The International Hotel Industry

Sustainable Management

Timothy Lockyer

• Publisher: Routledge
• Year: 2007
• Print ISBN: 9780789033390
• eBook ISBN: 9781136751738
• Topic: Business
• Subtopic: Hospitality, Travel & Tourism Industry
• Index: Business

Develop insight into the hotel management decision-making process.The International Hotel Industry: Sustainable Management examines key theoretical issues and real challenges facing current hotel managers around the world. Each chapter includes case studies of management issues, insights from senior international hotel managers, and stimulating dis

Chapter 1

Location

Location, Location, Location!

CHAPTER OBJECTIVES

On completion of this chapter the reader will understand:

• the influence of location on occupancy

• the relationship between room rate and location

• the impact of guest willingness to travel and hotel location

• the relationship between location and staffing issues

• the impact of the changing environment and a hotel’s location

• the relationship between location and hotel development

• the impact of location on supply of goods and services

Key Word Definitions

agglomeration: The potential of the system for particle attraction and adhesion (i.e., cluster).

commodification: To turn into or treat as a commodity; make commercial.

distance decay: The willingness of people to travel to an attraction or event.

environmental scanning: Constantly monitoring all changes and developments external to the hotel.

FIT: A free and independent traveler.

Greenfield site: A piece of usually semi-rural property that is undeveloped except for agricultural use, especially one considered as a site for expanding urban development, in this case a hotel.

hedonic: Of, relating to, or marked by pleasure.

purpose location: The reason or purpose for the guest’s stay in the hotel.

rack rate: Comes from a manual hotel reservation system (the Witney System) where the amount to be charged for rooms was stored in a rack.

room rate: The amount charged for a room in a hotel.

Chapter Review

The location of a hotel is often referred to as the only attribute that cannot be changed, at least in the short term. Where a hotel is situated has significant impacts on the market that is attracted and the profitability of the establishment, for example, the willingness of guests to travel, the need of the guest to be near an attraction/event or business meeting, the room rate, staffing and supplies, and even the “life expectancy” of the hotel. Using location to the best advantage is an important issue for hotel management, as is keeping a watchful eye on how the location of the property is changing in order to respond appropriately to those changes. Location also has an impact on the local environment with issues such as traffic congestion, visual impact, resource use, and pollution. Hotel management needs to be constantly aware of the location of the property, and not simply take it as something they can do nothing about. Planning must include all stakeholders to ensure that location is used to the best advantage.

INTRODUCTION TO THEORY: LOCATION

It is commonly asserted that the three most important attributes that a hotel can offer are location, location, and location; a phrase that is freely used by hotel marketers and hotel real estate agents (Bull, 1994). A good location is important to the sustainable management of a hotel. Even excellent marketing cannot overcome the problems inherent in an inferior location (Moutinho & Paton, 1991). The location of the hotel is the only factor of the product that is completely fixed in the short term (Bull, 1994). Location is a complex mixture of attributes, for example, where location close to city areas might be seen as an advantage to some, surrounding characteristics such as noise and congestion may be seen as a disadvantage and the hotel’s use of natural resources may have impacts on the community as a whole. A contrasting view is shown by the following (Cartmel is a very small village located in the Lake District, approximately 200 miles from London).

This hotel is located in a very isolated region—what impact do you think the location has on your business?

I am a firm believer it’s what you do, it doesn’t matter where you are. I think that people will travel eventually and the business will gradually build up. We knew we couldn’t rely on the local clientele (without being too rude—the local population don’t really understand the type of things we do here. They haven’t quite grasped the “you get what you pay for” scenario). The location didn’t really come into it. The thing that attracted me was basically the building. I was confident with the product that we had; that with the public relations structure we had, we were going to get people coming to us.

(Simon Rogan, Manager, L’Enclume, Cartmel, Cumbria, England)

As location is a fixed attribute, it has to be considered along with many other influencing factors. For example, location directly impacts room rate, also influencing staffing and service quality, the supply of goods and services, the use of natural resources, and pollution. Therefore, the location of a hotel cannot be considered in isolation from other factors, it must be considered on a strategic level with full awareness of the factors that the hotel’s location are influenced by and have influence over.

This chapter will consider the major issues that management need to take into account in relation to location. The first of these is room rate, as it has arguably the largest direct impact on the hotel’s profitability. Although in a later chapter the question of room rate is discussed under the heading of yield management, room rate must also be looked at in relation to location.

LOCATION AND ROOM RATE

The development of a new hotel is often undertaken in a location that is close to the reason for the guest’s stay in the hotel. As an example, business guests may desire to be located close to meetings and other business necessities. Therefore, hotels targeting business trade will be located accordingly. Likewise, this applies to tourists who may wish to be close to a particular scenic or appealing form of attraction. These two examples are not entirely different, in that the urban tourist cities provide the visitor with a variety of historical associations such as buildings and monuments, castles, cathedrals, museums, galleries, orchestras, and amusements, while on the other hand, a scenic region away from major commercial areas can provide the business guest the opportunity to hold meetings and conventions in a more relaxed, congenial atmosphere. The Crowne Plaza is located about twenty minutes by taxi from the main downtown area. As is illustrated in the following extract, there are advantages to this location.

How does your location influence occupancy?

Our location is right. We are quite a bit out of town and we benefit because downtown hotels have a problem with crime, prostitution, and the traffic is a mess.

(Peter Pollmeier, General Manager, Crowne Plaza, Shenzhen, China)

A factor that can have a direct influence on the room rate that a hotel can charge is the distance that it is from what can be considered the “purpose location.” This is applicable for all guests staying in a hotel and examples can be seen in many places around the world. For example, a family wishing to visit Disneyland in Anaheim, California, have a number of choices: do they stay in a hotel close to, or at Disneyland and maybe pay a premium; or stay further away at an establishment with a lower room rate. The answer to this question can directly influence demand and the amount that a hotel charges (Lockyer, 2005). Research conducted by Arbel and Pizam (1977) endeavored to determine what distance tourists were prepared to travel to visit attractions. Their research was carried out among 300 foreign English-speaking tourists who spent at least a one-night stay in Israel in the Tel Aviv metropolitan region. During the collection of the data there was no reference to price made. It was assumed that regular public transport was available at a reasonable cost.

Referred to as a distance decay, results showed that where there is up to twenty minutes traveling time there is a high willingness (37.1 percent) to travel from the accommodation in which the tourist is staying to visit attractions, but once this rises to a travel time of thirty minutes or more, the willingness to travel decreases considerably, to 14.9 percent. For tourists the willingness to travel influences their choice of accommodations. Returning to the example of Disneyland, being farther away from Disneyland may well reduce the amount that is charged by an accommodation provider, but this reduction needs to be considered along with the additional traveling time that is required and the cost of such travel.

The trend in many parts of the world is the growing availability of leisure time. This is impacting the number of holidays people are taking and their travel patterns.

What influence does the changing holiday pattern have on your hotel?

People are saying, I have forty-seven days holiday per year. So we are going to have four holidays a year. Easter—take seven days, summer take three weeks, Christmas take one week plus the national festivals and national days like long week ends. If they go to Majorca, it takes three hours in a plane then one hour in a bus. When you have one week you don’t want to go too far away. So they have a car and are from perhaps Granada, Cordova, Seville, Gibraltar—areas where they have a lot of people working in factories, fairly highly paid. So they choose a hotel that is maybe only two hours away—for a short holiday they want to stay near.

(Toni Alvarez, Director, Hotel Beatriz Palace, Fuengirola, Spain)

An interesting example was identified in research by Guseman (1988) who reported on hotel location and an aging population. As people around the world live longer coupled with the availability of a growing number of medical treatments that can improve the quality of life, there is also a growing need for visits to medical facilities and accommodation close to medical facilities (Guseman, 1988). This change in demand can influence the room rate charged by current properties in the vicinity and also act as an indicator for the need of further development of hotels in such locations.

Research into the analysis that guests undertake in the selection of room rate they are willing to pay and purpose location (Lockyer, 2005) has revealed additional insight. For example, if the need arises at short notice to visit or to be with someone in hospital, then the location becomes far more important than the amount paid for accommodations, all other things being equal. On the other hand, a person planning well in advance for a vacation or visit for some other event or attraction may place a much higher price on the list of requirements. An example of the direct relationship between room rate and location is a complex decision-making process on the part of the prospective guest. An attempt to bring a quantifiable relationship between the room rate and location question is suggested by Bull (1994, p. 12), where a hedonic price model is provided indicating the various parts of the location and how these influence the pricing strategy of the hotel

where P sub Mi = the price (room rate) of a standard room in motel I and A sub l i to A sub ni are the quantities of attributes A sub 1 to A sub n possessed by motel i.

Although the research by Bull (1994, p. 12) was limited in its scope it does indicate how the various attributes of a property come together to influence the room rate. This model does not take into consideration factors such as the rating of the property. In many locations worldwide star rating of accommodations is done on a five or six point rating scale, with the higher the number of stars the higher the rating of the property. Although such systems are often very regimented in their approach to the allocation of grades (e.g., Do the front office staff wear name badges, yes or no?), there is research evidence that such rating of a property does increase the amount guests are willing to pay. However, such rating systems rarely take into consideration the purpose location.

Although some properties may predominantly develop a single-use market such as a business hotel, others may target a number of different markets at the same time. For example, in Wellington, New Zealand, the city hotels during the normal business week charge quite different room rates than during the weekend, when the rate charged may be as much as half of that which is charged during the week. The high fixed cost of development of a hotel continues if the rooms are occupied or not. Although during the weekend the hotels in Wellington may not make the return on a particular room that can be made during the weekdays and may not cover all costs, this room rate charging decision represents an effort on the part of management to cover all variable costs and to contribute toward fixed costs (Jagels & Coltman, 2004).

THE CHANGING HOTEL LOCATION

Although the hotel location is fixed, the surrounding area may go through a process of change. Consideration of the life expectancy of a hotel can aid in the formulation of alternative strategies for the hotel so that as the location changes there is a clear plan ahead (Plog, 2001). This requires a long-term view.

A hotel’s survival is linked directly to the location in which it is situated. Over a period of time, a location’s popularity with potential guests can change. The positioning of a hotel rests on two main factors: (1) the true qualities of a location and (2) its perception in the eyes of the guest.

The following interview describes a situation where a property once having high occupancy has been greatly influenced by the changing surroundings.

How have the changes in the local area where you are situated impacted upon your business?

The city is changing its character; as the city moves to the south the concentration of businesses are moving there also. The train station used to be in the city center and that is where the original development started (with this hotel located just across the road from the main station). Madras (now Chennai) central was where there was a concentration of hotels. At one time the train used to just come here, but now with the development, passengers have the facility of getting off th...

Table of contents

• Cover
• Halftitle
• Title
• Copyright
• Contents
• Foreword
• Preface
• Acknowledgments
• Introduction: Characteristics of the Hotel Industry
• 1. Location
• 2. Marketing
• 3. Human Resources
• 4. Empowerment
• 5. Resource Management
• 6. Yield Management
• 7. Sustainability
• Index