Industry Profiles: Hotels and Motels

Overview

The hotel and motel industry plays a vital role in the development of trade, commerce, and travel in the United States. In supplying everything from a cheap night's accommodation on the road to meeting and convention spaces and coordination for large corporate events, the remarkably diverse services American hotels provide have made the industry a significant one. The travel industry is a growing sector of the United States economy and ranks as the country's third largest industry behind automobile and food sales. In the early 2000s, the hotel industry's revenues totaled approximately $109 billion per year.

In the United States, there are approximately 4.1 million hotel rooms at roughly 53,500 hotel properties, or about 1 hotel room for every 69 U.S. citizens. Approximately 30 percent of these are at suburban locations, and another 31 percent are on highways. The rest are located in cities (16 percent), resort sites (12 percent), and alongside airport strips (10 percent). In recent years, the room supply has risen significantly in suburban areas, and new construction has focused largely on limited-service facilities—an increasingly popular option for cost-conscious travelers not inclined to frequent more elaborate full-service properties.

Almost 64 percent of the country's hotel rooms are occupied on any given night. According to the American Hotel & Motel Association (AHMA), business travelers make up the largest segment of hotel customers, accounting for about 28 percent of all hotel customers, while conference and meeting attendees account for about 25 percent. The AHMA also found that 25 percent of lodging industry customers are leisure travelers, and another 22 percent are staying in a hotel for personal or family reasons.

History of the Industry

The first American lodging was the colonial inn, which flourished during the late 1700s. Colonial inns and taverns dotted the seaport towns and stagecoach roads. They became popular not only with travelers but with locals as well, who came to use them as public gathering places for town meetings, schools, and even courts of law.

Hotels as we know them were not long in coming as the major cities grew quickly. The very first, the 73-room City Hotel at 115 Broadway in New York City, was completed in 1794, and similar establishments were soon constructed in Philadelphia, Boston, and Baltimore. The early 1800s saw hotel numbers increase dramatically with the westward expansion. With each new hotel, it seemed, some new service was added, which forced other hotels to change or face obsolescence. The City Hotel became so outdated that in just 38 years it was converted into an office building. An industry trend towards luxury accommodations was sparked by the Tremont House in Boston, which was the first to offer such amenities as private guest rooms, locks on doors, a washbowl with free soap, bellboys, French cuisine, and an annunciator that enabled the front desk to communicate with guests in their rooms.

In the twentieth century moderate- and low-priced hotels emerged. First, the Buffalo Statler opened in 1908, and its conveniences included circulating ice water and a free morning newspaper. It's slogan was "A room and a bath for a dollar and a half" and, in making cleanliness and comfort accessible to so many, the Statler, and its imitators, contributed greatly to the middle-class travel bug. By the middle of the century, the early "no-frills" motels were put up quickly and cheaply on large plots by highways. These enterprises appealed to lower-income vacation travelers, salesmen, and middle-management businessmen and competed effectively with hotels in the 1950s. However, the initially significant differences between the two types of lodging in terms of size, start-up costs, operating ratios, and management needs began to diminish in the 1960s as motels franchised, grew in size, and started offering more amenities and services.

Significant Events Affecting the Industry

A number of noticeable trends occurred in the midto late 1990s. These included more construction, further automation of labor-intensive tasks, additional emphasis on business-related amenities, involvement by hotel companies in time-sharing projects, and the growing popularity of extended-stay hotels. Construction increased as companies increasingly looked to develop new chains by building new facilities. The automation of labor-intensive functions, such as hotel check-in and checkout should assist in reducing long-term operating costs and increasing customer satisfaction. Through the use of computers, hotel guests can make a reservation with an authorized credit card and upon check-in receive a magnetic key. The key will give the guest access to their room, tally their bar and restaurant bills, and let housekeeping know that they have left their room so it can be cleaned. Business related amenities such as Internet access, voice mail, and fax services appeal especially to business travelers. Involvement by hotel companies in time-sharing projects is a means for companies to leverage their expertise in real estate and financing. Extended-stay facilities offer such amenities as separate living room areas and kitchens.

Key Competitors

Underscoring the phenomenal success of franchising, the top companies in the industry—based on rooms and revenues—are primarily franchise companies. These include Cendant Corp., Six Continents Hotels Inc., and Marriott International Inc.

In 2001 New York-based Cendant (formerly Hospitality Franchise Systems, Inc.) ranked as the world's largest and most successful hotel and real estate agency franchiser. HFS merged with CUC International in the mid-1990s, becoming Cendant Corporation. In 2001 Cendant posted revenues of $8.8 billion. As the parent company of the Days Inn (1,901), Howard Johnson (500), Knights Inn (227), Super 8 (2001), Travelodge (560), Ramada (1,035), Wingate Inns (115), Villager (109), and AmeriHost (92) chains Cendant operates approximately 555,000 rooms, or roughly 13.5 percent of all United States lodging facilities. In addition to its leadership position in the hotel industry, Cendant also operates more than 1,700 Avis car rental businesses and holds the number-two spot among the world's general-use car rental agencies. Additionally, the company was the world's top vacation ownership firm in the early 2000s.

Formerly Bass Hotels & Resorts Inc., Six Continents Hotels Inc. is second among hotel companies. Six Continents Hotels was a part of London-based brewer Bass PLC, until the parent company sold its brewing interests to Interbrew and changed its name to Six Continents PLC. The subsidiary was home to more than 3,200 hotels in more than 100 countries in the early 2000s. Approximately 73 percent of Six Continents' hotels are located in the United States. Among the company's brands are Holiday Inn (1,375), Holiday Inn Express (1,151), Crowne Plaza (155), Inter-Continental Hotels & Resorts (131), Holiday Inn Select (79), Holiday Inn Garden Court (77), Holiday Inn SunSpree Resort (26), Forum Hotels & Resorts (14), and Staybridge Suites by Holiday Inn (22). In 2001, the company's sales reached $2.8 billion and it employed more than 35,500 workers.

In October 1993 Marriott Corp. was divided into two companies: Host Marriott Corporation, which owns real estate and operates airport concessions; and Marriott International, the lodging business. In the early 2000s Marriott International had 1,846 hotels. While other hoteliers have moved into the gaming industry, Maryland-based Marriott has focused on continued segmentation and international expansion. Its product line includes Marriott Hotels, Resorts and Suites and Ritz Carlton (full-service); Courtyard hotels (moderate price); Residence Inn (extended stay); Fairfield Inn (economy segment); as well as Renaissance Hotels and Resorts/Ramada International; TownePlace Suites by Marriott; Spring Hill Suites by Marriott; and Marriott Conference Centers. The firm also operates Marriott Vacation Club International and a food distribution business, among other enterprises. By converting existing properties and developing new hotels, Marriott's international expansion has included the establishment of full-service properties in the Pacific Rim, Europe, Latin America, and the Caribbean.

Industry Projections

The health of the U.S. hotel industry depends largely on the strength and stability of the national economy and on other economies around the world, as the number of travelers—whether traveling for business or pleasure—increases with economic growth and prosperity. After a global recession in the early 1990s, the United States and other countries recovered in the mid-1990s and continued to prosper going into the late 1990s. The U.S. hotel industry followed this pattern by performing poorly in the early part of the decade and recovering in the latter. The economic turnaround, the emergence of new markets, and the balancing of hotel supply and demand all played a decisive role in the industry's success in the mid- to late 1990s.

The U.S. industry experienced a boom in demand in the mid- to late 1990s, posting record sales each year during this period. In 2000, the industry achieved its most profitable year ever. However, by 2001 the U.S. economy weakened and terrorist attacks against the United States that September made conditions even worse as business and leisure travel activity fell. According to Hotel & Motel Management, information from Smith Travel Research revealed the industry lost somewhere between $7 billion and $8 billion in room revenue during 2001. This figure was estimated to be much higher when related businesses like food and beverages are factored into the equation. The publication also revealed that more than 400 hotels closed during 2001. In addition, for the most part construction of new hotels ceased. According to some industry analysts, conditions were expected to improve gradually and reach pre-2001 levels sometime in 2004.

A period of industry consolidation also was underway by the mid- to late 1990s. In the first half of 1997 alone, the United States reported mergers and acquisitions worth $4.1 billion, twice as much as reported in the first half of 1996. Marriott International made one of the largest acquisitions, purchasing Renaissance Hotel and its holdings such as Renaissance and Ramada International for $1.0 billion. Extended Stay America also bought Studio Plus hotels for $290 million. In addition, Promus Hotel Corporation acquired Doubletree in 1997. Doubletree had previously bought Red Lion, a chain with a strong presence in the Pacific Northwest. By 2002 industry analysts expected consolidation to continue within the industry as chains struggled financially in the wake of a slack economy and the terrorist attacks of September 11, 2001.

Global Presence

The United States remains the international giant of the hotel industry. It routinely posts the highest amount of international tourism revenue. The United States was the second most popular destination in 1996, behind France, with over 45,000 arrivals. Furthermore, the country's 3.5 million hotel rooms represent around 27 percent of worldwide capacity.

Leading destinations in the United States include Florida, California, and New York. Top American markets for hotel expansion in recent years included Las Vegas, Nevada; Orlando, Florida; New Orleans, Louisiana; and San Antonio, Texas. Hotel developers also have watched the surge in legalized gambling in the United States with great interest, a development that could benefit the hotel industry tremendously. The average room rate stood at $69.66 in 1996, up from $65.81 in 1995. Canadian, Mexican, and Japanese travelers are the leading international travelers to the United States.

Large U.S. hotel chains began seeking new markets in the late 1990s as the domestic market verged on saturation, and this pattern continued in the early 2000s. Companies such as Sheraton relied on their brand names to fuel their international expansions, setting up hotels in large cities and branching out into smaller cities after successfully establishing themselves. Smaller operations opted to place their hotels in strategic locations after careful planning to ensure sufficient demand. In the late 1990s, the top five international emerging hotel markets included Chile, Cuba, India, Poland, and Saudi Arabia, according to Hotel & Motel Management.

Employment in the Industry

The hotel industry employed 1.8 million people in 2000. The average wage in the industry was $9.87 per hour, or $20,530 per year. Management occupations averaged $22.52 per hour, or $46,850 per year. North and South America account for about 40 percent of the world's total hotel and motel workers. Marriott International alone employed 140,000 workers in 2001. However, like other service industries in the United States, the hotel industry has been challenged by a glut of open positions. Because of the small number of people in the 16 to 24 year-old age bracket, the United States faces a shortage of hotel employees, since this age bracket usually provides the majority of the entry-level workers to the service industries. According to Hotel & Motel Management, PricewaterhouseCoopers indicated that in the last half of 2001 the industry lost 257,000 jobs. This contributed to a sluggish overall annual growth rate of 0.1 percent, considerably lower than rates of more than three percent in 1999 and 2000. However, although many hotels cut staff due to the poor economy in the early 2000s, many were still struggling to recruit the right employees.

Sources for Further Study

"2001 lodging industry profile." american hotel & lodging association, 2001. available at http://www.ahla.com.

andorka, frank h., jr. "hot global markets." hotel & motel management, 11 august 1997.

benini, carla. "travel suppliers forced to merge: consolidation might be key to survival, say analysts." meetings & conventions, february 2002.

"better 2002?" travel agent, 15 april 2002.

hanson, bjorn. "stock market smiled on industry in 1996." hotel & motel management, 13 january 1997.

higley, jeff. "exposing extended stay." hotel & motel management, 3 november 1997.

———. "hoteliers foresee bumpy road to recovery." hotel & motel management, 1 april 2002.

inge, jon. "invisible technology." hotel & motel management, 11 august 1997.

"investors expect short-term troubles and a full recovery in two years." national real estate investor, march 2002.

"investors pessimistic about industry outlook." hotel & motel management, 4 march 2002.

"job losses total 257,000 during six-month period." hotel & motel management, 18 february 2002.

malley, mike. "favorable economy pushes travel spending to record levels." hotel & motel management, 3 november 1997.

———. "hotel values projected to decline by 2000." hotel & motel management, 3 november 1997.

mcdonald, william g., and scott c. butera. "mergers and acquisitions." hotel & motel management, 18 november 1996.

"occupational employment statistics." bureau of labor statistics, u.s. department of labor, 30 may 2002. available at http://www.bls.gov.

scoviak-lerner, mary. "new markets, demands redefine asia's hotels." hotels, april 1997.

shundich, steven. "a year to give and take." hotels, april 1997.

"top 50 hotel companies." american hotel & lodging association, 2001. available at http://www.ahla.com.

tsui, john f. "emerging megatrends in asia." lodging hospitality, september 1996.

wilder, jeff. "trends signal industry's health." hotel & motel management, 1 september 1997.