Chapter Four: Lodging

Terms in this set (10)

Examples of midpriced hotels/motels-
• Orginal cost of Motel Six was $6 a night
• Day Inn was started by Cecil B Day, bought cheap land and constructed buildings no more than 2 stories to keep costs down, hotels and motels primarly for commercial travelers and vacationing families, close to major highways, and built to provide low-cost lodging w/o frills
• 1960s- Hilton and Sheraton francise names
• 2 major challenges of franchising:
1) Maintancence Of quality standards
2) Avoidance of financial failure on part of franchise
Franchising Trends
• Growth factors:
1. Fresh looks (crub appeal)
2. Exapnison to smaller cities
3. Location
4. New markets
5. Foregin expansion
• Franchise fees vary by agreement
• Avg. agreement is 3-4% of room revenus
• 3 largest franchisors of hotels are
1. Wyndham Worldwide (nearly 7,000)
2. Choice Hotels International (over 5,000)
3. Intercontinental Hotels Group (4,200)
• Benefitis include set of plans to build from, centralized reservation system,volume discounts, low fee % charged by credit card companies, increased market share and recognition
• Drawbacks include difficulty mainting control of standards and need for careful selection of franchisees

Management Contracts
• Management contracts: Written agreement beween owner and operator of a hotel or motor inn by which owner employs operator as an agent to assume full responsibility for operating and managing a property
• Contracts are responsible for hotel indsutrys rapid boom since 1970
• Contracts became popular b/c they required litte to no up-front financing or equity
• Ownership is generally reverted to a large insuarnace company even when corp is inovled in hotel construction
• Contract ususally allows hotel companies to manage proererty for 5,10,or 20 years, company receives management fee (% gross net operating profit) of about 2 to 4.5% of gross revenue
• More common today:Lower management fees in 2% range w/ increase in incetive fee based on profitability
• Some contracts are 2% in Year 1, 2.5% in year 2, and 3.5% in year 3 and remainder of contract
• Most contracts today are 2% plus 2% (% of total sales and % of total operating profit)
• Increased competition among management companies has decreased contract fees in recent years
• Internaitonal and US markets have expanded b/c hotel companies are increasingly opting fro mgmt. contracts (less capital is tied with managing a property vs. owning it)
AVIS Budget Group (Cendant)
• Empire of bizs and brands under 3 major names:
1. Wyndham Worldwide
2. Realogy (real estate branch)
3. Avis Budget Group (vehicle rentals)
• Wynham: Wyndham, Days Inn,Howard Jonhson, Ramada, Knights Inn, Super 8, Travelodge, Villager Lodge, Wingate Inn
• Realogy: Centrury 21, ERA (Electronic Reality Assocaites), Coldwell Banker, Avis Rent-A-Car, PHH Corp
• Has approx. ½ mil. hotel rooms, over 11,500 franchised real estate offices, and 190,000 brokers
• Clients are other bizs and corps vs just indivudal consumeress
• Liscescnes owners and operators of indepeendt bizs to use brand names w/o risks and expenses
• Provides coordination and services that allow franchises to retain local control of activities
• Company offers indepent facnchise owners low fees compared to projected profit gain by proomiting brand names and quality control
• Franchisiing= limited risks, low overhead costs, protection from clynical nature of economy
• Cricitcal mass of all bizs together makes them more valuable as a whole, effective in selling to wide adudince, outstanding purchasing power and market control
• 72 mil baby boomers are starting to retire, consuming travel and residential real estate
• 44,000 travel agenices use services like Gallileo (travel distribution service, Cheap Tickets,
• Wizcom- electronic deistribution and e-commerce solutions for Interanet GDS (Global distrib services) and travel reservations systems
Hotel Mgmt. Cont.
• Hotel Mgmt. companies often from partnerships of conevince w/ developers and owners who DON'T want to operate hotels
• Mgmt. company provides operational expertise, maerkting, and sales clout- often thru CRS (centralized reservation system)
• Some companies manage porfoloios of profperties, most manage hotels in some classifications
• Recent contracts increased equit commitement of management company and owners opernationl decision-making options
• International expansion- hotel company may seek local partner or owner for joint venture
Real Estate Investment Trust (REIT)
• Real Estate Investment Trusts (REITS): Method that enables small investors to combine funds and protects them from double taxation levied against an ordinary corportation or trust; designed to faciliateate investmenet in real easte in much the same way a mutual fund faciliatates invesement in securities
• REITS have been around since the 1980s, mostly mortage holders
• In 1980s, REITS began to own proeperty, focusing on specific sectors
• Today about 300 REITS are publicly traded with combined market value of $70 bil
• REITS DON'T pay corporate income tax, required to distribute at least 95% of net income to shareholders
• REITS trade as stocks, easier to get in or out of
• Patriot American Hospitality and Starwood Lodging Trust are 2 leading REIT corporations
• Patriot American Hospitality owns Wnydham Hotels, which is its operating company
• Starword Lodging Trust owns Westin Hotels and Resorts for $1.4 bil and outbid Hilton for ITT Sheraton
• Patriot and Starwood are ONLY REIT's allowed to manage AND own properties
Rating and Classification of Hotels
• American Hotel and Lodging Association says that U.S. lodgingin industry consists of 48,062 properties with a total of 4.5 million rooms
• Gross volume of business generated from rooms is $139.4 billion
• AAA rates hotels by diamond award, Mobile Travel Guide offers five-star award
• Only 27% of the proerpreites the AAA inspects annually throuhgt US, Canada, and Mexico have earned five-diamond award, the highest award for excellence- five diamond levels have highest service levels, sophisticasion, and offerings
• AAA classifies hotels according to location, price, and service type offered
Introducing Valerie Ferugson

• Past chair of American Lodging Association
• Regional VP of Loews Hotels
• Mangin director of Loews Phildaphia Hotel, regional VP of Loews Hotels
• Believes lodging is a vital force to the national economy
• Past chair of the American Hotel and Lodging Association (AH & LA) board, serves on their Diversity committee
• General manager of the year for Hyatt Hotels Corp
• Top 100 Black Women in Coorporate America by Ebony
• Worked for 23 years with Ritz Carlton, then left for jobs with Loews
• Relates well with employees
Types and locations of Hotels
• City center hotels: Meet needs of traveling public fo biz or lesisure reasons; can be luxury, midscale, biz, suites, economy, or residential, offer rane of accomodations and services; generally have a signature restaurant, lounge, name bar, meeting and con. Rooms, ballroom, and night spot
• Airport hotels: Have high occupancy because of the large number of depatures and arrivals, generally 200 to 600 room size and full service, located conveieintely and less costly
• Freeway hotles and motels: Prominent in 1950s and 1960s, often clustered near freeways
• Casino Hotels: Helping reshape economy, make more money from gaming than from rooms, fatest-growing secotr of the entermatinment field is gaming, trying to turn hotels family friendly, makerted as biz hotels
• Convention hotels: Prpvodie facilities for groups attending/holding conventions, exceed 500 guest rooms, many banquet arareas, high % of double occupancies
• Full Service Hotels: Wide range of facilities, services, and amenenities
• Economy/Budget Hotels: Offers clean, reasonably size,furnished rooms without frills, popular for selling beds vs meals and meetings, represent about 15% of hotel rooms, about 25,000 properties
• Extended Stay Hotels: Cater to guests who stay for an extended period, offer full kitchens and shopping services, breakfast, biz center, rec centers
• All Suite Extended Stay Hotels: Offer approx. 25% more space for the same cost as a regular hotel space used for lounge and kitchenette, over 2,500 properities
• Condotel: Condominum and hotel combined, developers bbuild hotel and sell as condo units, owners pool for use as hotel rooms and suites, hotel operating company gets cut of money as does hotel owner
• Mixed Use Hotel Development: Some new hotels have residences- actual condos- attached to the hotel part of them, can be part of resort development or ubran development
• Bed and Breakfast Inns: Offer alternative lodging experience, accomdoation with the owner rpodvinding clean, attractive accommodation and breakfast, hosts also help guests with local sights and enjoytment, many stlyes that range from $30 to $300 a night, est. 25,000 in the US
• Resort Hotels: Came of age when rail travel was popular, in late 1800s developed for railway clientele, many began as seasonal and are now yearly, guests are "captured cleiente" on property for days at a time
Vacation ownership
• Vacation ownership: A time share,-offesr consumers opp. To purchase fully furnished vacation accomdiations in a variety of forms, such as weekly intervals or points in point-based systems, for % of full ownership
• Increasingg in popularity at a rate of 15% yearly
• For one time pruchse price and payment of yearly matiannance, vacation is owned perpetually or for a pre-deterimined number of years
• About 4.0 % of US houseeholds own vacation ownership
• Pruchases are typically financed through consumer loans of a 5 to 10 yr duration
• Avg. cost ranges from $7,000 for a studio to $15,000 for a bedroom unit
• Vacation clubs offer flexible use of accomodations in multiple locations, "travel and use" product- vacation is bought with points similar to currency to access clubs vacation beenfits
Advantages and Disadvantages of Vacation Ownership
• Home away from home, space and flexibility
• No charges for adtional guests, fully equipped rooms
• RCI- largest hotel ownership exchange
• May be locked into same time frame every year and swapping is difficult
• Matiancnance fees increase over time and must be paid
• If you want out, selling the unit can be difficult
Best, Biggest, Most Unusual Hotel Chains
• Orietnal Hotel in Bangkok, Regent of Hong Kong, Mandarin Oriental of Hong Kong,Connaught of London, largest hotel in the world is Veneitiaian in Vegas with 6,172 rooms
Best Hotel Chains
• Ritz-Carlton and Four Seasons
Most Unusual Hotels
• Treetops Hotel, Ice Hotel (can took over 100 guests), Australia has underwater hotel by Great Barrier Reef, Japan has several unusual hotels including the Capsule Hotel
• There is a hotel built at the top of the Himalayas but 80% of guets suffer from anseau and other alttidue sickness
International Perspective
• Huge global economy with massive trading blocks- Europen Union (EU_, North American Free Trade Agreement (NAFTA), among Canada, US, and Mexcio with 350 mil consimers
• EU has pop. Of over 400 mil in 25 nations, economic union removing national restrcitions on trade and movement of capital and labor
• Expanded NAFTA with Argetnina, Brazil, Chile, and Venezuela may happen, would be the Americas Trading Block
• Hong Kong has a 16.5% corp. tax and 15% income tax, no capital gains or divideneds
• Gren LLodging- sustainable lodgingin is responsible, Fairmont hotels are a leader in this
• Sustianable Lodgin- fast growing, eleimantes waster and reduces environment impact by saving water, reducing electric cconsumption, and other efforts
• Fairmont reduced CO2 emisssions and encouraged reduced emissions
• Fairmont monitors CO2 to help combat climate change
• Fairmont uses renewable sources for electricity consumption as part of efforts, some of their locations use solar power or co-generation 9caputring excess heat),energy-efficient bulbs
• Ligthting is 30 to 40 perent of electrical consumption
• Sustainable design and construction to inciporate and reflect LEED standards
• Approach is holistic
Trends in Hotel Development
• Capacity control: Who controls sale of inventories of hotel rooms, airline seats, auto rentals, and tickets to atttractions, typicaly owners of assets are in control of sale and distribution, but incerasingty control is going to owners of GRS's
• Safety and security
• Assets and capital: Ratioing private capital and funds deployed by govts
• Technology: Exper systems making standardard opp. Procedures available online
• New management
• Globalization
• Consolidation
• Diversification within segments of lodging industry
• Rapid growth in vacation overnrship
• Increase in spas and treaments offered
• Gaming
• Multiuse hotels
• Increasing sustaibability