MICRO PERSPECTIVE IN TOURISM AND HOSPITALITY

TOPIC 3- ACCOMODATION SECTOR

At the end of this topic, students, should be able to:

1. Explain the contribution of accommodation sector in tourism and hospitality.

2. Describe the characteristics of accommodation industry.
3. Discuss the ownership structures of accommodation sector.
4. Analyze the trends and issues related to accommodation business.

Overview

In essence, hospitality is made up of two services: the provision of overnight

accommodation for people travelling away from home, and options for people dining outside
their home. We refer to the accommodation and food and beverage services sectors together as
the hospitality industry. This chapter explores the accommodation sector, and the Chapter 4
details the food and beverage sector.

Hotel Types
Hotels are typically referred to by hotel type or category. The type of hotel is determined
primarily by the size and location of the building structure, and then by the function, target
market, service level, other amenities, and industry standards.

Classifications

Type of Classifications Examples of Classifications

 Small hotels (less than 100 rooms)

 Medium sized hotels (100-300 rooms)
Size (number of rooms)
 Large hotels (more than 300 rooms)
 Mega hotels (more than 1000 rooms)
 Airport hotel
 Casino hotel
Location
 City center hotel
 Resort hotel
 Economy/limited service
Level of service  Luxury service
 Mid-level service
 Airport hotel
 All-inclusive resort
 Bed and breakfast
 Business hotel
 Boutique hotel
 Casino
Market and function
 Conference center
 Convention center
 Extended-stay hotel
 Resort hotel
 Suite hotel
 Timeshare and condominium hotel
  Chain with a brand affiliation
Ownership and affiliation
 Independent
 Accessibility
 Airport
 Beach
 Casino
 City center
 Childcare
Amenities  Fitness club
 Golf
 Pool
 Ski
 Spa
 Tennis
 Weddings
 AAA Diamond Rating
 Star Rating
Industry standards
 Green Key Eco Rating
 Trip Advisor Traveller’s Choice
 Aloft
 Element
Brand standards (e.g., Starwood Hotels and
 Four Points by Sheraton
Resorts has nine different brands, each with
 Le Méridien
its own set of standards)
 Sheraton
 St Regis
Table 3.1 A summary of hotel types based on size (number of rooms), level of service, and
other variables.

Competitive set is a marketing term used to identify a group of hotels that include the
competitors that a hotel guest is likely to consider as an alternative. These can be grouped by
any of the classifications listed in Table 4.1, such as size, location, or amenities offered. There
must be a minimum of three hotels to qualify as a competitive set.
Business hotels, airport hotels, budget hotels, boutique hotels, convention hotels, and
casino hotels are some examples of differentiated hotel concepts and services designed to
meet a specific market segment. As companies continue to innovate and compete to capture
defined niche markets within each set, we can expect to see the continued expansion of
specific concepts. For example, hotels found close to, or even within, convention facilities are a
great match for meetings and events, as well as the SMERF market (social, military,
educational, religious, and fraternal segment of the group travel market).
Table 4.2 outlines the characteristics of specific hotel types that have evolved to match
the needs of a particular traveller segment. As you can see, hotels adapt and diversify
depending on the markets they want and need to attract to stay in business.

Market Segment Traveler Type Characteristics

 High-volume corporate accounts in city

Commercial Business
properties
  Stronger demand Monday through
Thursday
 Most recession-proof of the market
segments
 Lower average daily rate (ADR) than other
segments
 Purpose for travel includes sightseeing,
recreation, or visiting friends and relatives
 Stronger demand Friday and Saturday
nights and all week during holidays and the
Leisure Leisure
summer
 Includes tour groups in major cities and
tourist attractions

 Includes meetings, seminars, trade shows,

conventions, and gatherings of over 10
people
Meetings and Corporate groups,  Peak convention demand is spring or fall
groups associations, SMERF  Proximity to a conference centre and
meeting and banquet space increase this
market

 Often offers kitchen facilities and living

room spaces
 Bookings are more than five nights
 Often business related (e.g., natural
resource extraction, construction projects,
Extended stay Business and leisure
corporate projects)
 Leisure demand driven by a variety of
circumstances including family visiting
relatives or completing home renovations,
snowbirds escaping the winter
Table 3.2: Hotel characteristics based on market type.

Budget Hotels
The term budget hotel is challenging to define, however most budget properties typically
have a standardized appearance and offer basic services with limited food and beverage
facilities. Budget hotels were first developed in the United States and built along the interstate
highway system. The first Holiday Inn opened in the United States in 1952; the first Quality
Motel followed in 1963.
In Europe, Accor operates the predominant European-branded budget rooms. Accor has
four hotel brands that were recently redesigned: hotelF1, ibis budget, ibis Styles, and ibis.
These budget brands offer comfort, modern design, and breakfast on site; ibis Styles is all
inclusive, with one price for room night, breakfast, and internet access (Accor, 2015).
The budget brands owned by Accor are an example of a shift toward the budget
boutique hotel style. A relatively new category of hotel, budget boutique is a no-frills boutique
experience that still provides style, comfort, and a unique atmosphere. Starwood has entered
this category with a scaled down version of W with the new Aloft brand that debuted in Montreal
in 2008 (Starwood Hotels, 2011).
Boutique Hotels
Currently, there is no industry standards to define boutique hotels, but these hotels
generally share some common features. These include having less than 100 rooms and
featuring a distinctive design style and on-site food and beverage options (Boutique Hotel
Association, n.d.). As a reflection of the size of the hotel, a boutique hotel is typically intimate
and has an easily identifiable atmosphere, such as classic, luxurious, quirky, or funky.
According to Bill Lewis, general manager for the Magnolia Hotel and Spa in
Victoria, “guests seek out boutique hotels for their small size, individual design style, … and
personalized service.” He feels that “maintaining this service level in a small hotel allows for a
very personalized and intimate experience that cannot be matched in large branded hotels”
(personal communication, 2014).

Resorts
A resort is a full-service hotel that provides access to or offers a range of recreation
facilities and amenities. A resort is typically the primary provider of the guest experience and will
generally have one signature amenity or attraction (Brey, 2009).
Examples of signature amenities include skiing and mountains, golf, beach and ocean, lakeside,
casino and gaming, all-inclusiveness, spa and wellness, marina, tennis, and waterpark. In
addition, resorts also offer secondary experiences and a leisure or retreat-style environment.

Ownership Structures
There are several ownership models employed in the sector today, including
independent, management contract, chains and franchise agreements, fractional ownership,
and full ownership strata units. This section explains each of these in more detail and provides
examples of each.

Independent
An independent hotel is financed by one individual or a small group and is directly
managed by its owners or third-party operators. The term independent refers to a management
system that is free from outside control.
There are a number of very well-established independently branded hotels. These hotel
companies have developed their own standards, support systems, policies and procedures, and
best practices in all areas of the business. Independent hotels have the flexibility to customize
or adjust their systems to position their property for success, and the location, product, service,
experience, sales and marketing, and brand are all necessary for that success (Cabañas,
2014). An example of an independent hotel is the Wedgewood Hotel and Spa in Vancouver,
founded by Eleni Skalbania, and currently co-owned by her daughter Elpie (Wedgewood, 2015).

Management Contract
Another business model is a management contract. This is a service offered by a
management company to manage a hotel or resort for its owners. Owners have two
main options for the structure of a management contract. One is to enter into a separate
franchise agreement to secure a brand and then engage an independent third-party hotel
management company to manage the hotel. SilverBirch Hotels is an example of a hotel
management company that manages independent hotels and hotels operating under different
major franchise brands, such as Marriott, Hilton, and Radisson (SilverBirch Hotels, 2015).
A slightly different option is for owners to select a single company to provide the brand
and the expertise to manage the property. Four Seasons Hotels and Resorts and Fairmont
Hotels and Resorts are companies that provide this option to owners. In 2014, the
iconic Fairmont Empress hotel was purchased by Vancouver developer Nat Bosa and his wife
Flora, who continued to retain Fairmont as the management company after the purchase
(Meiszner, 2014).
Selecting a brand affiliation is one of the most significant decisions hotel owners must
make (Crandell, Dickinson, & Kante, 2004). The brand affiliation selected will largely determine
the cost of hotel development or conversion of an existing property to meet new brand
standards. The affiliation will also determine a number of things about the ongoing operation
including the level of services and amenities offered, cost of operation, marketing opportunities
or restrictions, and the competitive position in the marketplace. For these reasons, owners
typically consider several branding options before choosing to operate independently or
selecting a brand affiliation.

Chains and Franchise Agreements

Another managerial and ownership structure is franchising. A hotel franchise
enables individuals or investment companies (the franchisee) to build or purchase a hotel and
then buy or lease a brand name to operate a business and become part of a chain of hotels
using the franchisor’s hotel brand, image, goodwill, procedures, controls, marketing, and
reservations systems (Rushmore, 2005).
A well-known franchise in BC is Coast Hotels. A franchisee with Coast Hotels becomes
part of a network of properties that use a central reservations system with access to electronic
distribution channels, regional and national marketing programs, central purchasing, and brand
operating standards (Coast Hotels, 2015). A franchisee also receives training, support, and
advice from the franchisor and must adhere to regular inspections, audits, and reporting
requirements.
Selecting a franchise structure may reduce investment risk by enabling the franchisee to
associate with an established hotel company. Franchise fees can be substantial and a
franchisee must be willing to adhere to the contractual obligations with the franchisor (Migdal,
n.d.; and Rushmore, 2005). Franchise fees typically include an initial fee paid with the franchise
application, and then continuing fees paid during the term of the agreement. These fees are
sometimes a percentage of revenue but can be set at a fixed fee. Franchise fees generally
range from 4% to 7% of gross rooms revenue (Crandell et al., 2004).

Fractional Ownership
In a fractional ownership model, developers finance hotel builds by selling units in one-
eighth to one-quarter shares. This financing model was very popular in BC from the late 1990s
to 2008 (Western Investor, 2012). In this model, owners can place their unit in a rental pool. The
investment return for owners is based on the term s of the contract they have for their unit, the
strata fees, and the hotel’s occupancy. Managing fractional ownership can be very time
consuming for hotel owners or management companies as each hotel unit can have up to eight
owners. If occupancy rates are too low, an owner may not be able to cover the monthly strata
fees. For the hotel management company, attaining occupancy rate targets is necessary to
ensure that the balance of revenue is sufficient to cover the hotel’s operating expenses.
Developers now anticipate that fractional ownership will not be used to finance new hotel
builds in the future due to poor performance. There have been some high-profile collapses for
hotel developers in BC, and between 2002 and 2012 fractional hotel owners experienced asset
depreciation (Western Investor, 2012). It is uncertain how the market will perform in the next
several years.
Full Ownership Strata Units
In this financing model, hotel developers finance a new hotel build with the sale of full
ownership strata units. The sale of the condominium units finances the hotel development.
Examples include the Fairmont Pacific Rim and the Rosewood Hotel Georgia.
No matter what the ownership model, it’s critical for properties to offer a return on
investment for owners. The next section looks at ways of measuring financial performance in
the sector.

Financial Performance
According to hotel consultant Betsy McDonald from HVS International Hotel
Consultancy, the “industry rule of thumb is that a hotel room must make $1 per night for every
$1,000 it takes to build or buy. If the hotel costs $125,000 per [room], the room has to rent for
$125 per night on average and you need 60% to 70% occupancy to break even” (McDonald,
2011).
Several terms and formulas are used to evaluate revenue management strategies and
operational efficiency:
Occupancy is a term that refers to the percentage of all guest rooms in the hotel that
are occupied at a given time.

Average daily rate (ADR) is a calculation that states the average guest room income
per occupied room in a given time period. It is determined by dividing the total room
revenue by the number of rooms sold.

Revenue per available room (RevPAR ) is a calculation that combines both occupancy
and ADR in one metric. It is calculated by multiplying a hotel’s ADR by its occupancy
rate. It may also be calculated by dividing a hotel’s total room revenue by the total
number of available rooms and the number of days in the period being measured.

Costs per occupied room (COPR) is a figure that states all the costs associated with
making a room ready for a guest (linens, cleaning costs, guest amenities).

These terms and measurements allow hotel staff and management to track the success
of the operation and to compare against competitors and regional averages.

Trends and Issues

The accommodation sector is sensitive to shifting local, regional, and global economic,
social, and political conditions. Businesses must be flexible to meet the needs of their different
markets and evolving trends. These trends affect all hotel types, regions, and destinations
differently. However, overall, hoteliers must respond to these trends in a business landscape
that is increasingly competitive, particularly in markets where the supply base is growing faster
than demand (Hotelier, 2014).

1. The Sharing Economy: Airbnb

The sharing economy is a relatively new economic model in which people rent beds,
cars, boats, and other underutilized assets directly from each other, all coordinated via the
internet (The Economist, 2013). Airbnb is the most prominent example of this model. It provides
a platform for travellers and manages all aspects of the relationship without requiring any
paperwork.
At Airbnb, the host who rents out the space controls the price, the description of the
space, and the guest experience. The host also makes the house rules and has full control over
who books the space. As well, both hosts and guests can rate each other and write reviews on
the website (Cole, 2014).
This and other innovations have changed the accommodation landscape as never
before. Ten to 15 years ago online travel agents were a major innovation that changed the
distribution and sale of rooms. But they still had to work with existing hotels, whereas Airbnb has
enabled new entrants into the industry and thus increased supply.
On the supply side, Airbnb enables individuals to share their spare space for rent; on the
demand side, consumers using Airbnb benefit from increased competition and more choice. An
unanswered question is to what extent Airbnb has impacted the hospitality industry at large and
how it will impact it in the future. A study completed in 2014 in Austin, Texas, indicates that
lower-end hotels, and hotels not catering to business travellers, are more vulnerable to
increased competition from rentals enabled by firms like Airbnb than are hotels without these
characteristics (Zervas, Preserpio, & Byers, 2015).

2. Distribution and Online Travel Agents

Online travel agents (OTAs) are a valuable marketing and third-party distribution
resource for hotels and play a significant role in online distribution (Inversini & Masiero, 2014).
In the first quarter of 2014, 13.2% of hotel bookings for individual leisure and business travellers
(TravelClick, 2014) were made through OTAs (for example, Expedia, Hotels.com, Kayak.com).
OTAs offer global distribution so that each hotel and chain can be available to anyone at
the click of a button (Then Hospitality, 2014). Smaller independent hotels that do not have the
global marketing and sales resources of a larger chain are able to gain exposure, sell rooms,
and build their reputation through online guest ratings and reviews. OTAs also help hotels offer
combined value and packaging options that are attractive to many consumers (for example,
booking and search options for hotels, car rentals, air fare, attractions, and travel packages).
Customized searches, travel guidance, and rewards points are also available when booking
through an OTA. If a hotel or chain has an exceptional product and service, OTAs share guest
ratings, which can increase the number of reservations and referrals.
Chris Anderson at the Center for Hospitality Research at Cornell University analyzed
1,720 reservations made on the websites of six InterContinental Hotels brands (2012).
Anderson found that every booking made on Expedia attracted three to nine reservations to the
hotel’s site, suggesting the commission a hotel pays an OTA is a cost-effective expense, as it
generates additional revenues.
The general industry guidance for hotels using OTAs is to ensure that this distribution
channel is part of a broader sales strategy, coupled with sound customer relationship
management practices.

Table 4.4 provides an overview of some of the distribution channels that are available to
hoteliers.

Distribution channel Benefits

Hotel website or brand website (e.g.,  Consumers prefer to book directly

HotelName.com) with the property
  Instills consumers with the trust to
book
 Reduces or eliminates booking fees
 Generates a billboard effect
 Works well when OTAs are the
Online travel agent (OTA)
most relevant channel to the hotel’s
target market
 Necessary to capture last-minute
Mobile
bookings
 Increases exposure to bookings
through travel agents
Global distribution system (travel agents)
 Helps capture consumers who
continue to use traditional channels
 Provides opportunity to nurture
relationships with consumers by
Social media
responding to guest concerns and
suggestions.
Table 3.4: Distribution channels and benefits

3. Online Bookings and Mobile Devices

In 2014, 27% of online bookings in leading regions in the United States were made by
consumers using their mobile devices and tablets (Travel Click, 2014). As the trend continues,
hoteliers are adapting their e-commerce strategy to respond appropriately and to understand
what consumers in their hotel segment need, want, and expect from the mobile booking
experience. According to Travel Click (2014), same-day reservations are also on the rise.
Bookings made with mobile devices can be incentivized by offers for deals such as mobile-
specific rate plans or discounts to directly target last-minute shoppers.

Conclusion
The accommodation sector, and the hotel sector in particular, encompasses multiple
business models and employs hundreds of thousands of Canadians. A smaller, but important
segment in BC is that of camping and RV accommodators.
As broader societal trends continue and morph, they will continue to impact the
accommodations marketplace and consumer. Owners and operators must stay abreast of these
trends, continually altering their business models and services to remain relevant and
competitive.

References:

 Cruz, Zenaida L. 2019. Micro Perspective of Tourism and Hospitality

 https://opentextbc.ca/introtourism/chapter/chapter-3-accommodation/