The Operator Is the Product: Does a Third-Party Operator Model Actually Improve Hotel Performance?
By Scott Boyes, Chief Executive Officer, Trilogy Hotels · 9 August 2026
A response to “Exclusive: weighing the value and risk of TPO and Franchise models” by Daisy Melwani, Hotel Management, 31 July 2026, reporting the APAC third-party operator and franchise survey conducted by Watson Farley & Williams LLP (Lada Shelkovnikova and Robert Williams) at the request of AHICE, from circa 50 responses.
In one line
The survey’s central finding — that performance is determined by operator quality, not by the model — is the right conclusion, and it sets the standard Trilogy Hotels is willing to be measured against.
Owners should demand a common performance test: adjusted GOP after actual FF&E and capital expenditure, versus budget.
If operator fees are variable and performance-linked, franchise fees should be too.
What did the Watson Farley & Williams survey actually find?
Lada Shelkovnikova and Robert Williams have done the industry a genuine service. This is the first time anyone has put real data behind a conversation Australian and Asian owners have been having privately for three or four years, and the findings deserve engagement rather than applause.
I will take the findings in turn, because some of them confirm what we see every week, and a few of them deserve a harder push.
Does a third-party operator model actually improve hotel performance?
The survey concludes that performance will be determined not by the model itself, but by the quality of the operator. That is the most important line in the document, and I would go further.
The model is not the product. Separating brand from operations does not, on its own, create a dollar of GOP. It creates the conditions for it — a leaner cost base, faster local decisions, and an operator whose only measure of success is the owner’s return. What converts those conditions into performance is people on the ground who know the market, and a head office small enough to answer the phone.
That is why the almost 50% scepticism about performance uplift does not offend me. It is a fair verdict on a young segment that has grown quickly and unevenly. Owners are right to demand evidence rather than narrative. Our answer is simple: judge us on adjusted GOP after actual FF&E and capital expenditure against budget, and give us a portfolio track record to point at.
Trilogy Hotels’ evidence base
| Measure | Position | Why it matters |
|---|---|---|
| Operating portfolio | 19 hotels, more than 3,200 rooms | A live, multi-market track record rather than a concept |
| Including signed pipeline | Approximately 4,000 rooms | Scale sufficient to deliver procurement and commercial leverage |
| Operating Geographic footprint | NSW, Victoria, ACT, South Australia, Northern Territory | Depth in CBD, regional, coastal and airport asset types |
| Corporate structure | Lean head office team | Cost base that does not sit between the owner and the return |
How much operational control do owners keep under a TPO model?
Seventy-four per cent of respondents to the Watson Farley & Williams survey want either a high degree of operational control or structured HMA-style controls, which is not a caution flag for our model. It is the reason our model exists. The traditional branded HMA asked owners to hand over the asset and receive a report. The TPO structure inverts that: the owner sets the strategy, approves the budget, signs off the big-ticket spend and the key appointments, and we execute.
The nuance the survey surfaces is worth naming. Control without capability is expensive. The owners who get the most from a third-party operator are the ones who use control to set direction, not to run the hotel by committee. Our best owner relationships are the ones where governance is tight and operating latitude is real.
Should hotel owners unbundle brand, operations, marketing and distribution?
Most of the debate is framed as brand versus no brand. That is the wrong axis. There are four separable layers in a hotel, and the market has historically bundled all four into one contract and one fee stack — with owners paying for the bundle whether or not each layer earned its keep.
The four-layer test
| Layer | What it should be bought for | Owner test |
|---|---|---|
| Operations | Execution capability, cost discipline, team retention | Does the operator deliver GOP margin above market? |
| Brand | Demonstrable rate and occupancy premium | Does the brand return more than the fee it charges? |
| Marketing | Segment reach and demand generation | Is spend traceable to booked revenue? |
| Distribution | Channel efficiency and direct conversion | Is the platform the best fit for this asset, not the group? |
Unbundling means an owner can take a global brand where the brand genuinely drives rate and occupancy, run distribution through the platforms best suited to that asset, and buy operations from whoever will actually deliver the EBITDA. In a CBD hotel with a strong corporate base, or an airport asset, the brand often earns every basis point. In regional and coastal midscale, an independent or soft-branded position with disciplined operations will frequently out-earn the franchise fee it replaces. The right answer is asset-specific, and owners deserve an operator willing to tell them when the brand is not worth the money.
Do brand standards justify the capital expenditure they require?
A Performance-Linked Brand Agreement is a staged franchise fee structure, developed by Trilogy Hotels for conversion assets, in which the franchise fee rises only when two independent performance gates are met, falls when performance falls, is capped at an agreed ceiling, and gives the owner a termination right if direct business drops below an agreed floor.
| Mechanism | How it works | Owner benefit |
|---|---|---|
| Dual-gate trigger | Fee steps up only when two independent performance gates are met | The brand earns its increase, it is not assumed |
| Two-way ratchet | Fees move down as well as up with performance | Downside protection when contribution falls away |
| Capped rate | Hard ceiling on the total franchise fee percentage | Certainty in the underwriting model |
| Owner termination right | Exit available if direct business falls below an agreed floor | The owner is not locked into a brand that stops delivering |
Franchise fees should be a variable cost tied to demonstrated contribution, not a fixed tax on revenue. That is where the next phase of this conversation is heading.
How should third-party operator fees be structured?
The finding that owners are not yet ready to share exit upside is entirely reasonable — and the authors are right that the answer changes if the operator has capital in the deal. Operators should not expect equity-style returns from a management-fee risk position.
What we should expect is a fee structure weighted toward incentive and measured on adjusted GOP after actual capital expenditure. That single mechanism does more for alignment than any amount of contractual drafting. It rewards preventative maintenance over deferred maintenance, it removes the incentive to harvest short-term margin, and it places operator and owner on the same side of the below-GOP line — which is precisely where most value is quietly destroyed in this industry.
Can an owner terminate a third-party operator agreement without cause?
The 37% of respondents to the Watson Farley & Williams survey want termination without cause on short notice are asking for something entirely rational from their side of the table, and I do not begrudge it. But the warning in the survey is right: an operator on a 90-day leash manages for the next 90 days.
Trilogy Hotels’ contracting position
- We will accept a genuinely demanding performance test — adjusted GOP versus budget, with defined cure rights and a clear exit if we fail it twice.
- We will accept shorter tenure than a traditional branded HMA.
- We will accept lender step-in and termination on foreclosure. In a white-label structure there is no brand equity argument against it.
- We will not take on a turnaround, invest in the team, rebuild the commercial engine and carry the ramp-up cost on terms that let the relationship end before the work pays off.
Owners who want an operator to think in three-year horizons need to contract in three-year horizons.
Are third-party operators more resilient in a downturn?
More than 60% of respondents to the Watson Farley & Williams survey believe the model is more agile in a downturn, which matches our experience precisely. In 2020 and 2021, the operators who struggled most were those making portfolio-wide decisions from offshore for assets they had not visited. Local operators made faster, better and more humane calls — on cost, on staffing, and on which segments to chase back first.
We are heading into another period where that will be tested, and I would add a dimension the survey does not cover. In Australia, the constraint on hotel performance over the next five years is not brand distribution. It is finding, training and keeping people, under a Fair Work framework that rewards employers who genuinely invest in careers. An operator with a small head office and real relationships in every hotel retains teams better than a distant corporate structure. That is an operating advantage, and it goes straight to the GOP line.
What should change in third-party operator contracts?
| Proposal | What it requires | Effect on the market |
|---|---|---|
| Standardise the performance test | Adopt adjusted GOP after actual FF&E and capital expenditure versus budget as the drafting default | Owners compare operators on a common basis; weak operators have nowhere to hide |
| Make franchise fees performance-linked | Brands accept variable fees on the same logic they apply to operators | Fee stacks reflect contribution rather than convention |
| Publish portfolio results | Operators disclose GOP margin performance against market | Replaces the segment’s evidence problem with a track record |
Trilogy Hotels supports all three, and is willing to go first on the third.
What three questions should every hotel owner ask a third-party operator?
Every operating decision at Trilogy Hotels runs through three stakeholders. Applied to this survey, that gives owners a usable test for any third-party operator conversation.
| Stakeholder | The question to ask | What a good answer looks like |
|---|---|---|
| Owners | Is the fee structure weighted to outcomes I actually care about, and measured below the GOP line? | Incentive-weighted fees, tested on adjusted GOP after actual capital expenditure |
| Guests | Does the operating model improve the experience, or only the cost line? | Margin earned through commercial discipline, not withdrawn service |
| Teams | Will this operator attract and keep good people in my hotel? | Demonstrable retention, local leadership and a real career pathway |
Closing
The authors close by saying this is just the beginning. I agree. The TPO plus franchise model is not a trend, it is a correction — the market rediscovering that operating a hotel and marketing a hotel are two different businesses, requiring two different contracts and two different measures of success.
The operators who last will be the ones happy to be measured on the harder one.
Scott Boyes
Chief Executive Officer, Trilogy Hotels
Frequently asked questions about third-party hotel operators
1. What is a third-party hotel operator?
A third-party hotel operator runs a hotel on behalf of its owner without owning the brand. The owner sets the strategy, approves the budget, signs off big-ticket spending and key appointments, and the operator executes. It separates the operating contract from the brand contract, so the two can be bought — and judged — independently.
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2. Is a franchise or a third-party operator better for a hotel owner?
It depends on the asset, and an owner should expect a straight answer rather than a default. In a CBD hotel with a strong corporate base, or an airport asset, the brand often earns every basis point of its fee. In regional and coastal midscale, an independent or soft-branded position with disciplined operations will frequently out-earn the franchise fee it replaces.
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3. What are the four layers of a hotel operating model?
Operations, brand, marketing and distribution. The market has historically bundled all four into one contract and one fee stack, with owners paying for the bundle whether or not each layer earned its keep. Separating them lets an owner buy each layer from whoever delivers it best: operations judged on GOP margin above market, brand on whether it returns more than the fee it charges, marketing on spend traceable to booked revenue, and distribution on fit for that asset rather than for the group.
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4. What is a Performance-Linked Brand Agreement?
A Performance-Linked Brand Agreement is a staged franchise fee structure, developed by Trilogy Hotels for conversion assets, in which the franchise fee rises only when two independent performance gates are met, falls when performance falls, is capped at an agreed ceiling, and gives the owner a termination right if direct business drops below an agreed floor. The principle is that franchise fees should be a variable cost tied to demonstrated contribution, not a fixed tax on revenue.
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5. What is adjusted GOP, and why do operators measure against it?
Adjusted gross operating profit after actual FF&E and capital expenditure, versus budget. More than 75% of owners and investors surveyed* favoured it as the fair test of operator performance. It matters because it places operator and owner on the same side of the below-GOP line — it rewards preventative maintenance over deferred maintenance and removes the incentive to harvest short-term margin.
*Watson Farley & Williams survey as reported by Hotel Management, 31 July 2026.
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6. How should third-party operator fees be structured?
Weighted toward incentive and measured on adjusted GOP after actual capital expenditure. That single mechanism does more for alignment than any amount of contractual drafting. Operators should not expect equity-style returns from a management-fee risk position — owners in the survey were not yet prepared to share exit upside, and that is a reasonable position unless the operator has capital in the deal.
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7. Can an owner terminate a third-party operator agreement without cause?
Some can and do — 37% of owners surveyed* wanted termination without cause on short notice. But an operator on a 90-day leash manages for the next 90 days. The more durable arrangement is a genuinely demanding performance test with defined cure rights and a clear exit on repeated failure, rather than termination at will.
*As reported by Hotel Management.
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8. Are third-party operators more resilient during a downturn?
More than 60% of owners and investors surveyed* believe the third-party operator plus franchise model is more agile in a downturn, particularly on cost control. In 2020 and 2021, the operators who struggled most were those making portfolio-wide decisions from offshore for assets they had not visited; local operators made faster, better and more humane calls on cost, staffing and which segments to chase back first.
*As reported by Hotel Management.
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9. Do owners lose control by appointing a third-party operator?
No — control is the point. Seventy-four per cent of respondents* wanted either a high degree of operational control or structured HMA-style controls. The traditional branded HMA asked owners to hand over the asset and receive a report; the third-party operator structure inverts that. The caveat is that control without capability is expensive: the owners who get the most from the model use control to set direction, not to run the hotel by committee.
*derived from the survey’s 37% + 37%, as reported by Hotel Management.
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10. What three questions should an owner ask a third-party operator?
Is the fee structure weighted to outcomes I actually care about, and measured below the GOP line? Does the operating model improve the guest experience, or only the cost line? Will this operator attract and keep good people in my hotel? Good answers look like incentive-weighted fees tested on adjusted GOP after actual capital expenditure, margin earned through commercial discipline rather than withdrawn service, and demonstrable retention with local leadership.
Source
Melwani, D. “Exclusive: weighing the value and risk of TPO and Franchise models”, Hotel Management, 31 July 2026. https://www.hotelmanagement.com.au/2026/07/31/exclusive-insights-third-party-operator-franchise-value-risk-reality/ — reporting the APAC third-party operator and franchise survey conducted by Watson Farley & Williams LLP (Lada Shelkovnikova and Robert Williams) at the request of AHICE, with circa 50 responses from hotel owners, developers and investors.