1. © 2004, Educational Institute HOS 101 Survey of Hospitality0 Chapter 6 Understanding the World of Hotels

2. © 2004, Educational Institute HOS 101 Survey of Hospitality1 Learning 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)

3. © 2004, Educational Institute HOS 101 Survey of Hospitality2 Some of The Players

4. © 2004, Educational Institute HOS 101 Survey of Hospitality3 An 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.

5. © 2004, Educational Institute HOS 101 Survey of Hospitality4 An 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

6. © 2004, Educational Institute HOS 101 Survey of Hospitality5 1900 A Brief History of Hotels and Some Numbers 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

7. © 2004, Educational Institute HOS 101 Survey of Hospitality6 1930 Occupancy: 65% AHA’s Hotel Red Booklists 20,000 hotels A Brief History of Hotels (continued….) 1940 Occupancy: 64% Average room rate: $3.21 1950 Occupancy: 80% Typical hotel: 17 rooms - The motel explosion Average room rate: $5.91 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

8. © 2004, Educational Institute HOS 101 Survey of Hospitality7 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 Average room rate: $45.44

9. © 2004, Educational Institute HOS 101 Survey of Hospitality8 A Brief History of Hotels (continued…) 1990 2000 Occupancy: 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 Average room rate: $58.70

10. © 2004, Educational Institute HOS 101 Survey of Hospitality9 The 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

11. © 2004, Educational Institute HOS 101 Survey of Hospitality10 Other 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

12. © 2004, Educational Institute HOS 101 Survey of Hospitality11 The 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

13. © 2004, Educational Institute HOS 101 Survey of Hospitality12

14. © 2004, Educational Institute HOS 101 Survey of Hospitality13 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 Economy

15. © 2004, Educational Institute HOS 101 Survey of Hospitality14 Supply2.6% Demand0.9% Occupancy-1.6% ADR4.7% RevPAR3.0% Unit Level Total Revenue 3.0% Unit Level Operating Expenses3.5% Unit Level NOI* 1.7%

16. © 2004, Educational Institute HOS 101 Survey of Hospitality15 Hotel Segments by Market Corporate groups Corporate individuals Conventions & Associations Leisure Long-term stay

17. © 2004, Educational Institute HOS 101 Survey of Hospitality16 Hotel 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

18. © 2004, Educational Institute HOS 101 Survey of Hospitality17 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)

19. © 2004, Educational Institute HOS 101 Survey of Hospitality18 Hotel Guest Segments (Cont’) 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

20. © 2004, Educational Institute HOS 101 Survey of Hospitality19 Hotel Guest Segments (Cont’) Leisure Travelers 1.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)

21. © 2004, Educational Institute HOS 101 Survey of Hospitality20 Hotel Guest Segments (Cont’) 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

22. © 2004, Educational Institute HOS 101 Survey of Hospitality21 Hotel Guest Segments (Cont’) 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

23. © 2004, Educational Institute HOS 101 Survey of Hospitality22 Hotel Categories by Location: Center-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

24. © 2004, Educational Institute HOS 101 Survey of Hospitality23 Resorts

25. © 2004, Educational Institute HOS 101 Survey of Hospitality24 Hotel Categories by Location: Resorts Mountain, sea side, good weather, nature 1. Historically simple near mineral spring Greenbrier – Del Coronado The Grand Hotel on Mackinac and summer only 2. Now year-around with rate adjustment 3. Many new amenities: golf, gambling, snorkeling… 4. More exotic locations made possible by better transportation 5. Business travelers stay thru conferences

26. © 2004, Educational Institute HOS 101 Survey of Hospitality25 Hotel Categories By Location: Highway Kemmons Wilson and Holiday Inn Importance of signage Plenty of parking Provide fewer services Have fewer employee Cheaper rate Chain affiliation

27. © 2004, Educational Institute HOS 101 Survey of Hospitality26 Hotel 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

28. © 2004, Educational Institute HOS 101 Survey of Hospitality27 Hotel Categories by Location Airport: O’ hare Affiliated with chains Highest occupancy rate Meeting space

29. © 2004, Educational Institute HOS 101 Survey of Hospitality28 Segmenting through Price: Limited 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

30. © 2004, Educational Institute HOS 101 Survey of Hospitality29 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

31. © 2004, Educational Institute HOS 101 Survey of Hospitality30 Segmenting through Price: First-class, Luxury Market Can be chain affiliated: Four Seasons, Mandarin Mostly independent

32. © 2004, Educational Institute HOS 101 Survey of Hospitality31 The Different Players in Hotel Ownership 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

33. © 2004, Educational Institute HOS 101 Survey of Hospitality32 Close Look at Lodging Organizations Hotel property Franchise company (Franchisor) Independent Ownership Independent Franchise company (Franchisor) Independent Operation Independent Management company FranchiseNon-FranchiseAffiliation

34. © 2004, Educational Institute HOS 101 Survey of Hospitality33 Other 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

35. © 2004, Educational Institute HOS 101 Survey of Hospitality34 Types of Conference Centers Executive conference centers Corporate-owned conference centers Resort conference centers College and university conference centers

36. © 2004, Educational Institute HOS 101 Survey of Hospitality35 Other 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

37. © 2004, Educational Institute HOS 101 Survey of Hospitality36 Types of Seniors Housing Independent-living units often in Congregate communities Assisted-living facilities Continuous-care CCRC are changing

38. © 2004, Educational Institute HOS 101 Survey of Hospitality37 Condo 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

39. © 2004, Educational Institute HOS 101 Survey of Hospitality38 Condominium Hotels – Developer’s Viewpoint 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

40. © 2004, Educational Institute HOS 101 Survey of Hospitality39 Condo Hotel – Developer’s Viewpoint 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

41. © 2004, Educational Institute HOS 101 Survey of Hospitality40 Trump Tower

42. © 2004, Educational Institute HOS 101 Survey of Hospitality41 Hotel Feasibility Study : Start with Site Selection 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

43. © 2004, Educational Institute HOS 101 Survey of Hospitality42 Feasibility 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

44. © 2004, Educational Institute HOS 101 Survey of Hospitality43 Hotel 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

45. © 2004, Educational Institute HOS 101 Survey of Hospitality44 The Financial Risk / Reward High leverage A cyclical business Variation in interest rate Real estate appreciation Potential for large income beyond BEP - Break Even Point