Dhm 192 the global hospitality industry

CTHCM
Management
Programmes
The Global Hospitality Industry
Module Guide: DHM 192 / DHCM 192

The Global Hospitality Industry
DHM 192 / DHCM 192

The Official Guide

Boston Business School
520 North Bridge Road #03-01
Wisma Alsagoff
Singapore 188742
www.bostonbiz.edu.sg

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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 internationally
recognised CTHCM qualifications. The Guide however must be used
together with the recommended textbooks.

CONTENTS
1. Introduction 1

2. Overview of the Global Hospitality Industry 4

3. Hotels 11

4. Business and Conference Hotels 21

5. Resort Hotels 29

6. Budget Hotels, Guest Houses & Small Hotels, 37
Boutique Hotels, Hostels and Halls of Residence

7. The Food Service Sector 53

8. Restaurants and Fast Food 60

9. The Licensed Trade 83

10. Contract Catering & Employee Feeding 90

11. Welfare Catering 108

12. Information Technology and Yield Management 116

13. Travel Catering 128

14. Outside catering 139

15. Meeting, Incentives, Conference & Exhibition 145

16. Appendix 1 - Demographics Classifications 155

17. Appendix 2 - Ageing Population in the UK 157

1
Introduction
1.1 Description
The hospitality and catering industry is one of the largest industries in the world. Each year
progressively more meal and bed nights are being purchased. The hospitality and catering
industry is currently the third largest employer of labour worldwide. This module explores
the scope of the industry, the various activities contained within it and its position in relation
to the world market.

1.2 Summary of Learning Outcomes
On 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

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.
Events

1.4 Assessment
This module is accessed via a 2 ½ hour examination set and marked by CTHCM. The
examination will cover the whole of the assessment criteria in this unit and will take form of
10 x 2 mark questions and 5 x 4 mark questions in Section A (40 marks), Section B will
comprise of 5 x 20 mark questions of which students must select and answer any three of
their choice (60 marks). CTHCM is a London based body and the syllabus content will in
general reflect this. Any legislation and codes of practice will reflect the international nature
of the industry and will not be country specific. Local centres may find it advantageous to
add local legislation or practise to their teaching but they should be aware that the CTHCM
examination will not assess this local knowledge.


1.5 Further Guidance
Recommended contact hours will be 45. This module carries 10 credit points.

1.6 Recommended Prior Learning
There is no required prior learning however students must have completed formal education
to 18 years old or equivalent. A keen interest in the tourism industry is essential.

1.7 Resources
Learners need to access to library and research facilities which should include some or all of
the 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 5

1.8 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)


2
Overview of the Global Hospitality Industry
Objective
This chapter will give students a precise definition of global hospitality and catering. This
chapter will also highlight the various sectors in the industry such as commercial and catering
services 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 industry

2.1 Introduction to Global Hospitality Industry
Hospitality is made up of two distinct services – the provision of accommodation and
sustenance. The former refers to the provision of overnight accommodation for people
staying away from home and the latter provision of sustenance for people eating away from
home or not preparing their own meals. Thus, the key sectors of the international hospitality
industry are namely hotels, restaurants and contract foodservice.

In the UK, the industry has gone through tremendous changes and its transformation is more
significant 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 of
large 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 roadside
dining transformed into strong branded restaurants. Hotels chain developed strongly branded
properties such as Forte’s Travelodge and the Stakis Court while contract foodservice saw the
emergence of large companies such as Compass.

These large chains transformed the hospitality industry because they introduced more
professionalism to the business than ever before in the likes of size, financial and manpower
resources and motivation to deliver higher standards from increased competition


2.2 Defining the Industry
There are no precise criteria of how the hospitality industry can be defined. But generally it is
a norm in the United Kingdom to use the Standard Industrial Classification. The Standard
Industrial Classification (SIC) was first introduced into the UK in 1948 for use in classifying
business establishments and other statistical units by the type of economic activity in which
they 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 used
for administrative purposes and by non-government bodies as a convenient way of classifying
industrial activities into a common structure.

Division Group Class & Description
Subclass
SECTION HOTELS AND RESTAURANTS
H
55 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 Catering

Table 2.1 The Standard Industrial Classification of the Hospitality Industry


2.3 The Historical Developments of the Global Hospitality Industry
The modern hospitality trades represent a continuation that extends through millennia.
Despite periods of expansion and decline there was a steady growth of trade between
communities and consequently a growth in the number of people travelling. Initially
traditional values relating to the hospitable treatment of strangers enabled traveller to be
accommodated in private dwellings. As the volume of travellers grew, specialist inns
emerged as places where travellers were accommodated and the nature of hospitality
relationship began to change.

In the UK, the growth of hotels and subsequently the modern hospitality industry was
provided by the railways .In 1902 large companies in UK invested in large comfortable hotels
situated near main railway stations. This instigated the building of other large hotels and
resorts in other main cities and along beaches and this further helped transform poor culinary
standards to much sophisticated standards.

The improvisation of the automobile could have also contributed to the development of the
hospitality industry. People can now travel faster and longer distance on their cars, thus
raising the need for smaller hotels along highways. The term motel actually derived from
motor 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 exclusive
pubs.

2.4 The Size and Scale of the Hospitality Industry
The hospitality industry is seen as one of the largest and fastest growing industry in the
world. In UK alone the industry has created over 2 million jobs, though some of them may be
structural and seasonal. We can easily say that almost 15% of the world’s work force is
employed under the hospitality industry.

2.5 Organisations within the Industry
There are many organisations linked with the hospitality industry. Following are some of the
reasons 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.


The HCIMA’s Hospitality Yearbook 2001 has a UK directory totalling above 200 hundred
different organizations associated with the industry in one way or another. These include
trade 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-government
agencies, 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 Bakers

2.5.1 Institute of Hospitality

This is a professional body that establishes recognition for its members. Institute of
Hospitality also provides part-time and full-time courses for its members leading to
management 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 up
as 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 cost
of training more evenly among firms. It operated mainly by training on-the-job instructors
within the firms themselves, by providing regional training centres to undertake specific
training of personnel and by offering advice and aid through their staff of training advisors. In
1997 has been designated as the National Training Organization (NTO) for the hospitality
industry.

2.5.3 British Travel Authority (BTA)

The British Tourist Authority (BTA) is predominantly concerned with the development and
promotion 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 job
is to take up issues, provide a focus, develop standards, give policy advice, undertake
research and offer the latest intelligence about the tourism market to both government and
industry.


2.6 The Hospitality Operations and Structures
Accommodation and foodservice are essentially different kinds of operation. There are three
main types of operation, namely product processing operations, i.e. out of customer sight;
customer processing operations, i.e. with the customers’ involvement; and information
processing operations. In reality most activities are a combination of all three albeit in
different proportions. This concept is useful in understanding the differences between
accommodation and foodservice. An accommodation operation is predominantly a customer
processing operation, with very little product like room servicing and information processing
such as reservations, check-in and billing. Whereas a foodservice operation is a product
processing operation like preparing a meal with a significant element of customer processing
like the meal experience and information is processed during the entire operation as
ingredients are ordered, received, stored and issues and the menu items sold at pre-
determined prices.

2.7 Trends in Hospitality Operations
A fundamental principle of operations management is to reduce complexity, as this adds to
costs, threatens quality, and creates inefficiency. A clear trend in the hospitality industry has
been to develop operations that reduce complexity by reducing the number of systems within
one operation.

The first trend is the production line approach. The total system might be looked at as a
production line. Kitchen and restaurant operations can be turned into batch-process or mass
production systems. These can be achieved through ‘soft’ technologies such as focusing on
people 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 consumer
processing 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 service
business so that efficiency could be improved in the non-contact part of the provision. In the
foodservice industry, many of the recent developments in restaurant chains such as cook chill
and sous-vide correspond with this aim.

Increased consumer participation is another trend, which involves greater levels of consumer
participation in the service experience, both in terms of self-selection and self-service. So
approaches to increasing consumer participation might include family-style or self-help salad
bars in restaurants, and automated check-in to budget hotels.

The next trend is micro foot-printing. Foodservice operations are being designed much
smaller so that they can located in ‘host’ environment that until recently were too small for
catering. Large fast-food chain have developed smaller unit sizes such as carts and kiosks and
this means that foodservice can now be carried out in cinemas, petrol-filling stations and so
on.

The use of the same infrastructure or building for more than one operation. For instance, a
single building on London’s South Bank houses both a Marriott Hotel and a Travel Inn (both
operated 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 King
Operation in the same unit.


Summary
This chapter has introduced the hospitality and its main sectors. The ddefinition of hospitality
is the warm welcome and entertainment of strangers and visitors. The main elements of the
hospitality industry are the provision of accommodation and sustenance.

It has further defined and subdivided the UK industry based on the SIC. Origins and
historical developments have been explored and as a large industry, there are many
organizations involved.

This chapter also explained hospitality operations and the five trends in design:

• Production-lining,
• Decouple,
• Self-service,
• Micro foot-printing and
• Dual usage.


Tutorial Questions
1. 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)


3
Hotels
Objective
This chapter sets out a broad context for discussing the nature of the hotel sector of the
international hospitality industry. Fuelled by increases in personal incomes and, in
particular, the availability of mass short- and long-distance travel, international hotel
suppliers have responded vigorously in a number of ways. These changes bring up
important issues for hotel organisations and managers as they meet new challenges.


• 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 context
Hotel provision falls within the general context of hospitality, an aspect of human activity
which has important social dimensions, as well as meeting physiological requirements of
shelter and body comforts. The actual term hotel is originally French and was
commonly applied to commercial hospitality establishments in the mid- to late eighteenth
century. By 1780, for example, the concept had crossed from France with the founding of
Nero's Hotel in London. This and other similar establishments catered for the affluent
sectors of the population who were becoming increasingly mobile in their personal and
work lives.

From an international perspective it is important to understand that hotel may be
considered as a culturally bound phenomenon. This is because customs that govern
hospitality provision and the ways that hospitality providers operate have an in-built
set of assumptions.


For example, in the case of hotels, locations are often chosen carefully to appeal to certain
types of user; establishments offer particular combinations of meal and drink services to
accompany a range of private and public accommodation facilities; hotel customers and
staff operate to given social codes (e.g. certain behaviours are considered acceptable while
others are discouraged). Many of these factors centre around- notions of hospitality and
hotel keeping current in Europe and latterly the USA during the main epochs of their
development. However, both within the European/USA or Western hospitality axis, and
internationally, there are many variants to this configuration of service.

Thus, different cultures and groups view hospitality in various ways and have a range of
commercial accommodation establishments. For example, other common terms for commercial
accommodation establishments include: inns, (youth) hostels, guesthouses,
pensions, boarding houses, bed and breakfast operations, taverns, lodges, apart-hotels and
holiday camps/villages. Thus, while there is a ubiquitous acceptance of conventional hotel
product/service configurations, there is a wealth of options that serve similar functions to
hotels, though they work differently.

In addition, commercial accommodation establishments can be treated differently both
legislatively and administratively. Common variants across countries include the
methods by which registration, licensing, classification and grading of commercial
accommodation establishments are carried out, for example, some countries demand
compulsory registration/licensing of all commercial accommodation establishments. In
practice, national approaches towards the need for central, national systems to exist as
well as the agreement on the mechanics of current systems (classification of accommodation
sectors and quality grading measures) show little standardization. This means that
statistics covering the international nature of the hotel sector will often suffer because they
are drawn from data that are not strictly comparable.

A selection of factors that influence the dynamics of tourism, and therefore impact on the
hotel sector of the international hospitality industry, is shown in Table 3.1. The table is by no
means complete, but attempts to illustrate some of the factors that could affect local and
international business and leisure travel market characteristics at a given destination.

Political: Environmental regulations and protection, tax policies, international trade regulations and
restrictions, contract enforcement law, consumer protection, employment laws, government
organization/attitude, political stability, competition regulations, safety regulations, travel/visa entry
requirements for international markets

Economic : Economic growth, Interest rates and monetary policies, Government spending,
unemployment policy, taxation, exchange rates, inflation rates, consumer confidence, economic
attractive of destination for leisure and business purposes

Social: Income distribution, demographics (population growth rates, age distribution), labour/social
mobility, lifestyle changes, work/career and leisure attitudes, education, health consciousness, living
conditions, social customs and habits

Technological: Public transport infrastructure, levels of car ownership, international transport
facilities such as airports/seaports, rate of technology transfer, changes in IT/Internet/Mobile
technology, new inventions and developments
Table 3.1 PEST Factors


3.2 Changing nature and characteristics of international hospitality
supply

The main physical measures of hotel size are units, rooms and bed spaces. The World Tourism
Organization states that there were 29.4 million bed spaces in hotels and similar establishments
worldwide in 1997. For comparative purposes below the figure used refers to hotel units. The
dynamism of the hotel sector internationally is evidenced by a growth of over 25% in the
number of units in the period 1990-1998, to nearly 15.5 million units. Table 3.2 also shows a
variety in growth trends across global regions from the lowest figure of 20.8% to a high of
54.1%.

Number of Hotels Change from Share of
Region 1990 1998 1990 to 1998: World
000s; (%) total (%) 1998
Africa 333 428 95 (28.5) 2.8
Americas
(North America) (3652) (4133) (481 (13.2)) (26.8)
Total Americas 4308 5164 856 (19.9) 33.5
Eastern Asia and Pacific 2399 3487 1088 (45.4) 22.6
Western Asia 111 171 60 (54.1) 1.1
Europe 4912 5935 1023 (20.8) 38.5
Middle East 160 221 61 (38.1) 1.4
World 12 223 15 406 3183 (26.0) 100

Table 3.2 Regional Growth Trends

As the table shows the lowest growth rate belongs to Europe, the region with the largest share
of hotel units. To an extent, this reflects the maturity of many traditional hotel markets in the
region. 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 limitation
of the data and the safe assumption that hotels in North America are larger than those in other
parts 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 growth
rates. For example, the number of hotel units in Western Asia grew by 54.1% and in the
Eastern Asia and Pacific Asia region the number grew by 45.4%. This analysis emphasizes
the regional locus of international hotel development and a reflection of local
sociodemographic factors, stage of economic specialisms and stages of development,
international communications and specific tourism and hospitality resources.

3.3 Influences on the international hotel sector's structure

To understand the nature of supply in the international hotel sector it should be remembered
that:

• It is a sector that has high fixed investment costs.
• It is possible to divorce ownership of assets from their operation.


In other words, it is important to understand that supply may be influenced by two important
components: first, the capital structure of the sector that relates to the sources of capital for
funding the buildings or fixed resources of the sector; and, secondly, the type of management
arrangements that are used to operate hotel establishments. This latter arrangement is known as
the types of affiliation arrangements.

3.3.1 Finance for Hotel Development

Given the capital-intensive nature of hotel investment, availability of capital is a key driver in
the development of the international hotels and hotel companies. Historically, the main sources
of 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 assets
3. Finance provided by specialist investment companies
4. Through stocks and shares (equities) in a company: these can be traded in the stock
market
5. 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 organizations
such as conservation/historical/sporting trusts and associations. Major financial arrangements are
as 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 family's 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.


• 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 a
survey 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 and
Hotel capital which encompasses direct equity from financial institutions, property
development companies, (local) governments, local entrepreneurs, private individuals and
syndicates.

3.3.2 Affiliation Modes

Another important structural variable in the hotel sector relates to the form of affiliation
hotels operate under. In this context an important feature of the sector has been the
development of hotel chains. Hotel chains may be defined as multi-unit service
organizations in which units operate under a system of decision-making permitting
coherent 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 by
ownership or contractual relationships’

Affiliation modes cover consortium membership, franchising and management contracting and
a final variant may be where governments or agencies directly operate hotels. The
characteristics of each of these modes are discussed below.

3.3.2.1 Consortium Member.

This is a mechanism whereby hotels (or indeed a wider set of tourism organizations) agree
to cooperate in order to gain corporate benefits, which raise revenue and/or cut costs in ways
the business could not achieve on its own. For example, benefits could accrue from joint
purchasing or marketing activities.


Fig 3.1 Small Luxury Hotels Logo

Fig 3.2 Preferred Hotels and Resorts Logo

The consortium approach can operate in tandem with other forms of affiliation – i.e. include
independently/ autonomously owned hotels as well as units which are members of chains. In
addition to cost efficiency possibilities, consortium membership may appeal to hotels because
of their locational needs (e.g. marketing a specific destination during periods of slack
demand/overcapacity), market niche/branding purposes (reach new custom due to branding
national/ international benefits together with joint services such as central reservations and joint
representation. Membership is considered on the basis of the fit of the applicant to the
objectives of the consortium and their ability to meet subscription and operational
requirements (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 of
the organization.

3.3.2.2 Franchising

In this situation the hotel owner 'buys-in' a specific style of operation from a parent/owner of
the operation format. The format parent or franchisor owns the business format, the
trading name and all proprietary aspects of the operation – the formula or design of the
business. It may also provide a range of resources and support activities such as central
reservations, training, advertising and technical advice. The operator, a franchisee, is given a
licence to operate in the franchisor's name, in return for the payment of a royalty fee.

A franchising licence may be granted to an operator (or franchisee) for one or several
operations. A licence which gives an operator exclusive rights in a particular territory is
called a master franchise. As exchange for the payment of the royalty fee, the franchisee
will receive a standard operating format and the necessary back up to launch and maintain the
business.

3.3.2.3 Management Contracting

Here asset ownership and operation are separated. This might happen where the hotel owner
is, for example, an investment company that has no expertise in hotel management, and
enters into an agreement with a hotel operator to run the hotel on their behalf, in return for a
management fee. In these arrangements there is clearly an expectation that the owners
expect that the contractor will be able to run the operation more effectively than they could
themselves.


It is possible that a government, or its agencies, may operate hotels. However, even when
governments played a more active part in hotel ownership (see above), the operation was often
put out to management contract and the current decline in direct hotel asset ownership in
many countries has further decreased government operation.

The attractions of belonging to a hotel chain largely hinge on the ability to gain economies of
scale. While hotel units may operate more effectively as they grow in size, economies of
scale for hotels largely express themselves at corporate levels of the organization, as well as
through the enhanced risk of diversification gained by the possession of a geographically
dispersed portfolio of properties. In many cases the popularity of branded operations has
both pushed established operators to develop and internationalize their chains further,
while also providing smaller operators with a clear rationale for giving up an element of
independence through joining consortium membership or franchising agreements.

3.4 Issues in international hotel sector structure
The economics literature indicates that organizations will tend to expand (perhaps
through takeovers/amalgamations with similar organizations) if there are considerable
economies 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 across
different stages of the supply chain, if there is market or supply-based benefits to be
gained by working very closely together (e.g. improved relationships with final customers,
benefits in cost and quality arising from security of supply). These latter relationships
are termed vertical links, or vertical integration. In tourism and hospitality they can be
illustrated 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 to
negotiate price discounts from suppliers) and because these larger firms are able to gamer
efficiencies through scale economies.

Reviews of the international hotel sector confirm two main factors: a preponderance in the
large number of independent/small business units (important in numbers if less so by
share of total industry business) and secondly, an increasing penetration of chain units. Despite
the expansion of branded hotel capacity and the plethora of mergers, acquisitions and take-
overs during the last decade, Europe's hotel sector remains dominated by individually-owned
properties or small hotel companies. As a result, it is estimated that no more than 20% of
Europe's hotel capacity is branded. It is clear, therefore, that horizontal integration and
hence consolidation in the international hotel sector has been a major feature over the
recent past. In establishing important drivers for change in industry or sector structure it
should be borne in mind that many other sectors of tourism, as well as hotels, are characterized
by heavy initial capital costs and low marginal/ variable costs for carrying each additional
customer. Further, as reflected in the commentary above, branding and market presence
obtained by growth will, in themselves, confer marketing advantages leading to higher
financial returns.


In a review of integration strategies in the tourism industry covering the half century to
2000, its been concluded much vertical integration has failed, largely due to the differences in
capital and organizational/operational characteristics in activities (e.g. the differences between
providing hotels to running airlines). Horizontal integration strategies have been more
successful, though they indicate that there are important issues of consumer choice that
should be considered if this is diminished. Based on this work, therefore, it is likely that the
growth of large hotel chains will be a significant feature of the international hospitality
industry.

3.5 Accommodation Operating Systems
Hotel 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 systems
relate to reservations, reception, housekeeping and billing. The ancillary which may or may
not 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 trends
Each sector of the accommodation sector has some specific issues dealt with in each of the
following chapters. But of relevance to all sectors are three key issues that have emerged in
the late 1990’s and they are security and assets, technology and disintermediation and
design.

3.6.1 Security and Assets

Events such as the 911 terrorist attack in 2001, foot and mouth, SARS, train crashes and
floods have an impact on businesses. Clearly there is little the industry can do about such
external occurrences but have contingency plans in place for responding to a decline in
demand. However, customers expect hotels to be safe places to stay and hotels have to
ensure they have appropriate security measures to only to safeguard their guests but their
employees and the property.

3.6.2 Technology and disintermediation

The internet and information and communication technologies (ICT) are of major
significance to the industry. ICT is changing the channels of distribution for hotels and other
providers. The rapid growth of the internet and the marketing of rooms directly through
hotel company websites as well s other portals such as lastminute.com has transformed how
these firms do business. By 2002 it is estimated that up to 25% of all hotel reservations will
be from the internet. This mode of booking allows customers to deal directly with the hotel
and thereby no longer use intermediaries such as travel agents (hence the term
disintermediation).

3.6.3 Design

Design is replacing location as the most important aspects of hotel management. It is
suggested that hotel success was now based less on where the hotel was placed but more on
how it was designed. The reason for this proposition was due to the success of a particular
type of hotel, so-called ‘boutique’ hotels.


Summary
This analysis of the international hospitality industry has focused on hotels. The chapter
has 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.


Tutorial questions
1. 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)


4
Business and Conference Hotels
Objective
This chapter will expose students the development and location of business and conference
hotels. Students will also understand the size and scale of this sector, the markets served,
products offered, the current issues and future trends.


• 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 sectors

4.1 Introduction to Business and Conference Hotels
The growth of global commerce has created a tremendous demand for business and
conference 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 very
often superseded the significance of recreation travellers. Hotel companies, developing into
ever larger chains and groups, have primarily targeted business locations for new sites and
properties. These locations have varied from commercial and market towns, to the major
cities and conurbations, from business parks and industrial estates, to roadside and airport
sites.

In 2000, there were an estimated 1.3 million conferences in the UK generating sales revenues
of £6 billion. Most of the incomes derived from this sector were non-residential. This
indicates the boom in this sector. Even in Singapore the government has established a huge
conference cum exhibition hall near the airport despite having similar scale halls in down
town. 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 the
leisure industry.


Across all industrial sectors, firms have become much larger organisations in the last 30
years, conglomerates covering the globe, with the subsequent need for national and
international travel, for high quality accommodation and services, and for impressive venues
for important meetings and conferences. These needs provide the hotel industry with an
outstanding opportunity, and the multi-national hotel chains are in a hugely competitive battle
to win the custom of business travellers.

4.2 The Development and Location
The location of business and conference hotels has been determined by the level of economic
activity, the characteristics and the needs of the demand from business.

Railway stations were ideal locations for business hotels. Hotels began to advertise
themselves 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 fast
and convenient routes. Half a century ago many hotels were located mainly for the road
users. This could also be the reason why the word motel evolved, which means motor and
hotel (hotel for motorist). Today hotels and catering companies seek sites near to the major
roads and motorways, attracting the business traveller with their time- saving location, ample
car parking, accommodation, food and drinks.

Many of the new firms in electronics and consumer services relocated to new towns and
business parks, away from the high rentals of city centres and away from traffic congestion
and parking difficulties.

We have already noted how the hotel accommodation industry has followed the major forms
of transport of the day, from railways to roads, and more recently the sudden development of
air travel has influenced location of hotel businesses. The aeroplane has changed the pattern
of international trade and travel out of all recognition, travelling by aircraft for both holidays
and business has become an integral part of the modern society. As a result airports have
become prime centres for hotel development.

Airports attract business people for travel, for meetings and conferences, and as the road
systems 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 hybrid
of business and conference centres, with the additional market of airline crews and airline
passengers also on their doorstep. As a result we can see many airport hotels (hotels located
near 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 of
the countryside. Country house hotels have found some new and lucrative business as a
result, and have found the need to create or upgrade their facilities for smaller gatherings of
senior executives. Such hotels can provide a calm and relaxing ambience in which business
people can focus their minds on decisions affecting the future of their company. Such
locations may also provide the leisure element which many conference organizers now feel is
a significant aspect. Hotels with golf courses are an example of this trend, where leisure
centres are as important as the conference room technology.


4.3 The Size and Scale
Studies conducted a few years back revealed that more business travellers stayed in hotels
compared to leisure travellers. At the same time the number of days a business traveller
stayed was much shorter than a leisure traveller. But the most significant turning point is that
the 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 average
whereas 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 day
and £270.90 per visit.

Hilton Hotels, has reported that 70% of its revenue comes from business travellers. This
international revenue from business is still concentrated on the USA and European trading
areas, 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 beneficial
arrangement 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, travel
suppliers, travel buyers and conference organizers, increasingly linked by the modern
technology of central reservation systems. These central reservation systems (CRS) have
done much to augment the scale of the international business market. Originally developed by
the world’s major airlines, they have become the focus of all computerization of the travel
industry. Hotel chains and international consortia of hotels are aware that they must be a part
of 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 Served
The profile of this market and the needs of the market are subject to rapid change. World
trade is increasingly international and competitive, and today’s business people need the
services and products that a modern technological environment demands. However the
market can be segmented into a number of different levels.

4.4.1 The Business Market

The business traveller market is recognized as having particular needs, and bedrooms are
being upgraded to provide better work areas, and data ports, that is, facilities for lap-top
computers to be hooked up. There is also an executive lounge with an area for meetings, a
business secretarial service and complimentary refreshments. Another important feature will
be offering travellers ample free car parking space. Fast check-in and check-out is another
crucial service. Business hotels offer a variety of room rates. In most business hotels there are
special corporate rates for company bookings, including a travel agent corporate rate.


4.4.2 The Conference Market

The 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 and
accommodation. The latter is excellent business for the hotel, and ensures good take-up of the
food and beverage outlets. Training courses have proved a particularly useful source of
demand in an area where firms need to constantly update their employees on changing
technology, 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 totally
within the hotel, to the use of the hotel for residential purposes only, as many firms now have
their own well-equipped training centres.

Conference organizers, like the previously mentioned company travel buyers, are the
important people for hotels to satisfy in this sector of the market. All arrangements must be
checked in great detail, and the hotel must deliver the promise and ensure that the conference
goes smoothly. Particular issues are transport arrangements, including car parking and
transfers, timing of the catering to be in line with the programme of the conference, and
excellent communication between all the hotel departments concerned, from reception to the
conference and banqueting office to the food and beverage team. Message handling is often a
problem for all business people when away from their offices, and hotels must ensure this
issue is dealt with efficiently. Leisure clubs and indoor swimming pools are an important
attraction to conference delegates and business travellers alike, as they take time to unwind
and keep fit at the cud of a long day.

4.4.3 The Airport Market

Airport hotels also cater for a number of different sections of the airport and airline users
market. 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. Airlines
agree a room rate with the hotel, and often allocate their staff a daily amount of money to be
spent on hotel services, known as a per diem. Air crew business has some special needs, with
the emphasis on basics like efficient laundry service for uniforms, ironing facilities, leisure
and 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-out
curtains 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, dependent
on flight times. Another airport connected business which calls for fast flexibility is that of
delayed flights. Bad weather, technical difficulties or terrorism scares can all lead to airlines
needing to accommodate large numbers of people at short notice. Airport hotels normally
build up cooperative relationships with certain airlines, with an agreed rate for food and
accommodation. There needs to be a pool of nearby and willing staff to suddenly organize
meals and rooms for what may be hundreds of customers.

The final airport related market is that of in-bound and out-bound passengers. Passengers
arriving at airports often require immediate hotel accommodation, particularly after long-haul
flights, or such a stay may be part of the original package. Many hotel companies form
agreements with airlines and offer special inclusive rates for these independent travellers.
Here is another reason for being interfaced with the airlines’ CRS bookings networks.


Airport hotels also try to tap the out-bound market, where passengers need to be in the area of
the 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 Products
The business traveller now needs more in their hotel bedroom than a comfortable bed and a
well-lit desk area at which to work. Today’s, business market needs business systems and
technology at hand in their hotel, such as the fast communication systems of today, like fax
machines 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-conditioning

Whilst location, price and levels of service and quality remain essential factors, it is the
features 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 more
sophisticated, as hotels try to keep pace with technology changes in the office and in the area
of communications. The conference market has been particularly targeted by hotel chains as
an area where consistency must be achieved. Marriott has drawn up a seven-point ‘no-risk
meeting plan’ feature, to ensure success. This includes cost quotations, meetings with
management, a guarantee of meal breaks and refreshment breaks being served on time, even a
complimentary pager for conference organizers. Hotel groups are agreeing standards for
conference table settings, from notepaper to pens and name cards, all with the group’s logo
and consistent print-style. There will also be a standard range of conference equipment
available, from flip charts to video-monitors and for international venues, simultaneous
translation facilities.

4.6 The Organisational Structure and Its Trends
The successful operation of any hotel requires the effective coordination of a number of
individuals and departments. Business and conference hotels need that coordination to be
both effective and efficient: fast yet smooth. The business person is often under pressure and
needs to work quickly, and though courtesy is always necessary, so is speed of response. The
management of an organisation needs to be clear as to the needs of their clients, and have
systems and procedures which ensure their satisfaction.


Increasingly business and conference hotel operators are effective forms of service
organisation. Integration and communication are the aims of such an approach, and all must
be wrapped in an appropriate management style and structure. Organisations are becoming
less hierarchical with reduced layers of supervisors and managers. The empowerment of hotel
employees which results will only be successful if those empowered are given the training
and the motivation to enable them to grasp new responsibility and authority for the
betterment of the guest experience. The most expensive reservations system in the world will
be an asset in obtaining customers for a business hotel, but it is the service and the staff that
will keep those customers, not only for the unit but for the whole group.


Summary
A major market for hotel accommodation is the business travellers. A significant segment of
this market is conference business whilst airport hotels also have some specific
characteristics. Hotels serving this market tend to be located in city centres and transport hubs
such as airports, railway stations and motorway interchange. The products and services vary
from meeting the basic needs of business people at the budget end up to sophisticated
communication technologies and meetings facilities in 4 and 5 star properties.


Tutorial Questions
1. 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)


5
Resort Hotels
Objective
This chapter will expose students the development and location of resort hotels. Students will
also understand the size and scale of these hotels, the markets served, products offered, the
current issues and future trends.


• Understand the importance of the development and location of resort conference
hotels
• The organisational structure and the trends in these hotels

5.1 Introduction to Resort Hotels
There has been a general misconception that resort means a property by the seaside. That is
not true; generally resort is linked with luxury and recreation. To be a resort, a property must
be in its own spacious grounds and offer a central basic theme activity, such as a
championship golf course, with a wide range of supporting activities (anything from water
sports to hunting), and be exclusive. Resort hotels are positioned as destinations in their own
right. In other words, there is no need for guests to go anywhere outside of the resort itself, it
is completely self-contained.

There are two main types of resort hotel categories:

5.1.1 Country Resort Hotels

These 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 extensive
leisure and recreational facilities and profit motivation have a different emphasis compared to
traditional country house hotels. They are operated on a large scale, often 100 hotel rooms or
more, and are either converted existing hotels mansions or purpose-built properties. They are
commercially 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 more
traditional country house hotels.


5.1.2 Holiday Villages and Holiday Centres

These 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 of
these 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 Sector
These types of accommodation provide customers with a place to stay on their second
holiday or short break. Low cost air fares mean that the majority of British leisure travellers
take their main holiday overseas in destinations that have a better climate and lower prices.

5.2.1 Country Resort Hotels

It 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 by
hotel 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 Centres

The holiday village and centre market was estimated to be worth £539 million in 2000. Two
major companies dominated this market Scottish & Newcastle (S & N) and Centre Parcs in
the 90’s. There are also an unknown number of independently owned and operated holiday
villages.

Both sectors of the resort hotel market sector in the UK are dominated by hotel and leisure
companies. The results of a 1994 survey of 16 worldwide resort areas showed that large hotel
chains such as Hilton, Sheraton and Marriott commanded aggregate market shares of 70% of
total available rooms. By 2001 Marriott was well established and Four Seasons was planning
to open a new resort property in Fleet, Hampshire in 2002. Club Mediterranee remains the
largest European resort operator, with resort hotels in over 100 destinations worldwide. The
most publicized resort development in Europe has been Disneyland Paris which operates
5,211 rooms in 6 hotels.

5.3 The Market of the Resort Hotels
Both 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 peace
and relaxation as opposed to excitement and entertainment and target more up-market
families with their high standards of service and accommodation.


Increased leisure time, the growth of the short-break market and annual weekend breaks
increased the demand for mid-week break, and a greater interest in sport, health and fitness
activities have also contributed to the new popularity of holiday centres. Some resorts divide
their 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, contributes
approximately half of country resort hotels custom, an important additional form of revenue
to these hotels is from their sports and leisure facilities. In addition, local membership means
that they are able to replicate demand to other centres for overnight stays. Resort hotels in
country locations may have relatively small memberships, so that the majority of users are
hotel guests.

Another market for hotels of this type is the incentive travel market. Incentive is one of the
components of MICE. Incentive travel is used by all kinds of employers to reward, their
managers/employees for high levels of performance in the workplace. Incentive planners are
attracted by the ambience, exclusivity, up-market image and the flexibility offered by the
extensive grounds and facilities in these country resort hotels.

5.4 Location of Resort Hotels
The most important factors affecting the location of resort hotels will be the requirement for
extensive 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 hour
drive away, in terms of customers but also a local labour pool. Country resort hotels, due to
their reliance on both business and leisure tourism, require locations that are near to
commercial centres. Also, if they are targeting overseas markets they will need to be close to
an airport or a railway station. The ideal location characteristics for a resort property are as
follows:

• 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 access


5.5 Products of Resort Hotel
A 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 and
outdoor facilities form an integral part of the resort. Some country resort hotel offers the
following 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 facilities

The sports and leisure orientation of resort hotels is therefore a key differentiating feature
over conventional hotels.

To keep pace with rising consumer expectations, all holiday centres are investing in better
quality accommodation, restaurant facilities and general comfort. Centres now also provide a
choice of self-catering or full board catering, a trend that reflects transatlantic resort
influences. Guests can choose from a range of cafés, bars, and restaurants offering everything
from a quick snack to a full meal. The provision of self-catering facilities has been the reason
why holiday centre operators have often not been included in the ‘hotel company’ category.

5.6 Staffing and Organising
The prominence of sports, leisure and recreational facilities in all types of resort hotels means
that their organisational structures and corresponding staffing requirements are quite different
from traditional hotels and holiday centres.

A hotel executive may know little about the different operational demands of the sports and
leisure areas, therefore, an experienced leisure/recreation manager has an important role to
play in resort hotels, and they will have a better appreciation of customer needs and the
confidence to know that what is being offered meets with expectations. Safety of course is
another important operational aspect which must be managed correctly, and is made more
complex 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 other
categories of hotels. However, corporate country resort hotels are probably the most
expensive hotels to operate. They average a higher number of employees per room (due to
their high service levels), and thus their payrolls are much higher than for other kinds of
hotels. Holiday centres, in terms of the number of staff employed, are large establishments.


5.7 Standard Operating Procedures
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 procedures
for these hotels distinct. The economics of leisure and sports facilities are similar to those of a
hotel. The purpose is to maximize yield through full utilization of capacity. For
accommodation 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 at
proper ten-minute intervals with the maximum number of playable hours.

Excepting changes in the weather for outside activities and the different popularity of certain
sports, systems can be installed in order to maximize facility use and manage the capacity of
these amenities. Corporate country resort hotels, for example, operate different ‘use’
categories such as ‘peak’ and ‘off-peak’ membership and computerized booking systems for
sports facilities are used by all types of resort hotels.

An important operational task in the large capacity holiday centres is the management of
large peaks in demand, due to their less varied demand and specified arrival and departure
dates. Procedures that assist in managing these trading peaks include the use of queuing
systems or in some instances bookable facilities. Services such as laundry are also often best
contracted 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 (and
relieves the need for a major cashiering function) on arrival and departure days.

Many non-accommodation facilities in resort hotels, such as retail outlets, bars and
restaurants, utilize computerized point-of-sale equipment in order to monitor these facilities
and as a feedback system for recognizing demand trends. These information systems are
particularly 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 representatives
overseas 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 operate
efficient booking systems and commission structures. Their long and short holiday breaks are
easy packages to sell through this route and there is the possibility for agents to earn extra
commission 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 of
such reservations.

5.8 Current Issues and Future Trends
In the future, it is likely that UK leisure trends will follow the pattern in the USA. The market
will then be driven by affluent and active middle-aged and early retired consumers. Resort
hotels, particularly corporate country hotels because of their quality of accommodation
provision and high service levels will be the best placed to benefit form this expected growth
in active leisure as conventional hotels do not have enough facilities to meet this emerging
demand.


This sector will continue to be constrained in terms of new supply due to the sizeable land
requirements and inclement weather in the UK. Environmental impacts of their operations
too have to be considered. The key market for the future will be the short break market rather
than the long holiday market and holiday centres in particular should continue to target
families with children less than 14 years of age, a group of consumers that are set to increase
in the UK.

Following overseas trend again, there is potential for UK resort hotels to become more mixed
developments. In other words, a hotel, villas, condominiums and homes for time-share could
all be developed on the same site. The real estate opportunity could therefore be really
exploited for those resort operators who own their own properties, extending their expertise
into different accommodation forms.


Summary
There has been a general misconception that resort means a property by the seaside. That is
not true; generally resort is linked with luxury and recreation. There are two main types of
resort hotel categories:

• Country resort hotels;
• Holiday villages and holiday centres;

Increased leisure time, the growth of the short-break market and annual weekend breaks
increased the demand for mid-week break, and a greater interest in sport, health and fitness
activities 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 the
components of MICE. Incentive travel is used by all kinds of employers to reward, their
managers/employees for high levels of performance in the workplace. Incentive planners are
attracted by the ambience, exclusivity, up-market image and the flexibility offered by the
extensive grounds and facilities in these country resort hotels.

The most important factors affecting the location of resort hotels will be the requirement for
extensive land. They are year-round centres/clubs/villages where innovative and extensive
indoor 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 organisational
structures and corresponding staffing requirements are quite different from traditional hotels
and 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 procedures
for these hotels distinct. The economics of leisure and sports facilities are similar to those of a
hotel. The purpose is to maximize yield through full utilization of capacity.


Tutorial Questions
1. 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.


6
Budget Hotels, Guest Houses & Small Hotels,
Boutique Hotels, Hostels and Halls of Residence
Objective
This 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 and
staffing in these sectors, as well as the products and services offered by them. The also
analyse the location characteristics, management and staffing procedures as well as the future
trends of these sectors.


• 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
• The organisational structure and the trends in these hotels

6.1 Budget Hotels
6.1.1 Introducing and Defining Budget Hotels

The term budget hotel was only introduced less than thirty years ago. Prior to that the terms
introduced to us were guest houses, inns, farmhouses and bed & breakfast provisions. It is
being argued that budget hotel is not an innovative concept; rather it is a repackaged old
concept, where a new product is created by systematically stripping out many of the features
of conventional, full service hotels in order to create a lower service offering. On the other
hand, the rapid growth of budget hotels and the high occupancy levels that they typically
achieve has been interpreted by some as evidence that a new market has been created. It is
argued that a significant slice of budget hotel customers have never previously patronized
other forms of low cost accommodation.

Budget hotels offer 2 to 3 star accommodation at 1 to 2 star tariffs. Mainly located on major
roads, they are designed with “no-frills” convenience as a priority. The budget hotel has two
principal differences when compared with a standard hotel namely, price and location. The
reductionism approach to facilities and services used by budget hotels has called into
question the appropriateness of the term ‘hotel’ when describing that which is left.


Fig 6.1 Hotel Formula 1 Logo

Conventional hotel guide/classification schemes had difficulty in embracing budget hotels
given their level of product/service offering. However, both the AA and RAC have
acknowledged the importance of budget hotels and have altered their classification scheme in
ways to capture them.

AA introduced a new category of hotel called ‘Lodge’. Lodges generally provide a high
standard of accommodation with a wide range of facilities required by the business and
leisure user, but often provide none of the traditional hotel ‘services’ expected, and the
catering operation is usually housed in an adjacent block. Lodge accommodation usually
means two star standards but for the above reasons, does not qualify for a star rating. It would
seem that any attempt to define budget hotels using only the tangible features of tariff, facility
levels and location will be limiting. So much so that the word hotel has to be eliminated and
replaced by the term ‘lodge’.

The English Tourist Board (ETB) sought to widen the definition by seeing budget hotels not
only in terms of their facilities but also in terms of what these facilities might mean for
customers. 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. In
summary, the main features that these classification schemes have identified as being
pertinent 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 Hotels

6.1.2 The Market of Budget Hotels

It has been accepted that the budget hotel has two main target markets through which to
maximize its profit potential.


The first and core market is the business traveller. It has been estimated that this target
market represents around 60% of all bedroom sales in the budget sector, and dominates the
Monday to Thursday market. These transient business travellers are thought to be junior
managers in large corporations who would rather utilize the high standards of the budget
hotel than use a local independent hotel or guest house with whom they have no guarantee of
standards. These business users was joined by a large number of middle managers who have
been forced to ‘trade down’ from traditional full-service hotels due to cuts in what is seen as
unnecessary expenditure.

The second target market is the leisure user. The average consumer now travels more
frequently, further away from home and more independently than ever before. This trend, in
conjunction with the increasing number of families who take short break holidays has led to
more 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 total
duration of their visit. These are consumers who are not looking at the hotel as a venue at
which 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 of
facilities that they want to use. Paying full price for full service makes little sense if you have
neither the time, nor the inclination, to use the services provided. Slight alterations to the
product/service offering can therefore appeal to a particular group of users and segment them
for particular targeting. Segmentation of budget hotels has occurred in order to target certain
user 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 Hotel

The correct location is the key to the success of a budget hotel. It must be situated in a place
with easy access. Adequate car parking space is important. Land and planning permission
must 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 often
their room tariff is adjusted upwards to reflect this location.


6.1.4 The Products and Services of Budget Hotels

The AA identifies that lodges must meet the minimum standards for two stars with the
following 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 services
and offers customers a different atmosphere and product.

It is the design of the accommodation provision that holds the key to the success of the
operation. A strict set of standard operating procedures is made possible by regulating the
design of the bedrooms and reducing the consumer staff interaction. It is this concentration
on the product design and operation at all budget levels that makes the budget brands suitable
for franchise.

The budget hotel is designed to maximize revenue-earning potential, whilst maintaining low
build and maintenance costs. The design then, is crucial to the profitability of the budget
concept. Revenue is small in comparison to traditional hotels; therefore costs have to be more
keenly controlled. The maximization of revenue earning space is demonstrated by the role
ergonomics plays in the design of budget hotels with few if any public areas, standard room
layout 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 the
sense the niche sub-segments of the sector are already emerging. These niche brands are
competing 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 lower
tariff.

6.1.5 Trends of Budget Hotels

Budget hotels are the fastest growing sector in the UK market in the 1990. All the main
players are announcing plans for expansion and new players are entering or are expected to
enter the UK market in the new future. They are here to stay and prosper for at least the next
ten years in their current format. Technological advancements may enable further
improvements to be made to increase convenience. Future locations are likely to include
further development of city centre and airport location and there is the possibility of them
built close to hospitals as ‘patient hotels’.


Dhm 192 the global hospitality industry

Dhm 192 the global hospitality industry

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