Chapter 7 Sustainability Sustainability is especially ripe for political controversy and opposition because fundamentally it is a new paradigm that represents significant challenges to the status quo. The paradigm of sustainability, with its notions of limitations and carrying capacities confronts dominant paradigms of progress which do not recognize limits to unchecked growth." -- Hazel Henderson, EconomistChapter Review This chapter is perhaps the most important of all and has been left till last to allow theories to be explored and grasped so that this final chapter sees the reader prepared for what must be the underlying focus of all – true sustainability of the business. This chapter will give a brief discussion of sustainability, and then give an insight into its application and importance within the hotel industry. Introduction In 1987 the World Commission on Environment and Development (WCED) introduced the term ‘sustainable development’ and it has been defined as “development which meets the needs of the present without compromising the ability of future generations to meet their own needs.” There have been a number of authors (Holmberg, 1992; Pearce, Barbier, and Markandyn, 1990; Reid, 1995) who have helped with the interpretation of the original WCED report, and have assisted with a wider understanding of what sustainability means in a modern environment. Sustainability is becoming an important focus being directly related to the resources available and how those resources are used today and into the future. The concepts and application of sustainability is an important component in the management of any business. Human kind has reached a point in the history of the world where it needs to rethink where it is going and how it is going to get there. In many respects over the past 350 years, humans have built their hopes and dreams for progress on the concept of unlimited economic growth. This thought has lead to the belief that more production and consumption are good regardless of the impacts of such actions in areas such as the environment and society. However, there is a vital relationship between continual growth and available resources and the future which requires serious consideration. At the heart of the decisions that have guided businesses for the past 350 years is the image of the economy being a closed circular flow. In this the resources are transformed by businesses into products and services that are purchased by consumers. Such a model is isolated from many of the social impacts. Figure 7.1 Closed Economic Flow Business Resources transformed into products and services Consumer Purchases the products and services who demand more Products and services. Within the hospitality industry there are many ways in which to talk about sustainability including such things as recycling napkins, the use of energy saving light bulbs or the use of energy produced in the kitchen to heat a hotel’s water. While these measur ...

1. Chapter 7 Sustainability
Sustainability is especially ripe for political controversy and
opposition because fundamentally it is a new paradigm that
represents significant challenges to the status quo. The
paradigm of sustainability, with its notions of limitations and
carrying capacities confronts dominant paradigms of progress
which do not recognize limits to unchecked growth." --
Hazel Henderson, EconomistChapter Review
This chapter is perhaps the most important of all and has been
left till last to allow theories to be explored and grasped so that
this final chapter sees the reader prepared for what must be the
underlying focus of all – true sustainability of the business.
This chapter will give a brief discussion of sustainability, and
then give an insight into its application and importance within
the hotel industry. Introduction
In 1987 the World Commission on Environment and
Development (WCED) introduced the term ‘sustainable
development’ and it has been defined as “development which
meets the needs of the present without compromising the ability
of future generations to meet their own needs.” There have been
a number of authors (Holmberg, 1992; Pearce, Barbier, and
Markandyn, 1990; Reid, 1995) who have helped with the
interpretation of the original WCED report, and have assisted
with a wider understanding of what sustainability means in a
modern environment.
Sustainability is becoming an important focus being directly
related to the resources available and how those resources are
used today and into the future. The concepts and application of
sustainability is an important component in the management of
any business. Human kind has reached a point in the history of
the world where it needs to rethink where it is going and how it
is going to get there. In many respects over the past 350 years,

2. humans have built their hopes and dreams for progress on the
concept of unlimited economic growth. This thought has lead to
the belief that more production and consumption are good
regardless of the impacts of such actions in areas such as the
environment and society. However, there is a vital relationship
between continual growth and available resources and the future
which requires serious consideration. At the heart of the
decisions that have guided businesses for the past 350 years is
the image of the economy being a closed circular flow. In this
the resources are transformed by businesses into products and
services that are purchased by consumers. Such a model is
isolated from many of the social impacts.
Figure 7.1 Closed Economic Flow
Business
Resources transformed into products and services
Consumer
Purchases the products and services who demand more Products
and services.
Within the hospitality industry there are many ways in which to
talk about sustainability including such things as recycling
napkins, the use of energy saving light bulbs or the use of
energy produced in the kitchen to heat a hotel’s water. While
these measures can assist in some small ways, and are often
more profit motivated than sustainability motivated, a much
wider view is required. In this book the concept of
sustainability flows through and is part of everything that
happens in the hotel. Sustainable management is not about how
managers do things to try and make a business more sustainable,
it is how the managers view the business and the environment in
which the business operates. As management in a hotel think

3. about the day to day operations, long term financial viability,
the employees, other resources all of these need to be evaluated
in a sustainable way. Figure 7.1 illustrates the relationship of
the elements of the model of interrelationship.
Figure 7.1. Elements of the Model of sustainability.
As is illustrated in Figure 7.1 the six areas covered in this book
are illustrated connecting together in an environment of
Economic Success, Social Responsibility and Ecological Health
(Daub Ergenzinger, 2005; Gupta, McDaniel & Herath, 2005). It
is not suggested that these are the only elements that
management need to consider but it does give some indication
of the importance of each element in a connected environment.
Sustainability cannot be considered in isolation, it needs to
involve all the stakeholders of the hotel, this includes the
guests, employees, suppliers, competitors, owners, investors,
local and national councils and governments and so on, those
who have an interest in the continued operation of the hotel.
Each chapter in this book aims towards promoting sustainability
and the long term success of the business, for example, in the
chapter on yield management, it is possible to have maximum
occupancy percentages as a primary goal. Internationally there
are examples of companies who do that, but without
consideration that the many factors which interconnect could
lead to an unsustainable situation. The short term gain may be
high, but unless consideration is given to such areas as the
depreciation of the property, the employees, the facilities and
the impact that high occupancy has on them, this objective may
not be sustainable.
Changes in a market can have a profound impact on a hotel.
External changes to a market which may be uncontrollable by
the individual hotel can have flow-on effect and impact on the
mix of the accommodation available so all providers are

4. influenced. Some of the issues that are important to
sustainability were discussed with the senior management
within the industry during the interviews and especially those in
Spain revealed some very interesting issues. They are included
here as they show examples of the interconnectivity that the
elements have on a hotel.
Rafael de la Fuente, Director Gerente, ESCUELA DE
HOSTELERIA, Malaga, Spain
How has your market changed in relation to sustainable
business practices?
Traditionally we were the upmarket area here – Marbeja always
had the finest hotels, the finest restaurants, they always had the
facilities for the upmarket visit. Already this year we can see
very clearly that type of upmarket customer somehow is slowly
disappearing and hotels are having to replace them with a
different type of customer. There are two negatives here –
number one, you are losing prime profit; number two, where
you were practically alone, you had your competitor in
Mediterranean, Sardinia and the more exclusive resorts in the
French Riviera. Now if you go below in the market you have to
compete with everybody. It is a no-win situation.
As illustrated above, changes in the market are putting all the
hotels in a venerable situation. This is not just a marketing
problem - the market as a whole is changing and that is
affecting the sustainability of the whole market, not simply the
profitability of the hotel, but all the impacts that from the
market change throughout society. The susceptibility of hotels
to external factors is also illustrated from the following extract
about Torremolinos, which shows similarities to what is is
beginning to happen in Marbeja. What is important to reflect on
in both situations is the impact that management decisions have
during such a decline in a market, and if better decision making
at an earlier time may have changed the outcome.

5. Rafael de la Fuente, Director Gerente, ESCUELA DE
HOSTELERIA, Malaga, Spain
What lessons could managers learn about the vulnerability of
the hotel industry?
In the late 50s and early 60s Torremolinos was the most
fashionable place in Spain. Torremolinos had a concentration
of 6 super quality hotels within a fairly small area. They also
had the greatest concentration of fine restaurants, boutiques and
all the amenities geared to a benevolent kind of tourism. At
the same time it became very quickly a very strong tourist
destination in southern Europe - it was like a miracle. At that
time Spain was emerging from a long post war period. The war
had finished 10-15 years before that. It was incredible because
there were non-stop flights from major European cities but very
quickly it was spoiled and destroyed. Then Torremolinos
became a symbol known not for excellence, not as a very high
quality, sophisticated tourist resort but just the opposite -
atrocious buildings all over the place. Some of those hotels of
the old days still exist but a shadow of what they once were.
The clientele in a very short space of time, maybe couple of
years, just moved somewhere else. We already have had an
experience but we don’t seem to have learned from it.
Hotels and the environment in which they operate change
continually throughout the world and clearly some can follow a
ruinous course. In the chapter on yield management there was a
discussion of the impact that price can have on a property’s
continued operation. In the following extract other plays
become more evident, in particular the interaction with there
parties in the sustained operation of the hotel.
Rafael de la Fuente, Director Gerente, ESCUELA DE
HOSTELERIA, Malaga, Spain
Why is a sustainable view important to management?
I see so many times in Canary Islands and Ozores: when you

6. open a hotel and you have a debit in the bank of 50 million
Euros and you have to pay 200 staff every month; there is
social security costs and water, and power, and insurance and so
on and you don’t have a good cash flow or a big solid company
behind you, so you start selling very cheap. Two things happen:
you have to sell every day more cheaply – so you can’t give the
good service and the good food and every day you get less
customers. The bank says you have to pay me interest, or we
sell. So every day you owe them more.
As previously discussed in the chapter on human resource
management, the need for staff is one of the most pressing
issues within hotels. There are many demands placed on
employees that can influence the quality of the hotel, and thus
influence customer satisfaction (Daub Ergenzinger, 2005).
Generally around the world there seems a reluctance of young
people to enter the industry. The following are two excellent
examples of innovative ways to influence the perception of the
industry and give it a better social image.
Christine Collier, Managing Director, CUMBRIA TOURIST
BOARD, Cumbria, England
What actions are being taken to impact on potential staff and
society’s view of the hotel industry?
To try and develop the accommodation business and to
encourage and educate potential recruits we have developed a
proactive approach. The scheme has produced some really good
results. Because some of the research suggested that why our
local children won’t go into the industry, is that they will do a
week’s work experience in a hotel, have a terrible experience
and come out saying that is the last time I will ever darken the
door of a hotel. So we worked with the school children to
produce a work experience pack where the children have a copy
and the hotel has a copy. The hotel doesn’t have to think about
or work hard at it, they just implement it, it is a nice simple

7. checklist approach. The child gets a better quality experience, a
much more varied experience and is much more inclined to want
to come back and enter the industry.
The cyclical changes that impact on hotels flows through all
parts of society. The employment of staff is not simply a factor
of availability, it is also influenced by other opportunities
available to the potential employees.
Rafael de la Fuente, Director Gerente, ESCUELA DE
HOSTELERIA, Malaga, Spain
Are there sufficient staff for the industry locally?
In this area where there is a tremendous building boom going
on, a lot of young people have decided to work in the building
industry because they can get much more money, the hours are
easier and so on. But the amount of money they receive and
their very jobs are not for the long term because when these
buildings are finished, a lot of young workers will try to go
back to the hospitality industry and then the problem will be
their lack of training. For highly skilled and trained people
right now we are being extremely well paid compared to other
professions. Chefs, and waiters are right now being offered
some very good salaries and splendid working conditions.
Summary
There are two distinct but highly related considerations
regarding sustainability. The first is the sustainability for
stakeholders of the successful hotel business. The second is the
over-arching consideration of sustainability for the planet and
the future. This chapter has tried to bring together some of the
factors that influence a hotel’s operations from not only within
but without the hotel. As you review each of the previous
chapters, although they could be considered as discrete and the
management of the issues likewise, as is evident from Figure
7.1, that is too simplistic an approach. For a hotel to operate
successfully it must be managed in a sustainable way so that
move issue does not dominate the decision-making process and

8. a balanced approach is taken. Hotels use large amounts of
energy, natural human resources, and have impacts on society
which need consideration from a holistic view. Discussion of
the issues
1. Evaluate Hotel Location in a sustainable business
environment, identify local and international issues that
influences on such an environment?
2. Evaluate Hotel marketing in a sustainable business
environment, what are the influences on such an environment?
3. Evaluate Hotel Human Resources in a sustainable business
environment, identify local and international issues that
influences on such an environment?
4. Evaluate Hotel Empowerment in a sustainable business
environment, identify local and international issues that
influences on such an environment?
5. Evaluate Hotel Resource Management in a sustainable
business environment, identify local and international issues
that influences on such an environment?
6. Evaluate Hotel Yield Management in a sustainable business
environment, identify local and international issues that
influences on such an environment?
7. Draw up an active plan of how your management style will
influence sustainability.
References
Holmberg, Johan, ed. (1992). Making development sustainable.
Washington, DC: Island Press.
Pearce, D., Barbier, E., & Markandyn, A. (1990). Sustainable
development: Economics and environment in the third world.

9. London: Earthscan.
Reid, D. (1995). Sustainable development: An introductory
guide. London: Earthscan.
Daub, C-H., & Ergenziner, R. (2005). Enabling sustainable
management through a new multi-disciplinary concept of
customer satisfaction. European Journal of Marketing, 39(9/10),
998-1015.
Gupta, A., McDaniel, J.C., & Herath, S.K. (2005). Quality
management in service firms: sustaining structures of total
quality service. Managing Service Quality, 15(4), 389-402.
Social Responsibility
Economic Success Success
Ecological Health
Marketingg
Human Resource
Empowerment

10. Resource
Management
Yield Management
Location
Name _________________________
Problem Set 3
Interest Rates and Security Prices
1. Western Enterprises’ bonds have 10 years remaining to
maturity. Interest is paid annually, the bonds have a $1,000 par
value, and the coupon rate is 9 percent. The bonds have a yield
to maturity of 7 percent. What is the current market price of
these bonds?
2. Calculate the fair present value of the following bonds, all of
which have a 10 percent coupon rate (paid semiannually), face
value of $1,000, and a required rate of return of 8 percent.
a. The bond has 10 years remaining to maturity.
b. The bond has 15 years remaining to maturity.

11. c. The bond has 20 years remaining to maturity.
d. What do your answers to parts (a) through (c) say about the
relation between time to maturity and present values?
3. Compute the stock valuation in the following cases.
a. Financial analysts forecast Safeco Corp. (SAF) growth for
the future to be 10 percent. Safeco's recent dividend was $1.20.
What is the fair present value of Safeco stock if the required
rate of return is 12 percent?
b. A stock you are evaluating just paid an annual dividend of
$2.50. Dividends have grown at a constant rate of 1.5 percent
over the last 15 years and you expect this to continue.
i. If the required rate of return on the stock is 12 percent, what
is its fair present value?
ii. If the required rate of return on the stock is 15 percent, what
should the fair value be four years from today?
c. A stock you are evaluating is expected to experience
supernormal growth in dividends of 8 percent over the next six
years. Following this period, dividends are expected to grow at
a constant rate of 3 percent. The stock paid a dividend of $5.50
last year and the required rate of return on the stock is 10
percent. Calculate the stock's fair present value.
4. A bond has a par value of $1000 and a coupon rate of 8%,
which is paid annually. The maturity of the bond is four years
and the coupon payments are reinvested at the current rates
listed below. The required rate of return is 6 percent. What is
the bonds duration?
Year
Rate
1
4%
2
3%
3
5%
4
6%

12. 5. What is the duration of a five-year, $1,000 Treasury bond
with a 10 percent semiannual coupon selling at par? Selling
with a yield to maturity of 12 percent? 14 percent? What can
you conclude about the relationship between duration and yield
to maturity? Plot the relationship. Why does this relationship
exist?
6. MLK Bank has an asset portfolio that consists of $100
million of 30-year, 8 percent coupon, $1,000 bonds that sell at
par.
a. What will be the bonds' new prices if market yields change
immediately by ± 0.10 percent? What will be the new prices if
market yields change immediately by ± 2.00 percent?
b. The duration of these bonds is 12.1608 years. What are the
predicted bond prices in each of the four cases using the
duration rule? What is the amount of error between the duration
prediction and the actual market values?