The Traditional Hotel Industry CHAPTER 1 The Traditional Hotel Industry

Chapter 1 Objectives: Understanding the Hotel Business The Service Culture A Cyclical Industry How Hotels are Measured Special Characteristics of the Hotel Business Traditional Classifications Size Class Type Plan Variations on Themes

Evolution of the Industry Pre-Historic (Hunter/Gatherer Era) No need for hotels as travel was limited 18th Century (Agricultural Era) Very limited travel by traders and officials Early beginnings of hotel industry with roadside inns Problems of safety and security 19th Century (Industrial Era) Increasing national and international travel Development of bigger and better hotels start 20th Century (Service Era) Travel for both business and pleasure is routine Development of sophisticated hotel industry worldwide to cater to travelers

A Cyclical Industry Follows Economic Phases Based on Supply and Demand Various Factors Affect the Industry Government Laws Other Industries Oil & Gas Financial Travel Advisories Weather Terrorism

How Hotels are Measured Occupancy Also known as Percentage of Occupancy or Occupancy Percentage The relationship between demand (rooms sold) and supply (rooms available) Measures the hotel’s “share of the market”, so it measures quantity Occupancy = Number of Rooms Sold Number of Rooms Available for Sale

How Hotels are Measured (cont.) Average Daily Rate (ADR) Also known as Sales per Occupied Room The dollar amount received for each room sold Measures the quality of the business Can be misleading What if only one room is sold, but at a high rate? Average Daily Rate = Total Room Revenue Number of Rooms Sold

How Hotels are Measured (cont.) Revenue Per Available Room (REVPAR) The relationship between total room revenue and the number of rooms available Measures how well management fills rooms, without giving up rate REVPAR = Total Room Revenue (room sales) Number of Rooms Available for Sale

How Hotels are Measured (cont.) Double Occupancy Measures the number of rooms with more than one occupant Break-Even Point Neither a Profit or a Loss Must determine to ensure profits

Hotel Example A Number of Hotel Rooms Available for Sale 375 B Number of Hotel Rooms Sold 326 C Total Room Revenue Sold $38,200 Calculate the Following: Item Hint Calculation Occupancy (B) / (A) 326/375 = 0.8693 or 86.9% Average Daily Rate (C) / (B) $38,200 / 326 = $117.18 RevPAR (C) / (A) $38,200 / 375 = $101.87

Special Characteristics Perishability “An unsold room tonight can never be sold again” Time Restricted Unable to save it for tomorrow Once gone, you can never get it back Location Fixed in a particular spot Unable to move the building elsewhere What was once a good location may deteriorate Businesses in the area may close Demographics may change

Special Characteristics (cont.) Fixed Supply Number of rooms in a hotel are the same daily Unable to add an additional wing with more rooms High Operating Costs Capital Intensive Capital - the goods used to generate income Building, Furniture, Equipment, etc. Labor Intensive Costs that are incurred despite the number of rooms sold

Special Characteristics (cont.) Seasonality Occupancy will spike over certain timeframes or will dip in other timeframes Weekday vs. Weekend Winter Resort vs. Summer Resort Holidays Breckenridge, CO – Ski Season vs. Summer

Hotel Classifications Size Size is determined by the number of rooms the hotel has to sell Small Hotels – Less than 150 rooms Medium Hotels – 150 to 300 rooms Large Hotels – 300 or more rooms Megahotels – 1500 or more rooms The Venetian & Palazzo Hotel in Las Vegas, NV has a total of 7,052 rooms to sell between the two towers.

Hotel Classifications (cont.) Average Daily Rate The Better the Class of Hotel, the Higher the ADR Higher Class Hotels offer more amenities and services Full Service Hotels vs. Limited Service Hotels Number of Employees Rating System Varies by country or system used U.S. uses AAA (diamond rating) or Forbes (formally Mobil) (star rating)

Hotel Classifications (cont.) Type Commercial Hotels Short-Term, Transient Visitors Resort Hotels Social Visitor seeking entertainment and activities Residential Hotels Long-Term, Permanent Guests Atlantis Paradise Island, Bahamas

Hotel Classifications (cont.) Plan Identifies which meals, if any, are included in the nightly room rate European Plan – no meals included Continental Plan – minimal breakfast items American Plan – all three meals included

Variations on Themes Bed and Breakfast Airbnb Boutique Hotels Ice Hotels

Q&A Questions?

Class Assignment A Number of Hotel Rooms Available for Sale 1200 B Number of Hotel Rooms Sold 864 C Total Room Revenue Sold $125,200 Calculate the Following: Occupancy Average Daily Rate RevPAR