HRTM 101 – Introduction to Resort Tourism Management

Walker (5th Edition) – Introduction to Hospitality Management

Chapter 2 – The Hotel Business

Major US Hotel Brands

Major brands recognized that they can segment travelers into separate market segments and to
target specific properties (with specific benefits and characteristics) to meet their needs. The
result is that 8 firms handle about 75% of lodging needs in the U.S. market.

Parent Brands Offered

Wyndham Days Inn, Howard Johnsons, Ramada, Super 8, Baymont, Microtel, Hawthorn Suites;
Hotels Travelodge, Knights Inn, and others.

http://www.wyndhamworldwide.com/category/our-brands
Choice Hotels Comfort Inn, Comfort Suites, Quality Inn, Clarion Inn, Econo Lodge, Mainstay Suites,
Surburban, Rodeway Inn, and others.

https://www.choicehotels.com/about/brands
ACCOR Sofitel, Novotel, Mercure, Ibis, Formule 1.

http://www.accorhotels-group.com/en/brands.html

ACCOR is the former owner of Motel 6 and Red Roof Inns.

InterContinenta Holiday Inn, Staybridge Suites, Candlewood Suites, Crowne Plaza, and others
l Hotels
http://www.ihgplc.com/index.asp?pageid=405#ref_ourbrands
Marriott Fairfield, Courtyard, Residence Inn, TownPlace, Ritz-Carlton, and others

http://www.marriott.com/marriott-brands.mi
Blackstone Hilton, Embassy Suites, Double Tree, Hampton Inn, Waldorf Astoria, and others
(Hilton)
http://www.hiltonworldwide.com/portfolio/
Carlson Rezidor Radisson, Country Inns, Park Inn, Park Plaza

http://carlsonrezidor.com/our-brands
Starwood Sheraton, Westin, St. Regis, Four Points, eLoft, Le Méridien, and others

http://www.starwoodhotels.com/preferredguest/about/index.html?categoryId=brand.ourBrands
Learning Describe hotel ownership and development via hotel franchising and
Objective 1 management contracts

Franchising – A company (a FRANCHISOR such as Marriott) grants a FRANCHISE to a firm to

allow them to operate a business by using their trademark, brand name, signage, operating
systems, reservations systems, marketing know-how, and other systems in exchange for a fee.

 Franchising its business system allows a firm to expand rapidly by using other people’s
money (franchisee) to grow their brands. In essence, a franchisee buys the right to
operate a restaurant, hotel, rental car agency, beverage bottler, etc. in exchange for
payment provided they honor the terms of the franchise agreement.
 Two main issues:

1. Franchisee must uphold the quality and operating standards of the brand. When
they fail to do so, it reflects poorly on the entire brand.
2. Franchisee must be financially-strong and keep their financial commitments to
allow them to continue to operate the franchised location.

 There are more than 180 franchised hotel brands in North America.

Franchisor (Selling of Franchise) Franchisee (Buyer of the Franchise)

Advantages Disadvantages Advantages Disadvantages

 Can grow their  Must pick reliable  Building Plans to  Must pay high fees
brands more partners. ensure consistency for right to operate
quickly by using  Must monitor of units the branded unit
partner’s money franchisee  Access to national  Centralized
and expertise performance to advertising Reservation System
 Received up-front ensure standards are  Access to ‘controls’ the
fee payment met Centralized reservation
 Expand reach of  “ONE BAD Reservation System  Must conform to all
brand APPLE” potential  Access to volume brand expectations
dynamic discounts for  Must conform to all
operating supplies quality standards
 Listing in
directories
 Access to lower
fees charged by
credit card
companies
 Lower failure rates
likely (proven
concepts with
‘kinks ironed out.’
Referral Associations – hotel/motel properties may band together to create a referral service
whereby they share a Centralized Reservation System (CRS), logo, image, and advertising theme.

Management Contracts – Hotel management companies sign agreements with developers to

operate hotels which they do not own. In essence, owners of a property outsource the
management and operation of a property to specialists to maximize the performance of their asset.

 Typically, a management company gets a contract to manage a property for 5, 10 or 20

years. The management company is paid a fee for it services and can be rewarded for
performance by giving them a % of sales or operating income.

 Recent contracts have seen reduced % fees and the introduction of an equity (or
ownership) commitment by the Management Company. In essence, they become partial
owners and not simply operators of properties.

 LOCAL EXAMPLE: The Sheraton Myrtle Beach Convention Center Hotel is operated
by Interstate Hotels & Resorts (www.interstatehotels.com), the leading U.S.-based global
hotel management company.

Real Estate Investment Trusts (REITs) – investment firms that focus on buying real estate
properties (including hotels). A REIT must have at least 75% of its assets held in real estate
property.

 REITS do not pay Corporate Income Tax. As Trusts, they must disperse earned out to
investors (publicly-traded companies with shareholders).

 Investors become owners of a fund that owns real estate and must return earnings back to
shareholders.

 Examples include Starwood Lodging Trust, Wyndham Hotels.

Hotel Development

Building (and maintaining) hotels takes a lot of money (i.e., it is capital-intensive). In their
original construction, a developer is putting an asset (MONEY) into another asset (BUILDING)
and expects a rate of return (by putting the money to work).

New Properties Older Properties

 Most up-to-date features  Can become outdated (7-year update cycle)
 Higher construction costs  Familiar brands and locations (+/-)
 Must build awareness  Debt service likely paid off
 Difficult to be profitable for the first few  Brand loyal guests
years  “old style charm” versus the cost of
 Likely more energy efficient maintaining that charm
Common Revenue Breakdown Common Expense Breakdown
 60-70% Room Rate Revenue (ROOMS)  45-55% Salaries and Wages (PEOPLE)
 20-25% Food and Beverage Revenue  30-35% Operating Expenses
(FOOD)  7-10% Taxes
 5-10% Other Revenue  7-10% Promotion and Management Fees

Direct Economic Impact of a Hotel Indirect Economic Impact of a Hotel

Guests buy rooms and services for their stay. Hotel properties take this revenue and pay
That money is infused into the local economy. employees and buy services to serve their
guests. These employees (and service
providers) take these wages and buy additional
items in the economy (such as cars, homes,
furniture, etc.

We think of this as a MULTIPLIER EFFECT.

Also, guests pay TAXES on their rooms and

purchases. These TAX RECEIPTS are then
used by local and state government.

Learning Explain the Diamond Rating Classification of hotels

Objective 2

Hotel Affiliations

 A corporate hotel is a chain hotel owned or managed by the chain or parent company.

 A franchise hotel is a chain hotel run by a third party, where the chain receives some sort
of franchise fee.

 An independent hotel is not affiliated with a chain or parent company.

AAA Rating System (American Automobile Association)

Hotel inspections are unscheduled to ensure our professionally trained inspectors encounter the
same experience members do.

 Hotels in all categories are subject to the same basic requirements for cleanliness, comfort
and hospitality in order to be AAA Approved.
 The inspector assigns a rating of one to five Diamonds that informs members of the type of
experience to expect. Generally those at higher rating levels offer more personalized services.

Budget-oriented, offering basic comfort and hospitality.

Affordable, with modestly enhanced facilities, decor and amenities.

Distinguished, multi-faceted with enhanced physical attributes, amenities and guest comforts.

Refined, stylish with upscale physical attributes, extensive amenities and high degree of
hospitality, service and attention to detail.

Ultimate luxury, sophistication and comfort with extraordinary physical attributes, meticulous
personalized service, extensive amenities and impeccable standards of excellence.
Learning Classify hotels by rating system type, location, and price
Objective 3

Classification of Hotels (and operating characteristics)

Hotel Type LOCATION-SPECIFIC Operating Issues

LOCATION
City Center  Many guests may lack personal transportation (cars) so we provide more
services at the hotel.
 Many guests may be in town for multiple nights so average stays can be longer.
 Restaurant and bar space may be leased to other businesses
 Meeting space is important as we can attract groups who use space, foodservice,
and rooms.

Resorts  The resort is a destination in itself.

 As a destination, guests tend to stay longer (longer average visits)
 Ideally, there is some reason that resort is in that particular location (such as
Myrtle Beach, Mountains, Ski Area, etc.)
 Children’s programs increase in importance as parents want some child-free
time.
 Spa and wellness services and indulgences increase in importance.
 Resorts can compete for group and convention business to address the cyclical
nature of their demand (need to sell rooms during less-busy-season)

Airport Hotels  Constant stream of possible guests (airport passengers)

 Need to provide easy access to property (shuttles, rail, etc.)
 Guest from different time zones need flexibility in check-in and check-out
times.
 Travelling guests may need 24-hour food and beverage availability
 Airport hotels can compete for group meeting by adding meeting space (folks
fly in, meet, and fly out … never entering the city center).

Freeway Locations  Small locations

 Likely franchised to provide familiar brands to travelers
 Modular builds possible for standardization (saves $$$)
 Clustered near highway exits
 Shorter-stays (guests on their way to someplace else)
 Some guests want fewer frills and services (and associated lower room rates)
 # of employees reduced as # of services provided is reduced.

Casino Hotels  Many properties are really resorts with Casinos attached
 Guests have high service expectations
 Increased need for 24-hour services
 Guest from different time zones need flexibility in check-in and check-out
times.
 Travelling guests may need 24-hour food and beverage availability
 Casino hotel can compete for group meeting by adding meeting space to
diversity their revenue stream.
 Hotel Type LOCATION-SPECIFIC Operating Issues
LOCATION
Convention Centers  Must compete for groups to hold their events at property to ensure occupancy.
 Regional and national events mean guests are without personal travel (cars).
 Increased food and beverage need to serve audience and its meeting needs
(breakfast, lunch, dinner, snacks for breaks, etc.)
 Large # of folks eating at one time
 Must attempt to diversity revenue stream during periods of fewer booked events.

Hotel Type SERVICE-LEVEL SPECIFIC Operating Issues

SERVICE
LEVELS
Full-Service Hotels  Provide full-services to guests willing to pay a premium for their stay.
 Food, Beverage, Wellness, Business Services, etc.
 Tend to be longer-stays (much like a resort location)

Economy or  Provide fewer-services to guests expending to may much less for their stay.
Budget Hotels  Tend to be shorter-stays
 Minimal food service other than commonly-provided complimentary breakfast
foods

Boutique Hotels  Tend to be smaller properties pampering guests.

 Property tends to have some uniqueness to it
Extended-Stay or  Length of stay tends to be longer (providing more certain revenue stream)
All-Suite Hotels  Guests get a reduced per-night fee for their longer stays.
 Some focus on out-of-work workers such as construction employees.
 Some focus on relocation lodging needs.
 Some focus on larger families that need to larger spaces.
 Some offer in-room kitchens.
 Many provide complimentary evening cocktails and hor dourves for their guests
(as longer-term residents)

Condo-Tels or  Developers build a hotel and sell units as condominiums to individual owners.
Mixed- Use Hotels Hotel then leases out these individual units sharing revenue with hotel
management company and individual unit owner.
 Some mixed-use properties have condos not for rent/lease and traditional hotel
rooms available for guests (separate wing, building, etc.)

Bed and Breakfast  Property owner opens their home to guests and provide basic services (dining,
Hotels etc.)
 Very small number of rooms
 “home away from home with friends”
Learning Discuss the concept and growth of vacation ownership.
Objective 4
Many traditional lodging companies have strong position in the Fractional-Ownership, Vacation-
Ownership, or Time-Share industry.

 Marriott
 Wyndham
 Disney
 Hyatt
 Hilton
 Sheraton/Starwood
 Ritz-Carlton
 Intercontinental (Holiday Inn)
 Choice (Comfort Suites)
 Westgate Resorts

Owners pay a one-time purchase price and monthly or yearly maintenance fees to provide access
to property.

 Fixed Location and Timing

 Multiple Locations and Times (based on a points system)

Time-Share Units Vacation Club

You buy the right to use a unit for a specified You buy the right to points that can be
period of time. Have tended to be property- redeemed for vacation experiences at different
specific. times, locations, and levels. This added
flexibility has fueled the growth in the industry.

Guests ‘lock in’ future vacations at today’s

market costs.

Vacation ownership offers unparalleled flexibility and the opportunity for affordable worldwide
travel through vacation ownership exchange. Through the international vacation exchange
networks, owners can trade their time- share intervals for vacation time at comparable resorts
around the world.
Learning Discuss Sustainable/Green Lodging
Objective 5

There are steps you can take to start an effective, sustainable lodging program including:

1. Organize a waste reduction team;

2. Conduct a waste assessment;
3. Establish waste reduction goals;
4. Secure recycling markets;
5. Set up a collection and storage system;
6. Buy recycled products.

Lighting can account for 30–40 percent of commercial electricity consumption. This can be
reduced by the following strategies:

 Use lighting only when necessary—employ motion detectors.

 Use energy-efficient fixtures and lamps.
 Use low-wattage lighting for signs and décor.
 Avoid over-lighting wherever possible.

“Water conservation is another method that can greatly reduce waste. Today, many hotels are
replacing showerheads, toilets, and faucets with low-flow water devices. Low-flow showerheads
can save 10 gallons of water every five minutes of showering. That means a savings of over
$3,000 annually if 100 people shower each day, and water and sewer costs are one cent per
gallon. Other water conservation methods include only washing full loads of dishes and laundry,
serving drinking water by request only, asking guests to consider reusing towels, and restricting
lawn watering.”
Learning Identify trends influencing the hotel business
Objective 6

 Capacity Control – who controls the inventory for booking? Expedia, Travelocity, and
Hotels.com have broad reach but extract large fees for their services. Brands would prefer
they themselves handle their booking and reservation.

 Safety and Security – terrorism, income disparity (which can cause resentment of wealthy
visitors by less-wealthy locals), food safety, government stability, and personal security
(including abduction)

 Assets and capital – you need money to build and operate.

 Technology – new media allow us to connect with guests. Guests have growing expectations
of technology presence in our properties.

 New Management Philosophy Needed – changes environment requires changing skill sets

 Globalization – new guests (opportunity) and new competitors (challenge)

 Consolidation – anticipated mergers and acquisitions of properties and brands

 Increasing Diversification and Market Segmentation – new brands, property types, and
approaches are/will be used to reach specific groups of consumers.

 Continued Growth in Vacation Ownership – particularly true in points-based systems and

multiple-location groups.

 Continued Growth in Spa and Wellness Segments

 Continued Growth in Gaming

 Continued Growth in Mixed-Use Properties

 Increasing culinary selectivity (diversity in F&B expectations)

 Continued focus on Sustainable Development