CHRM 2630/Chapter 1

Chapter 1
The Hotel Industry
The hotel industry cycles with the economy.
Generally building during booming times and
putting old hotels out of business during slower
There is an estimated 65,000 hotels in the United
States today
The worth of all US hotel properties is $1 trillion
making each room worth about $250,000.
How Hotels Count and Measure
Occupancy- measures the economic health
of the hotel industry, reflecting supply and
demand. Occupancy is calculated each night
by how many rooms are rented.
Occupancy is calculated by dividing the
number of rooms sold by the number of
rooms available
Sales per occupied room- the quality of the
business is measured by rate each guest is
paying. This is also known as the Average
Daily Rate (ADR). This is calculated by the
number of room sales in dollars by the
number of rooms sold.
RevPar (Revenue Per Available Room)Balances demand and price. Measures the
revenue per room relative to the total room
inventory available. This is calculated by
dividing the room revenue by the number of
rooms available for sale.
Double Occupancy- Any room in which
there is more than one guest. This formula is
often incorrect, it can say that the hotel is at
full occupancy because there are more people
in each room.
Break-Even Point- Neither profit or loss.
Break-even points are expressed as a
percentage of occupancy.
Characteristics of the Hotel Industry
Perishability- Vacant rooms are perishable.
There is NO way to sell the unoccupied room
from last night.
Location- There is no way to move a hotel
room, meaning that good marketing and sales
mean a lot to hotels in uneven
Fixed Supply- Just like location, supply is
fixed as well. What you see is what you
High Operating Costs- High fixed costs and
very labor intensive.
Seasonality- Week days are busier for most
hotels, whereas resorts are busier on the
Lodging has changed drastically over the
years, from private homes to what we know
today. The industry still offers the same
basic accommodations shelter, food and
The number of rooms the hotel has to offer
determines the size of the hotel.
Small: 100 or less rooms
Medium: 100-300 rooms
Large: 300 or more rooms
Class(determined by):
Average Daily Rate- the higher the room
rate= higher class hotel.
Limited Service or Full Service- some
hotels offer a clean room and a bed to sleep
in while others offer room service and
newspapers delivered to your door.
Number of Employees- number of
employees per guest room. Limited service
hotels may have .25 housekeepers per room
while full service may have one housekeeper
per room.
Rating System- Worldwide rating systems
and U.S. rating systems.
U.S. System- AAA and Mobil are the most
widely known.
Type of Hotel:
Commercial or transient, serve short term
visitors. Business persons are the main
Residential- permanent residency has
different legal rights and responsibilities.
Resort- serve social guests and group
Hotel Plan
European Plan- room rate includes room
accommodations only. Meals are charged at
menu prices.
American Plan- room rates include room
and all three meals. Often popular for bed
and breakfasts.
Variations on Themes
Bed and Breakfast- guests take rooms with
private families.
Boutique Hotels- small inns used as the
prototype but offer the amenities of fine
Trophy Hotels- hotels that add to an owner’s
reputation, acquired just to claim ownership.
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