Lodging Industry Comprehensive Notes

Industry Scope and Segments

• The lodging sector is part of the Tourism Industry; other segments include Hospitality, Retail (Shopping), Stores, Transportation Services, Destination (Activity) Sites.

• Lodging is part of the Tourism Industry; lodging operations and F&B (Food & Beverage) operations are components; Figure 1.1 illustrates Segments in the Tourism Industry.

• The lodging sector is described as the nation’s largest service industry with notable economic impact:

  • Annual revenue: 957.4\ \text{billion}

  • Annual growth (2017–2022): -3.9\%

  • Employment impact: one of the nation’s largest employers, wages paid: 181.3\ \text{billion} (2022)

  • Number of businesses: 435{,}000

Demand Drivers

Hotel & Motels Segmentation

1900: A Brief Modern History of US Hotels (timeline highlights)

• 1910

  • Fewer than 10,000 hotels

  • Rooms: 750{,}000 \text{ to } 850{,}000

  • Hotels: approximately 10{,}000 in the U.S.

  • Total rooms: about 1{,}000{,}000

  • Employees: around 300{,}000

  • Average hotel size: 60 \text{–} 75\text{ rooms}

• 1920

  • Occupancy: 85\%

  • Hotel construction peaks with thousands of rooms added along new state/federal highways

• 1930

  • Occupancy: 65\%

  • AHA’s Hotel Red Book lists 20{,}000 hotels

• 1940

  • Occupancy: 64\%

  • Average room rate: \$3.21

• 1950

  • Occupancy: 80\%

  • Typical hotel: 17\text{ rooms}

  • Average room rate: \$5.91

• 1960

  • Occupancy: 67\%

  • Sales: \$3\text{ billion}

  • Total hotel rooms: 2{,}400{,}450

  • Typical hotel: 39\text{ rooms}; independent and locally owned

  • Average room rate: \$5.91

• 1970

  • Occupancy: 65\%

  • Sales: \$8\text{ billion}

  • Total hotel rooms: 1{,}627{,}473

  • Average room rate: \$19.83

• 1980

  • Occupancy: 70\%

  • Sales: \$25.9\text{ billion}

  • Total hotel rooms: 2{,}068{,}377

  • Average room rate: \$45.44

• 1990; 2000–2010

  • 1990: Occupancy: 60\%, Sales: \$97\text{ billion}, Average room rate: \$81 \text{–} \$107

  • 2000–2010: Occupancy: 64\%, Sales: \$60.7\text{ billion}, Total hotel rooms: 3{,}065{,}685, Properties: about 45{,}020, Average room rate: \$58.70

Notable Figures in Hotel History

• Ellsworth Statler (1863–1928) & Statler Hotel

  • Motto: “the guest is always right”

• César Ritz (1850–1918) & the Ritz Hotel

  • Described as “king of hoteliers and hotelier to kings”

The Marriott Empire

• Emphasis on the men behind the Marriott enterprise; slide title indicates leadership behind Marriott, but no specific names/details provided in transcript.

Lodging: Tangible vs. Intangible Attributes

• Guests consider both physical attributes and service quality when making a purchase decision.

Lodging Industry Characteristics

• Location: Importance of location to hotels

• Perishability: If a room is not rented on a date, the revenue is lost forever

• Repetitiveness: Some operating procedures are routine

• Labor Intensive: Much daily work involves employee-provided services

• Seasonality: Cyclical nature of hotel business

• Fixed supply but varying demand: Fixed number of rooms cannot change with demand

Size and ADR (by size, by class, and by plan)

• By size (number of available rooms):

  • Mega: > 1{,}000

  • Large: > 300

  • Mid-size: 100–300

  • Small: < 100

• By class – ADR (Average Daily Rate):

  • Deluxe/Luxury (Above \$600 per night) – Examples: Fairmont, Four Seasons, Park Hayat, Ritz-Carlton, Mandarin Oriental

  • Upper upscale (Around \$400) – Le Meridien; Sofitel, W hotels

  • Upscale (Around \$300) – Hayatt, Marriott, Omni

  • Mid price with food (Around \$100) – Four Points, Hilton Garden Inn, Best Western

  • Mid price without food (Around \$80) – Amerisuites, Hampton Inn, La Quinta

  • Economy (Around \$60) – Red Roof Inn, Super 8

  • Budget (Around \$50) – Econolodge, Microtel

• By type of hotel – Commercial / transient; Residential; Extended-stay / all-suite; Resorts & mega resorts

• By Plan – European; Continental (continental breakfast); American; Modified American

Complimentary Breakfast

• Currently 62% of hotels in the U.S. offer complimentary breakfast

  • 81% among economy hotels

  • 96% among midscale hotels

  • 80% among upper upscale hotels

• The average cost of breakfast in a hotel is around \$13.90

• 84% of U.S. travelers say a free breakfast is important to them

Leading hotel companies worldwide (as of August 2021) by number of guestrooms

• Presentation shows leading companies by guestroom count; specific numbers are in the transcript’s figure/table but not reproduced here

Lodging Ownership and Management Alternatives

• Hotel property ownership/management options include:

  • Franchise company (Franchisor) ownership

  • Independent ownership

  • Independent operation

  • Franchise company (Franchisor) affiliation/management

  • Management company affiliation

  • Non-Franchise ownership/operation

Hotel Organizational Structures

• Small (75 rooms), limited-service hotel – Typical organizational chart:

  • Manager

  • Housekeeping Manager & Staff

  • Front Office Manager & Staff

  • Bookkeeper / Accountant

  • Maintenance Manager & Staff

• Large (350 rooms), full-service hotel – Organizational chart:

  • General Manager (G.M.) / Administrative assistant

  • Assistant G.M.

  • Controller

  • F&B Director

  • HR Manager

  • Director of Sales & Marketing

  • Front Office Manager

  • Executive Housekeeper

  • Chief Engineer

Hotel Departments: Line vs Staff; Revenue Centers vs Cost Centers

• Line departments (directly responsible for revenues): Front Office, Food & Beverage

• Line departments also responsible for property operations: Housekeeping, Maintenance & Engineering, Security

• Staff departments provide technical, supportive assistance to line decision-makers: Human Resources, Accounting

• Responsibilities include making recommendations to line decision-makers (but not decision-making authority for line): HR, Accounting

• Revenue centers: departments that generate revenue (e.g., Front Office, F&B, also revenue from telephone services, space rental, parking, vending, golf)

• Cost centers: departments that incur costs to support revenue centers (e.g., Housekeeping, Maintenance, Accounting, HR, Security)

Traveler Profiles

• Business Travelers:

  • 63% male

  • 50% between ages 35–54

  • 56% employed in professional or managerial positions

  • 78% travel solo

  • 95% make reservations ahead of time

  • Typical business traveler: household income \$127{,}000; spends \$147 per night

• Leisure Travelers:

  • 57% travel with a companion (two adults)

  • 39% are aged 35–54 and another 39% are 55 or older

  • 80% travel by automobile

  • 93% make reservations ahead of time

  • Average household income \$99{,}000; typical nightly spend \$131

Current Issues Confronting Hoteliers

• Overbuilt problem: Hoteliers should reduce costs without sacrificing quality; avoid reducing service/product quality

• Strategies to address labor and efficiency:

  • Reduce turnover levels

  • Increase productivity

  • Recruit from non-traditional labor markets (labor shortages)

• Operating issues: Cost containment; increased competition

• Brand overlap: More brands make it harder for consumers to differentiate; marketing challenge

• Amenity creep: More amenities raise costs and may appeal to a small market subsector; online room booking increases competitiveness

• Market segmentation: Focus on highly defined, smaller traveler segments

Guestroom Innovations and Technology

• Innovations include:

  • Smart technology, robots, automatic sensors

  • Interactive reservation systems to secure preferred room rates

  • Data mining to analyze guest data and predict behavior for better marketing decisions

  • Yield management to match demand with room rates

• Broader category: Technological issues shaping guestroom experience and revenue

Economic Globalization and the Lodging Industry

• Core idea: “As goes the economy, so goes the lodging industry”

• Global economic conditions influence the financial success of lodging organizations at the local, state, national, and global levels

Fun Facts

• Global ADR and RevPAR by region:

  • Middle East and Africa have the highest ADR and RevPAR: ADR \approx 149.02, RevPAR \approx 91.79\textrm{ USD}

  • Asia has the lowest ADR and RevPAR: ADR \approx 100.46, RevPAR \approx 69.34\textrm{ USD}

• Domestic activity: about 4.8\text{ million} guests stay in hotels across the country each night

More Fun Facts (Additional market context)

• There are 54{,}000+ lodging properties in the USA representing over 5{,}000{,}000 guestrooms

• There are 467 casino hotels in the US; gaming tables and slot machines account for 65.5\% of revenue; accommodations typically account for 11.9\% of revenue

• There are 17{,}000 Bed and Breakfasts (B&Bs) in the US; they typically have between 4 and 11 rooms, average of 6; 79% of owners reside on site; average room rate \$150

• There are 2{,}300 airport hotels in the US with 322{,}000 rooms available each night and an available inventory of 115{,}000{,}000 room nights

Assignment – Millennial & Gen Z Hotels

• Example concepts/brands targeting Millennials & Gen Z:

  • Moxy by Marriott

  • Radisson Red

  • Arlo Hotels

  • Canopy by Hilton

  • Tempo by Hilton

  • Curio Collection by Hilton

  • Aloft by Marriott

  • Even Hotels by IHG

As of Nov 2023: Top Management Companies in the World – (optional)

• Management Company data (as of Nov 2023) includes many global operators with varying numbers of properties and rooms; see transcript for the full table

Management Companies and Owners – (optional)

• A broader overview of ownership and management structures across the industry; reinforces the distinction between franchised, independent, management-company-affiliated, and ownership models