The Business of Resort Management

Peter Murphy

• Publisher: Routledge
• Year: 2009
• ISBN:
  9781136359361
• Edition: 1
• Topic: Business
• Subtopic: Hospitality, Travel & Tourism Industry
• Index: Business

How can owners and managers ensure that their considerable capital investments will return a competitive return on their investments? How can users and owners be sure they enjoy the promises of tantalizing marketing and real estate claims? Managing Sustainable Resorts Profitably combines business management principles with environmental and social concerns to offer development solutions to these questions. By taking an holistic and contemporary approach to the problem of developing sustainable tourism operations, this book provides a comprehensive assessment of the strategies that need to be considered by various governments, developers and, in particular, the customer-investor. The major features of resort development covered by this book include:
• Environmental scanning of principal external and internal influential factors
• The curse and blessings of seasonality
• Competition for people's recreation and retirement dollars
• Guest activity programming
• Environmental issues
• Cruise ships as mobile resorts
• Staffing issues in isolated areas
• Financial challenges for owners and operators alike
• Risk Management
• Mutually beneficial options for various stakeholdersBased on an analysis of global resort opportunities and trends, the book focuses on those generic features that differentiate regional resort management from urban-centric management needs and priorities. Using comparative case studies the author emphases best case/benchmark examples of a range of resorts – large and small, urban and rural - to illustrate what can be achieved.

Part C

Internal Challenges and Strategies for Resort Management

6

Planning and financial management

Introduction

Resorts as businesses must take control of internal matters and challenges at the earliest opportunity, if they are to fulfil their original vision and become sustainable financial enterprises. The link between planning and finance has been made clear by Gee (1996: 91), who in the opening sentence to his planning and development chapter states:

The process of resort planning and development is basically an economic one, and all other goals – social and environment – must be subordinated to, yet integrated with, the economic objective.

Hence this opening chapter of Part C will start with an examination of the planning process and how this crucial first stage often sets the scene for a successful or disastrous financial future.

The planning process in this context refers to the generic nature of planning – a scheme of action or procedure for the future. As such it incorporates the dreaming that leads to a vision; the conceptualization that creates the physical form and environmental setting for that vision; the business management strategies that are designed to produce the maximum effectiveness and efficiency from an often considerable investment; while either accepting imposed corporate social responsibilities or setting new and higher standards of sustainable development. These are not necessarily separate and independent stages within a planning process, for in a business situation the financial implications and possibilities will need to be considered at each stage. They are, however, universal components of the planning system and should operate at all levels, be it for a single resort hotel facility, an integrated resort complex or a broader urban resort destination.

The financial discussion within this chapter is equally generic, referring to the management of expenditures and revenue throughout the development of a resort. It attempts to set the big picture rather than enter the domain of modern accounting principles and procedures. It highlights the length of time some resorts take to reach the fulfilment of their vision and how different financial priorities will arise with the various stages of development.

Planning Process

It should be appreciated that the planning process will differ in detail with each resort development. Major differences include whether it is a greenfield site or part of an urban complex, complete with neighbours who have existing rights and expectations; whether it is a privately owned or leased property; and the governance system operating at the resort site. However, within each situation a generic planning process still applies.

The development situation can vary from the isolated and undeveloped conditions of a greenfield site in rural regions to a central and developed site within an urban region, or anywhere in between. The various development situations will involve different cost structures regarding the provision of infrastructure, construction and labour. In times of economic growth and optimistic outlooks it is tempting to let the dream overwhelm the financial realities of a development situation. During Australia’s major resort development in the 1980s, many resorts ‘were funded on unrealistic expectations of the strength of resort demand and poor understanding of resort investment principles’ (Ernst and Young, 2003: 7). As a result ‘ego investments, dumb planning and boosterism have led some developments that were never going to return a profit’ into receivership according to Chris Brown, CEO of the Tourism and Transport Forum of Australia (Ernst and Young, 2003: 3). In Australia and elsewhere, it is often the second or third owners who turn such resort dreams into profitable businesses by applying more realistic financial yardsticks and/or revising the market emphasis of the previous owners.

It is not just the developers and owners who are involved with the planning process of resorts, for there are generally other stakeholders involved. Among these are members of local communities, be they the neighbours and residents in an urban area or the neighbours and indigenous owners of wilderness areas and traditional sites. They will generally welcome the employment and business opportunities that a resort can bring, but will expect a sensitive development that integrates with the local landscape and culture. There are operators of core and secondary businesses within the resort, who will need to conduct sufficient business to pay their annual leases and meet their corporate obligations, such as joint marketing campaigns. There is always the government that is keen to enlarge its tax base, even on a deferred basis, to support the growing expectations and responsibilities of society around the world.

It becomes the responsibility of the planner to attempt to meet the needs of stakeholder groups in a manner that meets the profit objectives of a resort business, within the expectations and constraints of a variety of concepts and policies. To achieve this, planners have adopted three types of planning tools to create ‘a strategic vision for an area which reflects a community’s goals and aspirations, and implementing this through the identification of preferred patterns of land use and appropriate styles of development’ (Dredge, 1999: 774). The three types of planning tools are – process, functional and normative, and each is discussed below.

Process Tools

Process tools are concerned with the nature of the planning process and focus on the steps involved in providing a comprehensive coverage of the issues involved. In terms of resorts there have been two principal contributors in this regard, Inskeep and Gee. Inskeep (1991: 202) provides a comprehensive road map for the planning of resorts which contains some of the points this chapter is emphasizing (Figure 6.1). The first step is to conduct a market analysis for the type of resort product under consideration.

Figure 6.1 Resort planning process. (After Inskeep, 1991: 202)

If there is no or limited consumer interest in the resort developer’s dream it should end there. At the conceptual stage regional business and community relationships need to be explored and the resort plan drawn up with the appropriate consultation of key stakeholders. This is followed by a phased development, which in bigger projects usually requires set stages of development during which various forms of financing are secured and various types of revenue generation pursued to maintain debt repayment and cash flow. Given the length of time development can take, it is quite possible that the original plan will require some modification and later phases may be quite different from the original vision.

Walt Disney’s plans for Walt Disney World are a good illustration of the need for flexibility. In the original plans EPCOT was intended to be the ‘Experimental Prototype Community of Tomorrow’, which incorporated a combination of Disney engineering and forward looking planning to produce a utopian city of the future. Unfortunately Walt Disney died before this phase of the resort project could be developed, so it lost its champion. Instead of the envisioned EPCOT the Disney management took advantage of a new opportunity, developing its second theme park within Walt Disney World as a continuous International Exhibition. By partnering with major corporations and a selected number of countries Disney has created a technology and travel theme park with minimum direct investment. Walt Disney’s initial EPCOT dream has not been forgotten and has since emerged in the form of ‘Celebration’ – a new town planned from scratch that attempts to create an ideal urban environment.

Gee presents the resort development process as five distinct but overlapping phases (Figure 6.2). The first phase is conceptualization, planning and initiation. He mentions that the original idea for a resort can come from a wide range of sources, including hotel management companies, public or quasi-public agencies and special interest groups as well as developers and property owners (private or public). These initiating groups will not always have the same objectives and images for the resort, so considerable negotiation will be needed at times. For example, ‘long-range investment thinking often conflicts with a strong cash-flow orientation (including cash dividends to stockholders); some parties have long-term tax shelters in mind while others prefer to sell the project upon completion. Problems frequently arise as to whether an owner and/or developer’s wishes should override those of professional planners and designers’ (Gee, 1996: 95).

Figure 6.2 Phases of the resort development process (Gee, 1996: 95).

Gee emphasizes the long time span required for this first phase, an investment in time and resources that many do not appreciate because it is invisible to the public. Given the complexity of developing a modern resort, which can include the size and component parts of a small town, the planning process requires a project flow chart showing each step in logical sequence with its component parts in place before the first paying guest arrives. For large projects it is best to obtain the necessary land either as an option to buy or lease and on the condition that the final plan is accepted by the local government authorities. Better to lose thousands of dollars in failing to convert options into purchases by the assigned due dates, than to loose millions on a project that is doomed to failure because planning permission has been withheld.

The second phase of feasibility analysis helps to make the judgement on proceeding with the project or backing out. It is obviously linked with phase one but has been placed second because there has to be a preliminary product plan and targeted market segment in place, before an assessment can proceed. The tangible aspects of the proposed plan (supply side) and market (demand side) should be analysed by a reputable third party, so as to obtain arms-length objectivity to the dreams that have driven the project to this stage. If the feasibility results are disappointing this should lead to a modification of the initial plan or the withdrawal from taking up land options and conditional agreements.

The third phase is the commitment stage, when everything becomes public. Formal agreements and legal documents are signed and registered. The assembled land is acquired, the land use plan is submitted to local authorities and more committed financing is put into place. It is at this stage that the project must submit environmental impact statements for approval along with seeking additional permits for shoreline management, water rights and waste disposal where applicable.

The fourth phase involves the actual design, layout and construction of the resort. Local environmental conditions and the desired image determine the design to a large extent. The spatial layout of the resort, working with local zoning and building codes, is used to group co-habitable activities together and to separate conflicting activities. Construction needs to be of a high quality to entice guests and the buyers of condominiums and to maintain appearances when large numbers visit the site.

The fifth phase is the management and operation stage that occurs prior to the actual opening and during the resort’s operation. It involves an aggressive sales and marketing campaign, the recruitment and training of staff and the finalization of contracts with suppliers and partners like transport companies. It is at this stage when ‘both management and employees alike must operate the resort the way it was intended to operate’ (Gee, 1996: 121), bringing to life the earlier visioning and planning so that a distinctive and attractive resort is created.

With the amount of detail to be considered in the development process of a resort it comes as no surprise that it is often a long process, frequently involving several detours and actual changes. Along the way negotiations regarding land and other costs, rights, access, variances and financing will close some doors of opportunity while opening others. One can be almost certain that the final product will be somewhat different from the original dream and definitely certain that a lot of money will be spent before the first paying customer arrives. A good example of this process occurred with the development of Walt Disney World in Florida.

A fascinating account of the resort development phases is provided by the development experience of Disney World, as related by Zehnder (1975). He provides a detailed description of the development and opening of what has become one of the world’s most successful resort destinations; but all of this was born out of secrecy and last minute negotiations before the physical development took place and the new Disney show piece was opened. Walt Disney was looking for a ...