© 2004, educational institute hos 101 survey of hospitality0 chapter 6 understanding the world of...

© 2004, Educational InstituteHOS 101 Survey of HospitalityHOS 101 Survey of Hospitality 11

Chapter 6Understanding the World of Hotels


Learning OutcomesLearning Outcomes

1. Explain the history of the hotel industry in terms of rate of occupancy and ADR

2. Define the Hotel segments according to guest types and locations.

3. Outline the various types of hotel ownership and management

4. Describe the characteristics of all-suite hotels, conference centers, timeshare properties, condominium hotels, and seniors housing.

5. List the various steps in developing and planning new hotels

(continued)


Some of The PlayersSome of The Players


An Historical PerspectiveAn Historical Perspective

• Prior to the 1960’s hotels are in city-centers or resort location.

• 1960 Change in pattern of commerce with the development of suburban and airport locations

• 1970’s are the decade of product differentiation through: architecture (Hyatt) or décor

• 1980’s. The decade of amenities inflation and pampering of guests, especially corporate guest, Spa, club.


An Historical PerspectiveAn Historical Perspective

• 1990’s is the decade of quality service and market segmentation based not on location but market: 25 new brand announcements

• Post 2000. Merger mania in the industry, development of the condo hotel, and LEED construction, the internet


1900

A Brief History of Hotels and Some A Brief History of Hotels and Some NumbersNumbers

1910

Fewer than 10,000 hotels

750,000 to 850,000 rooms

10,000 U.S. hotels

One million rooms

300,000 employees

Average size: 60-75 rooms

1920

Occupancy: 85%

Hotel construction reaches an all-time peak as thousands of rooms are added along the new state and federal highways


1930Occupancy: 65%

AHA’s Hotel Red Booklists 20,000 hotels

A Brief History of Hotels (continued….)A Brief History of Hotels (continued….)

1940Occupancy: 64%

Average room rate: $3.21

1950Occupancy: 80%

Typical hotel: 17 rooms - The motel explosion


1960

Occupancy: 67%

$3 billion in sales, Average room rate: $5.91

Hotel rooms: 2,400,450 – Airport Hotels - Suburb

Typical hotel: 39 rooms, independent and locally owned


A Brief History of Hotels (continued….)A Brief History of Hotels (continued….)

1970

Occupancy: 65%

$8 billion in sales

Total hotel rooms: 1,627,473 – Hyatt

Average room rate: $19.83 - Architecture

1980

Occupancy: 70%

$25.9 billion in sales – Amenities, Frequent guest program

Total hotel rooms: 2,068,377



A Brief History of Hotels (continued…)A Brief History of Hotels (continued…)

1990

2000Occupancy: 63% - Merger mania

$97 billion in sales – The condo hotel and the internet

Occupancy: 64%

$60.7 billion in sales – Brand explosion 25 new brand

Total hotel rooms: 3,065,685- Market segmentation

45,020 properties



The US Hotel Industry in 2007The US Hotel Industry in 2007

• 47,135 properties with 4.4 million guest rooms. • Occupancy 63.4%• ADR $97.31 up 7% from 2005• RevPAR $61.69 up 24% since 2004• Room supplies increased by 0.6% while demand

increases 1.1%• The lodging industry directly supports more than 7.5

million jobs • Room revenue up 8.1% to $133.4 billion• Concept of economic cycle• 2007 1/3 of booking the internet


Other FactorsOther Factors• Catering to women travelers: Extra pillow and

room service, larger bathrooms – Change in marketing brochures

• Importance of energy management

• Increase in energy cost outpaces rise in profit : California energy crisis

• Lighting retro-fit, wind energy

• Impact on the environment LEED and the Green Hotel


The Green Hotel- LEEDThe Green Hotel- LEED

• LEED certification – Leadership in Energy and Environmental Design

• Pond/ irrigation using recycled water

• Chemical-free landscaping

• AVHAC system energy efficient

• Limited laundry

• Equipments that minimize water and electricity consumption


PKF Hospitality Research Lowers its 2008 Forecast for a key Hotel Industry Metric, RevPAR, from Up 4.5% to up a Below-average 3.0% March 2008

Changes in the EconomyChanges in the Economy


Supply 2.6%

Demand 0.9%

Occupancy -1.6%

ADR 4.7%

RevPAR 3.0%

Unit Level Total Revenue 3.0%

Unit Level Operating Expenses

3.5%

Unit Level NOI* 1.7%


Hotel Segments by MarketHotel Segments by Market

• Corporate groups

• Corporate individuals

• Conventions & Associations

• Leisure

• Long-term stay


Hotel Guest SegmentsHotel Guest Segments

• Corporate individuals

1. 1 to 2 nights

2. 15 to 20 stays per year

3. Base selection on prior experience and location

4. Use a travel agent (less & less)

5. Value business center- internet access, faxes, secretarial services, small private dinning

6. Frequent stay program

7. Need recognition and special treatment


Hotel Guest Segments (Cont’)Hotel Guest Segments (Cont’)

• Corporate groups

1. Attend a small conference

2. May share a room

3. Stay 2 to 4 days

4. May choose a hotel located in the suburbs (away from distractions)



• Convention & Association Groups

1. Can be very large. Think NRA or political conventions

2. At all level of the price spectrum

3. 3 to 4 days stay

4. Booked several years in advance

5. Very competitive market: Chicago, Vegas, Atlanta, and NYC



• Leisure Travelers1. Sight seeing or (VRF)

2. One night only

3. Multiple occupancy

4. Pay the highest rate

5. Travel during peak seasons (summer- Thanksgiving, Winter break and Spring break)



• Long-Term Stay

1. Extended stay related to corporate assignments or relocation

2. Limited cooking facilities

3. More living space

4. Extra closets

5. Embassy Suites & Residence Inns



• Airlines Guests: crew or cancelled flights

( rock bottom price)• Government and Military • Regional Getaway: Weekend packages at

discounted rates in Chicago for guest from the suburbs. Classic market for B&B

• Guest mix: a hotel can cater to different types of guests. Importance of compatibility of guest types


Hotel Categories by Location: Hotel Categories by Location: Center-cityCenter-city

1. Historically located near train station; Roosevelt in NYC and Grand Hyatt or near financial or office centers

2. Declines in the 60’s with development of suburban and airport locations

3. Revitalization in the 1980’s. San Diego, Chicago Hilton

4. High rate, many amenities, part of a larger RE development. Costly to build

5. Expensive parking

• Resort

• Suburban

• Highway

• Airport


ResortsResorts


Hotel Categories by Location: Hotel Categories by Location: ResortsResorts

• Mountain , sea side, good weather, nature1. Historically simple near mineral spring Greenbrier – Del Coronado The Grand Hotel on Mackinac and summer only2. Now year-around with rate adjustment3. Many new amenities: golf, gambling, snorkeling…4. More exotic locations made possible by better transportation5. Business travelers stay thru conferences


Hotel Categories By Location: Hotel Categories By Location: HighwayHighway

Kemmons Wilson and Holiday Inn

Importance of signagePlenty of parkingProvide fewer servicesHave fewer employee Cheaper rateChain affiliation


Hotel Categories by LocationHotel Categories by Location

• Suburban. 1960’s with development of large housing tracks and move of some corporate headquarters seeking cheaper HQ

• Tend to be smaller (250 to 500 rooms)• Similar amenities to city-center • Chain affiliated with revenues from

convention and business travelers• Part of community


Hotel Categories by LocationHotel Categories by Location

• Airport: O’ hare

• Affiliated with chains

• Highest occupancy rate

• Meeting space


Segmenting through Price: Segmenting through Price: Limited ServiceLimited Service

• Chains have different brands with different benefits and prices

• Historically hotels were all mid-price• Saturation of market lead to the development of

both full and limited service concepts• Limited service hotels are numerous: Motel 6• Evolution into Economy market and Budget

market 20% to 50% below mid market rates• Save on location, labor and amenities


Segmenting through Price: Mid-Price & limited Service

• In response to the Budget/ Economy market

• More amenities yet les than first class

• The challenge is to maintain the middle of the road

• Pricing is critical


Segmenting through Price: Segmenting through Price: First-class, Luxury MarketFirst-class, Luxury Market

• Can be chain affiliated: Four Seasons, Mandarin

• Mostly independent


The Different Players in Hotel The Different Players in Hotel Ownership and OperationOwnership and Operation

1. The owners

2. The franchise company

3. The Management company

4. The lenders

Remember that the owners can also be the management company or also the franchisor


Close Look at Lodging Close Look at Lodging OrganizationsOrganizations

Hotel property

Franchise company

(Franchisor)IndependentOwnership Independent

Franchise company

(Franchisor)IndependentOperation IndependentManagement

companyManagement

company

Franchise Non-FranchiseAffiliation


Other Hotel CategoriesOther Hotel Categories • All-suite hotels: Two rooms in one for the price of one,

common areas are eliminated: restaurant, lobby, health club. Very popular with business travelers but also family, concept used also in resorts

• Conference centers: Living space and meeting space, far from distraction except for resort CC, with theaters of conference rooms, higher revenues

• Timeshare properties: Invented in Europe, questionable beginnings in the US until reputable firms got into the business. Highly profitable with exchange companies such as International Travel International or RCI. Usually work with resort hotels. A $9.4 billion business


Types of Conference CentersTypes of Conference Centers

• Executive conference centers

• Corporate-owned conference centers

• Resort conference centers

• College and university conference centers


Other Hotel CategoriesOther Hotel Categories

• Condominium Hotels –similar to time share, tend to be high-end

• Senior Housing: Independent, congregate, assisted, CCRC, can be on the same premises. Graying of America has led hotel chains to enter the industry: Classic Residences by Hyatt. Tend to be high-end


Types of Seniors HousingTypes of Seniors Housing

• Independent-living units often in Congregate communities

• Assisted-living facilities

• Continuous-care

CCRC are changing


Condo Hotel- Investor’s ViewpointCondo Hotel- Investor’s Viewpoint

• Falls between a hotel and a time-share• Luxury properties in which some or all of

the units are owned by individuals who get to stay at the hotel with all the amenities

• Investors are banking on an increase in the value of the unit

• RE taxes and interest on mortgage can be deducted on tax return

• Collect rental income less hotel expenses


Condominium Hotels – Developer’s Condominium Hotels – Developer’s ViewpointViewpoint

• Reduction in financial risk and quicker ROI

• Easier to finance than traditional hotels

• Marketing cost are less than time share because only one sale per unit


Condo Hotel – Developer’s Condo Hotel – Developer’s ViewpointViewpoint

• Reduces financial risk for developers by defraying finance costs and expenses

• Makes it easier to raise funds• Makes the marketing costs lower than time-

share but higher than traditional hotel financing• Rules & regulations vary from state to state• Brand affiliation and management company are

key to success


Trump TowerTrump Tower


Hotel Feasibility StudyHotel Feasibility Study : Start with Site : Start with Site SelectionSelection

• Market area characteristics: demographics and economic data & trends: Highway count, office occupancy, airport arrivals

• Site/area evaluation: Zoning laws, size, accessibility: roads, airport…

• Competition analysis: existing and proposed competition


Feasibility StudyFeasibility Study

• Demand analysis from local commerce, convention, tourists

• Proposed facilities/services matching the market, can include recommendation as to architecture and decor

• Financial estimates: Fixed charges such as property taxes, insurance, interest on borrowed funds


Hotel FinancingHotel Financing

• Hard costs: Land, Building, furniture, fixture & equipment (FF&E)

• Soft costs: Architectural fees, pre opening expenses, some financing costs

• Permanent financing loans (take-out)

• Construction financing loans (interest on loans


The Financial Risk / RewardThe Financial Risk / Reward

• High leverage

• A cyclical business

• Variation in interest rate

• Real estate appreciation

• Potential for large income beyond BEP - Break Even Point

© 2004, educational institute hos 101 survey of hospitality0 chapter 6 understanding the world of...

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sales total hotel rooms

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