IN the past six months, Tan Sri Tony Fernandes’ Tune Group has slashed the number of its Tune Hotels worldwide, ended its partnership with Red Planet Hotels and put several of its assets up for sale. It has also moved away from its “no-frills” model to the  all-inclusive one of a typical budget hotel, all with scarcely any fanfare. Clearly, things do not look promising for the hospitality group’s proposed listing this year.   

From 45 Tune Hotels at the end of last year, there are only 22 today.

Currently, the budget hotel chain has no representation in Thailand or the Philippines and only one hotel in Indonesia. The Edge understands that the dramatic drop in the hotel count is largely because of the dissolution of Tune Hotels’ franchise partnership with Red Planet Hotels and partly because of the closure of at least two of its own hotels.

A collaboration with the Bangkok-based company in 2012 allowed Tune Hotels to operate the former’s hotels under its own brand. It was reported that Red Planet had even acquired a 16.05% stake in Tune Hotels so that both parties could grow their businesses together. However, it appears that all the hotels that were opened under the partnership — in Thailand, Indonesia and the Philippines — have been rebranded as Red Planet. The status of the 16.05% equity interest is unclear.

It is worth noting that 10 of the Philippine hotels were listed and available for booking on Tune Hotels’ website until July 1 but by July 2, they had moved to the Red Planet Hotels page. Just two months ago, Tune Hotels had sent out alerts to its guests to book their stays at Tune Hotel-Ayala, Manila, at a special rate to celebrate the opening of its 10th hotel in the Philippines. Bookings could be made until June 30. This hotel is no longer listed on Tune Hotels’ website.

At press time, neither Tune Hotels CEO Mark Lankester nor Fernandes, who is Tune Group CEO, has responded to The Edge’s questions on the Red Planet Hotels partnership. Incidentally, Tune Hotels recently appointed another CEO — Frank Trampert. Accordingly, Lankester is now CEO of brand, capital markets and asset management while Trampert is CEO of development and hotel management.    

The budget hotel operator has also placed two of its hotels in Bali, Indonesia, on the market. These hotels, located in the touristy areas of Legian and Kuta, stopped operating late last year, say sources. Tune Hotels is also said to be looking for a buyer for a piece of undeveloped land it owns in Langkawi.

“In Bali, land values have shot up since we acquired the plots way back in 2008. We were getting a lot of enquiries from the market, so we decided to engage in an official process to see what the market would offer for the sites,” Lankester tells The Edge in a vaguely worded response, which did not address some industry players’ suggestion that the Tune Hotels brand does not work in resort island destinations but is more suited to cities.  

As for the land in Langkawi, which is understood to be located in Pantai Tengah, Lankester confirms that the company will be selling it shortly.  

According to sources, Tune Hotels is asking for US$9 million for both its hotels in Bali or US$6 million each while the price tag on the 60,000 sq ft Langkawi parcel is believed to be around RM6 million. Yet another hotel that may be disposed of is the one in Melbourne, Australia, but Lankester would not comment on it.

Two years ago, he had told the press that Tune Hotels’ target was to have 100 hotels by 2016 and for the operations to chalk up revenue of RM100 million. At the same event, Fernandes had said Tune Hotels Regional Services Sdn Bhd (THRS) was looking at listing on Bursa Malaysia this year.

With just 22 operational hotels and accumulated losses, the listing of Tune Hotels may not happen anytime soon.

A search on the Companies Commission of Malaysia (CCM) website reveals that THRS has been in the red for at least five years now and racked up accumulated losses to the tune of RM52.07 million as at FY2013 ended Sept 30. It has yet to submit its FY2014 financial statement. In FY2013, THRS posted a loss after tax of RM12.18 million on revenue of RM9.94 million while total liabilities stood at RM64.88 million. Of the latter, RM64.81 million were current.

THRS is wholly owned by Tune Hotels.com (BVI) Ltd. The directors of the company are Fernandes, Datuk Kamarudin Meranun and Lankester while the alternate directors are Lee Yu-Chern and Tan Hong Kheng.

On a positive note, Lankester tells The Edge that he expects many new openings going forward. “The focus is Europe, Africa, Australasia and the UK apart from urban cities in SE Asia and we’ll have Liverpool in the UK, Bandung and Jogja in Indonesia, Shoreditch in London, Nairobi in Kenya as well as other openings in Malaysia in the next six to eight months.”

In December 2005, Fernandes, with a group of businessmen, set up Tune Hotels Sdn Bhd (THSB) with the aim of introducing a no-frills guest accommodation — after the success of the no-frills concept adopted by AirAsia — to achieve synergy with the low-cost carrier’s destinations.

In the past decade, the business has grown to include hotels in India, Kenya and the UK. Sometime last year, Tune Hotels ditched its no-frills model at many of its hotels, which meant that the rooms now had TV, air-conditioning, towels, toiletries and WiFi.

Meanwhile, a CCM search on THSB shows that the company is now 100%-owned by British Virgin Islands-registered Tune Hotels Real Estate Holdings Ltd (BVI).

The directors of the company are the same as those at THRS but with the addition of Datuk Seri Kalimullah Masheerul Hassan and Lim Kian Onn.

THSB has also not submitted its results for FY2014 ended Sept 30, which were due by March 31. Based on the FY2013 numbers, the company posted a profit after tax of RM4.57 million on revenue of RM31.57 million. Its total liabilities were RM149.37 million, of which RM66 million were current.

This company has been profitable for at least the last five years and had an accumulated profit of RM29.29 million as at Sept 30, 2013. Its best year during the period was FY2011 when it posted a profit after tax of RM17.88 million on revenue of RM29.72 million.

This article first appeared in The Edge Malaysia Weekly, on July 6 - 12, 2015.

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