For Sri Lankan hotel giant Jetwing Group, this milestone is appearing on the horizon. With two of the founder Herbert Cooray’s four grandchildren already in the business, succession planning is in the air. The founder’s children, Shiromal and Hiran, who have been running the company so far are taking steps to make sure the business future-proof.
“We are no longer young,” says Hiran, who was a fresh-faced graduate when he was appointed to the helm of the family-owned business. Hiran has just stepped aside as chairman of Jetwing Hotels, the company founded by his father and now owned by his sister Shiromal and him. After decades of building Jetwing Travels, the group’s inbound travel business, Shiromal was appointed chairman of Jetwing Hotels.
Sitting at the airy rooftop bar at Jetwing Colombo Seven, a group-controlled and managed hotel located just beyond the central business district, Hiran has a calm and kind demeanour and a smile that comes easily. He seems imbued with a gentle energy that could make any conversation topic engaging.
“We now have to take a step back and let other leaders in the organisation take over.”
In the short term, he illustrates the decision for a clearer demarcation of roles between the different businesses. In the longer term, his stepping down from Jetwing Hotels reflects plans to gradually transition to a non-executive role at the family company.
The divergent strategy of maintaining founder Herbert Cooray’s hotels under Jetwing Hotel, where his daughter Shiromal is now chairman, and having Jetwing Symphony, the now listed company led by Hiran, isn’t well understood.
For faster growth by attracting new investors, the group’s new hotels are being developed by Jetwing Symphony, established in 2007. Currently, Symphony has 5 hotels and 327 rooms, and since its December 2017 IPO, is 18% publicly held. The Cooray family and other promoters own the rest of the shares. Hiran Cooray continues as chairman of Jetwing Symphony and The Lighthouse Hotel, both of which are listed.
Jetwing Hotels itself was established over 40 years ago, and now has 25 hotels and 13 villas including six they manage but have no equity interest in. Alongside the hotel businesses of John Keells Holdings and Aitken Spence Holdings, Jetwing is one of the largest in Sri Lanka.
If net assets were the measure, Jetwing Hotel’s Rs30 billion, reported in a March 2017 interview Hiran Cooray gave, makes it one of the largest. Listed Jetwing Symphony’s assets were Rs5 billion in the 2018 December quarter.
For comparison, listed Aitken Spence Hotel Holdings had net assets of Rs29.2 billion, John Keells Hotels Rs28.1 billion and Asian Hotels at Rs35.5 billion (both John Keells Holdings controlled), at December 2018.
Building new hotels is capital-intensive and investors must sustain losses during their early years due to taking time to attract enough tourists at first, non-cash charges like depreciation and the cost of debt.
Except for Jetwing Yala, which was close to breaking even during the nine months to December 2018, the other four hotels, Jetwing Symphony’s Kaduruketha, Colombo Seven, Lake and Surf, were all loss-making.
Hotel chains have devised franchising arrangements to ensure their brand delivers the maximum return by separating asset ownership from management and brand ownership. This industrial scale franchise model has been a remarkable triumph. Jetwing Hotels is using this model to maximise revenue by managing hotels that others own and limiting their own equity investment.
Transparency and Efficiency
Several days later, sitting in the same rooftop bar at an adjacent table, Shiromal Cooray speaks with enthusiasm and candour about her new position. Although she officially took over the role of chairman of Jetwing Hotels in October 2018, the transition was not a black and white one as she’s been a Director for many years, but is now more responsible for the long-term strategy directly. The change also made strategic business sense, she points out. “We realised that we have two major ventures: the asset-owning company and the management company.”
Shiromal Cooray has taken over as Chairman of Jetwing Hotels.
“We separated hotels our father built that he didn’t want to take public.”
For transparency, a clear role demarcation was the next step. With many hotels under Jetwing Group, some of which are owned, others managed, Shiromal says there were also challenges with handling the number of properties and balancing priorities that may be different from an asset vs the management’s point of view.
“We realised that if we are to do justice to everything, then it would be better to change the roles.”
Thus, Shiromal, as chairman of Jetwing Hotels, will look after the management of all hotels, and Hiran, as chairman of Jetwing Symphony, will focus on the asset, how to improve those and expansion in Sri Lanka and overseas.
Companies that have accumulated significant assets must think about how that wealth can be preserved for generations, while continuing to grow it at a reasonable rate.
Family businesses have the unique challenge of having all the investment eggs in one basket. That’s fine as long as the founders and generations following are passionate and capable of growing the business. However, the question arises whether continuing with the family business is indeed the best way for intergenerational wealth transfer. Could the family be better off by selling the assets and allowing professional wealth managers to invest the return.
Two of the founder’s grandchildren are already in the Jetwing Hotels business. Hiran’s youngest son is in New Zealand and Shiromal’s son, Gihan, is an actor and singer in the US.
Shiromal herself didn’t join the company straight away, but worked in accountancy before taking over what was then a little travel agency in Negombo that Jetwing owned. While her son has no plans to join the business at the moment, and reflecting on her own change in career path, Shiromal takes a never-say-never attitude.
The children, the third generation, aren’t being pressured to join the business, says Shiromal, but the preparations began nonetheless long ago for the possibility of all three of Hiran’s children and Shiromal’s son coming onboard. Shiromal and Hiran consulted a family business expert who advised about potential pitfalls and ramifications. Similar steps were taken by Herbert Cooray when Shiromal and Hiran joined the company: “He sent us on a training programme about family business so we understand what kinds of things could happen. My father had so much foresight,” she says.
Family businesses are often beset by squabbling and infighting, but pre-empting the possibilities seem to be working, as “it has helped us and we hope it will work in the future as well”.
Jetwing Group is also diversifying to include a condo project in Talahena, Negombo, expected to commence construction soon. Will they consider other industries? “You never know!” says Shiromal with a smile. “You need to drive a business and be passionate about it. If somebody is passionate and capable, and has the same values, then we can easily enter other areas”.
A new challenge
“I’d want to move out while I’m still relevant and before my motivation fades,” says Hiran. His first love is cricket, and conversation with him is delightfully peppered with anecdotes about cricket legends and lessons. He uses the analogous case of Ian Chappell, a 1970’s Australian cricket captain, who retired during his prime when the Australian team was at the top of their game. Following in Ian’s example, Hiran says, “I want to go in my prime when I’m still contributing, not when my use-by date is past.”
Often, in family companies, the generation in control is reluctant to give the reins to the next, delegating responsibility but not stepping out of the light. This doesn’t seem to be the future in store for the Cooray family’s third generation where succession planning is already on the cards. Hiran’s two oldest sons are already in the business: Hashan in Marketing and Dmitri in Operations.
Jetwing Symphony was created to take the business into the future. The reasons for its creation were both practical and sentimental. “A lot of people were proposing it,” says Hiran, “The company had grown and many people wanted to invest with us. We also realised that, to expand fast, our funding alone was inadequate.”
Hiran Cooray, Chairman of Jetwing Symphony and The Lighthouse Hotel
At the same time, distinction had to be made between the existing properties, created by Jetwing’s founder, Herbert Cooray, and the business assets of the future. “We will always hold on to the Herbert Cooray properties,” says Hiran, “whereas hotels we built under Jetwing Symphony will be investments. We won’t form any emotional attachment with them.”
Jetwing Symphony added three new hotels by 2017: the sustainably-conscious Jetwing Lake in Dambulla opened December 2016, luxury eco lodge on the east coast at Pottuvil Point Jetwing Surf in December 2017 and its first city hotel Jetwing Colombo Seven.
The company’s sixth property, a 26-suite hotel in Kandy called Jetwing Kandy Gallery, is expected to open in early 2020. Jetwing Symphony also owns a 19-acre plot of land in Uppaveli, north of Trincomalee, but are not rushing its development. “First we will complete Kandy, then we will decided if the time is right for Uppaveli,” says Hiran.
Hiran Cooray admits letting go of the day-to-day challenges of his former role will not be easy. “I’ve done this for 30 years. Slowly and surely, I will get my mind out of it – but it hasn’t happened yet!”
As well as asset development, he will now be spending time creating experiences, something he particularly enjoys. “Today, everybody talks about experiential travel. Our hotels are in different parts of the Island and we want to create more guest experiences – culture based, nature based, hotel based, you name it.” Shiromal agrees that immersive travel is the future and points out that Jetwing already offers many authentic Sri Lankan experiences. Each Jetwing hotel is designed to blend with the landscape and reflect the local culture, and are designed by architects they feel can give life to a particular setting.
Experiential offerings will be important for the upcoming Kandy Gallery hotel, which is pitched for those on slow travel, with stays of at least two nights. Kandy’s main temple may be a must-see for first-time visitors, but as a destination, Kandy has challenged the industry that’s keen to have tourists spend more than a night there.
Jetwing’s international expansion
Since founding in the early 1970s with a six-bedroom hotel on the Negombo coast called Blue Oceanic, Jetwing Hotels’ growth has been substantial. The time may be right to start exporting Jetwing’s Sri Lankan hospitality to international climates. “It’s in our plans,” says Hiran about expanding overseas, “but we haven’t actively explored it yet because we need a couple of years to consolidate Symphony here. Once the hotels here are profitable, we will look at how we can grow overseas.”
Images courtesy of Jetwing
In the nine months ending December 2018, Jetwing Symphony’s losses were Rs370 million, 7% higher than the same period a year ago. During those same nine months, earnings before interest are tax (EBIT) turned the corner from a negative Rs23 million to a positive Rs160 million.
International expansion would, Hiran admits with his good natured smile, be quite risky. In Sri Lanka, Jetwing is a household hospitality brand, and generates more than 20% of its revenue from the Sri Lankan tourists. “We are still a small company, so people may not trust us in the way that we are trusted and respected in Sri Lanka.” Going into new markets in South East Asia like Laos and Cambodia would bring with it challenges, both for Jetwing to understand their prospective markets and for those markets to understand what the Jetwing brand and concept is about.
Brand values Jetwing’s founder Herbert Cooray established are timeless at Jetwing Group. A copy of his biography, A Man In His Time, is included in the hotel guest rooms at Jetwing Colombo Seven where Herbert Cooray’s residence once stood. His is a success story built on hardwork and generosity of spirit. “My dad was a rebel. He was a guy who was completely out of the box,” says Hiran. “When he started the business, our house and my mother’s jewellery was mortgaged. If the business failed, we would have been homeless.”
The values and guiding principles were instilled in both Hiran and Shiromal through constant application and practice by their father. At a time when all-inclusive hotels were the ‘in thing’ and tour operators were pushing Herbert Cooray to offer this option, he refused, because if guests would not need to leave the property, where would the benefit to the community be?
“That’s stuck in my mind,” Shiromal reminisces. “I used to sit with him at contracting meetings – the tour operators would be going at him saying ‘otherwise we’ll have to drop the hotel’, and he said ‘that’s ok, I still won’t do it’.”
The environment, community and honesty were at the heart of the business built by Herbert Cooray.
For Shiromal, there is no conflict between the weight of the founder’s philosophy and values, and the strategy required to take Jetwing into the future. Did the company turn down opportunities that didn’t align with its values? “Maybe, but most did align,” she says.
“Hiran and I have these unconscious biases, so we wouldn’t even look at something that doesn’t align with our values.”
The creation of listed Jetwing Symphony, where hotel assets are free from the weight of sentimentality, brings with it a different challenge. That of balancing the founder’s values with shareholder expectations. For shareholders, profit comes first. Companies may find their intentions for the betterment of the environment or community derailed by shareholders who prefer to have money returned to their pocket and not invested back into non-financial-outcomes.
“I think we have fairly like-minded shareholders,” Hiran Cooray says about Jetwing Symphony’s promoters, but quickly highlights the company’s profit focus. The balance of the three P’s – people, planet and profit – will inevitably shift towards the latter in a public company, more than with a family business like Jetwing Hotels. At the end of the day, says Hiran, “There is no ego here. It’s money in and money out. But we make sure that everybody else benefits too.”
When the time is right
So what’s in store for the future of Jetwing Group? International expansion is on the cards for Jetwing Symphony’s business, and closer to home, Jetwing Hotels, the family business, is on the lookout for more hotels to manage. “If a property fits with our philosophy and the owners understand our way of thinking, like impacting the community, we’d love to manage more,” says Shiromal.
Six of Jetwing Hotels’ properties will get a refresh later this year, re-positioned for the higher end. This will burnish their luxury image and move the brand further away from a perception as middle market; a tricky space where hotels often find it difficult to stand out. Vil Uyana is a case in point; “It’s a high end hotel and we are getting $300 per night,” says Shiromal, “Unfortunately, because it gets coupled with others, it’s lost.”
At the other end of the scale, Jetwing Hotels’ budget brand Hotel J is gaining traction. Since launching in 2013 in Negombo, two more properties have been added, in Unawatuna in 2017 and Ambalandoda in 2018. With a mixture of dorms and private rooms, the high volume, limited service hotels target “younger, free spirited travellers” whose priorities are a clean and safe place to stay. “We were the first company to launch a budget hotel in Negombo,” says Hiran, “And we see that brand growing.”
Hotel J is independently run, but through its accessible positioning, visitors are getting exposed to the Jetwing brand and to Sri Lankan hospitality; they hope that, in five or ten years, these same visitors will return to stay at one of the higher-end properties.
Hiran expects Jetwing’s values to lead international recognition as a trusted brand. “If people remember us as a responsible company by bringing rural youth into the hospitality industry, creating livelihoods and encouraging local farmers, we’ll be very happy.”
With the next generation joining the business, instilled with the values from the founder and supported by the long-serving management team, many of whom have been with the company for 30 years or more, this sounds like a very real possibility. For Hiran himself, he plans that the next five years will be spent full time at the business, and after that, “if I find my motivation fading”, it will be time to move on. Back to his first love of watching cricket.