Dhm 192 the global hospitality industry


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Dhm 192 the global hospitality industry

  1. 1. CTHCM Management ProgrammesThe Global Hospitality Industry Module Guide: DHM 192 / DHCM 192
  2. 2. The Global Hospitality IndustryDHM 192 / DHCM 192The Official Guide
  3. 3. Boston Business School520 North Bridge Road #03-01Wisma AlsagoffSingapore 188742www.bostonbiz.edu.sgAll rights reserved; no part of this publication may be reproduced, storedin a retrieval system, or transmitted in any form or by any means, electronic,mechanical, photocopying, recording or otherwise without the prior writtenpermission of the Publisher. This guide may not be lent, resold, hired out orotherwise disposed of by way of trade in any form of binding or cover,other than that in which is published, without the prior consent of the Publisher.The Guide is a useful resource for those seeking to gain the internationallyrecognised CTHCM qualifications. The Guide however must be usedtogether with the recommended textbooks.
  4. 4. CONTENTS1. Introduction 12. Overview of the Global Hospitality Industry 43. Hotels 114. Business and Conference Hotels 215. Resort Hotels 296. Budget Hotels, Guest Houses & Small Hotels, 37 Boutique Hotels, Hostels and Halls of Residence7. The Food Service Sector 538. Restaurants and Fast Food 609. The Licensed Trade 8310. Contract Catering & Employee Feeding 9011. Welfare Catering 10812. Information Technology and Yield Management 11613. Travel Catering 12814. Outside catering 13915. Meeting, Incentives, Conference & Exhibition 14516. Appendix 1 - Demographics Classifications 15517. Appendix 2 - Ageing Population in the UK 157
  5. 5. 1Introduction1.1 DescriptionThe hospitality and catering industry is one of the largest industries in the world. Each yearprogressively more meal and bed nights are being purchased. The hospitality and cateringindustry is currently the third largest employer of labour worldwide. This module exploresthe scope of the industry, the various activities contained within it and its position in relationto the world market.1.2 Summary of Learning OutcomesOn completion of this module students will be able to:Investigate a range of Global Hospitality outlets and their contribution to the economy.1. Explain the organisation systems for a range of hospitality operations.2. Explore the different techniques to optimise business performance.3. Describe the influencing factors upon the hospitality industry.1.3 Syllabus Overview of the What is hospitality and catering? industry Commercial sector and catering services sector The organisational structure of the industry. The hospitality The size and scope of the industry. Social and economic industry influences which affect its performance and structure The history of the How the scale of the industry has changed in recent years, hospitality industry changes in fashion, technology and business Internal and external Economic growth/decline, government stability, disposable influences income, socio-economic grouping, cultural influences, eating and drinking habits Business and Hotel development and location, size and scale of sector, markets conference hotels, served, product offering, current issues and future trends. branding Development of global hospitality brands, branding strategies, branding in international marketing, brand development Resort hotels Size and nature of this sector, market, customers and location, product offering, organisation and staffing, current issues and future trends.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 1
  6. 6. Budget hotels, hostels Growth of sector, location characteristics, product and service and halls of residence offering, management and staffing, hostel product, demand for hostel accommodation, marketing hostels, operation of hostels and halls of residence, current issues and future trends. Boutique hotels, guest Size and nature of the sector, product and service offering, houses and small hotels organisation and staffing, USP’s, current issues and future trends. Restaurant and fast Understanding typical operational styles of this sector, sector food issues, operational issues and legal and statutory requirements. The licensed trade Identifying the variety of establishments in the sector, different management structures, types of service offered and targeted customer base, managing procedures specific to licensed retailing including generic and specific operating constraints, legal and statutory requirements. Contract catering, Identifying the sector sub-sectors, products and markets and the employee feeding underlying trends in food service management. Welfare catering Demand for welfare catering, consumers and their needs, nutrition, marketing of welfare catering, operational systems, distribution systems, legislation, current issues and future trends. Travel catering The extent and scope of this sector and applying techniques and skills to optimise management and business performance. Outside Catering Identify the two main types of functions for outside catering operations, issues in outside catering, operational aspects and Current and future trends Yield management, Ensuring maximisation of returns on investment, linking demand global distribution with supply in terms of short and long term revenue and profit systems, computer achievement, rooms inventory management, differential pricing reservation systems structure. Information systems, electronic distribution, supply chain management, channels of distribution, e-procurement and e- distribution Managing Special Different types of events, event planning and event management. Events1.4 AssessmentThis module is accessed via a 2 ½ hour examination set and marked by CTHCM. Theexamination will cover the whole of the assessment criteria in this unit and will take form of10 x 2 mark questions and 5 x 4 mark questions in Section A (40 marks), Section B willcomprise of 5 x 20 mark questions of which students must select and answer any three oftheir choice (60 marks). CTHCM is a London based body and the syllabus content will ingeneral reflect this. Any legislation and codes of practice will reflect the international natureof the industry and will not be country specific. Local centres may find it advantageous toadd local legislation or practise to their teaching but they should be aware that the CTHCMexamination will not assess this local knowledge.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 2
  7. 7. 1.5 Further GuidanceRecommended contact hours will be 45. This module carries 10 credit points.1.6 Recommended Prior LearningThere is no required prior learning however students must have completed formal educationto 18 years old or equivalent. A keen interest in the tourism industry is essential.1.7 ResourcesLearners need to access to library and research facilities which should include some or all ofthe following:• The International Hospitality Industry: Structure, Characteristics and Issues by Bob Brotherton. Published by Butterworth Heinneman. ISBN 0-75065295-0• An Introduction to Hospitality by Peter Jones. Published by Continuum International ISBN 0-8264077-1• Theory of Catering by Kinton, Cesarani and Foskett. Published by Hodder and Stoughton. ISBN 034072512 51.8 Magazines and Journals• The Caterer and hotelkeeper (Reed Business Information)• E hotelier.com• Croner’s Catering Magazine (Croner Publications)• Hospitality (Reed Business Information)• Voice of the BHA (British Hospitality Industry)Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 3
  8. 8. 2Overview of the Global Hospitality IndustryObjectiveThis chapter will give students a precise definition of global hospitality and catering. Thischapter will also highlight the various sectors in the industry such as commercial and cateringservices as well as demonstrate the organisational structure of the hospitality industry. After studying this chapter, students will be able to: • Define the global hospitality industry • Differentiate between commercial and catering services sector • Know the organisational structure of the hospitality industry2.1 Introduction to Global Hospitality IndustryHospitality is made up of two distinct services – the provision of accommodation andsustenance. The former refers to the provision of overnight accommodation for peoplestaying away from home and the latter provision of sustenance for people eating away fromhome or not preparing their own meals. Thus, the key sectors of the international hospitalityindustry are namely hotels, restaurants and contract foodservice.In the UK, the industry has gone through tremendous changes and its transformation is moresignificant over the past two decades. It has been identified that the American influence,concepts and ideas in the 80’s could be the main reasons behind these transformations.Probably a more significant factor related to American influence, has been the growth oflarge chains such as an increase in the number of American fast food chains like McDonalds,Kentucky Fried Chicken and Burger King in the UK while other small home-grown roadsidedining transformed into strong branded restaurants. Hotels chain developed strongly brandedproperties such as Forte’s Travelodge and the Stakis Court while contract foodservice saw theemergence of large companies such as Compass.These large chains transformed the hospitality industry because they introduced moreprofessionalism to the business than ever before in the likes of size, financial and manpowerresources and motivation to deliver higher standards from increased competitionCopyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 4
  9. 9. 2.2 Defining the IndustryThere are no precise criteria of how the hospitality industry can be defined. But generally it isa norm in the United Kingdom to use the Standard Industrial Classification. The StandardIndustrial Classification (SIC) was first introduced into the UK in 1948 for use in classifyingbusiness establishments and other statistical units by the type of economic activity in whichthey are engaged. The classification provides a framework for the collection, tabulation,presentation and analysis of data and its use promotes uniformity. In addition, it can be usedfor administrative purposes and by non-government bodies as a convenient way of classifyingindustrial activities into a common structure.Division Group Class & Description SubclassSECTION HOTELS AND RESTAURANTSH55 HOTELS AND RESTAURANTS 55.1 Hotels 55.11 Hotels and motels, with restaurant 55.11/1 Licensed hotels and motels 55.11/2 Unlicensed hotels and motels 55.12 Hotels and motels, without restaurant 55.2 Camping sites and other provision of short-stay accommodation 55.21 Youth hostels and mountain refuges 55.22 Camping sites, including caravan sites 55.23 Other provision of lodgings not elsewhere classified 55.23/1 Holiday centres and holiday villages 55.23/2 Other self-catering holiday accommodation 55.23/3 This code is no longer in use 55.23/9 Other tourist or short-stay accommodation 55.3 Restaurants 55.30 Restaurants 55.30/1 Licensed restaurants 55.30/2 Unlicensed restaurants and cafes 55.30/3 Take-away food shops 55.30/4 Take-away food mobile stands 55.4 Bars 55.40 Bars 55.40/1 Licensed clubs 55.40/2 Independent public houses and bars3 55.40/3 Tenanted public houses and bars 55.40/4 Managed public houses and bars 55.5 Canteens and catering 55.51 Canteens 55.52 CateringTable 2.1 The Standard Industrial Classification of the Hospitality IndustryCopyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 5
  10. 10. 2.3 The Historical Developments of the Global Hospitality IndustryThe modern hospitality trades represent a continuation that extends through millennia.Despite periods of expansion and decline there was a steady growth of trade betweencommunities and consequently a growth in the number of people travelling. Initiallytraditional values relating to the hospitable treatment of strangers enabled traveller to beaccommodated in private dwellings. As the volume of travellers grew, specialist innsemerged as places where travellers were accommodated and the nature of hospitalityrelationship began to change.In the UK, the growth of hotels and subsequently the modern hospitality industry wasprovided by the railways .In 1902 large companies in UK invested in large comfortable hotelssituated near main railway stations. This instigated the building of other large hotels andresorts in other main cities and along beaches and this further helped transform poor culinarystandards to much sophisticated standards.The improvisation of the automobile could have also contributed to the development of thehospitality industry. People can now travel faster and longer distance on their cars, thusraising the need for smaller hotels along highways. The term motel actually derived frommotor and hotel.Large brewing companies in UK which ran small drinking outlets called ale house,transformed into large Victorian public house. This could have initiated today’s exclusivepubs.2.4 The Size and Scale of the Hospitality IndustryThe hospitality industry is seen as one of the largest and fastest growing industry in theworld. In UK alone the industry has created over 2 million jobs, though some of them may bestructural and seasonal. We can easily say that almost 15% of the world’s work force isemployed under the hospitality industry.2.5 Organisations within the IndustryThere are many organisations linked with the hospitality industry. Following are some of thereasons for the existence of these organisations:• The structure of the industry which continues to have many small individually owned units, in spite of the growth of large companies.• The industry is heterogeneous-split up into many different, identifiable sectors, each with its own specific needs.• Geographically, the industry is widespread, with some types of operation concentrated around population centres, although this is not essential for all types.• The industry is a very large employer and offers a wide range of job opportunities and employment categories.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 6
  11. 11. The HCIMA’s Hospitality Yearbook 2001 has a UK directory totalling above 200 hundreddifferent organizations associated with the industry in one way or another. These includetrade unions, trade associations, advisory bodies, research bodies, government departments,educational and awarding bodies and others. There are broadly two types of organization:voluntary ones for either individual or organizations and government and quasi-governmentagencies, directly relating to the hospitality industry.Following are some of the organisations and the roles it plays:• Institute of Hospitality (Formerly known as The Hotel and Catering International Management Association (HCIMA).• National Association of Licensed House Managers• Hospital Caterers’ Association• Local Authority Caterers’ Association• Catering Managers’ Association• United Kingdom Bartenders’ Guild• United Kingdom Housekeepers’ Association• Craft Guild of Chefs• Court of Master Sommeliers• The Federation of Bakers2.5.1 Institute of HospitalityThis is a professional body that establishes recognition for its members. Institute ofHospitality also provides part-time and full-time courses for its members leading tomanagement qualifications (E.g. CTHCM Diplomas).2.5.2 National Training Organisation (NTO)The Hospitality Training Foundation is a non-governmental agency. It was originally set upas the Hotel and Catering Training Industry Board (HCITB) to ensure a trained workforce,secure an improvement in the quality and efficiency of industrial training and share the costof training more evenly among firms. It operated mainly by training on-the-job instructorswithin the firms themselves, by providing regional training centres to undertake specifictraining of personnel and by offering advice and aid through their staff of training advisors. In1997 has been designated as the National Training Organization (NTO) for the hospitalityindustry.2.5.3 British Travel Authority (BTA)The British Tourist Authority (BTA) is predominantly concerned with the development andpromotion of tourism to Britain.2.5.4 English Tourism Council (ETC)English Tourism Council (ETC) is the strategic body for tourism in England. The ETC’s jobis to take up issues, provide a focus, develop standards, give policy advice, undertakeresearch and offer the latest intelligence about the tourism market to both government andindustry.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 7
  12. 12. 2.6 The Hospitality Operations and StructuresAccommodation and foodservice are essentially different kinds of operation. There are threemain types of operation, namely product processing operations, i.e. out of customer sight;customer processing operations, i.e. with the customers’ involvement; and informationprocessing operations. In reality most activities are a combination of all three albeit indifferent proportions. This concept is useful in understanding the differences betweenaccommodation and foodservice. An accommodation operation is predominantly a customerprocessing operation, with very little product like room servicing and information processingsuch as reservations, check-in and billing. Whereas a foodservice operation is a productprocessing operation like preparing a meal with a significant element of customer processinglike the meal experience and information is processed during the entire operation asingredients are ordered, received, stored and issues and the menu items sold at pre-determined prices.2.7 Trends in Hospitality OperationsA fundamental principle of operations management is to reduce complexity, as this adds tocosts, threatens quality, and creates inefficiency. A clear trend in the hospitality industry hasbeen to develop operations that reduce complexity by reducing the number of systems withinone operation.The first trend is the production line approach. The total system might be looked at as aproduction line. Kitchen and restaurant operations can be turned into batch-process or massproduction systems. These can be achieved through ‘soft’ technologies such as focusing onpeople and systems in operations or ‘hard’ technologies such as automatic-vending machines.This is largely adopted by the foodservice industry. As accommodation is largely a consumerprocessing operation, it is difficult to introduce new technologies into the system.The second trend is decouple, which is the idea of isolating the technical core of the servicebusiness so that efficiency could be improved in the non-contact part of the provision. In thefoodservice industry, many of the recent developments in restaurant chains such as cook chilland sous-vide correspond with this aim.Increased consumer participation is another trend, which involves greater levels of consumerparticipation in the service experience, both in terms of self-selection and self-service. Soapproaches to increasing consumer participation might include family-style or self-help saladbars in restaurants, and automated check-in to budget hotels.The next trend is micro foot-printing. Foodservice operations are being designed muchsmaller so that they can located in ‘host’ environment that until recently were too small forcatering. Large fast-food chain have developed smaller unit sizes such as carts and kiosks andthis means that foodservice can now be carried out in cinemas, petrol-filling stations and soon.The use of the same infrastructure or building for more than one operation. For instance, asingle building on London’s South Bank houses both a Marriott Hotel and a Travel Inn (bothoperated by Whitbread Hotels). Accor have built a hotel in Paris that also has two hotels in it.Many roadside restaurants are also dual use with both a Little Chef and Burger KingOperation in the same unit.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 8
  13. 13. SummaryThis chapter has introduced the hospitality and its main sectors. The ddefinition of hospitalityis the warm welcome and entertainment of strangers and visitors. The main elements of thehospitality industry are the provision of accommodation and sustenance.It has further defined and subdivided the UK industry based on the SIC. Origins andhistorical developments have been explored and as a large industry, there are manyorganizations involved.This chapter also explained hospitality operations and the five trends in design:• Production-lining,• Decouple,• Self-service,• Micro foot-printing and• Dual usage.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 9
  14. 14. Tutorial Questions1. What are the main two elements that make the hospitality industry? (2 marks)2. State any organisation belonging to the public sector and describe how it influences the hospitality industry. (2 marks)3. Give a definition of Hospitality. (2 marks)4. What is the main function of the hospitality and catering industry? (2 marks)5. List four factors that have encouraged growth in the demand for hospitality and catering services. (4 marks)6. What is a decoupled system? (2 marks)7. Give an example of a decoupled system? (2 marks)Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 10
  15. 15. 3HotelsObjectiveThis chapter sets out a broad context for discussing the nature of the hotel sector of theinternational hospitality industry. Fuelled by increases in personal incomes and, inparticular, the availability of mass short- and long-distance travel, international hotelsuppliers have responded vigorously in a number of ways. These changes bring upimportant issues for hotel organisations and managers as they meet new challenges. After studying this chapter, students will be able to: • Recognize the nature and size of the international hotel sector of the international hospitality industry. • Assess differences in regional distribution of international hotel demand and supply. • Discuss the underlying factors affecting the supply of hotels in the international hospitality industry, in particular those relating to capital funding and affiliation. • Analyse the nature of growth and of integration forces in and across the hospitality and tourism sectors. • Provide evidence from a selection of international hotel operators on the nature of products and operations. • Explain possible structural developments in the hotel sector of the international hospitality industry.3.1 Overview: hospitality and hotels in an international contextHotel provision falls within the general context of hospitality, an aspect of human activitywhich has important social dimensions, as well as meeting physiological requirements ofshelter and body comforts. The actual term hotel is originally French and wascommonly applied to commercial hospitality establishments in the mid- to late eighteenthcentury. By 1780, for example, the concept had crossed from France with the founding ofNeros Hotel in London. This and other similar establishments catered for the affluentsectors of the population who were becoming increasingly mobile in their personal andwork lives.From an international perspective it is important to understand that hotel may beconsidered as a culturally bound phenomenon. This is because customs that governhospitality provision and the ways that hospitality providers operate have an in-builtset of assumptions.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 11
  16. 16. For example, in the case of hotels, locations are often chosen carefully to appeal to certaintypes of user; establishments offer particular combinations of meal and drink services toaccompany a range of private and public accommodation facilities; hotel customers andstaff operate to given social codes (e.g. certain behaviours are considered acceptable whileothers are discouraged). Many of these factors centre around- notions of hospitality andhotel keeping current in Europe and latterly the USA during the main epochs of theirdevelopment. However, both within the European/USA or Western hospitality axis, andinternationally, there are many variants to this configuration of service.Thus, different cultures and groups view hospitality in various ways and have a range ofcommercial accommodation establishments. For example, other common terms for commercialaccommodation establishments include: inns, (youth) hostels, guesthouses,pensions, boarding houses, bed and breakfast operations, taverns, lodges, apart-hotels andholiday camps/villages. Thus, while there is a ubiquitous acceptance of conventional hotelproduct/service configurations, there is a wealth of options that serve similar functions tohotels, though they work differently.In addition, commercial accommodation establishments can be treated differently bothlegislatively and administratively. Common variants across countries include themethods by which registration, licensing, classification and grading of commercialaccommodation establishments are carried out, for example, some countries demandcompulsory registration/licensing of all commercial accommodation establishments. Inpractice, national approaches towards the need for central, national systems to exist aswell as the agreement on the mechanics of current systems (classification of accommodationsectors and quality grading measures) show little standardization. This means thatstatistics covering the international nature of the hotel sector will often suffer because theyare drawn from data that are not strictly comparable.A selection of factors that influence the dynamics of tourism, and therefore impact on thehotel sector of the international hospitality industry, is shown in Table 3.1. The table is by nomeans complete, but attempts to illustrate some of the factors that could affect local andinternational business and leisure travel market characteristics at a given destination.Political: Environmental regulations and protection, tax policies, international trade regulations andrestrictions, contract enforcement law, consumer protection, employment laws, governmentorganization/attitude, political stability, competition regulations, safety regulations, travel/visa entryrequirements for international marketsEconomic : Economic growth, Interest rates and monetary policies, Government spending,unemployment policy, taxation, exchange rates, inflation rates, consumer confidence, economicattractive of destination for leisure and business purposesSocial: Income distribution, demographics (population growth rates, age distribution), labour/socialmobility, lifestyle changes, work/career and leisure attitudes, education, health consciousness, livingconditions, social customs and habitsTechnological: Public transport infrastructure, levels of car ownership, international transportfacilities such as airports/seaports, rate of technology transfer, changes in IT/Internet/Mobiletechnology, new inventions and developmentsTable 3.1 PEST FactorsCopyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 12
  17. 17. 3.2 Changing nature and characteristics of international hospitality supplyThe main physical measures of hotel size are units, rooms and bed spaces. The World TourismOrganization states that there were 29.4 million bed spaces in hotels and similar establishmentsworldwide in 1997. For comparative purposes below the figure used refers to hotel units. Thedynamism of the hotel sector internationally is evidenced by a growth of over 25% in thenumber of units in the period 1990-1998, to nearly 15.5 million units. Table 3.2 also shows avariety in growth trends across global regions from the lowest figure of 20.8% to a high of54.1%. Number of Hotels Change from Share ofRegion 1990 1998 1990 to 1998: World 000s; (%) total (%) 1998Africa 333 428 95 (28.5) 2.8Americas(North America) (3652) (4133) (481 (13.2)) (26.8)Total Americas 4308 5164 856 (19.9) 33.5Eastern Asia and Pacific 2399 3487 1088 (45.4) 22.6Western Asia 111 171 60 (54.1) 1.1Europe 4912 5935 1023 (20.8) 38.5Middle East 160 221 61 (38.1) 1.4World 12 223 15 406 3183 (26.0) 100Table 3.2 Regional Growth TrendsAs the table shows the lowest growth rate belongs to Europe, the region with the largest shareof hotel units. To an extent, this reflects the maturity of many traditional hotel markets in theregion. Another area facing elements of market maturity is the large North American market(shown as a sub-region in Table 3.2) which grew by only 13.2% though, given the limitationof the data and the safe assumption that hotels in North America are larger than those in otherparts of the world, it may be inferred that the absolute increase in room capacity is signifi-cant. Other regions, admittedly growing from much smaller bases, record higher growthrates. For example, the number of hotel units in Western Asia grew by 54.1% and in theEastern Asia and Pacific Asia region the number grew by 45.4%. This analysis emphasizesthe regional locus of international hotel development and a reflection of localsociodemographic factors, stage of economic specialisms and stages of development,international communications and specific tourism and hospitality resources.3.3 Influences on the international hotel sectors structureTo understand the nature of supply in the international hotel sector it should be rememberedthat:• It is a sector that has high fixed investment costs.• It is possible to divorce ownership of assets from their operation.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 13
  18. 18. In other words, it is important to understand that supply may be influenced by two importantcomponents: first, the capital structure of the sector that relates to the sources of capital forfunding the buildings or fixed resources of the sector; and, secondly, the type of managementarrangements that are used to operate hotel establishments. This latter arrangement is known asthe types of affiliation arrangements.3.3.1 Finance for Hotel DevelopmentGiven the capital-intensive nature of hotel investment, availability of capital is a key driver inthe development of the international hotels and hotel companies. Historically, the main sourcesof capital for international hotel development are:1. Private finance through personal savings etc.2. Loan capital through banks and other sources, often secured on property assets3. Finance provided by specialist investment companies4. Through stocks and shares (equities) in a company: these can be traded in the stock market5. Government.In some cases there may also be tourism/hotel accommodation financed by local cooperatives— sometimes known as the voluntary or not-for-profit sector — or special interest organizationssuch as conservation/historical/sporting trusts and associations. Major financial arrangements areas illustrated:• Privately financed: invariably these are businesses where ownership and operation come under the direct control of one main party. Many operations may be small units operating autonomously or only partly devoted to tourism/hotel accommodation, e.g. where hospitality/room letting makes up only part of a familys income which could also include earnings from other activities such as agriculture and/or fishing. However, there is no intrinsic reason for these operations to be small. It largely depends on personal access to large amounts of capital. Thus big businesses of either single or multiple hotels may arise when asset and income distribution is such that it allows suffi- cient concentration of wealth. Personal ownership will be favoured when capital markets are relatively less developed. In most cases these types of business draw on indigenous sources of capital including, for example, banks. It is also feasible that international capital is involved if a local business decided to accept a partnership with a foreign national who was willing to invest capital transferred from abroad.• Finance provided through limited liability companies. These are recognized by the term incorporated in the USA, PLC (public limited company) in the UK and `SA in many other countries (Societe Anonyme in French). While privately financed operations have to rely on their own resources (and loans they may be able to secure on their property), limited liability companies can raise capital on the stock market. The availability of this type of capital facilitates the expansion of hotel chains. It is a feature of many economically developed countries, which support large hotel organizations, that the limited liability company often becomes a significant phenomenon.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 14
  19. 19. • Government funding can occur through a number of different means. Governments may own assets outright or take a direct share in their ownership. This form of government involvement might occur in economies where the government wants to plan its economy to grow in very specific ways. On the other hand, governments may assist private sector development through packages of financial incentives to cover building, furnishing and equipment costs. In these cases, the government (or their agency) is likely to impose conditions on trading (e.g. purpose of building, annual period of trading, type of service offered, conditions for resale of business). Direct government involvement in hotels through ownership and operational control became less popular at the end of the last and the beginning of the twenty-first century (e.g. the dissolution of state-owned enterprises with the collapse of communist systems of government in Eastern Europe during the 1990s). However, there are still examples such as the paradores of Spain. Also, when governments wish to encourage the growth of tourism in less developed regions they may well consider direct investment in hotels to provide the necessary commercial stimulus for tourism expansion.Many hotel operations, as stated, find their capital through a mix of the above factors. In asurvey of capital sourcing among PLC/ SA hotel companies, they divide hotel capital into cate-gories: Hotel chain capital where funds come from the stock market and bank debt andHotel capital which encompasses direct equity from financial institutions, propertydevelopment companies, (local) governments, local entrepreneurs, private individuals andsyndicates.3.3.2 Affiliation ModesAnother important structural variable in the hotel sector relates to the form of affiliationhotels operate under. In this context an important feature of the sector has been thedevelopment of hotel chains. Hotel chains may be defined as multi-unit serviceorganizations in which units operate under a system of decision-making permittingcoherent policies and a common strategy through one or more decision-making centres,and where hotel units and corporate functions are linked to add value to each other byownership or contractual relationships’Affiliation modes cover consortium membership, franchising and management contracting anda final variant may be where governments or agencies directly operate hotels. Thecharacteristics of each of these modes are discussed below. Consortium Member.This is a mechanism whereby hotels (or indeed a wider set of tourism organizations) agreeto cooperate in order to gain corporate benefits, which raise revenue and/or cut costs in waysthe business could not achieve on its own. For example, benefits could accrue from jointpurchasing or marketing activities.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 15
  20. 20. Fig 3.1 Small Luxury Hotels Logo Fig 3.2 Preferred Hotels and Resorts LogoThe consortium approach can operate in tandem with other forms of affiliation – i.e. includeindependently/ autonomously owned hotels as well as units which are members of chains. Inaddition to cost efficiency possibilities, consortium membership may appeal to hotels becauseof their locational needs (e.g. marketing a specific destination during periods of slackdemand/overcapacity), market niche/branding purposes (reach new custom due to brandingnational/ international benefits together with joint services such as central reservations and jointrepresentation. Membership is considered on the basis of the fit of the applicant to theobjectives of the consortium and their ability to meet subscription and operationalrequirements (such as maintenance of a given standard/ style of operation).It is also a feature of most consortia that members are represented on the management board ofthe organization. FranchisingIn this situation the hotel owner buys-in a specific style of operation from a parent/owner ofthe operation format. The format parent or franchisor owns the business format, thetrading name and all proprietary aspects of the operation – the formula or design of thebusiness. It may also provide a range of resources and support activities such as centralreservations, training, advertising and technical advice. The operator, a franchisee, is given alicence to operate in the franchisors name, in return for the payment of a royalty fee.A franchising licence may be granted to an operator (or franchisee) for one or severaloperations. A licence which gives an operator exclusive rights in a particular territory iscalled a master franchise. As exchange for the payment of the royalty fee, the franchiseewill receive a standard operating format and the necessary back up to launch and maintain thebusiness. Management ContractingHere asset ownership and operation are separated. This might happen where the hotel owneris, for example, an investment company that has no expertise in hotel management, andenters into an agreement with a hotel operator to run the hotel on their behalf, in return for amanagement fee. In these arrangements there is clearly an expectation that the ownersexpect that the contractor will be able to run the operation more effectively than they couldthemselves.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 16
  21. 21. It is possible that a government, or its agencies, may operate hotels. However, even whengovernments played a more active part in hotel ownership (see above), the operation was oftenput out to management contract and the current decline in direct hotel asset ownership inmany countries has further decreased government operation.The attractions of belonging to a hotel chain largely hinge on the ability to gain economies ofscale. While hotel units may operate more effectively as they grow in size, economies ofscale for hotels largely express themselves at corporate levels of the organization, as well asthrough the enhanced risk of diversification gained by the possession of a geographicallydispersed portfolio of properties. In many cases the popularity of branded operations hasboth pushed established operators to develop and internationalize their chains further,while also providing smaller operators with a clear rationale for giving up an element ofindependence through joining consortium membership or franchising agreements.3.4 Issues in international hotel sector structureThe economics literature indicates that organizations will tend to expand (perhapsthrough takeovers/amalgamations with similar organizations) if there are considerableeconomies of scale to be gained. An example of possible economies, as discussed above,might lie in gaining corporate efficiencies for hotel chains.In addition, pressures for integration may come from other organizations acrossdifferent stages of the supply chain, if there is market or supply-based benefits to begained by working very closely together (e.g. improved relationships with final customers,benefits in cost and quality arising from security of supply). These latter relationshipsare termed vertical links, or vertical integration. In tourism and hospitality they can beillustrated in tie-ups between tour operators, transport providers, hoteliers and so on.Larger firms are more profitable because they both exploit market power (e.g. ability tonegotiate price discounts from suppliers) and because these larger firms are able to gamerefficiencies through scale economies.Reviews of the international hotel sector confirm two main factors: a preponderance in thelarge number of independent/small business units (important in numbers if less so byshare of total industry business) and secondly, an increasing penetration of chain units. Despitethe expansion of branded hotel capacity and the plethora of mergers, acquisitions and take-overs during the last decade, Europes hotel sector remains dominated by individually-ownedproperties or small hotel companies. As a result, it is estimated that no more than 20% ofEuropes hotel capacity is branded. It is clear, therefore, that horizontal integration andhence consolidation in the international hotel sector has been a major feature over therecent past. In establishing important drivers for change in industry or sector structure itshould be borne in mind that many other sectors of tourism, as well as hotels, are characterizedby heavy initial capital costs and low marginal/ variable costs for carrying each additionalcustomer. Further, as reflected in the commentary above, branding and market presenceobtained by growth will, in themselves, confer marketing advantages leading to higherfinancial returns.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 17
  22. 22. In a review of integration strategies in the tourism industry covering the half century to2000, its been concluded much vertical integration has failed, largely due to the differences incapital and organizational/operational characteristics in activities (e.g. the differences betweenproviding hotels to running airlines). Horizontal integration strategies have been moresuccessful, though they indicate that there are important issues of consumer choice thatshould be considered if this is diminished. Based on this work, therefore, it is likely that thegrowth of large hotel chains will be a significant feature of the international hospitalityindustry.3.5 Accommodation Operating SystemsHotel operations is made up of a set of ‘core’ operation systems and a number of ‘ancillary’operating systems relating to the size and grade of provision. The core operating systemsrelate to reservations, reception, housekeeping and billing. The ancillary which may or maynot be offered might include laundry, meals, drinks, business services (telephone, fax, etc.)and leisure services (fitness centres, swimming pool, etc.).3.6 Current trends and future trendsEach sector of the accommodation sector has some specific issues dealt with in each of thefollowing chapters. But of relevance to all sectors are three key issues that have emerged inthe late 1990’s and they are security and assets, technology and disintermediation anddesign.3.6.1 Security and AssetsEvents such as the 911 terrorist attack in 2001, foot and mouth, SARS, train crashes andfloods have an impact on businesses. Clearly there is little the industry can do about suchexternal occurrences but have contingency plans in place for responding to a decline indemand. However, customers expect hotels to be safe places to stay and hotels have toensure they have appropriate security measures to only to safeguard their guests but theiremployees and the property.3.6.2 Technology and disintermediationThe internet and information and communication technologies (ICT) are of majorsignificance to the industry. ICT is changing the channels of distribution for hotels and otherproviders. The rapid growth of the internet and the marketing of rooms directly throughhotel company websites as well s other portals such as lastminute.com has transformed howthese firms do business. By 2002 it is estimated that up to 25% of all hotel reservations willbe from the internet. This mode of booking allows customers to deal directly with the hoteland thereby no longer use intermediaries such as travel agents (hence the termdisintermediation).3.6.3 DesignDesign is replacing location as the most important aspects of hotel management. It issuggested that hotel success was now based less on where the hotel was placed but more onhow it was designed. The reason for this proposition was due to the success of a particulartype of hotel, so-called ‘boutique’ hotels.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 18
  23. 23. SummaryThis analysis of the international hospitality industry has focused on hotels. The chapterhas traced the growth in the size of the sector.In particular it has stressed:1. Growth and regional variations in international hospitality supply.2. The dynamic and changing nature of international hospitality demand.3. A perspective on hotel operations that stresses its capital intensive nature and possible separations between asset ownership and affiliation.4. Benefits of chain as opposed to independent operations, in relation to branding and different affiliation modes.5. Rationale for changes in market structure that alternatively stress horizontal, vertical and diagonal integration.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 19
  24. 24. Tutorial questions1. What is a franchise? (2 marks)2. Identify two types of finance available for hotel development. (2 marks)3. Explain why Europe has a low growth rate for hotels despite having over half the world’s tourism. (4 marks)4. Why are hotels sometimes described as culturally bound? (2 marks)5. What is the main function of hotels? (2 marks)6. Discuss the influences that contribute to deciding on the location of a hotel. (10 marks)7. Name two economic external influences that can have an effect on the hospitality and catering industry.(2 marks)8. Leading hotel groups are seeking to expand their networks across the world. Briefly explain two advantages of being part of a large chain. (2 marks)9. Residents travelling in their own country and foreign visitors generate the demand for hotel accommodation. Examine the influences that have contributed to the development of the hotel in a country of your choice. (10 marks)10. Branded hotels are increasingly dominating the hotel industry. Using your own examples clearly explain how this benefits both the customer and the owner. (20 marks)11. What are the advantages to hotels of joining consortia? (2 marks)12. What would a franchisor be expected to provide? (2 marks)13. Describe the differences between a management contract and a franchise. (4 marks)14. There are a number of influences on the market for hotels at a given location. a) Draw a table showing these, relating these to PEST factors and local and international considerations. (15 marks) b) Use an example to explain the table. (5 marks)Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 20
  25. 25. 4Business and Conference HotelsObjectiveThis chapter will expose students the development and location of business and conferencehotels. Students will also understand the size and scale of this sector, the markets served,products offered, the current issues and future trends. After studying this chapter, students will be able to: • Understand the importance of the development and location of business and conference hotels • Appreciate the size and scale of this sector and its market • Differentiate the products offered by theses hotels • The organisational structure and the trends in these sectors4.1 Introduction to Business and Conference HotelsThe growth of global commerce has created a tremendous demand for business andconference hotels. This has also created another sub industry called MICE (Meetings,Incentives, Conventions and Exhibitions).Since the Second World War, the importance of business travel to the hotel industry has veryoften superseded the significance of recreation travellers. Hotel companies, developing intoever larger chains and groups, have primarily targeted business locations for new sites andproperties. These locations have varied from commercial and market towns, to the majorcities and conurbations, from business parks and industrial estates, to roadside and airportsites.In 2000, there were an estimated 1.3 million conferences in the UK generating sales revenuesof £6 billion. Most of the incomes derived from this sector were non-residential. Thisindicates the boom in this sector. Even in Singapore the government has established a hugeconference cum exhibition hall near the airport despite having similar scale halls in downtown. This indicates these sectors will generate revenue even if visitors are not staying in.Another advantage of this sector is that its demand is not derived by seasons, unlike theleisure industry.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 21
  26. 26. Across all industrial sectors, firms have become much larger organisations in the last 30years, conglomerates covering the globe, with the subsequent need for national andinternational travel, for high quality accommodation and services, and for impressive venuesfor important meetings and conferences. These needs provide the hotel industry with anoutstanding opportunity, and the multi-national hotel chains are in a hugely competitive battleto win the custom of business travellers.4.2 The Development and LocationThe location of business and conference hotels has been determined by the level of economicactivity, the characteristics and the needs of the demand from business.Railway stations were ideal locations for business hotels. Hotels began to advertisethemselves with this new market in mind. Hotel groups still targeted business towns.More recently the motorcar has become the principal means of travel for business executives,as sales of company car fleets blossomed and motorways and dual carriageways afforded fastand convenient routes. Half a century ago many hotels were located mainly for the roadusers. This could also be the reason why the word motel evolved, which means motor andhotel (hotel for motorist). Today hotels and catering companies seek sites near to the majorroads and motorways, attracting the business traveller with their time- saving location, amplecar parking, accommodation, food and drinks.Many of the new firms in electronics and consumer services relocated to new towns andbusiness parks, away from the high rentals of city centres and away from traffic congestionand parking difficulties.We have already noted how the hotel accommodation industry has followed the major formsof transport of the day, from railways to roads, and more recently the sudden development ofair travel has influenced location of hotel businesses. The aeroplane has changed the patternof international trade and travel out of all recognition, travelling by aircraft for both holidaysand business has become an integral part of the modern society. As a result airports havebecome prime centres for hotel development.Airports attract business people for travel, for meetings and conferences, and as the roadsystems to airports have improved, so they become points of convergence and convenience,whether or not the airport itself is to be used. As a result, airport hotels have become a hybridof business and conference centres, with the additional market of airline crews and airlinepassengers also on their doorstep. As a result we can see many airport hotels (hotels locatednear airports) offer many facilities for its business customers.As businesses have reviewed their style and manner of conducting in-company meetings,training courses and seminars, so many have chosen to return to the peace and tranquillity ofthe countryside. Country house hotels have found some new and lucrative business as aresult, and have found the need to create or upgrade their facilities for smaller gatherings ofsenior executives. Such hotels can provide a calm and relaxing ambience in which businesspeople can focus their minds on decisions affecting the future of their company. Suchlocations may also provide the leisure element which many conference organizers now feel isa significant aspect. Hotels with golf courses are an example of this trend, where leisurecentres are as important as the conference room technology.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 22
  27. 27. 4.3 The Size and ScaleStudies conducted a few years back revealed that more business travellers stayed in hotelscompared to leisure travellers. At the same time the number of days a business travellerstayed was much shorter than a leisure traveller. But the most significant turning point is thatthe average spending of a business traveller was much higher than a normal leisure traveller.For example in Briton the average stay of business travellers was 3.4 days on the averagewhereas the leisure traveller stayed at a average of 5.8 days, but the business traveller spent£103.50 per day and £351.90 per visit, whilst the leisure traveller spent only £46.70 per dayand £270.90 per visit.Hilton Hotels, has reported that 70% of its revenue comes from business travellers. Thisinternational revenue from business is still concentrated on the USA and European tradingareas, though Japan and the fast developing economies of the Far East, such as Singapore,Malaysia and Korea, are beginning to be greatly influential.For hotels to maximize their revenues and profits, they need to be in a mutually beneficialarrangement with the key players in this large business and conference sector. In particular,there needs to be a nurturing of key accounts, the multi-national corporations.It is now a truly global industry with a complex scenario of hotel chains, travel agents, travelsuppliers, travel buyers and conference organizers, increasingly linked by the moderntechnology of central reservation systems. These central reservation systems (CRS) havedone much to augment the scale of the international business market. Originally developed bythe world’s major airlines, they have become the focus of all computerization of the travelindustry. Hotel chains and international consortia of hotels are aware that they must be a partof such systems, that their own bookings networks must be linked to one of the major CRS,such as Sabre or Galileo.4.4 The Various Markets ServedThe profile of this market and the needs of the market are subject to rapid change. Worldtrade is increasingly international and competitive, and today’s business people need theservices and products that a modern technological environment demands. However themarket can be segmented into a number of different levels.4.4.1 The Business MarketThe business traveller market is recognized as having particular needs, and bedrooms arebeing upgraded to provide better work areas, and data ports, that is, facilities for lap-topcomputers to be hooked up. There is also an executive lounge with an area for meetings, abusiness secretarial service and complimentary refreshments. Another important feature willbe offering travellers ample free car parking space. Fast check-in and check-out is anothercrucial service. Business hotels offer a variety of room rates. In most business hotels there arespecial corporate rates for company bookings, including a travel agent corporate rate.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 23
  28. 28. 4.4.2 The Conference MarketThe conference market is divided into those on a day-delegate rate, including room hire,lunch and refreshments, and a 24-hour rate, to additionally include breakfast, dinner andaccommodation. The latter is excellent business for the hotel, and ensures good take-up of thefood and beverage outlets. Training courses have proved a particularly useful source ofdemand in an area where firms need to constantly update their employees on changingtechnology, service and production systems, and on management techniques and practices.There are two distinct types of training course delegate, from the course that is held totallywithin the hotel, to the use of the hotel for residential purposes only, as many firms now havetheir own well-equipped training centres.Conference organizers, like the previously mentioned company travel buyers, are theimportant people for hotels to satisfy in this sector of the market. All arrangements must bechecked in great detail, and the hotel must deliver the promise and ensure that the conferencegoes smoothly. Particular issues are transport arrangements, including car parking andtransfers, timing of the catering to be in line with the programme of the conference, andexcellent communication between all the hotel departments concerned, from reception to theconference and banqueting office to the food and beverage team. Message handling is often aproblem for all business people when away from their offices, and hotels must ensure thisissue is dealt with efficiently. Leisure clubs and indoor swimming pools are an importantattraction to conference delegates and business travellers alike, as they take time to unwindand keep fit at the cud of a long day.4.4.3 The Airport MarketAirport hotels also cater for a number of different sections of the airport and airline usersmarket. Accommodating the air crews from various airlines is a regular and lucrative market.Pilots and cabin crew staff need regular stopovers in a nearby hotel between flights. Airlinesagree a room rate with the hotel, and often allocate their staff a daily amount of money to bespent on hotel services, known as a per diem. Air crew business has some special needs, withthe emphasis on basics like efficient laundry service for uniforms, ironing facilities, leisureand health and beauty salons, as well as good transport to and from the terminal buildings,and in some cases their own lounges and recreation areas. They may even require black-outcurtains in their bedrooms so that they may sleep during daylight hours between flights. Also,the hotel must be geared to check-in and check-out at all times of the day or night, dependenton flight times. Another airport connected business which calls for fast flexibility is that ofdelayed flights. Bad weather, technical difficulties or terrorism scares can all lead to airlinesneeding to accommodate large numbers of people at short notice. Airport hotels normallybuild up cooperative relationships with certain airlines, with an agreed rate for food andaccommodation. There needs to be a pool of nearby and willing staff to suddenly organizemeals and rooms for what may be hundreds of customers.The final airport related market is that of in-bound and out-bound passengers. Passengersarriving at airports often require immediate hotel accommodation, particularly after long-haulflights, or such a stay may be part of the original package. Many hotel companies formagreements with airlines and offer special inclusive rates for these independent travellers.Here is another reason for being interfaced with the airlines’ CRS bookings networks.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 24
  29. 29. Airport hotels also try to tap the out-bound market, where passengers need to be in the area ofthe airport the day before the flight. Indeed, many airport hotels have developed ‘Take-off/Touch-down’ packages to include free car parking at the hotel for the duration of the trip,and of course there is the courtesy coach to take clients to and from the airport terminal.4.5 The Various ProductsThe business traveller now needs more in their hotel bedroom than a comfortable bed and awell-lit desk area at which to work. Today’s, business market needs business systems andtechnology at hand in their hotel, such as the fast communication systems of today, like faxmachines and electronic mail. Following are some of the examples offered by hotels:• Two-line telephone• Voice mail• Fax and modem facilities• 110/240 volt converters• Full air-conditioning• Power showers• Personal room safes• Full valet service• 24-hour room service• Bedside controls for lighting and air-conditioningWhilst location, price and levels of service and quality remain essential factors, it is thefeatures like those above that are now being demanded by the top end of the market.The products offered by this sector of the hotel industry are becoming more and moresophisticated, as hotels try to keep pace with technology changes in the office and in the areaof communications. The conference market has been particularly targeted by hotel chains asan area where consistency must be achieved. Marriott has drawn up a seven-point ‘no-riskmeeting plan’ feature, to ensure success. This includes cost quotations, meetings withmanagement, a guarantee of meal breaks and refreshment breaks being served on time, even acomplimentary pager for conference organizers. Hotel groups are agreeing standards forconference table settings, from notepaper to pens and name cards, all with the group’s logoand consistent print-style. There will also be a standard range of conference equipmentavailable, from flip charts to video-monitors and for international venues, simultaneoustranslation facilities.4.6 The Organisational Structure and Its TrendsThe successful operation of any hotel requires the effective coordination of a number ofindividuals and departments. Business and conference hotels need that coordination to beboth effective and efficient: fast yet smooth. The business person is often under pressure andneeds to work quickly, and though courtesy is always necessary, so is speed of response. Themanagement of an organisation needs to be clear as to the needs of their clients, and havesystems and procedures which ensure their satisfaction.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 25
  30. 30. Increasingly business and conference hotel operators are effective forms of serviceorganisation. Integration and communication are the aims of such an approach, and all mustbe wrapped in an appropriate management style and structure. Organisations are becomingless hierarchical with reduced layers of supervisors and managers. The empowerment of hotelemployees which results will only be successful if those empowered are given the trainingand the motivation to enable them to grasp new responsibility and authority for thebetterment of the guest experience. The most expensive reservations system in the world willbe an asset in obtaining customers for a business hotel, but it is the service and the staff thatwill keep those customers, not only for the unit but for the whole group.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 26
  31. 31. SummaryA major market for hotel accommodation is the business travellers. A significant segment ofthis market is conference business whilst airport hotels also have some specificcharacteristics. Hotels serving this market tend to be located in city centres and transport hubssuch as airports, railway stations and motorway interchange. The products and services varyfrom meeting the basic needs of business people at the budget end up to sophisticatedcommunication technologies and meetings facilities in 4 and 5 star properties.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 27
  32. 32. Tutorial Questions1. What are the significant difference between a leisure traveller and a business traveller in terms of spending in a foreign country? (2 marks)2. In your own opinion state what are the ideal products a business hotel must offer its customers. (4 marks)3. Briefly explain how a hotel can benefit from the airport market. (4 marks)4. Explain how a transit hotel may be different to other types of hotel. (2 marks)5. How could an airport hotel have an occupancy level of more than 100%? (2 marks)Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 28
  33. 33. 5Resort HotelsObjectiveThis chapter will expose students the development and location of resort hotels. Students willalso understand the size and scale of these hotels, the markets served, products offered, thecurrent issues and future trends. After studying this chapter, students will be able to: • Understand the importance of the development and location of resort conference hotels • Appreciate the size and scale of this sector and its market • Differentiate the products offered by theses hotels • The organisational structure and the trends in these hotels5.1 Introduction to Resort HotelsThere has been a general misconception that resort means a property by the seaside. That isnot true; generally resort is linked with luxury and recreation. To be a resort, a property mustbe in its own spacious grounds and offer a central basic theme activity, such as achampionship golf course, with a wide range of supporting activities (anything from watersports to hunting), and be exclusive. Resort hotels are positioned as destinations in their ownright. In other words, there is no need for guests to go anywhere outside of the resort itself, itis completely self-contained.There are two main types of resort hotel categories:5.1.1 Country Resort HotelsThese are hotels located outside main towns or in the country with extensive leisure facilities.Although also enjoying peaceful, rural settings, country resort hotels with their extensiveleisure and recreational facilities and profit motivation have a different emphasis compared totraditional country house hotels. They are operated on a large scale, often 100 hotel rooms ormore, and are either converted existing hotels mansions or purpose-built properties. They arecommercially driven, which has meant that they have had to appeal to a wide cliental base,such as business, conference and local markets as well as the leisure market, served by moretraditional country house hotels.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 29
  34. 34. 5.1.2 Holiday Villages and Holiday CentresThese are where the operators, have ploughed heavy investment into the development and up-grading of facilities and accommodation. If using an international definition of ‘resort’ hotels,these resorts would still not be ‘exclusive’ enough despite this investment. The policy ofthese resort hotel operators is to provide a range of accommodation like apartments, villas,chalets and so on as well as full-service hotel rooms.5.2 Size and Nature of the SectorThese types of accommodation provide customers with a place to stay on their secondholiday or short break. Low cost air fares mean that the majority of British leisure travellerstake their main holiday overseas in destinations that have a better climate and lower prices.5.2.1 Country Resort HotelsIt is difficult to gauge accurately the entire market size of this type of resort property.However, the number of corporate hotels is easier to estimate as the majority are operated byhotel companies.• There are 11 Marriott Country Club Hotels across the UK.• De Vere Hotels operates 11 country resort hotels with a golf and leisure.• The Moat House chain has 30 of its 43 hotels.• The Jarvis chain has 18 hotels.• Hilton’s concept is called Living Well, There are 80 such health clubs.5.2.2 Holiday Villages and CentresThe holiday village and centre market was estimated to be worth £539 million in 2000. Twomajor companies dominated this market Scottish & Newcastle (S & N) and Centre Parcs inthe 90’s. There are also an unknown number of independently owned and operated holidayvillages.Both sectors of the resort hotel market sector in the UK are dominated by hotel and leisurecompanies. The results of a 1994 survey of 16 worldwide resort areas showed that large hotelchains such as Hilton, Sheraton and Marriott commanded aggregate market shares of 70% oftotal available rooms. By 2001 Marriott was well established and Four Seasons was planningto open a new resort property in Fleet, Hampshire in 2002. Club Mediterranee remains thelargest European resort operator, with resort hotels in over 100 destinations worldwide. Themost publicized resort development in Europe has been Disneyland Paris which operates5,211 rooms in 6 hotels.5.3 The Market of the Resort HotelsBoth types of resort hotel are more dependent on leisure customers than conventional hotels.In addition, although the core market for revamped holiday centres used to be the C2D socio-economic groups. Resort hotels now tend to be positioned as ‘country clubs’ offering peaceand relaxation as opposed to excitement and entertainment and target more up-marketfamilies with their high standards of service and accommodation.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 30
  35. 35. Increased leisure time, the growth of the short-break market and annual weekend breaksincreased the demand for mid-week break, and a greater interest in sport, health and fitnessactivities have also contributed to the new popularity of holiday centres. Some resorts dividetheir holiday centres like this:• Family favourites; centres targeted at the value-for-money family holiday market.• Chalet hotels; premium accommodation in three and four star chalets.• Reserved for adults; centres aimed at customers over SO years old.• Coast ‘n countryside; centres that provide a base for touring holidays.Whilst business tourism, in the form of conferences and overnight stays, contributesapproximately half of country resort hotels custom, an important additional form of revenueto these hotels is from their sports and leisure facilities. In addition, local membership meansthat they are able to replicate demand to other centres for overnight stays. Resort hotels incountry locations may have relatively small memberships, so that the majority of users arehotel guests.Another market for hotels of this type is the incentive travel market. Incentive is one of thecomponents of MICE. Incentive travel is used by all kinds of employers to reward, theirmanagers/employees for high levels of performance in the workplace. Incentive planners areattracted by the ambience, exclusivity, up-market image and the flexibility offered by theextensive grounds and facilities in these country resort hotels.5.4 Location of Resort HotelsThe most important factors affecting the location of resort hotels will be the requirement forextensive land. For example a golf course requires approximately 120 acres of land.Resort villages are not always unwelcome additions to rural areas. No further than a two hourdrive away, in terms of customers but also a local labour pool. Country resort hotels, due totheir reliance on both business and leisure tourism, require locations that are near tocommercial centres. Also, if they are targeting overseas markets they will need to be close toan airport or a railway station. The ideal location characteristics for a resort property are asfollows:• A total site of at least 130 acres, to include one golf course as a minimum (sometimes an existing course and clubhouse, with fine impressive, extensive grounds, may be deemed suitable);• A large town city within 50 Km (a good commercial centre), with a population of at least 200,000;• A nearby airport or railway;• Close to a community that has some attraction to overseas markets;• Close to local markets for golf, entertainment and conferences;• Fast and easy accessCopyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 31
  36. 36. 5.5 Products of Resort HotelA true resort hotel is designed entirely around its extensive recreation and leisure facilities.They are year-round centres/clubs/villages where innovative and extensive indoor andoutdoor facilities form an integral part of the resort. Some country resort hotel offers thefollowing products and services:• Luxurious accommodation such as five-star bedrooms;• Sport and adventure facilities and activities such as fishing, 18-hole golf course, tennis courts; putting greens; jogging trail; croquet lawn; clay shooting, archery, hot-air ballooning, horse back riding, squash courts;• Recreation facilities such as gardens and swimming pools;• Variety of food and beverage outlets such as restaurants, lounges and cocktail bars;• Health and beauty facilities such as aromatherapy, massages, steam rooms, sun beds, saunas, facials, body treatments and hairdressing;• Fitness facilities such as, gymnasiums, dance studios and fitness studios;• Activities and facilities for children such as crèches and games rooms;• Business facilities such as conference facilitiesThe sports and leisure orientation of resort hotels is therefore a key differentiating featureover conventional hotels.To keep pace with rising consumer expectations, all holiday centres are investing in betterquality accommodation, restaurant facilities and general comfort. Centres now also provide achoice of self-catering or full board catering, a trend that reflects transatlantic resortinfluences. Guests can choose from a range of cafés, bars, and restaurants offering everythingfrom a quick snack to a full meal. The provision of self-catering facilities has been the reasonwhy holiday centre operators have often not been included in the ‘hotel company’ category.5.6 Staffing and OrganisingThe prominence of sports, leisure and recreational facilities in all types of resort hotels meansthat their organisational structures and corresponding staffing requirements are quite differentfrom traditional hotels and holiday centres.A hotel executive may know little about the different operational demands of the sports andleisure areas, therefore, an experienced leisure/recreation manager has an important role toplay in resort hotels, and they will have a better appreciation of customer needs and theconfidence to know that what is being offered meets with expectations. Safety of course isanother important operational aspect which must be managed correctly, and is made morecomplex by the addition of guests involved in recreational and sporting activities.Successful resorts also tend to achieve higher occupancy and higher sales per room than othercategories of hotels. However, corporate country resort hotels are probably the mostexpensive hotels to operate. They average a higher number of employees per room (due totheir high service levels), and thus their payrolls are much higher than for other kinds ofhotels. Holiday centres, in terms of the number of staff employed, are large establishments.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 32
  37. 37. 5.7 Standard Operating ProceduresOnce again, extensive leisure amenities, the scale of operations and the holiday ‘experience’(offered particularly by holiday centres and villages) make some of the operating proceduresfor these hotels distinct. The economics of leisure and sports facilities are similar to those of ahotel. The purpose is to maximize yield through full utilization of capacity. Foraccommodation this means that all rooms/villas are occupied to their optimum capacity,while for sports like golf, all courses are fully booked by complete foursomes spaced atproper ten-minute intervals with the maximum number of playable hours.Excepting changes in the weather for outside activities and the different popularity of certainsports, systems can be installed in order to maximize facility use and manage the capacity ofthese amenities. Corporate country resort hotels, for example, operate different ‘use’categories such as ‘peak’ and ‘off-peak’ membership and computerized booking systems forsports facilities are used by all types of resort hotels.An important operational task in the large capacity holiday centres is the management oflarge peaks in demand, due to their less varied demand and specified arrival and departuredates. Procedures that assist in managing these trading peaks include the use of queuingsystems or in some instances bookable facilities. Services such as laundry are also often bestcontracted out in order to help with the huge demand for linen on change-over days. The pre-payment of short breaks or long holidays also reduces the front-of-house operation (andrelieves the need for a major cashiering function) on arrival and departure days.Many non-accommodation facilities in resort hotels, such as retail outlets, bars andrestaurants, utilize computerized point-of-sale equipment in order to monitor these facilitiesand as a feedback system for recognizing demand trends. These information systems areparticularly significant given the importance of these additional sources of revenue.Country resort hotels tend to use the conventional mix of hotel distribution channels.However, business and conference houses, incentive planners and sales representativesoverseas are particularly important sources of business given their characteristics of demand.Meanwhile, many holiday centres are keen to work with the travel trade; they all operateefficient booking systems and commission structures. Their long and short holiday breaks areeasy packages to sell through this route and there is the possibility for agents to earn extracommission by selling add-on items such as rail travel to and from the holiday centre.However, in reality most holiday villages operate through direct selling only, in other words,its holidays are not available through travel agents. The internet is an increasing source ofsuch reservations.5.8 Current Issues and Future TrendsIn the future, it is likely that UK leisure trends will follow the pattern in the USA. The marketwill then be driven by affluent and active middle-aged and early retired consumers. Resorthotels, particularly corporate country hotels because of their quality of accommodationprovision and high service levels will be the best placed to benefit form this expected growthin active leisure as conventional hotels do not have enough facilities to meet this emergingdemand.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 33
  38. 38. This sector will continue to be constrained in terms of new supply due to the sizeable landrequirements and inclement weather in the UK. Environmental impacts of their operationstoo have to be considered. The key market for the future will be the short break market ratherthan the long holiday market and holiday centres in particular should continue to targetfamilies with children less than 14 years of age, a group of consumers that are set to increasein the UK.Following overseas trend again, there is potential for UK resort hotels to become more mixeddevelopments. In other words, a hotel, villas, condominiums and homes for time-share couldall be developed on the same site. The real estate opportunity could therefore be reallyexploited for those resort operators who own their own properties, extending their expertiseinto different accommodation forms.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 34
  39. 39. SummaryThere has been a general misconception that resort means a property by the seaside. That isnot true; generally resort is linked with luxury and recreation. There are two main types ofresort hotel categories:• Country resort hotels;• Holiday villages and holiday centres;Increased leisure time, the growth of the short-break market and annual weekend breaksincreased the demand for mid-week break, and a greater interest in sport, health and fitnessactivities have also contributed to the new popularity of holiday centres.Another market for hotels of this type is the incentive travel market. Incentive is one of thecomponents of MICE. Incentive travel is used by all kinds of employers to reward, theirmanagers/employees for high levels of performance in the workplace. Incentive planners areattracted by the ambience, exclusivity, up-market image and the flexibility offered by theextensive grounds and facilities in these country resort hotels.The most important factors affecting the location of resort hotels will be the requirement forextensive land. They are year-round centres/clubs/villages where innovative and extensiveindoor and outdoor facilities form an integral part of the resort. The prominence of sports,leisure and recreational facilities in all types of resort hotels means that their organisationalstructures and corresponding staffing requirements are quite different from traditional hotelsand holiday centres.Once again, extensive leisure amenities, the scale of operations and the holiday ‘experience’(offered particularly by holiday centres and villages) make some of the operating proceduresfor these hotels distinct. The economics of leisure and sports facilities are similar to those of ahotel. The purpose is to maximize yield through full utilization of capacity.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 35
  40. 40. Tutorial Questions1. Explain the main requirements for a property to be classified as a resort.2. State the two types of resorts, and their differences.3. State 8 different products of resort hotels.4. State and briefly discuss the ideal characteristics of the location of resort hotels.5. Briefly discuss the differences between holiday village and holiday centres.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 36
  41. 41. 6Budget Hotels, Guest Houses & Small Hotels,Boutique Hotels, Hostels and Halls of ResidenceObjectiveThis chapter will teach students about the growth of budget hotels, boutique hotels, hostels,guest houses and hall of residence. The chapter will also look into the management andstaffing in these sectors, as well as the products and services offered by them. The alsoanalyse the location characteristics, management and staffing procedures as well as the futuretrends of these sectors. After studying this chapter, students will be able to: • Understand the importance of the development and location of these hotels • Properly define budget, small and boutique hotels and appreciate the need for their existence • Appreciate the size and scale of this sector and its market • Differentiate the products offered by theses hotels • The organisational structure and the trends in these hotels6.1 Budget Hotels6.1.1 Introducing and Defining Budget HotelsThe term budget hotel was only introduced less than thirty years ago. Prior to that the termsintroduced to us were guest houses, inns, farmhouses and bed & breakfast provisions. It isbeing argued that budget hotel is not an innovative concept; rather it is a repackaged oldconcept, where a new product is created by systematically stripping out many of the featuresof conventional, full service hotels in order to create a lower service offering. On the otherhand, the rapid growth of budget hotels and the high occupancy levels that they typicallyachieve has been interpreted by some as evidence that a new market has been created. It isargued that a significant slice of budget hotel customers have never previously patronizedother forms of low cost accommodation.Budget hotels offer 2 to 3 star accommodation at 1 to 2 star tariffs. Mainly located on majorroads, they are designed with “no-frills” convenience as a priority. The budget hotel has twoprincipal differences when compared with a standard hotel namely, price and location. Thereductionism approach to facilities and services used by budget hotels has called intoquestion the appropriateness of the term ‘hotel’ when describing that which is left.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 37
  42. 42. Fig 6.1 Hotel Formula 1 LogoConventional hotel guide/classification schemes had difficulty in embracing budget hotelsgiven their level of product/service offering. However, both the AA and RAC haveacknowledged the importance of budget hotels and have altered their classification scheme inways to capture them.AA introduced a new category of hotel called ‘Lodge’. Lodges generally provide a highstandard of accommodation with a wide range of facilities required by the business andleisure user, but often provide none of the traditional hotel ‘services’ expected, and thecatering operation is usually housed in an adjacent block. Lodge accommodation usuallymeans two star standards but for the above reasons, does not qualify for a star rating. It wouldseem that any attempt to define budget hotels using only the tangible features of tariff, facilitylevels and location will be limiting. So much so that the word hotel has to be eliminated andreplaced by the term ‘lodge’.The English Tourist Board (ETB) sought to widen the definition by seeing budget hotels notonly in terms of their facilities but also in terms of what these facilities might mean forcustomers. They stated that such hotels provide a highly standardized and branded product,with simple front and back-of-house operations, offering a standard national room charge(excluding breakfast) with minimal public/common facilities and offering no discounts. Insummary, the main features that these classification schemes have identified as beingpertinent to the budget hotel concept are as follows:• Lower Tariffs Than Industry Norm;• Two/Three Star Standard Of Accommodation;• Limited Facilities And Services;• Aimed At The Transient Market;• Located On Major Road Networks Or In Secondary Urban Locations (Retail Parks);• Catering Is Usually Provided By An Adjacent Food Operation,• Purpose Built In Terms Of Location And Design,• Standardized Operational Procedures And Charges Nationwide;• Branded Network Of Hotels6.1.2 The Market of Budget HotelsIt has been accepted that the budget hotel has two main target markets through which tomaximize its profit potential.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 38
  43. 43. The first and core market is the business traveller. It has been estimated that this targetmarket represents around 60% of all bedroom sales in the budget sector, and dominates theMonday to Thursday market. These transient business travellers are thought to be juniormanagers in large corporations who would rather utilize the high standards of the budgethotel than use a local independent hotel or guest house with whom they have no guarantee ofstandards. These business users was joined by a large number of middle managers who havebeen forced to ‘trade down’ from traditional full-service hotels due to cuts in what is seen asunnecessary expenditure.The second target market is the leisure user. The average consumer now travels morefrequently, further away from home and more independently than ever before. This trend, inconjunction with the increasing number of families who take short break holidays has led tomore demand for affordable, quality accommodation in convenient locations.Room pricing is attractive to the family market with rates charged per room, not per person.This is also ideal for visitors who do not intend to physically stay in their hotel for the totalduration of their visit. These are consumers who are not looking at the hotel as a venue atwhich to spend their time, but as a functional place in which to rest, eat and drink.Budget hotel users appear to be attracted by the fact that they can pay for the combination offacilities that they want to use. Paying full price for full service makes little sense if you haveneither the time, nor the inclination, to use the services provided. Slight alterations to theproduct/service offering can therefore appeal to a particular group of users and segment themfor particular targeting. Segmentation of budget hotels has occurred in order to target certainuser groups more specifically.A number of different types of budget hotel customer have been identified. These include:• Business users down-trading from hotels with higher service levels;• Business users trading up from bed and breakfast style accommodation t standardized accommodation facilities;• Transient UK leisure users who are attracted by low tariffs — particularly for family occupancy;• Overseas leisure users already familiar with the budget hotel concept within their home market;• First time/new users attracted by ‘value for money’, i.e. the ability to pay only for those facilities which they actually use.The future for the budget hotel market appears to be in a growing mode.6.1.3 The Locations of Budget HotelThe correct location is the key to the success of a budget hotel. It must be situated in a placewith easy access. Adequate car parking space is important. Land and planning permissionmust be available at the right price. Budget accommodation cannot be provided,economically, on premium-priced land. Budget hotels are now being built in cities, but oftentheir room tariff is adjusted upwards to reflect this location.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 39
  44. 44. 6.1.4 The Products and Services of Budget HotelsThe AA identifies that lodges must meet the minimum standards for two stars with thefollowing exceptions:• Porterage need not be available;• Foyer or reception area seating to be available, although its existence may be limited;• Writing facilities are optional;• A bar is not required;• Light refreshment and breakfast facilities in neighbouring restaurant (where available) will be acceptable;• Room service is not required;• Telephone need not be provided in-room;• 100% en suite facilities are required.This demonstrates that the budget concept places less emphasis on traditional hotel servicesand offers customers a different atmosphere and product.It is the design of the accommodation provision that holds the key to the success of theoperation. A strict set of standard operating procedures is made possible by regulating thedesign of the bedrooms and reducing the consumer staff interaction. It is this concentrationon the product design and operation at all budget levels that makes the budget brands suitablefor franchise.The budget hotel is designed to maximize revenue-earning potential, whilst maintaining lowbuild and maintenance costs. The design then, is crucial to the profitability of the budgetconcept. Revenue is small in comparison to traditional hotels; therefore costs have to be morekeenly controlled. The maximization of revenue earning space is demonstrated by the roleergonomics plays in the design of budget hotels with few if any public areas, standard roomlayout allowing for easy maintenance and economics of scale to be gained from suppliers.Even though the market is far from saturated, competitive rivalry is already showing in thesense the niche sub-segments of the sector are already emerging. These niche brands arecompeting in this value-for-money market by offering more value-added features or by‘stripping down’ further to an even more utilitarian product in order to offer an even lowertariff.6.1.5 Trends of Budget HotelsBudget hotels are the fastest growing sector in the UK market in the 1990. All the mainplayers are announcing plans for expansion and new players are entering or are expected toenter the UK market in the new future. They are here to stay and prosper for at least the nextten years in their current format. Technological advancements may enable furtherimprovements to be made to increase convenience. Future locations are likely to includefurther development of city centre and airport location and there is the possibility of thembuilt close to hospitals as ‘patient hotels’.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 40