The Hotel Business Development and Classification

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

CHAPTER

CHAPTER

3

The Hotel Business Development and Classification

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

History of Hotels in theUnited States

• Hotels…– City Hotel

• 1st hotel• Opened in 1794

– Tremont House • Opened in Boston in 1829

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

History of Hotels in theUnited States

• Hotels (cont.)…– Transportation changed course

• Rail travel– Development of resort properties

• Highway travel– Development of motels

• Air travel– Airport hotel locations

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Franchising

• Franchising…– Allows for a company to expand rapidly– Uses other people’s money (franchisee)– Franchisor

• The company– Over 180 franchised hotel brands in North

America today

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Franchising

• Franchising (cont.)…– Examples

• HFS - Hospitality Franchise Systems– Choice Hotels International

• http://www.hotelchoice.com

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Benefits for Franchisee

• Benefits…– Set of plans and specifications for building– National advertising– Centralized reservation system– Participation in volume purchasing discounts– Listing in the franchisor’s directory

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Disadvantage for the Franchisee

• Disadvantages…– Lack of operational power; must conform– Large fees– Central reservations produces 17-26% of

reservations– Must meet standards as set by franchisor

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Benefits andDisadvantages for Franchisor

• Benefits…– Increased market share/recognition– Up-front fees

• Disadvantages…– Need to be careful in selection of franchisees– Difficulty in maintaining control of standards

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Franchising Trends

• Trends…– Factors propelling franchise growth

• Fresh looks (curb appeal)• Location - off highways, airports, and suburbs• Expansion in smaller cities• New markets - openings in proximity with golf

courses and other attractions

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Other Forms ofDevelopment

• Development…– Partnership– Leasing– Syndicates

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Management Contract

• Contract…– The Players

• Owner - financial responsibility• Management company - operational responsibility

– Fee structure– Trend toward expansion of contract provisions

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Financial Managementand Profits

• Management and Profits…– High degree of risk

• Cyclical nature of demand• High degree of capital investment

– Portfolio financing• Use of more than one location/market• Cross collateralized/cross defaulted

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Real Estate InvestmentTrust (REIT)

• REIT…– Existed since early 1960s– Publicly traded– Investors like REIT’s

• Do not pay corporate income tax• REIT’s must distribute 95% of net income to

shareholders• Traded as stocks

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

REIT’s

• REIT (cont.)…– Examples

• Patriot American Hospitality– http://www.patriotamerican.com

• Starwood Lodging Trust– http://www.starwoodlodging.com

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Favorable Financing

• Financing…– Affiliation with a quality franchisor– Identification with a national chain through a

management contract– A lease arrangement with a hotel operator– Conventional first mortgage loans– Lenders

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Hotel Rating Services

• Rating Services…– AAA

• American Automobile Association • Diamond Award

– Mobil Travel Guide • Five Star Award

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Ways to Classify Hotels

• Classifying Hotels …– Location– Types of services offered– Market price levels

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Location

• Location…– Center city hotels– Resort hotels– Airport hotels– Freeway hotels– Casino hotels

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Center City Hotels

• City Center…– Public transportation available for business or

leisure– Range of accommodations and services– Typically have a signature restaurant

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Resort Hotels

• Resorts…– Originally began due to rail travel– Famous resorts

• Greenbrier in West Virginia– http://www.greenbrier.com

• Hotel del Coronado in California– http://www.sddt.com/~coronado

• Homestead in Virginia– http://www.thehomestead.com

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Resort Hotels

• Resorts (cont.)…– “Captured Clientele”– Food service is unique– Diversified marketing mix

• Children• Groups• Eco-tourism

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Introduction to Hospitality Management, First EditionJohn Walker

Vacation Ownership

• Ownership…– Fastest growing segment of travel industry– Time share

• A condo that is owned• Purchaser uses for a specific period of time each year

– Vacation club • Purchase points that entitle purchaser to use of facility • Not real estate based

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Vacation Ownership

• Ownership (cont.)…– Estimated that 2 million households own

vacation intervals at 3500 resorts in almost 90 countries

– Helps ensure purchaser today’s prices for tomorrow

– Yearly maintenance fees

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Vacation Ownership

• Ownership (cont.)…– Fixed or floating times– Example

• http://www.rci.com/home.html

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Airport Hotels

• Airport Hotels…– High occupancy due to location– Business, group, and leisure travelers– Full service – 200-600 rooms– Convenient location– Airport shuttle service– Economical pricing

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Freeway Hotels and Motels

• Freeway…– Prominent in the 1950s– Easy access to roadways– Park outside the room entrance– Example

• Motel 6• http://www.motel6.com

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Characteristics of Casino’s

• Casinos…– Heavy growth segment– Low room rates– Subsidized food and beverage– Themes are popular– 500 plus guest rooms– Variety of food operations– Contains a gaming room

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Major Trends in Casino Hotels

• Casino Trends…– Casino hotels are now marketing themselves as

business hotels• Amenities include business centers, travel bureaus,

and room service– Move towards “family/friendly” hotels

• This increases the average stay and money spent by families

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Levels of Service Luxury

• Luxury…– Finest of accommodations– Concierge– 24 hour room service

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Levels of Service Luxury

• Luxury (cont.)…– Examples

• Four Seasons– http://www.fshr.com

• Ritz Carlton– http://www.ritzcarlton.com

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Convention Hotels

• Convention Hotels …– Meet the needs of large groups– 500 plus rooms– Larger public areas to accommodate greater

public demand– Banquet areas within and around the hotel– High percentage of double occupancy– Full Service oriented

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Level of ServiceFull Service

• Full Service…– Typically “Business Oriented”– Multiple food and beverage outlets– Meeting and convention services– Chain representation

• Doubletree – http://www.doubletreehotels.com

• Sheraton– http://www.sheraton.com

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Economy/Budget Hotels

• Economy/Budget …– Represents 12 percent of total hotel rooms– Accomplished 37 percent of industry growth– Average room rate of $48.68– However, profit revenue is slow with an annual

rate of 1 percent

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Level of ServiceEconomy

• Economy/Budget (cont.)…– Also considered budget hotels– Clean rooms– Reasonably sized and furnished– Continental breakfast

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Level of Service All Suite

• All Suite…– Cater to guests for an extended period– Reduction in rate based on length of stay– More space than typical hotel – Examples

• Embassy Suites– http://www.embassy-suites.com

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Levels of ServiceOthers

• Bed and Breakfasts…– A home away from home– Accommodation with an owner who lives on

premises– Maintains a few rooms– Offers breakfast– Personable and quick service

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Hotel IntegrationVertical

• Vertical…– Lodging companies meeting the needs of

several types of guests based on price, facilities, and amenities

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Hotel IntegrationVertical

• Vertical (cont.)…– Choice hotels which has several chains that

meet its diverse clientele• Luxury - Clarion• Mid-scale - Quality Inn/Suites• Budget - Comfort Inn• Economy - Sleep Inn

– http://www.hotelchoice.com

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Marketing Consortium

• Consortium…– Also called referral organizations– Numerous independent properties unite to

compete with the marketing power of chain operations

– Similar benefits as franchises at a lower cost– Provides incentives for clients

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Best and Biggest Hotels

• Hotels…– Some previous winners– Oriental Hotel in Bangkok, Thailand– Regent of Hong Kong– Bell-Air of Los Angeles

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Most Unusual Hotels

• Unusual Hotels…– Ice Hotel in Swedish Lapland– The Treetops Hotel in Kenya– Underwater Hotel in Australia

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Most Unusual Hotels

• Unusual Hotels (cont.)…– Capsule Hotel in Japan– The Burj Al Arab in Dubai

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

International Perspective

• Perspective…– Continued international development

• Due to increase in tourism• Due to increase in trade and commerce

– Globalization is the key to continued growth

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Trends in Hotel Development

• Trends…– Capacity control– Safety and security– Assets and capital– Technology– New management– Globalization

©2004 Pearson Education, Inc.Upper Saddle River, New Jersey 07458

Introduction to Hospitality Management, First EditionJohn Walker

Trends in Hotel Development

• Trends (cont.)…– Consolidation– Diversification within segments– Rapid growth in vacation ownership– Increase in spas– Gaming