The Traditional Hotel Industry – Homework Handlers

PART

CHAPTER 1 The Traditional Hotel Industry CHAPTER 2 The Modern Hotel Industry CHAPTER 3 The Structures of the Hotel Industry

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1 The Hotel Industry

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Over eons of time, wanderers and single travelers found security and accommodations in trees and caves, castles and churches, homes and estates. Greater political and economic freedom eventually increased their numbers. Soon, the courtesy of friendly hosts gave way to commercial enterprise. The hotel industry was born carrying this culture of hospitality. So hospitality and hotels are related concepts, deriving from the same Latin root. However, the word “hotel,” which comes from the French hôtel, meaning large house, didn’t appear until the 18th century.

The Traditional Hotel Industry

1Chapter

UNDERSTANDING THE HOTEL BUSINESS

The Service Culture

The hotel industry has flourished through the centuries by adapting to the changing environment that marks human progress. These stages have been labeled: The 18th century was the agricultural age; the 19th, the industrial age; and the 20th century the age of service, including medicine, education, and hotelkeeping. The 21st century opened with that same service culture, but will likely close as the age of technology. Innkeeping has started to adapt its hospitality heritage to the new age. The shift translates into newer kinds of, but less personal, services.

A Cyclical Industry

Hotelkeeping is a cyclical industry that closely follows economic phases. Wide swings carry the innkeep- ing industry between peaks of exceptional profits and troughs of outright distress. This rollercoaster has been most evident over the past half century. The entire travel industry was brought to its knees by the oil embargo of 1973. Innkeeping then cycled from bankruptcy to recovery. A decade later, in the early 1980s, the industry witnessed a second such distress when the federal government changed the income tax laws on real estate. (Remember, as hotels are pieces of real estate, any change in real estate will directly affect the hotel industry.) Dominant companies bought distressed properties at that time and recovery followed once again. By the late 1990s, hotel profits had reappeared. Just as the recovery was being consolidated came the tragedy of 9/11, the attacks on the World Trade Center (2001). Travel and tourism bottomed out again. Although recovery was faster this time, it was short-lived. First, a stumbling prosperity and then a dramatic downturn in the U.S. economy in 2008 halted travel once again. Business began an upward crawl anew in late 2010.

Hoteliers stop building during downturns. Three years is the typical span between planning and open- ing a hotel. It’s even longer if there are special financing, zoning, or environmental issues. Over half of the announced projects are never built. For instance, Taj Hotels took 18 months just to renovate The Pierre in New York. When occupancy and profits boom, the competition begins to rev up new properties. So new rooms often come on line—three years later—just as the cycle peaks. That increased supply exaggerates the next downward dip. Supply and demand play their traditional roles in hotel economics as they do for general busi- ness. Overbuilding (excess supply) exaggerates the downturns far more often than does insufficient demand (fewer customers).

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How Hotels Count and Measure

Within the cycles, new hotels and hotel rooms are built and old rooms are removed. One can never say for certain how many hotels or hotel rooms are available at a given time. Governmental agencies (Bureau of the Census) and trade associations (American Hotel & Lodging Association (AH&LA)) track and report the numbers. Other interested parties include the World Tourism Organization (WTO), the International Hotel and Restaurant Association (IH&RA), and pri- vate firms such as Smith Travel Research and PricewaterhouseCoopers. None of the figures ever agree; some not even close.

The Bureau of the Census counts once every decade and takes several years to report. By then, the numbers become inaccurate. The 2010 count, for example, was made during a horrific downturn cycle when many hotels had closed.1 Still, estimates are possible. The previous count approximated 65,000 hotels in the United States with some 5,500,000 hotel rooms. The typical hotel, about half of which are small, nonchain affiliated, has about 85 rooms. Figures get skewed, however, because convention hotels (large hotels) number less than 2% of all U.S. properties, but contain about 12% of all hotel rooms.

Hotels are valued on a per-room cost, either the cost per room to build or the resale price per room—called the per-key cost. Valuing each room at, say, $250,000—unchanged in the past several years because costs rose substantially and then fell even more so—U.S. hotels are worth nearly $1.5 trillion.

Together, Europe and the United States once accounted for two-thirds of the world’s total rooms. However, their leadership has been challenged by the robust growth of tourism and business travel in other areas, such as Asia and South America. For example, international com- panies built 50 five-star hotels in Beijing for the 2008 Olympics. Marriott Hotels opened seven of them, with its Great Wall property alone having 1,300 rooms. Growth like this changes the world’s balance.

OCCUPANCY Occupancy, a measure of supply and demand, gauges the industry’s economic health. While robust demand encourages construction of new rooms, falling demand seals the fate of old hotels. Worn-out rooms are kept in place only during boom periods, when there is a room shortage. They fall to the wrecker’s ball or are converted when they are competitive no longer. Many were renovated into dormitory rooms when American universities were in their boom years. In the 1990s, condo conversion was the hot move as luxury residential units were more valuable than luxury hotel units. One of the most publicized of these conversions was that of the New York City’s famous Plaza. The hotel’s 800 rooms were converted into 152 residential condo units and 282 guest rooms. However, the downturn that began in 2008 put an end to condo conversions.

At any given time, the number of rooms available for sale reflects the mathematics of the old and the new. During the upward cycle, more guests are buying, but fewer rooms are available. Room rates rise. Just the opposite happens in a downward cycle: There are fewer buyers and more rooms, so rates fall. Customer demand is measured by the number of rooms occupied, also called the number of rooms sold. Hoteliers count this figure every night.

Hoteliers also count the number of rooms in their hotels. Although the number of rooms is just an estimate worldwide, hotel managers know their own numbers. Whether for the world, the region, or the individual hotel, that number is called the number of rooms available for sale.

The relationship (or ratio) between the number of rooms sold (demand) and the number of rooms available (supply) measures the property’s health. It is a closely watched value that asks, “How well did we sell rooms relative to the number of rooms that could have been sold?” That big mouthful has a shortcut called the percentage of occupancy, or occupancy percentage, or just occupancy.

1Facts about the lodging industry are reported in the SC Series, but results of the 2010 Census were not yet available for this publication.

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The occupancy calculation is a simple division. The number of rooms available for sale is divided into the number of rooms sold (see Exhibit 1-1):

number of rooms sold number of rooms available for sale

= a percentage of occupancy

Occupancy can be computed by one hotel for one night, one month, or one year. Citywide, regional (the Northeast, for example), and national occupancies are tracked by many agencies. Among them are hotel chains, convention bureaus, and state tourism offices.

Values become less accurate as the count moves from the individual property to a worldwide number. Nevertheless, everyone is engrossed in occupancy figures. More so when estimates suggest that a mere 1% rise in chain occupancy represents millions of dollars of improved profits.

SALES PER OCCUPIED ROOM Occupancy measures quantity, that is, the hotel’s share of the market. Sales per occupied room—also called average daily rate (ADR)—measures quality. Its formula (see Exhibit 1-1) is:

total dollar room sales number of rooms sold

= ADR (a dollar value per room sold)

Given Number of rooms in the hotel available for sale 800 Number of rooms in the hotel 820 Number of rooms sold to guests 600 Number of dollars received from guests for rooms $72,000 Number of employees on staff 500 Number of guests 700

Computations Percentage of occupancy is 75%.

number of rooms sold 1 to guests2

number of rooms 1 in the hotel2 available for sale =

600 800

= 3 4

= 75%

Sales per occupied room (average daily rate, ADR) is $120.00.

room sales 1as measured in dollars2

number of rooms sold 1 to guests2 =

$72,000 600

= $120.00

Sales per available room (RevPar) is $90.00.

room sales (as measured in dollars) number of rooms (in the hotel) available for sale

= $72,000

800 = $90.00

Mathematical check:

ADR * occupancy = RevPar $120 * 0.75 = $90.00

Number of employees per guest room is 0.625.

number of employees (on staff) number of rooms ( in the hotel) available for sale

= 500 800

= 0.625

Percentage of double occupancy is 16.6%.

number of guests – number of rooms sold number of rooms sold

= 700 – 600

600 = 16.6%

EXHIBIT 1-1 Hoteliers track the health of the industry through the measures and ratios shown. Outside of the United States, bed occupancy percentage (number of beds sold,number of beds available) is often substituted for the percentage of room occupancy. Bed (or guest or sleeper) occupancy of 50% approximates room occupancy of 70%.

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The health of the industry is reflected in both occupancy and price. Price, ADR, ($) increases as occupancy (%) increases. The more rooms sold—that is, the greater the demand— the higher the room rate. That’s because lower-priced rooms sell first. Conversely, as occupancy falls, so does the ADR. Supply and demand are at work.

REVPAR (REVENUE PER AVAILABLE ROOM) RevPar is an old industry standby that once was called average rate per available room. RevPar (or REVPAR) measures management’s ability to keep rates high even as occupancy declines. Hoteliers are fond of saying, “hotels fill from the bottom up,” meaning that guests elect lower rates when an empty house allows it. Superior managers strive to keep rates high even as occupancy dips within the cycle. Management does this using yield management, discussed in Chapter 5. RevPar reflects the revenue (sales) relative to the total rooms available for sale. In contrast, ADR measures the revenue per room relative to the number of rooms actually sold. (Remember, “rooms sales” and “room revenue” are interchangeable terms.) Exhibit 1-1 illustrates the computation.

total dollar room sales number of rooms available for sale

= RevPar (measured in dollars)

Both of the values, room sales and number of rooms available, are easily misstated. Total room sales must not include taxes or the value of free breakfasts or parking. Similarly, the number of rooms available must include vacant rooms, but not those permanently assigned to other uses such as offices.

Before 2008, RevPar was rising steadily, increasing at the top of the cycle aided by inflation. That value took a nose dive in 2008–2011 when the average price of a hotel room fell about 16%.

RevPar does not reflect management’s ability to control costs or produce sales in other departments. RevPar is an ideal measure for rooms-only hotels (those with no bars, no laundries, and no restaurants).

DOUBLE OCCUPANCY Exhibit 1-1 continues with the occupancy calculations. Spoken as “dou- ble occupancy,” the value is really a “percentage of double occupancy.”

number of guests – number of rooms occupied number of rooms occupied

= percentage of double occupancy

“Multiple occupancy” is a better term than “double occupancy” because more than two guests may be housed in one room. If the number of guests is greater than two, the formula falters. Assume, for example, two rooms occupied by three persons in one room and one per- son in the other. The calculation would be 4 (guests) – 21rooms2 , 21rooms2 = 1 or 100% double occupancy. In fact, it is only 50%, one room in two.

Double occupancy’s impact on room revenue is much clearer. Additional charges (a double rate) is usually levied when families, skiers, and tour groups double up. Casino/hotels want bodies on the casino floor, so they rarely charge double occupancy rates. High double occupancy is associated with resort properties, giving them a higher ADR.

Another statistical fudge occurs when comps (complimentary—free rooms) are counted as occupied. The occupancy percentage increases but ADR decreases because there are no dollars earned. Similarly, averages for the entire industry are slanted when large hotels are counted along with hotels of 50 rooms or less.

BREAK-EVEN POINT To break even is to have neither profit nor loss. Inflows from revenues match exactly outflows from costs. Hotels have large fixed costs including interest on debt payments, licenses, taxes, and fixed salaries and wages. Reducing fixed costs drops the level of occupancy needed to break even. Similarly, increasing sales from food, beverage, spa, and so on reduces the pressure on room sales. Increasing RevPar also contributes, provided the percentage of occupancy is maintained.

Break-even points are important, because there is no profit until that point is reached. Once the point is reached, profits accumulate quickly. Each sales dollar before the break-even point is used to pay off debt, pay utilities, and pay the staff. Thereafter, each dollar contributes to profits.

Break-even points are expressed in percentage of occupancy. That value has been declining over the past decades. Better hotel design and better financing have held down both variable

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and fixed costs. Changes in market mix and higher room rates have improved revenues, the other component of break even. So break-even points fell throughout the past quarter-century. Recently, however, rising debt and shrinking revenues boosted the break-even occupancy—at the very time when occupancy nosedived.

Special Characteristics of the Hotel Business

Several special characteristics limit management’s flexibility. While some are lodging-only issues, some are found in other industries as well.

PERISHABILITY Vacant rooms are perishable. The industry’s mantra is “an unsold room tonight can never be sold again.” Unlike a can of fruit which inventories on the grocer’s shelf, hotel rooms are time restricted. No way to take last night’s empty room to meet an overflow tonight. Like empty airline, theater, or arena seats, unsold hotel rooms cannot be stored, cannot be saved, and cannot be used anew.

LOCATION According to Ellsworth Statler, who sold his Statler chain to Hilton, “Location, location, location” are the three most important aspects of [hotel] real estate. Good locations are not easy to acquire. Changing neighborhoods and shifting demographics sometimes doom a hotel whose original location was good. Unlike an airline seat, there is no way to move the hotel room. A fixed location in an uneven neighborhood requires astute management and a heavy dependence on marketing and sales.

FIXED SUPPLY Just as the hotel’s location is fixed, so is its supply of rooms. Airlines adjust to demand by adding or removing flights. Not so with hotels. What you see is what you must manage.

HIGH OPERATING COSTS Unlike manufacturing, which offsets high labor costs with large capital investments, hotels are both capital- and labor-intensive. The result is, in the jargon of the trade, a large nut. Large built-in costs continue regardless of occupancy levels. Innkeeping’s break-even hurdle is high.

SEASONALITY Throwing away the key is a traditional practice when a new hotel opens. The act signifies that the hotel never closes. Yet, hotelkeeping is a very seasonal business. Cyclical dips hit commercial hotels every seven days as they struggle to offset poor weekend occupancy. The federal holiday law that extended weekends into Mondays certainly didn’t help.

Occupancy computations must account for this weekend phenomenon. Especially since the business traveler—the very person not registered during the weekend—still accounts for the bulk of the industry’s business. Given the usual profile of the commercial, urban hotel (see Exhibit 1-2), national occupancy in the 70–80% range remains an elusive goal. Annual cycles compound the problem. Commercial occupancy falls off between Thanksgiving and New Years and from May Day to Labor Day.

EXHIBIT 1-2 The difficulty of achieving a national occupancy in the mid-70% range is highlighted by the typical cycle of weekly occupancy for commercial hotels. The challenge is convincing groups, whose members work all week, to hold conventions on the weekends. (Smith Travel Research now tracks U.S. occupancy daily and weekly as well as annually.)

Monday 100% Tuesday 100 Wednesday 90 Thursday 90 Friday 40 Saturday 20 Sunday 20

Total 460% Average per 7 days 66% IS

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Resorts have an opposite pattern: They have busy weekends, but slower midweeks. The slack months of the commercial hotel is the very season of the resort hotel. At one time, resorts opened Memorial Day and closed Labor Day. Winter resorts (December 15–March 15) fared no better. Bad weather devastated both the 100-day seasons.

Both summer and winter resorts have extended seasons with groups, conferences, and special events. Most remain open year-round. Hotels that operate on the four-day season may be worse off than the seasonal hotels. At least the latter have a higher double occupancy.

TRADITIONAL CLASSIFICATIONS

Lodging is an industry of rapid transformation. The inns of old evolved from private homes located along the traveler’s route. Today’s hotel is often a point of destination even as it serves its traditional role of accommodating those in transit. Yesterday’s tavern offered meals with the family. Dining today is a created experience in design, décor, and menu. Early inns were indistinguishable from their neighbor’s homes. Today’s edifice is a sharp contrast in style and packaging (see Exhibit 1-3).

The industry still delivers the basic accommodations of shelter, food, and hospitality. It is the means of delivery that has changed. These variations have been marked by shifting terminology: hostel, tavern, public house, inn, guest house, hotel, resort, motel, motor lodge, motor inn, bed and breakfast, and condo.

The industry’s trade association has undergone similar shifts in identity. The American Hotel Association became the American Hotel & Motel Association, more recently the American Hotel and Lodging Association. “Motel” has been replaced in the professional vocabulary with new hotel types, as we shall see throughout the text.

Changes notwithstanding, several traditional classifications have withstood the test of time. They are size, class, type, and plan. These are not definitive, objective measures. Nor are they self- exclusive. Hotels fall into all categories or into just some. Each category impacts differently on how managers manage. Hence, comes the text’s subtitle, “Managing Hotel Operations.”

Size

The number of rooms available for sale, the very same figure used in occupancy computations (see Exhibit 1-1), is the standard measure of size. Measures such as the number of employees or gross dollar sales are simply not used. Counting available rooms is not as certain a gauge

EXHIBIT 1-3 Unlike the inns of yesteryear, today’s hotels are often architectural attractions, creating a buzz that helps assure their success. Courtesy of the Singapore Sands, Singapore.

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as one would first believe. More rooms may be advertised than are actually available. Older hotels have rooms that are no longer saleable. Newer properties lose guest rooms to unplanned offices and storage. As a rule, the older the hotel, the fewer rooms available relative to total room count.

Hotels are grouped by size for financial reporting, for the U.S. Census and for trade association dues. Traditionally, large hotels are 300 rooms, or more. Medium hotels are 100–300 rooms and small hotels are less than 100 rooms. Recognizing that these definitions are getting dated, the AH&LA boosted its definition of small to 150 rooms. About 25% of its membership falls into the small category.

For hotels seeking government loans, the Small Business Administration’s (SBA) defini- tion of “small” for lodging enterprises is $7 million dollars in annual sales. That value changes periodically. An 80-room hotel with 70% occupancy and an ADR of $100 would qualify. It would only generate $2,044,000 annually (80 rooms : 70% occupancy : $100 ADR : 365 days per year).

Visualizing small- and medium-sized hotels as the lodging industry is difficult when one thinks of famous hotels such as the Waldorf=Astoria in New York City with 1,852 rooms, or the New Otani in Tokyo, 2,057 rooms (see Exhibit 1-4). Small hotels are more common in Europe where they have been traditionally family owned and operated.2 The shift to chains and franchised hotel names has accelerated recently in both Europe and Asia and is changing the structure of the business there. Still, only one-third of Europe’s hotels are branded versus three-fourths in the United States.

2Family-owned hotels account for 94% of Italy’s hotel companies.

Hotel Number of Roomsa Location

Venetian/Palazzob 7,100 Las Vegas MGM grand/Mansion/Signatureb 6,850 Las Vegas Asia-Asiac 6,500 Dubai, United Arab Emirates First World Hotel 6,100 Genting Highlands, Malaysia Wynn/Encoreb 4,750 Las Vegas Luxor 4,400 Las Vegas Mandalay Bay/The Hotelb 4,350 Las Vegas Ambassador City 4,200 Jomtien Beach, Thailand Excalibur 4,050 Las Vegas Aria 4,000 Las Vegas Bellagio 4,000 Las Vegas Circus Circus 3,700 Las Vegas Planet Hollywood (nee: Aladdin) 3,700 Las Vegas Shinagawa Prince 3,700 Tokyo Flamingo 3,550 Las Vegas Hilton Hawaiian Village 3,400 Honolulu Caesars Palace 3,350 Las Vegas Las Vegas Hilton 3,200 Las Vegas Mirage 3,050 Las Vegas Opryland Hotel 3,000 Nashville Monte Carlo 3,000 Las Vegas Venetian 3,000 Macau Cosmopolitand 3,000 Las Vegas

a Room numbers have been rounded to 50. b Built and marketed as separate hotels. c Announced, but not opened. d Opened but not complete.

EXHIBIT 1-4 Megahotels, once exclusive to Las Vegas, are now worldwide. Still, many of these behemoths rely on gaming for their financial success. The Opryland Hotel, which bills itself as the largest U.S. hotel outside of Nevada, is part of Gaylord Entertainment. The world’s tallest hotel opened in 2011: The Hong Kong Ritz-Carlton has 118 floors.

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MOM-AND-POP MOTELS The term “motel” (motor + hotel) was coined after World War II when Americans took to the highways. The concept was refined by Kemmon’s Wilson who created the Holiday Inn chain. Motels replaced the very limited facilities known as tourist courts (see Exhibit 1-5). Many “motels”—the term has now fallen from favor—were family owned and operated. Whence comes the term “mom-and-pop.” There were some 60,000 mom-and-pop motels along the 1960s highways. Rising construction costs and difficult financing headed a list of hurdles that such small entrepreneurs could not overcome. They did not purchase in quantity; they were unable to advertise widely; and they competed against the better management talent that worked for their chain/franchise competitors.

Class

The class of hotel is sensed as often as it is measured, but two yardsticks quantify the appraisal: They are price (ADR) and rating systems.

AVERAGE DAILY RATE Delivering class, elegance, and service costs money. Larger rooms, upgraded furnishings, and extra employees incur larger financing costs, depreciation, energy, wages, and more. So too do better levels of maintenance, 24-hour room service, saunas, and simi- lar extras. All must be recovered by higher rates. More than just a generalization: The better the class of hotel the higher the rate.

Driven by inflation, ADR has been increasing industry-wide for decades. So a higher room rate over time is not the measure. A higher rate relative to competition is critical. Location, location, location also plays a role. Hotels in small towns are different than their big-city counterparts. A $75 rate in Los Angeles conjures up a totally different class of lodging than does that same rate in a small rural town. However, at a given time and with concern for size, type, and location, ADR is a fair measure of class. So published rates help classify the nation’s hotels (see Exhibit 1-6).

FULL-SERVICE TO LIMITED-SERVICE Hotels are as diverse as the traveling public that fills them. Responding to varied needs, the industry has created a range of accommodations from the full-service high-rise to the squat roadside inn. One group offers nothing more than a clean room and a good mattress. Guests do not need swimming pools, closets, or lobbies, goes that argument. This hotelier offers limited service at minimum price. It does so with new language: Limited service is now “select service,” or, better still, “focused service.”

EXHIBIT 1-5 Tourist courts predated the highway motel, which gained momentum from the federal, interstate road construction boom following World War II. Kemmons Wilson’s Holiday Inn chain (1952) set the initial standard for motels. Then came amenity creep.

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One hundred eighty degrees away is the full-service, upscale property. This hotel has superior facilities and a full complement of services. Limited services means lobby vending machines or a nearby restaurant servicing several properties in the area. Full service has a menu of dining options and a range of extras: lounges, room service, newspapers to the room, exercise facilities, and electronic support. Expense-account travelers patronize full-service properties although something less costly may do when the family travels.

Between the two lies the bulk of facilities. Services are added as competition demands and costs allow. Services are pared as markets shift and as acceptable self-service equipment appears. Chapters 2 and 3 introduce some newer in-between-type hotels.

NUMBER OF EMPLOYEES Class as measured by full service or limited service refers as much to the size of the staff as to the physical amenities. Thus, the number of employees per guest room is another measure of class (see Exhibit 1-1).

number of employees on staff number of rooms available for sale

= number of employees per guest room

Budget properties, those without restaurants or amenities such as bars or room service, operate with as few as 0.25 (one-fourth) employee per guest room. An 80-room house might have as few as 20 employees. There’s a limit to how small the staff can shrink. If the property wants the legal benefits of being a hotel, common law requires it to be open 24 hours daily. Now add in staff days-off, plus a minimum housekeeping crew, night security, someone for repairs and maintenance, and the total grows.

EXHIBIT 1-6 ADR, average daily rate, identifies the class of hotel, offering consumers a range of accommodations from the bare-minimum budget facility to the full-service, super deluxe property.

Classification of Hotels by Average Daily Room Rate

Deluxe Hotels (typical room rate: $650 plus/night) Fairmont Hotels Four Seasons Hotels Ritz-Carlton Hotels

Upper Upscale Hotels (typical room rate: $450/night) Le Meridien Hotels Sofitel Hotels W Hotels

Upscale Hotels (typical room rate: $350/night) Hyatt Hotels Marriott Hotels Omni Hotels

Midprice Hotels with Food (typical room rate: $160/night) Four Points (Sheraton) Garden Inns (Hilton) Best Western

Midprice Hotels without Food (typical room rate: $95/night) AmeriSuites Hampton Inns La Quinta

Economy Hotels (typical room rate: $70/night) Baymont Inns and Suites Red Roof Inns Super 8

Budget Inns (typical room rate: $65/night) EconoLodge Microtel Motel 6

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Because a minimum staff is needed, a hotel of 60 rooms might have almost the same num- ber of employees as one of, say, 100 rooms. Each property needs a minimum number at the desk, a manager, a head housekeeper, an accountant, and someone in maintenance. Each must provide for vacations and sickness. Housekeeping is staffed differently. If a housekeeper cleans 15 rooms per shift, every additional 15 rooms requires an extra employee and eventually a supervisor. Hotels minimize that number by using and paying for call-in housekeepers only when volume dictates.

The in-between class of hotels uses an in-between number of employees. That ratio ranges from 0.5 (one-half) an employee per room to a ratio as high as 1:1. Depending on the services offered, a 300-room hotel could have as few as 125 employees to as many as 250. Some may be part-time.

Full-service hotels require more employees to staff a variety of departments. All of them have bells, restaurants, turn-down service, marketing, and pools. Still more staff is needed for properties with theaters, acres of grounds, casinos, and 24-hour room service. The employee– rooms ratio may jump then to 1.5. Thus, a 1,000-room hotel/casino operating 24 hours could have 1,250–1,500 employees. No wonder so many localities with low labor usage—Detroit, for example—have voted for local casinos.

Asian hotels have the largest employee–rooms ratio because labor is less costly. The Bangkok Shangri-La, for example, has 1,073 staff members for 697 rooms, a ratio of 1.5:1. Hong Kong’s Peninsula Hotel operates with 655 employees for its 300 rooms. That’s better than 2:1. The Singapore Sands (see Exhibit 1-3) has a nearly 4:1 ratio: 10,000 employees for 2,560 rooms. (No wonder, Singapore’s few hotel/casinos generate more earnings than all of Las Vegas’ hotels combined.)

Worldwide, the workforce is huge. The United States alone has some 2 million hotel workers. The privately funded World Tourism and Travel Council (WTTC) estimates 225 million employees in the world’s tourism industry. That includes about 13% of Europe’s total labor force.

RATING SYSTEMS Room rates provide good guidance to the class of hotel even when formal rating systems exist. Some rating systems have been publicized; some have not. Some are gov- ernment-run; some are not. Most are standardized within the single country, but not so across borders. Members of the World Tourism Organization have done much to standardize their systems by adopting the WTO’s five recommended classes. Deluxe or luxury class is at the top. First-class, which is not top-of-the-line despite its name, comes next. Tourist class, sometimes called economy or second class is actually third in line. Third and fourth class (really the fourth and fifth ranks) usually have no private baths, no centralized heat, not even carpeting.

International travelers avoid third- and fourth-class facilities. They also know to discount the deluxe category of many Caribbean properties. Similarly, experienced travelers limit stays in Africa and the Middle East to deluxe properties.

Worldwide There are some 100 rating systems worldwide. Most of them rank by using stars; others use coffee pots, alphabets, and even feathers. Britain uses ticks for its holiday parks, which are upscale RV (recreational vehicle) parks.

Europe’s system is the most developed. Its four- and five-star hotels have restaurants and bars. Hotel garni means no restaurant but a continental breakfast is usually served. That’s the usage in England as well as on the Continent and both correspond to the U.S. phrase, “breakfast included.”

The Swiss and Mexican Hotel Associations are unique because they are self-rating, private organizations. The Swiss use the World Trade Organization’s (WTO) five classifications plus a luxury class termed “Gran Tourism” or “Gran Especial.” The Irish Tourist Board takes a differ- ent approach, listing the facilities available (e.g., elevator, air conditioning, laundry) rather than grading them. Directories of the European Community do the same and also classify by loca- tion: seaside/countryside, small town/large city. European auto clubs go further by distinguishing privately owned from government-run accommodations.

Spain has standardized the rating system of its paradors (stopping places) despite a wide range of facilities and furnishings. About one-third of this government-operated chain is at a four-star level.

In 2008, Italy finally adopted a one-to-five-star rating system but left enforcement to indi- vidual regions. One of the rating criteria is room size: The minimum size of a four-and five-star

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hotel room must be 15 square meters (155 square feet).3 Hotels will rate four- or five stars only if the staff has foreign language capability.

Japanese traditional inns, ryokans, are rated according to their rooms and baths and—of all things to Western values—gardens. These hotels offer two meals, which are often taken in the uncluttered guest room that opens onto those gardens. The Japanese Travel Bureau lists about 1,000 ryokans for international guests. Ryokans are not favored by Japanese nationals.

Korea has its own version of traditional, budget-priced lodging called yogwans. Most have standard hotel accommodations. Upscale yogwans have names that end in jang or chang.

The United Kingdom has the largest number of rating systems including the National Tourist Board (NTB), the Automobile Association (AA), the Royal Automobile Club (RAC), and commercial enterprises such as Michelin. Some rate by stars; others use pavilions or crowns. Each classification is further divided by grades or percentages. For example, the AA might rate a property as Four Star, 65%.

The U.S. System Unlike the United Kingdom’s mix of private and governmental rating systems, the U.S. ratings rely solely on private enterprise. The American Automobile Association (AAA) has been one of two major participants. The other participant Mobil (now named Forbes) was started in the motor-lodge era of the late 1950s as a subsidiary of Mobil Oil. Now, both face a wide range of competitors.

Michelin, which is popular in Europe, now has U.S. guidebooks. Zagat started with restau- rant guides and only recently added hotel ratings. J. D. Powers, which is famous for rating con- sumer goods, has also entered the market. Many websites (Expedia, for one) carry evaluations as do a wide range of publications. Social networks probably do the best job because previous guests “tell it like it is!” on websites for all to read.

There are bed-and-breakfast guides, magazine guides, regional guides, even one by the National Association for the Advancement of Colored People (NAACP). None are government affiliated. All are crowding out the traditional star system of Forbes and the diamond ratings of AAA (see Exhibit 1-7).

Historically, a good Mobil (Forbes) listing boosted occupancy by 20% or so. Similarly, as much as 40% of room sales in small hotels has been attributed to an AAA listing. Both agencies rely on anonymous, on-site inspections to cover about 25,000 properties. AAA personnel identify them- selves after their annual visit. Forbes inspectors come every 18 months but remain anonymous. Online reservation (res) systems such as Priceline also send inspectors, but they solicit business at the same time. AAA includes information for handicapped travelers; the Scottish Tourist Bureau does too using three levels of accessibility. All travel guides encourage input from their users.

By building different facilities for different markets, hotel chains have created internal rat- ing systems, but few consumers recognize them. Exhibit 2-1 illustrates the point.

Membership in Preferred Hotels, a loosely knit affiliation of independent properties, requires ratings of superior or above from one of the recognized services. By just belonging, the hotel flashes its rating.

Not all guides are consumer oriented. Several list conference and meeting facilities. Others are aimed at travel agents and meeting planners. Among the publications that focus on the trade are the Hotel and Travel Index, the Official Hotel Guide, and the Official Meeting Facilities Guide. Their contents list both objective (number of meeting rooms) and subjective assessments (food, convention services).

We may soon see a new environmental rating. The U.S. Travel Data Service reports that guests are willing to pay more for environmentally friendly lodgings (EFL).

Type

Size and class, two of lodging’s four traditional classifications, have just been discussed. Now we examine the third classification, types of hotels. Type has three traditional subdivisions of its own: commercial hotels, resort hotels, and residential hotels. As with so many other definitions in a dynamic industry, there are sharp distinctions no longer. Chapter 2 goes further by describing new concepts being built upon the traditional types.

3See Chapter 3 for square foot and square meter equivalencies.

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�� Every rating has cleanliness, maintenance, service (staff), furnishings, and physical appointments as its base. Ratings must also consider regional differences. A historic inn of New England cannot be compared to a dude ranch in the Southwest or an urban-center highrise. Each star-level must incorporate the best standards of the previous level.

�

One-star establishments should be clean and comfortable even as they offer minimal services at mini- mal price. Rates should be comparable to local competitors with similar accommodations. Service must be courteous but may not be available around the clock. There is no restaurant. Furniture and linens must be in good condition, but will not be luxurious. Housekeeping and maintenance should set a good standard.

��

Two-star accommodations must meet the standards of one-star facilities and include some, but not nec- essarily all, of the following: Better-quality furniture, larger bedrooms, color TV in all rooms, direct-dial phones, and perhaps, a swimming pool. Luxury will usually be lacking, but cleanliness, maintenance, and comfort remain essential. The desk is open around the clock.

��

Three-star properties include all of the facilities and services mentioned in the preceding paragraph. Additional service personnel will be apparent. Food service, especially at breakfast, is required. So is a swimming pool. Upgrades in the bath should be apparent. Internet access available. Electronic locking and security systems are in place. Three-star establishment should offer a pleasant travel experience.

��

Four-star and five-star properties make up less than 2% of the ratings! They must be outstanding in every respect. Bedrooms should be extra large; furniture of high quality; all of the essential and extra services (dining, lounges, spas, laundry) should be offered at a stepped-up level. Personnel must be well trained, courteous, groomed, and anxious to please. Rates will reflect these superior standards. A stay in a four- star property should be memorable. No place will be awarded four or five stars if there is a pattern of complaints from customers, regardless of the luxury offered.

��

There are a very few five-star-award facilities. Those that reach this pinnacle go beyond comfort and ser- vice to deserve the description “one of the best in the country.” Superior restaurants are required, although they may not be rated as highly as the accommodations. Twice-daily maid service is standard; linens should be no less than 250 count. Rooms will be large and accommodations and toiletries in the bath extra special. Lobbies will be places of beauty, often furnished in antiques. Grounds surrounding the building will be meticulously groomed and landscaped. Guest will feel pampered.

EXHIBIT 1-7 The authors have created criteria for rating U.S. hotels, which are expressed traditionally with stars and diamonds. Other symbols are used worldwide where rating systems are usually government controlled. Private organizations, such as Forbes’ Travel Guide, do the job in the United States.

COMMERCIAL HOTELS Commercial hotels, or transient hotels, make up the largest category of American hotels (see Exhibit 1-8). They service short-term, transient (not permanent) visitors. Businesspersons are the chief market of commercial houses. Conventioneers, engineers, sales- persons, consultants, and small businesspersons form the core of the customer base. Indeed, commercial guests are the backbone of the entire lodging industry. They are equally important to the urban property and the roadside motor hotel. Still, there are plenty of rooms to accommodate leisure guests, and commercial hotels do so with pleasure.

Commercial hotels locate close to their market—the business community, usually an urban area. As business centers have left downtown cities, so has the commercial hotel. Arterial highways, research parks, airports, and even suburban shopping centers have become the new locations for commercial properties.

Many businesspersons relax on weekends, which explains the poor weekend occupancy of the commercial hotel (see Exhibit 1-2). Attempts to offset this decline with tourists, groups, and special local promotions have been only moderately successful.

Large, commercial hotels are almost always full-service properties. Businesspersons are usually expense-account travelers who can afford four-star and even five-star accommodations. Travel offices of many businesses began to monitor employee travel costs after the downturn following the World Trade Center disaster. Furthermore, Congress has enacted restrictions on the amount of tax-deductible business travel expenses.

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RESIDENTIAL HOTELS Unlike the transient nature of the commercial hotel guest, residential guests take permanent occupancy. This creates a landlord–tenant relationship that differs in legal rights and responsibilities from the traditional guest–innkeeper relationship. In some locales, the room occupancy tax is not payable for residential (sometimes called permanent) guests in a transient hotel.

The last census reported that two-thirds of all commercial hotels had permanent guests. New York City’s Waldorf=Astoria is a good example. Its Towers (a section of the hotel) houses residen- tial, often famous, guests. Less common is the true residential hotel that solicits overnight travelers.

Extended-Stay Hotels Extended-stay hotels are different from either commercial or residential properties. Rooms are designed differently because guests are there for long-term stays. But that timing is loosely defined. Guests are not in permanent residency—there is no lease—as they are in residential hotels. Neither are they the transient, two-to-four day commercial guests.

Extended travel and suitcase living quickly lose their glamour. Keeping workers productive and comfortable over long periods takes more than a hotel room. Extended-stay hotels provide kitchens, grocery outlets, office space, fireplaces, office equipment, exercise rooms, and laundry facilities—even secretarial support—but all with maid service. But it may not be daily service.

The all-suite hotel emerged from the extended-stay concept as management/owners sought to broaden an otherwise narrow market. The same building caters to both long-term business travelers and all-suite users (families, interviews, small in-room meetings, etc.).

RESORT HOTELS Transient hotels cater to commercial guests, residential hotels to permanent guests, and resort hotels (see Exhibit 1-9) to social guests—at least traditionally they did.

Economics has forced resorts to lengthen their summer or winter season to year-round operations. Groups and conventions are booked at the expense of traditional social guest. Commercial hotels retaliated by shifting markets and designs to lure vacationing guests. As a result of these shifts, mixed-use properties emerged, sometimes in residential areas as part of master-planned communities.

Many believe that the modified resort is the hotel of the future. It is in keeping with social trends and compatible with the traits of modern vacationers. Unlike the formality of the vaca- tioner of an earlier era, today’s leisure guest is a participant who seeks a host of activities.

EXHIBIT 1-8 Location, location, location is the mantra of commercial hotels, which serve several markets but chiefly business clientele. Thus, their usual locations are business parks, research centers, ring roads, or urban downtowns. Courtesy of New York Marriott Marquis, 45th and Broadway, New York, New York.

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The Megaresort Megaresorts are large, self-contained resorts. Entertainment and recreational facilities are so numerous and so varied that guests need not leave the property during their entire stay. That’s the idea behind large casino/hotels trying to capture players. There are other self-contained resorts of which the Sandals chain in the Caribbean is a good example. Size distinguishes the megaresort from these other all-inclusive accommodations. Although size is a distinguishing part of the Las Vegas hotels, large hotels are found worldwide (see Exhibits 1-3 and 1-4).

Plan

Plan identifies which meals, if any, are included in the quoted room rate. Rates are higher, obvi- ously, if meals are provided. Classification by plan is more objective than classification by any of the other three categories: size, class, or type. Either meals are included or they are not.

EUROPEAN PLAN With few exceptions, hotels worldwide operate on the European plan. No meals are included in the rate quote. Evidence of the widespread use of the European plan is its lack of notice. Rate is not quoted as the European plan; it’s just understood.

Continental Plan (Continental Breakfast) Travelers eat breakfast, more than any other meal, in the hotel. European hotels sometimes include a breakfast with the rate. This con- tinental breakfast (Europe being the continent) usually consists of coffee or chocolate, a roll, and a bit of cheese. Cold meat or fish are added in the Scandinavian countries. The continental breakfast is on the wane on the continent even as it gains favor in North America. Many all-suite hotels now offer breakfast, with hot foods. It is a revival of the American view of the continental plan, which took form in the no-restaurant format of the 1950s motel. In-room coffeemakers or coffee and sweet rolls in the proprietor’s kitchen were touted as continental breakfasts.

A coffee urn and sweet rolls in the lobby after the dining room has closed is sometimes called a continental breakfast. A similar setup at a group registration desk or at the rear of a meeting room

EXHIBIT 1-9 Resorts have broadened their appeal beyond the “social guests” that persisted through the middle of the 20th century. Amenities, including executive conference centers, spas, tennis clubs, water sports, and more appeal to groups as well as leisure guests. Courtesy of the Sagamore, Bolton Landing, New York.

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during a speaker’s talk might appear on the program as a continental breakfast. Juice is included in the United States or abroad if there are American delegates, but rarely is it served elsewhere.

In some parts of the world, an abbreviated breakfast is called bed-breakfast. The Bermuda plan includes a full breakfast. A hearty breakfast called an English breakfast is served in Ireland and the United Kingdom. It includes cereal, eggs and meat, toast with butter and jam, but no juice. English breakfasts can be negotiated for tour groups, but are not normally included in the room rate.

Café complet, a midmorning or afternoon coffee snack with bread and butter, is mistakenly called a continental breakfast. Café complet is not included in any rate quote regardless of the menu or time of service.

Late afternoon tea has gained some favor over “the happy hour.” Many top hotels and most cruise lines have latched onto the British ritual “cream tea.” Delicate sandwiches and small sweets are served with tea or sherry. This should not to be confused with “high tea,” which is a substan- tial supper usually containing meat. High tea is a rarity today, even in British hotels.

AMERICAN PLAN Rates quoted under the American plan (AP) include room and all three meals. The American plan, which is occasionally called bed and board, had its origin in colonial America, when all guests ate at a common table with the innkeeper and his family. The plan was still in effect when resorts for the affluent began operating in the Northeast about the late 1800s. They held onto the plan until after World War II. The New England resorts retained the AP for the same reason the colonial innkeepers offered it in the first place. Both were isolated so there was no other option. Better roads and better cars spelled the end of the captive guest.

Europe’s full pension (pen’-si-own) is like the American plan except it includes a continen- tal breakfast rather than a full English breakfast. The more descriptive inclusive terms is used when marketing to U.S. travelers. The pension of Europe is the same as the guest house of Britain or the boarding house of the United States. Pensiones are usually longer-stay facilities, closer to our residential hotels, with limited services. Guests join an extended family.

Modified American Plan Many guests view the American plan negatively. It requires them to adhere to the hotel’s meal schedule and to pay for meals whether they eat them or not. The modified American plan (MAP) offers a compromise. The hotel retains some of the meal capture of the AP, and the guest feels less restricted. Guests get breakfast and dinner as part of the room rate quote, but not luncheon. Thus, the guest need not return to the hotel for an inconve- niently scheduled luncheon nor suffer the cost of a missed meal. To make the difference clear, AP is sometimes quoted as FAP, full American plan. Half-pension or demi-pension is the Continent’s equivalent of the MAP.

Cruise ships provide American-plan dining, but they don’t use that terminology. Neither do the all-inclusive resorts of the Caribbean, which quote drinks, tips, and activities for the one price.

A dine-around plan is another variation. AP hotels allow guests to dine at other hotels in the vicinity. The cooperating hotels might be members of the same chain or a local consortium of competitors who understands the marketing value of the option. Conference centers, which cater to groups, call their variation CMP, complete meeting package. The quoted room rate includes room, meals, coffee breaks, meeting setups, and gratuities. Of the rate quoted, 50% might be attributed to rooms, 33% to food and beverage, 10% to gratuities, and the remaining 7% to meeting space and audiovisual/ electronic support. This accounting is for internal use and would not be communicated to the guest.

Variations on the Themes

The hotel business is a dynamic one because it is run by clever hoteliers. They innovate by modifying the standard into something different even as the basic industry remains the same (see Exhibit 1-10). Bed-and-breakfasts and boutique hotels are two great examples.

BED AND BREAKFAST (B&B) American B&Bs are modern versions of the 1930s room- ing houses, once called tourist homes. It is a worldwide theme: zimmer frei (room available) in Germany is minshuku in Japan. Running a B&B is an adventure for some owners; for others a hobby; and for many a livelihood. Guests take beds with private families, who furnish camaraderie along with the mandatory second “B,” breakfast. The lack of privacy—conversation at breakfast and sometimes even a shared bath—forces the host and guests into a level of intimacy that brings new friendships along with new business.

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Like the rest of the lodging industry, change is part of the B&B’s vocabulary. There are many subcategories because the business is individualized and localized. It changes as it moves from west to east. The B&B Inn, which is larger and usually the owner’s primary occupation, is the California version. The east coast has the Country B&B. It tilts toward a boarding-house concept because many Country B&Bs serve all three meals. Between the coasts are a variety of facilities serving their local markets (see Exhibit 1-11). Like other small businesses (typically eight-rooms or less), B&Bs often lack staying power. The problem gets severe where zoning laws prohibit them from putting up “rooms-for-let” signs. The Yellow Pages now list B&Bs. Heretofore, they were carried under “hotels, motels and tourist homes.”

Like hotels, B&Bs fight for business and seek referrals. Governmental agencies rate and refer B&Bs in Europe and Japan. The French call them café-couette (coffee and quilt) and rate using coffee pots, not stars. Since there is no U.S. government rating system, private rating systems have emerged. However, they come and go quickly, for they too, like the B&Bs, lack staying power.

Specialty Hotels that Fit No General Category

Backpackers And camping Club Med Vacation villages Couples only Honeymoon resorts and gay groups Dude ranches For the horsey set Eco lodges Safari lodges; wilderness accommodations Exclusive-use Resorts that limited use to one group of guests at one time Floating House boats; as hotel rooms in India Grand dames Ladies with aristocratic bearings; hence grand, elegant hotels Historical Buildings (not only hotels) listed with the National Trust Ice hotels Made of ice, popular in Iceland and Canada Kosher For Jewish and Muslim diets Landmarks Former jails and prisons; famous homes; lighthouses Luxury camping With creature comforts Mi Casa Es Su Casa Joining families in private homes Military hotels The army alone has some 22,000 commercial hotel rooms National parks Operations, including rates, set by the government Native American American Indian operations Nudists Camps, colonies, beaches Resident clubs Private facilities, often with golf clubs Retreats Centers for rehabilitation from drug and alcohol addiction Singles May be religious affiliated Sleep clinics For giving polysomnograms, sleep tests Tree houses Popular in Turkey Water Parks Indoors with attached hotels Yurts Round, cloth-covered tents called gers by the nomad Mongols.

EXHIBIT 1-10 Innovative operators and marketeers have created many new hotel niches that do not fall within lodging’s traditional classifications of size, class, type, and plan.

EXHIBIT 1-11 Bed and breakfasts operate under a variety of names. B&B inns are popular on the west coast; country B&Bs in New England. In between are many wonderful stopping places with award-winning breakfasts and distinctive guest accommodations. Courtesy of the Inn at 410, Flagstaff, Arizona.

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BOUTIQUE HOTELS Boutique hotels are the rage among the hip, the chic, and the cool. So sometimes the pool-party buzz that they create hides their true identity. They’re just hotels; hotels with niche appeal. Attracting a defined customer/guest and using word-of-mouth and social networking, rather than traditional advertising, contributes to the aura. It is difficult to differenti- ate their basic services from any other hotel and the distinction grows less evident as the major chains move rapidly into the boutique world.

Boutique hotels have small inns as their prototypes, but they provide the amenities of fine hotels. Although many now number in hundreds of rooms, boutiques still remain fashionable because of their good urban locations. They are proof-positive of “location, location, location.” Two reasons account for their popularity in London, San Francisco, and New York. First, being relatively small, they can find affordable land in crowded urban areas. Indeed, once they were called urban inns. European-style hotels or, in Britain particularly, baby grand hotels were terms once widely used. Second, the boutique’s guest is an urban-centric customer, one who willingly pays a 10–15% room premium for the design and excitement of the urban inn and its location.

The term “boutique” has been attributed to Steve Rubell, one of the founders of New York City’s Studio 54. Asked to describe his hotel, The Morgans, Rubell said that other hotels are large department stores, but Morgans is a small boutique.4 Boutique suggests something different, very eclectic, always with flair, funky, and artsy (see Exhibit 1-12). The modern boutique aims to mir- ror its guests: wannabes who often see themselves experiencing the lifestyle of celebrities. Differences notwithstanding, boutique executives still talk about service, guest experiences, and the quality of the operating team—issues for any hotelier.

Ian Schrager, Rubell’s partner, helped develop the boutique concept but left after the idea was widely adopted by the hotel chains. Starwood Hotels introduced the W Hotel (“W”—warm, welcoming, and witty). Meridian Hotels use the term Art and Tech. Marriott, long an adherent to standardized operations, added a new brand, Autograph Collection. This upscale boutique is the very antithesis of standardization. That’s probably why Marriott’s name has not yet been attached.

4Derived from the Greek for storehouse. “Perhaps that’s where the notion that boutique hotels need to be small began.” Jeff Higley, editor-in chief, Hotel Design, October/November, 2005, pg. 4.

EXHIBIT 1-12 Boutique hotels have become a distinct segment of the lodging industry. Like the B&B, there is no one standard. Indeed, breaking the stereotype of the hotel is the very appeal of the genre. Courtesy of the Georgian Hotel, Santa Monica, California.

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Boutiques have higher RevPar and occupancy figures (lower break-even points) than tradi- tional establishments. That appeals to the chain, but does the chain appeal to the consumer? Can branded chains deliver the unexpected and the quirky, which are the hallmarks of a boutique? Can a hotel with banquet and meeting business maintain that special guest–staff connection? W’s New York City property is trying with 722 rooms. More like a department store than a boutique.

TROPHY HOTELS To their owners trophy hotels are another prize for the mantelpiece. Hoteliers acquire lodging’s grande dames because they add to professional reputations. They carry a long historical lineage. Some are profitable, ongoing properties for generations, such as Denver’s Brown Palace. Others are not, but they offer some tax relief with a listing in the National Register of Historical Places. Some are really trophies: How else to account for a true upscale property, the Conrad Hotel, in Indianapolis except that it is owned by a wealthy investor.

Summary

Hotelkeeping remains a major contributor to commerce and culture even as it undergoes rapid changes. Despite its ongoing transformations, innkeeping still measures success with occu- pancy (%); average daily rate (ADR); and revenue per available room (REVPAR).5

To maximize the values of these measures, management must overcome obstacles inherent in the hotel business. Among them are a very perishable product, an unchanging inventory in a permanent location, a high break-even point because of fixed and

5GOPPAR (gross operating profits per available room) is a new suggested measure; it includes profits from all operating departments. It has not been widely adopted.

variable expenses, and seasonal variations—all operating within a challenging cycle of ups and downs that might last for years.

Understanding the industry’s traditional identifications (size, class, type, and plan) helps to identify the new permuta- tions (all-suite, B&B, and boutique) that keep the industry eco- nomically sound and exciting as a career. Competition sharpens management skills; rating systems measure the results. With change comes new classifications and new challenges. These are explored further in Chapter 2.

Resources and Challenges

RESOURCES

Website Assignment

Use references from websites to update the chapter’s statistics. Provide national or local values as assigned by the instructor. Identify the

sources of your data, which is to include: the percentage of occupancy, ADR, and RevPar. Categorize your sample by citing its geographic cov- erage, type of hotel, year of the statistics, and so on.

Interesting Tidbits

– ing in Las Vegas and other resorts while the economy was in dire financial straits. Many properties immediately dropped the term “resort” from their identity.

2010 with 20,000 employees, an unprecedented ratio of eight employees per guest room! Las Vegas Review Journal, May 27, 2006,

pg. D1. The staff has been whittled down since, the usual arrangement with new hotel openings. Pied-ά-terre [paid-a-tera] is a French term for a second residence such as business travelers might have for frequent visits to a partic- ular city. (The original use meant a romantic hide-away.) If neither the traveler nor the business keeps such facilities, Marriott and other chains (Furnished Quarters) maintain business apartments.

Challenges

True/False

Questions that are partially false should be marked false (F). ____ 1. The hotel industry has been an economic survivor because,

in part, it is contra cyclical: Up when the economy is down; down when the economy is up.

____ 2. As a generalization: The larger the hotel, the fewer employees per guest room.

____ 3. “Cost per-key” is another means of expressing ADR. ____ 4. Boutique hotels have introduced the American plan to urban

audiences. ____ 5. “Hotels fill from the bottom up,” so RevPar falls as occupancy

climbs.

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Answers to True/False Quiz

1. False. The hotel industry is cyclical just as the rest of the economy is. Up when business is good; down when the economy falters. In fact, there are indications that a slowing hotel business first signals an approaching downturn for the whole economy.

2. False. Large hotels require extra staff to operate departments that smaller hotels lack: bells, laundry; pool/spa, food and bever- age, and so on.

3. False. Cost per key is a measure of the building’s value (cost of the building,number of rooms). ADR (average daily rate) is

the hotel’s average charge for rooms (room income,number of rooms occupied).

4. False. Boutique’s guests are urban-centric customers who pay a premium for the novelty of the urban inn and its location; they don’t want their grandparents’ lifestyle.

5. False. Hotels do fill from the bottom up meaning lower-priced rooms are taken first. As occupancy increases, higher-priced rooms are sold pushing RevPar higher.

Problems

1. A natural disaster such as an earthquake or human-made disaster like the attack on the World Trade Center has an immediate effect on hotel occupancy. Explain step by step how you would estimate the loss in room income to New York City’s hotels when approached by the news media. (Hint: New York City has an estimated 63,000 rooms. Use figures and values from Chapter 1 and/or make assumptions; assumptions should be identified.)

2. Create a checklist with two dozen objective listings that could be used by an evaluator inspecting guest rooms for a national rating system.

3. Explain where the hotel industry is in its economic cycle. Be spe- cific. Is it at the bottom of the trough? The highest point of its rise?

Somewhere in between? If so, moving in what direction? Submit evidence to support your position.

4. Give three to five examples of each type of expense that is used to determine the cost portion of a hotel’s break-even point: fixed expenses, semifixed expenses, and variable expenses.

5. How many rooms does the MGM Grand Hotel need to sell annu- ally if it budgets operations on an annual occupancy of 82%? (Hint: See Exhibit 1-4.)

6. Using information contained in this chapter, justify or challenge the statement of Andrew Young, the former mayor of Atlanta, who said that a 1% rise in room occupancy creates 400 new jobs for that city. (Hint: You will need to know the approximate number of rooms in the city and an estimate of the staff-to-room ratio.)

AN INCIDENT IN HOTEL MANAGEMENT Hit with a Stinging Towel

The resort was living up to everything the family had heard about it. The view was magnificent, the rooms were large, and the food was great. There were three swimming pools in addition to the beach by the ocean. Getting a towel was the big problem. An in-room sign read,

Please do not take bath towels to the pool or beach; towels are available there.

Except there were no towels for two days straight. The attendant said that the laundry couldn’t keep up with the demand because the house was full. It was true the beach and the pools were packed with crowds! So the children took towels from their bath on their final day. Kids! Both left their towels on the beach.

The family’s upbeat vacation and positive image of the resort took a wide U-turn when they found a $22 charge on the bill for two towels missing from Room 319. And the dad said so aloud.

Questions: 1. Was there a management failure here; if so, what? 2. What is the hotel’s immediate response (or action) to the incident? 3. What further, long-run action should management take, if any?

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