 12 and signed by 11 Cendant executives. The letter reveals a blatant attempt to control AAHOA’s mission and agenda. It clearly reflects a sharp disagreement with AAHOA’s campaign to seek fairer franchise license agreements.

When AAHOA first proposed changes in these license agreements, it seemed to me that the group’s suggestions represented a logical sequence in the evolution of the franchise agreement. A brief summary of AAHOA’s 12 proposals reveals just how modest they are:

  1. Performance: If a hotel brand is not performing at a minimum occupancy, franchisees should be able to exit without liquidated damages.
  2. Impact / encroachment: A fair formula should be established to protect franchisees’ assets.
  3. Buyout / voluntary termination: Liquidated damages should be negotiated based on a reasonable period of time to replace a property.
  4. Vendor exclusivity: Franchisees should not be required to purchase from a specific vendor.
  5. Dispute resolution: A fair arbitration / mediation process should be developed.
  6. Venue: In the event of a dispute, the proceedings should take place within the state / county of the property in question.
  7. Transferability: Minimize transfer fees
  8. Database information: This data should not be used for cross-selling other hotel brands and should belong in part to the franchisee.
  9. Sale of a franchise company: In the event the franchise company sells the entire brand to another entity, the franchisee would have the option to leave the system or remain and make the necessary changes.
  10. Disclosure: Franchisors should account for marketing and reservation fees.
  11. Quality assurance inspection: An independent quality inspection should be permitted in the event of a dispute.
  12. Franchise sales ethics / practices: Franchisors should mandate “good faith and fair dealing” practices among their sales agents.

Various commentators have described the AAHOA positions as revolutionary and militant, more demagoguery than negotiation. Nonsense. In our free enterprise system, it is just plain good business to use your strengths to negotiate better license agreements. Did you ever hear editorial criticism of a franchisor who imposed arbitrary and one-sided license provisions on its franchisees? Were these provisions labeled revolutionary? Militant? Demagogic?

I believe any franchise company that adopted the AAHOA recommendations would create a level of trust with its franchisees that does not now exist in the hotel business. It could be the sine qua non by which all others are measured and would be hugely successful.

It is distressing, therefore, to observe that Cendant’s action is a short-sighted, self-serving march of folly.

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Stanley Turkel, MHS, ISHC is a New York-based hotel consultant specializing in operational audits, asset management and litigation support services. You can reach him at 212/838-5467.

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