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Chapter 4 The Hotel Business. After Reading and Studying This Chapter, You Should Be Able to:. Describe hotel ownership and development via franchising and management contracts Classify hotels by type, location, and price Discuss the concept and growth of vacation ownership

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Chapter 4 the hotel business l.jpg

Chapter 4The Hotel Business

After reading and studying this chapter you should be able to l.jpg
After Reading and Studying This Chapter, You Should Be Able to:

  • Describe hotel ownership and development via franchising and management contracts

  • Classify hotels by type, location, and price

  • Discuss the concept and growth of vacation ownership

  • Name some prestigious and unusual hotels

Franchising l.jpg
Franchising to:

  • Allows for a company to expand rapidly

  • Uses other people’s money (franchisee)

  • Franchisor:

    • The company

  • Over 180 franchised hotel brands in North America today

Figure 4 1 franchised hotels among the top 10 largest corporate chains l.jpg
Figure 4-1 to:Franchised Hotels Among the Top 10 Largest Corporate Chains

Figure 4 2 top 10 largest management companies l.jpg
Figure 4-2 to:Top 10 Largest Management Companies

Trends in franchising l.jpg
Trends in Franchising to:

  • Curb appeal (fresh looks)

  • Location near highways, airports, and suburbs

  • Expansion in smaller cities

  • New markets in proximity to golf courses and other attractions

  • Foreign expansion to increase brand awareness

Benefits l.jpg
Benefits to:

  • Set of plans and specifications for building

  • National advertising

  • Centralized reservation system

  • Participation in volume purchasing discounts

  • Listing in the franchisor’s directory

  • Low fee percentage charged by credit card companies

Drawbacks l.jpg
Drawbacks to:

  • Lack of operational power; must conform

  • High fees—both to join and ongoing

  • Central reservations produces 17–26% of reservations

  • Must meet standards as set by franchisor

Benefits and disadvantages for franchisor l.jpg
Benefits and to:Disadvantages for Franchisor

  • Benefits:

    • Increased market share/recognition

    • Up-front fees

  • Disadvantages:

    • Need to be careful in selection of franchisees

    • Difficulty in maintaining control of standards

Management contracts l.jpg
Management Contracts to:

  • The players:

    • Owner—financial responsibility

    • Management company—operational responsibility

  • Fee structure

  • Trend toward expansion of contract provisions

Hotel rating services l.jpg
Hotel Rating Services to:

  • AAA:

    • American Automobile Association

    • Diamond Award

  • Mobil Travel Guide:

    • Five Star Award

Ways to classify hotels l.jpg
Ways to Classify Hotels to:

  • Location

  • Types of services offered

  • Market price levels

Location l.jpg
Location to:

  • Center city hotels

  • Resort hotels

  • Airport hotels

  • Freeway hotels

  • Casino hotels

  • Full service

  • Convention

  • Economy

  • Extended stay

  • Bed and breakfast

Hotels by price segment l.jpg
Hotels by Price Segment to:

  • Budget: $29–$39

  • Economy: $40–$60

  • Mid-price: $60–$100

  • Upscale: $100–$200

  • Luxury: $140–$450

  • All-suites: $95–$175

Resorts l.jpg
Resorts to:

  • Originated because of rail travel

  • Greenbrier in West Virginia:


  • The Halekulani in Wikki, Hawaii:


  • The Ritz Carlton Kapalua in Maui, Hawaii:


More on resorts l.jpg
More on Resorts to:

  • “Captured Clientele”

  • Food service is unique

  • Diversified marketing mix:

    • Children

    • Groups

    • Eco-tourism

Vacation ownership l.jpg
Vacation Ownership to:

  • Fastest-growing segment of travel industry

  • Time share:

    • A condo that is owned

    • Purchaser uses for a specific period of time each year

  • Vacation club:

    • Purchase points that entitle purchaser to use of facility

    • Not real estate based

Vacation ownership cont l.jpg
Vacation Ownership (cont.) to:

  • Estimated that 2 million households own vacation intervals at 3,500 resorts in almost 90 countries

  • Helps ensure purchaser today’s prices for tomorrow

  • Yearly maintenance fees

  • Fixed or floating times

  • Example:


Airport hotels l.jpg
Airport Hotels to:

  • High occupancy due to location

  • Business, group, and leisure travelers

  • Full service

  • 200–600 rooms

  • Convenient location

  • Airport shuttle service

  • Economical pricing

Freeway hotels l.jpg
Freeway Hotels to:

  • Prominent in the 1950s

  • Easy access to roadways

  • Park outside the room entrance

  • Example:

    • Motel 6 (

Casinos l.jpg
Casinos to:

  • Heavy growth segment

  • Low room rates

  • Subsidized food and beverage

  • Themes are popular

  • More than 500 guest rooms

  • Variety of food operations

  • Contains a gaming room

Convention hotels l.jpg
Convention Hotels to:

  • Meet the needs of large groups

  • More than 500 rooms

  • Larger public areas to accommodate greater public demand

  • Banquet areas within and around the hotel

  • High percentage of double occupancy

  • Full-service oriented

Full service hotels l.jpg
Full-Service Hotels to:

  • Typically “business oriented”

  • Multiple food and beverage outlets

  • Meeting and convention services

  • Chain representation:

    • Doubletree (

    • Sheraton (

Economy budget hotels l.jpg
Economy/Budget Hotels to:

  • Represents 12% of total hotel rooms

  • Accomplished 37% of industry growth

  • Average room rate of $48.68

  • However, profit revenue is slow, with an annual rate of 1%

  • Also considered budget hotels

  • Clean rooms

  • Reasonably sized and furnished

  • Continental breakfast

All suite l.jpg
All-Suite to:

  • Cater to guests for an extended period

  • Reduction in rate based on length of stay

  • More space than typical hotel

  • Example:

    • Embassy Suites (

Bed and breakfasts l.jpg
Bed and Breakfasts to:

  • A home away from home

  • Accommodation with an owner who lives on premises

  • Maintains a few rooms

  • Offers breakfast

  • Personable and quick service

Vertical integration l.jpg
Vertical Integration to:

  • Lodging companies meeting the needs of several types of guests based on price, facilities, and amenities

  • Choice hotels that have several chains that meet their diverse clientele:

    • Luxury: Clarion

    • Mid-scale: Quality Inn/Suites

    • Budget: Comfort Inn

    • Economy: Sleep Inn


  • Referral organizations l.jpg
    Referral Organizations to:

    • Numerous independent properties unite to compete with the marketing power of chain operations

    • Similar benefits as franchises, at a lower cost

    • Provide incentives for clients

    The best hotels l.jpg
    The Best Hotels to:

    • Some previous winners:

      • Oriental Hotel in Bangkok, Thailand

      • Regent of Hong Kong

      • Bel-Air of Los Angeles

    Unusual hotels l.jpg
    Unusual Hotels to:

    • Ice Hotel in Swedish Lapland

    • The Treetops Hotel in Kenya

    • Underwater Hotel in Australia

    • Capsule Hotel in Japan

    • The Burj Al Arab in Dubai

    Trends l.jpg

    Capacity control to:

    Safety and security

    Assets and capital


    New management




    Diversification within segments

    Rapid growth in vacation ownership

    Increase in number of spas and treatments offered

    Increase in development of multi-use hotels