Lecture 4 and 5

Lodging Industry – Types and Development

HTM1004 Introduction to Hotel and Tourism Industries

Learning Objectives
● At the end of this lecture, you should be able to:
• Explain the origin and growth of lodging industry
• Describe the characteristics of lodging industry
• Classify different types of lodging properties by
different attributes.
• Explain the differences among various types of lodging
ownership
• Discuss the new hotel development and trends.
Primitive Lodging
Industry

3
How the lodging industry
started blooming?
• Hunter/gatherer Era (Pre-historic)
− No need for hotels as travel was limited
• Agricultural Era (Early civilization onwards)
− Very limited travel by traders and officials
− Early beginnings of lodging industry with roadside inns
− Problems of safety and security
• Industrial Era (19th century onwards)
− Increasing national and international travel
− Development of bigger and better hotels start
• Service Era (Today)
− Travel for both business and pleasure is routine
− Development of sophisticated hotel industry worldwide to cater
to travelers

4
Primitive Lodging
Houses in England
Taverns were once an establishment which
●
served wine, and in most cases, where travellers
received lodging.

5
Primitive Lodging
Houses in Europe
● Innsin Europe were possibly first established
when the Romans built their system of Roman
roads two millennia ago

6
Primitive Lodging
Houses in Europe
Mansions

Hostelries

Cottages

Paradors

7
Primitive Lodging
Houses in America
● Coffee Houses arose from the Italian American
immigrant communities

SPD2294 Introduction to Hospitality Industry 8

Primitive Lodging
Houses
●
in China
Since the Zhou Dynasty (1046-771 ), there was found the former
B.C
model of lodging as ‘ 驛站’ .
● This type of lodging was owned and operated by the empire; therefore,
later ‘ 驛站’ was also called ‘ 旅館’ .
● Until Tang Dynasty (618-907 A.D.), the service levels were categorized
by guests’ nationality or ethnicity, so lodging was also called ‘ 賓館’ .
● In Ming Dynasty (1368-1644 A.D.), hospitality business was much more
developed, and the name of ‘ 飯店’ (fàndiàn) appeared across China.
● While Qing Dynasty (1644-1912 A.D.), external investment and foreign
culture permeated China. The name of ‘ 酒店’ (jiǔ diàn) was used.

9
Primitive Lodging Houses in Japan
● Ryokans in Japan

Source: Japan National Tourism Organization

10
Lodging Industry nowadays

>300 hotel companies

>18 million rooms 11
Hotel Brand vs. Hotel Company
(STR, 2018)
● The Brand represents
the ______, which is
clearly displayed to the
public on the building
and in all interactions
with the customer.
● The Hotel Company
consists of multiple
_____ (or ____), and
will have a variety of
different types of
brands.
Source:Hotels Magazine. (2021). HOTELS (July-August 2021)
Retrieved from http://www.hotelsmag.com/
Source:Hotels Magazine. (2021). HOTELS (July-August 2021)
Retrieved from http://www.hotelsmag.com/ 14
Hotels 225 in Asia
Hotels 225
2020 2019 2018 2016 2011 2008
List
Mainland
26 24 25 25 15 10
China
Japan 9 11 11 12 12 16
Hong Kong
8 12 12 10 10 5
S.A.R.
Singapore 7 9 8 6 4 2
Thailand 4 6 6 5 5 2
India 3 5 5 5 4 1
Indonesia 2 1 2 3 0 0
South
2 2 3 2 2 1
Korea
Malaysia 1 2 2 1 1 0
Vietnam 1 1 1 0 0 0
Taiwan 0 0 0 1 0 0
Total 63 73 75 70 53 37
15

Source:Hotels Magazine. (2021). HOTELS (July-August 2021)

Source: Hong Kong Tourism Board (2020)

16
Source: Hong Kong Tourism Board (2020)

17
Source: Hong Kong Tourism Board (2020)

18
Key Performance
Indicators

19
How Hotels Count and Measure?

Occupancy ADR

RevPar
20
 Occupancy Rate in
Percentage
● The relationship between demand and supply
● Measures the hotel’s “share of the market”, so
it measures quantity
● Occupancy Rate in %
= Rooms Sold / Rooms Available for sale

21
 Average Daily Rate(ADR)
in $
● The dollar amount received for each room sold
● Measure the quality of the business.
● Average Daily Rate =
Total dollar room sales / Number of rooms sold

22
 REVPAR in $
● The relationship between revenue per room and the
total room inventory available
● Measure how well management fills rooms, without
cutting prices
● REVPAR =
Total dollar room sales/ Number of rooms available
for sale

23
Lodging Rating
System
Hotelstars Union
● In Switzerland, most hotels
are members of the
Hotelstars Union. The union
sets a set of standards and
the members are rated
according to those
regulations.
● The rating system has five
scales, ranging from Basic
(one-star) to Deluxe (5star)
and prices are set according
to the star rating of the
hotels.
AAA Diamond Rating System
● The American Automobile Association (AAA)
rate hotels in America using a diamond
symbol on a one to five scale.
● The basis for rating is a combination of
criteria including facilities, amenities, service
quality and comfort.
● It is one of the most widely accepted hotels
rating systems in America.
China
● Star-level hotels in China are
divided into five ranks based on
standards issued by the
China National Tourism Adminis
tration
since 1990 (Liu & Liu, 1993).
● Evaluation of five-star hotels
must be made by the China
Tourist Hotel Star-Rating
Committee basing on facilities,
fire safety, service standards,
energy-saving controls .
Hong Kong
● HKTB classifies the hotels in Hong Kong
into "high tariff A", "high tariff B" and
"medium tariff"
● Based on their facilities, location, staff to
room ratio, achieved room rate and
business mix.
● Refer to the Hong Kong Hotel Classification
System-2016
Forms of Lodging
Hotels
● Varying greatly in style and service, most hotels share a
similar structure:
• More than two stories
• Guestrooms located along common hallways
• Located in or near business districts, travel destinations, and airports
• Classified as full service or limited service.
● Guestrooms usually have:
• A bed, bathroom, telephone, TV, mini bar, and so on
● Hotel services may include:
• Luggage assistance
• Business center with computers
• Internet access
• Fitness center / spa
• Bars and restaurants 30
Motels
● Offered fewer amenities, less formal and were
less expensive to build and operate than
downtown hotels.
● Well-suited to the overnight automobile travelers
● Lower rates, basic accommodations, roadway
locations, and limited service.

31
All-Suite Hotels
● Unlike regular hotels, all-suite hotels rent only suites:
• Combining living space with kitchen facilities, or a bedroom section
with an attached parlor.
● Some do not offer restaurant or bar facilities, no
public meeting rooms, small lobbies, with limited
services.
● Targeted business travelers for steady weekday
business, and family leisure travelers during
weekend.
● Apartment-style accommodations and large in size.

32
Convention hotels
● Provide meeting and
banquet facilities for large
groups (>500 individuals)
● With large lobbies to
accommodate group
arrivals
● Offer concierge floors to
cater to individual guests’
needs

33
Resorts
● Ranging from themed amusement experiences (e.g.
Disney Resorts) to natural surroundings.
● Offer all-inclusive experiences that capture the
imagination and fantasy of the travelers.
● Activities range from golf to spa treatments, skiing and
nature interaction for leisure and recreation.

34
Vacation Ownership Resorts/Hotels
● Travelers can purchase fractional ownership interests in
their lodging facility of choice
● Offer similar services as full-service hotels and resorts
● Owners rent their interest in the time-share unit to
someone else or trade their vacation interval with another
owner for a stay somewhere else in the network of
participating time-share products
● Increase brand loyalty
Hotel Classification

36
SPD2294 Introduction to Hospitality Industry
Hotel Classification

Size Price Type Theme Location Service

>600 rooms
e.g. Izmailovo Hotel
Large Moscow 7500 rooms

150-600 rooms
Medium e.g. Hotel ICON
Hong Kong 262 room

Small <150 rooms

e.g. The Bauhinia Hotel
Hong Kong 98 room
37
 Hotel Classification

Size Price Type Theme Location Service

Luxury Upper Upscale Upscale Mid-price Economy/Budget

US$650/ US$450/ US$350/ US$150/ US$70/night^
night^ night^ night^ night^
e.g. Ibis Budget
e.g. Fairmont e.g. Sofitel e.g. Novotel e.g. Ibis

^for reference only

38
Hotel Classification

Size Price Type Theme Location Service

Commercial Residential
Resort Hotel
Hotels Hotels

e.g. Grand
e.g. Horizon e.g. Banyan
Hyatt Hotel
Plaza Tree
Hong Kong

39
Hotel Classification
Size Price Type Theme Location Service

Homestay Boutique Heritage Unusual??

Point Clear Cottage, Hotel Byblos, Tropez, Tai O Heritage Hotel,

Alabama, US FR HK (9 rooms)
(91 rooms)

40
Hotel Classification
Size Price Type Theme Location Service

City Center/
Downtown
Hotels

Suburban
Hotels

Highway Hotel/
Motels

Airport Hotels

41
Hotel Classification
Size Class Type Theme Location Level of
Service

Full-service Limited Service

● Offer a wide range of
services at lower rates ● Lower rate than full-
than luxury hotels service properties.
● Generally offer clean, well- ● Offer simple, clean
decorated spaces with rooms with telephones,
meeting and restaurant TV, adjacent restaurant,
facilities, a limited room- limited amenities and
service menu, a variety of services.
recreational activities, and ● Public areas are small.
designated VIP floors.
● Amenities: in-room
coffeemakers, mini-bar, 42
etc..
Source: Walk (2014, p.69)
Lodging Properties
Ownership
Types of Lodging Ownership
● Independent Ownership
● Chain Ownership
1. Company-Owned and –Operated
2. Franchise-Licensed
3. Management Contracts
4. Referral groups / consortia / associations
Independent Ownership
● An individual or company opened a hotel and
managed it, taking complete responsibility for the
hotel’s success or failure.
● What are the advantages and disadvantages of
independent ownership?
Types of Chain Ownership
• Parent company-owned and operated by the brand
• Franchises licensed by investors and operated by
management who contract to use the name and
systems of a brand
• Management contract properties owned by an
investor or investors and operated under contract
by the brand
• Referral groups/ consortia/ associations in which
the operators of property own and operate their
own hotel but participate in a group reservation
system
Chain Ownership:
Company-Owned and -Operated

● Notfranchisers or under management contract

● More consistency chain-wide
● Share many of the pros and cons of independent
ownership
Chain Ownership:
Franchise-Licensed

● What is franchise ?
● What are the pros and cons of franchise-licensed
ownership?
Chain Ownership:
Franchise-Licensed (Cont’d)

● Franchisee ● Franchisor
• Build the hotel • Provides operating
• Buy equipment instructions
• Pay a number of fee • Personnel training
including a franchise programs
fee, advertising fees, • Access to a
reservation fees, and centralized
etc. . reservation system
• Cooperative
purchasing and
advertising
Chain Ownership:
Management Contracts

● What is management contract?

● What are the pros and cons of management
contract ownership?

51
Chain Ownership:
Management Contracts (Cont’d)

● Owner ● Management Company

• Maintains financial • Responsible for
responsibility for the property operating the property,
itself using owner’s money
• Prefers incentive fees based • Required to provide the
on the hotel’s gross operating own with financial
profit (revenue minus reports and notice of
operating costs before tax) any policy changes
affecting the hotel
• Prefers base fees
determined by the gross
operating revenue (the
total payments for goods
and services)
Referral Groups/ Consortia/ Associations
● Similar benefits to properties as franchises–albeit at a lower cost
● Shared centralized reservation system and a common image,
logo, or advertising slogan
● May offer group buying discounts to members, as well as
management training, and continuing education programs
● Each independent hotel refers guests to each of the other
member hotels

• Hotels and motels pay an initial fee to join a referral association

53
Chain Ownership
● Advantages ● Disadvantages
• Strong national brand • Need to establish brand
identity shared by chain loyalty among potential
hotels guests and to diversify
• Centralized reservation property offerings
system
• Greater access to capital, • Compete within other
bulk purchasing power, segments of their own
centralized control, chain
information system, • Chain-imposed
personnel training requirements for capital
programs improvements in order to
• Brand loyalty and rewards increase the
programs competitiveness
• High level of consistency
in product offerings and
service levels marketed to
targeted customers
Lodging Properties
Development
Hotel Development Process
Conceptualization

Feasibility Analysis

Commitment

Design and Construction

The Opening
Source: Chon & Maier (2009, p.116-118)
Stage of Conceptualization
Number of
Rooms

Room Rate
Name
Structure

Concept
Type of Decor/
Ownership Ambiance

Type of Location
Hotel

Source: Chon & Maier (2009, p.118)

Feasibility Study
Feasibility Study Section Information
Market Area Geographic and economic: available market and work-force,
channels of distribution, existing attractions

Competition Competitors: brands in the market, competition’s concept,

current operations, future goals

Site Geographic and legal: infrastructure, zoning regulations,

environmental measures, title insurance

Demand Target market and demographics: market share, market

segmentation trends, pricing strategies

Facilities and Services Hotel types and design: layout, construction, efficiency and
cost of equipment, availability and cost of raw materials

Financial Estimates Economic feasibility: proposed budget, start-up costs,

projected revenues, projected return on investment

Source: Chon & Maier (2009, p.126)

Summary
● Lodging facilities can be classified according to
different criteria, including price and description of
services.
● Franchising and management contracts are the two
main driving forces in the development and operation
of the hotel business.
● Hotel development is capital intensive. A feasibility
study is done to assess the viability of the project.
Next Topic:
• Lodging Industry:
Management and Operations