Walker

INTRODUCTION TO HOSPITALITY
MANAGEMENT
Fifth Edition
CHAPTER 2
The Hotel Business
Copyright © 2017, 2013, 2009

Introduction to Hospitality
ICD-10-CM/PCS Coding: A Management,
Map to Success
Fifth Edition
by Pearson Education, Inc.
Lorraine
John R. Walker
M. Papazian-Boyce
All Rights Reserved.
Objectives
• After reading and studying this chapter,

you should be able to:
1. Describe hotel ownership and
development via hotel franchising and
management contracts.
2. Explain the diamond rating
classification of hotels.
3. Classify hotels by rating system type,
location, and price.
continued on next slide
Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Objectives
• After reading and studying this chapter,

you should be able to:
4. Discuss the concept and growth of
vacation ownership.
5. Discuss sustainable/green lodging.
6. Identify trends influencing the hotel
business.
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Hotel Development and Ownership
• The lodging industry is a more than

$155 billion industry, which includes
approximately 53,000 properties with
almost 5 million guestrooms.
• Franchising and management contracts
are the two main driving forces in the
development and operation of the hotel
business.
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Franchising
• Franchising in the hospitality industry is

a concept that allows a company to
expand more quickly by using other
people’s money, rather than using its
own financing.

Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Franchising
• Under a franchise agreement, the

company or franchisor grants certain
rights—for example, the right to use
the company’s trademark, operating
procedures, reservation systems,
marketing know-how, purchasing
discounts, etc., for a fee.

Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Franchising
• In return, the franchisee agrees to

operate the restaurant, hotel, etc.,
within guidelines set by the franchisor.
• Franchising was the primary growth
and development strategy of hotels and
motels during the 1960s through the
80s.

Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Franchising
• Challenges to the franchise agreement

include the maintenance of quality
standards and the financial stability of
the franchisee.
• Franchise fees can vary tremendously
and are often negotiated between the
franchisor and the franchisee.
• The average agreement is 3% to 4% of
room revenues.
Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Is There a Franchise in Your
Future?
• It is predicted that more than half of
retail sales in the United States
(including restaurants) will soon be
transacted through franchised units.
• There are jobs working directly for a
franchisor, a franchisee, or you might
buy a franchise yourself.

Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Future?
• Many franchisors own their own units,
which they use to test new operational
or marketing ideas.
• Many of the mistakes that a new
entrepreneur may make have already
been overcome by the franchisor.

Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Future?
• The franchisor might also provide other
support services at little or no cost,
such as marketing and advertising, site
selection, construction plans, assistance
with financing, and so on.
• This assistance leads to a second
reason for buying a franchise, reducing
your risk of failure.

Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Future?
• Franchising does have some
disadvantages.
• Freedom is somewhat restricted.
• You must operate within constraints set
by the franchise agreement and
operational standards.
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Referral Associations
• A marketing consortium or referral

organization is a group of independent
properties that refer businesses to one
another.
• The benefit is that independent hotel
operators are able to compete with
chain operations.

Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Referral Associations
• Referral associations share a

centralized reservation system (CRS)
and a common image, logo, or
advertising slogan.
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Management Contracts
• Management contracts are popular

because there is little or no upfront
financing or equity involved.
• The management contract usually
allows for the hotel company to
manage the property for a period of
years.

Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
• In return, the company receives a fee

determined by a percentage of gross or
net profit.
• These contracts usually state a
percentage of sales or operating profit
at 2 + 2 percent.

Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
• Hotel companies enter into these

contracts because less capital is “tied-
up” in managing a property than is
required in owning them.
• Hotel operators are demanding better
results and reduced fees from these
management companies.
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Real Estate Investment Trusts
(REIT)
• About 300 REITs exist with a combined
market value of $70 billion.
• These companies do not pay corporate
income taxes.
• They are required to distribute 95% of
net income to shareholders.
• A REIT must have 75% of its assets in
real estate.
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Hotel Development
• Hotel ownership and development is

capital intensive.
• A feasibility study is done to assess the
viability of any project.
• This study determines the degree to
which the proposed hotel project will be
financially successful.

Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Hotel Development
• One of the most important documents

is a Summary Operating Statement,
which details revenues and expenses
for a period of time.
• Close to 70% of a hotel’s revenue and
most of the profit comes from the sale
of rooms.
• About 26% of a hotel’s revenue comes
from food and beverage sales.
Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Hotel Development
• There are two views on remodeling

versus new hotel construction:
– Newer properties are not usually
profitable for several years due to high
construction costs and lack of
immediate market share.
– A remodel will have the cost of the
remodel plus higher operating costs for
energy and maintenance.
Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Hotel Development
• Older hotels are often remodeled every

seven years after becoming dated and
losing market share.
• The advantage to older hotels is that
they are recognized in the market.
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
The Economic Impact of Hotels
• Hotels provide direct and indirect

economic impact to their communities.
– Direct
 Sales of rooms mean millions of dollars
into the local community.
– Indirect
 The ripple effect (or Multiplier Effect)
when money spent by tourists and
employees is re-spent in the community.
Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
The Economic Impact of Hotels
• Communities also benefit from the

Transient Occupancy Tax (TOT), or the
bed tax.
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Classification of Hotels and
Lodging Properties
• American Hotel and Lodging Association
(AHLA) indicates there were 52,887
hotels and motels in the U.S. in 2013—
about 4,926,543 rooms
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
The Lodging Industry
• Hotels may be classified several ways

and have one or more affiliations:
– The Smith Travel Research (STR)
system.
– The Forbes Travel Guide Five-Star rating
process.
– The American Automobile Association
(AAA) Five-Diamond rating system.
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Hotel Affiliations
• A hotel may have multiple affiliations:

– Chain.
– Parent company.
– Operation (corporation, franchise, or
independent).
– Management company.
– Owner.

Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Hotel Affiliations
• A hotel may have multiple affiliations:

– Asset management company.
– Membership or marketing group.
– Corporate: owned or managed by a
chain or parent
– Franchise: operated by a third party
– Independent: not affiliated with a
parent or chain

Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Hotel Affiliations
• Hotels may be affiliated with a

management company that operates
the hotel on behalf of another party.
• They may be affiliated with one or more
membership and marketing groups that
provide various benefits.

Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Hotel Affiliations
• They may be classified as quasi-chain—

a cross between a chain and a
marketing group for independent
hotels.
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Hotel Classification by Rating
System: AAA and Forbes
• About 3% of the 59,000 properties
inspected by AAA in North America earn
the 5-diamond award each year.
• In 2013, only 124 lodging properties
received this highest award.
• Forbes uses a 5-star rating system,
with only a few dozen earning its
highest awards.
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
City Center and Suburban Hotels
• City center hotels meet the needs of

business and leisure travelers with a
wide range of accommodations and
services.
• They usually offer a signature
restaurant, lounge, named bar,
meeting and convention rooms, a
ballroom, and often a fancy nightspot.
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Resort Hotels
• Resort hotels were developed with the

growth of rail travel.
• Luxury resort hotels were developed in
the late 1800s to receive the clientele
arriving by rail.
• Some resorts are family friendly.
• Some resorts work to attract
conventions and conferences, which
increase occupancy.
Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Resort Hotels
• Resorts have diversified their marketing

to attract business and sales meetings,
incentive groups, sporting events, spas,
adventure tourism, and ecotourism.
• Expectations are high in a resort, thus
the staff is highly trained to pamper the
guest.

Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Resort Hotels
• In some developing countries, it is

difficult to hire, train, and retain
competent staff.
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Airport Hotels
• In general, airport hotels have a high

occupancy due to the number of
travelers in airports.
• These hotels are usually full-service
with as many as 600 rooms.
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Freeway and Interstate Hotels and
Motels
• Freeway hotels and motels grew quickly
in the 1950s and 60s.
• They provide a convenient place to stay
near freeway exits.
• Smaller in size and rooms, often
operated by independent owners or
franchised.
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Casino Hotels
• The entertainment and recreation

sector is an important economic driver
for U.S. growth.
• One of the fastest growing segments of
the entertainment field is gaming.
• Larger casino hotels attract
conventions.
• There are now more than 150 hotels on
Native American lands.
Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Conference and Convention Hotels
• These hotels have large public areas

and banquet facilities, a business
center, travel desk, airport shuttle, and
many other amenities.
• These hotels have a minimum of 300
rooms and 20,000 square feet of
meeting space.
• They usually have multiple banquet
areas around the grounds.
Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Full-Service Hotels
• These hotels offer a full range of

facilities, services, and amenities for
both business and pleasure travelers.
• Hilton, Hyatt, Four Seasons—just to
name a few.
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Economy/Budget Hotels
• Clean, reasonably sized, and furnished

without “frills.”
• They do not offer meals or meeting
rooms.
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Boutique Hotels
• Hotels with a “different” experience.

• Unique in architecture, style, décor,
etc.
• Twenty-five to 125 rooms with a high
level of service.
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Extended Stay Hotels and All-Suite
Extended Stay Hotels
• Provide accommodations to travelers
staying for more than 5 days.
• Rates depend on the length of stay.
• Guests are usually professionals or
families.
• Offer full kitchens with more space per
room.
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Condotels, Timeshares, and
Mixed-Use Hotels
• A combination of a hotel and a
condominium.
• Sometimes built as a hotel and then
sold as condo units.
• May have other facilities, such as a spa
or sports area.
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Bed and Breakfast Inns
• Offer a wide variety of accommodations

and costs.
• They provide an alternative to
traditional lodging.
• Usually owner occupied with just a few
rooms available for rent.
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Best, Biggest, and Most Unusual
Hotels and Chains
• The largest hotel in the world is the
Izmaillovo in Moscow with 7,500
rooms.
• The MGM in Las Vegas now has 7,372
• The Venetian, also in Las Vegas, has
7,117.
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
The Best Hotel Chains
• The Ritz-Carlton and Four Seasons are

usually rated the highest quality chain
hotels.
• The Ritz-Carlton has received the
Malcolm Baldrige National Quality
Award from the U.S. Department of
Commerce.
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
The Most Unusual Hotels
• The Treetops in Kenya

• The Ice Hotel in Swedish Lapland
• The Underwater Hotel at the Great
Barrier Reef
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Timeshare, Vacation Ownership,
and Fractional Ownership
• Vacation ownership is the fastest
growing segment of the U.S. travel and
tourism industry.
• Vacation clubs are a variation of the
“time share.’’
• Many leading hoteliers are entering into
this market.

Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
• Timeshare ownership lets owners save
on the rising costs of vacation
accommodations over a long-term
period.
• Vacation or fractional ownership is a
form of real estate ownership or right
to use a property in part.

Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
• These properties are often resorts or
urban condos, townhouses, or single-
family homes that are owned by
multiple parties.
• Timeshares also provide the possibility
of world-wide travel by means of
ownership exchange.

Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
• The purchase price is locked in, and
this helps to ensure lower prices in the
future.
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Travel the World Through
Exchange Programs
• International vacation exchange
programs allow owners to trade their
timeshare intervals for vacation time at
facilities around the world.
• These resorts are affiliated with other
exchange companies around the world
and actively market memberships
based on the terms.
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
International Perspective
• The global economy is segmented into

large trading blocks:
– European Economic Community (EEC).
– North American Free Trade Agreement
(NAFTA).
• These agreements reduce limitations on
transfer of goods and labor.
• This leads to increased travel, tourism,
commerce, and industry.
Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Sustainable or Green Lodging
• Developers are more environmentally

conscious because properties can be
developed on a sustainable level and
cost less to operate.
• Energy is continually increasing in cost.
• Lighting can amount to as much as
30% to 40% of electrical consumption.
• Water conservation can reduce waste
and cost.
Copyright © 2017, 2013, 2009
Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce
Trends in Hotel Development and
Management
• Topics include areas such as capacity
control, safety and security,
technology, assets and capital, new
management, globalization,
consolidation, diversification, vacation
ownership, and an increase in spas and
treatments.
Copyright © 2017, 2013, 2009

Map to Success
Fifth Edition
Lorraine
John R. Walker
M. Papazian-Boyce

Walker

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Walker

Uploaded by

Copyright:

Available Formats

INTRODUCTION TO HOSPITALITY

Copyright © 2017, 2013, 2009

• After reading and studying this chapter,

• After reading and studying this chapter,

Copyright © 2017, 2013, 2009

• The lodging industry is a more than

Copyright © 2017, 2013, 2009

• Franchising in the hospitality industry is

continued on next slide

• Under a franchise agreement, the

continued on next slide

• In return, the franchisee agrees to

continued on next slide

• Challenges to the franchise agreement

continued on next slide

continued on next slide

continued on next slide

Copyright © 2017, 2013, 2009

• A marketing consortium or referral

continued on next slide

• Referral associations share a

Copyright © 2017, 2013, 2009

• Management contracts are popular

continued on next slide

• In return, the company receives a fee

continued on next slide

• Hotel companies enter into these

Copyright © 2017, 2013, 2009

Copyright © 2017, 2013, 2009

• Hotel ownership and development is

continued on next slide

• One of the most important documents

• There are two views on remodeling

• Older hotels are often remodeled every

Copyright © 2017, 2013, 2009

• Hotels provide direct and indirect

• Communities also benefit from the

Copyright © 2017, 2013, 2009

Copyright © 2017, 2013, 2009

• Hotels may be classified several ways

Copyright © 2017, 2013, 2009

• A hotel may have multiple affiliations:

continued on next slide

• A hotel may have multiple affiliations:

continued on next slide

• Hotels may be affiliated with a

continued on next slide

• They may be classified as quasi-chain—

Copyright © 2017, 2013, 2009

Copyright © 2017, 2013, 2009

• City center hotels meet the needs of

Copyright © 2017, 2013, 2009

• Resort hotels were developed with the

• Resorts have diversified their marketing

continued on next slide

• In some developing countries, it is

Copyright © 2017, 2013, 2009

• In general, airport hotels have a high

Copyright © 2017, 2013, 2009

Copyright © 2017, 2013, 2009

• The entertainment and recreation

• These hotels have large public areas

• These hotels offer a full range of