Class Notes for Introduction to Hospitality, 7th Edition

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OnlineInstructor’s Manualto accompanyIntroduction to Hospitality, 7eIntroduction to HospitalityManagement, 5eJohn R. Walker

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Table of ContentsPART I: THE HOSPITALITY INDUSTRY AND TOURISM1.Welcome to the Hospitality Industry12.Tourism13PART II: LODGING3.The Hotel Business284.Rooms Division Operations435.Food and Beverage Operations54PART III: RESTAURANTS, MANAGER SERVICES AND BEVERAGES6.Restaurant Business707.Restaurant Operations828.Managed Services989.Beverages110PART IV: RECREATION, THEME PARKS, CLUBS AND GAMINGENTERTAINMENT10.Recreation, Theme Parks and Clubs12911.Gaming Entertainment147PART V: ASSEMBLIES AND EVENT MANAGEMENT12.Meetings, Conventions, Expositions16113.Special Events178PART VI: MANAGERIAL AREAS OF THE HOSPITALITY INDUSTRY14.Leadership and Management19015.Planning19816.Organizing20917.Communicating and Decision-Making21818.Control231

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Chapter OneIntroducing HospitalityI. Chapter ObjectivesAfter reading and studying this chapter, you should be able to:1.Discuss the history of hospitality through the ages2.Describe the characteristics of the hospitality industry.3.Explain corporate philosophy and Total Quality Management4.Discuss the many facets of service and why it has become such an important partof the hospitality industry.5.Suggest ways to improve service.6.Discuss current trends in the hospitality industryII. Key Teaching Elements/Chapter Outline/Lecture SuggestionsPageObject.PreludeA short introduction to the hospitality industry41Hospitality Through the AgesThe word hospitality comes from hospice, an old French term meaning“to providecare/shelter for travelers.”Hospice de Beaune in Burgundy, France was established as a refuge forthe poor in 1443 and still exists today. The sale of wine from its estatesevery November determines the prices for the next year’s Burgundywines.41Ancient TimesThe Sumerians (what is now Iraq) were the first to record elements ofhospitality as they provided locals and travelers taverns where theyserved beer, food, and provided a place to stay.Between 4,000 and 2,000 B.C.E., early civilizationsin Europe, China,Egypt, and India all had some elements of hospitality offerings, such astaverns and inns along the roadside.41Greece and RomeThe Code of Hammurabi (circa 1700 B.C.E) made mention of tavernowners responsibilities. Increasedtravel made some form of overnightaccommodations necessary and taverns and inns sprang up everywhere.By the time Marco Polo traveled to the Far East, there were 10,000 innswith the best in China.51

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Medieval TimesCharlemagne establishedrest houses for pilgrims in the eighth centuryand innkeepers in Florence, Italy formed a successful guild in 1282 thathad 86 members by 1290.A stagecoach journey from London to Bath took three days withseveral stopovers at inns or taverns called ‘posthouses.’In the late sixteenth century, a type of tavern for commoners called an‘ordinary’ were serving food for a fixed price. The food was ‘ordinary’and there was no choice in the meal plan.51Coffee HousesCoffee and tea became popular inthe 16thcentury and coffeehousesbecame a way of life.With water being dangerous, these flavored drinks became popularvery quickly.61The New WorldThe “ordinary’ as taverns were called in the early days of the Americancolonies, weregathering places for residents, hold meetings, andconduct business. The tavern was an important part of the new world.George Washington used the Frauncis Tavern as his Revolutionary Warheadquarters and it still operates today.Even future presidents owned and operated taverns as the new colonieswere being established.The French Revolution71The French revolution changed the course of culinary history as it wasnobility that employed most of the country’s chefs. With theelimination (literally) of the noble class, French chefs began theimmigration to other countries and especially to the Americas.Thomas Jefferson installed a French chef in the WhiteHouse, whichinfluenced interest in French cooking in the new colonies.Many of the immigrant chefs found New Orleans and changed theculinary direction of the region with their style of cooking.71The Nineteenth CenturyIn 1856, Antoine Carême published La Cuisine Classiquedetailingnumerous dishes and sauces. This led to the re-invention of therestaurant and its classic fare. By 1848, a hierarchy of eating placesexisted in New York City. There was a restaurant,level of service andprice for everyone.81The TwentiethCenturySeveral restaurant chains began in the 1900’s, including the classicWhite Castle with its sparse décor yet popular menu. In 1959 the FourSeasons opened as the first elegant American restaurant that was not91

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French in style.Following WorldWar II, America took to the road and expandedrapidly with hotels, motels, fast food, and coffee shops. With theexpansion of air transportation, hotels and restaurants sprang up to meetthe needs of the expanding nation.In the 1980’s, hospitality, travel, and tourism continued to increasedramatically. The baby boomers began to exert influence through theirbuying power. Distant exotic destinations and resorts became moreaccessible.The Twenty-FirstCenturyThe hospitality industry continues to mature with increased marketsegmentation and consolidation. More people are traveling, especiallyfrom and to China, Brazil, and India.The recession slowed the industry, but as we emerge from itoccupancies are up along with revenue per available room. Nowcompanies are driving the margins to squeeze out a reasonable profit.101Welcome to You, the Future Hospitality IndustryLeaders!The hospitality industry is one of the most fascinating, fun, andstimulating to work in, plus you get paid quite well and have excellentadvancement opportunities.The hospitality industry is one where it does not take long beforeadvancement opportunities come along. A degree plus experienceenables almost anyone with theservice spiritto enjoy success.One of the reasons that Marriott International is so successful is givenby Jim Collins writing in the forward of Bill Marriott’s bookThe Spiritto Serve: Marriott’s Way. He writes that Marriott has timeless corevalues and enduring purpose…including the belief that people arenumber one…”take care of Marriott people and they will take care ofthe guests.” People with aservice spiritare happy to do somethingextra to make the guest’s experience memorable. As one humanresource director says, “Creating memorable experiences for others andbeing an Ambassador of the world, adding warmth and caring.”101, 2TheNational RestaurantAssociation (NRA)forecasts a need forthousands of supervisors and managers in the hospitality and tourismindustry.131, 2

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The Pineapple TraditionThe pineapple is a symbol of welcome, friendship, and hospitality.Imported from the West Indies, pineapples were often served to royalfamilies and the elite.141, 2The Interrelated Nature of Hospitality and TourismThe hospitality and tourism industry is the largest and fastest growingindustry in the world. An exciting aspect is that the industry comprisesso many different professions.141,2,6Common dynamics in this diverse industry include the delivery ofservices and products and the customer-guest impressions of them.141, 2Whether in direct contact with a guest (front of the house) or workingbehind the scenes (back of the house), themost challenging aspect ofworking in the industry is creating powerful impressions that have theability to affect the human experience.141, 2People who provide services to travelers have the responsibility ofrepresenting their communities, creatingmemorable experiences, andmeeting the needs and wants of people away from home.151, 2Restaurants fill the biological need to eat as well as the need tosocialize and to be entertained.161, 2In managed services, foodservices are provided toinstitutional clients,meeting the needs of the guests as well as the client itself.Studies show that as many as 57 percent of consumers now use theInternet to book their travel, a percentage that vastly changes thelandscape of the hospitality industry. In fact, technology could be thethin line between a successful business and bankruptcy for manyorganizations.Restaurants use more than 30 different technology applications toprovide faster, more cost efficient and productive business operationsfor guests and staff.Many studies already showed that high-speed Internet is one of themost important in-room amenities that enable guest satisfaction in ahotel.171, 2Characteristics of the Hospitality IndustryOpen 365 days a year, twenty-four hours a day, the hospitality industrytends to work longer hours than most other industries.Those in seniorpositions can expect to work 10-12 hours a day regardless of the time192

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or day.Due to the industry running twenty-four hours a day, it relies heavily onshift work. Essentially there are four shifts including 11 p.m. to 7:30a.m., known as the graveyard shift.192Hospitality industries are in the business of providing guestsatisfactionat a price. The difficulty here isthat the product isintangible; that is,the consumption and production occur at the same time making theminseparable. This helps explain why the product is also perishable; thatis, a room or meal not soldtonight cannot be saved and sold tomorrow.192The other unique characteristic of this industry is theperishabilityofour product.For example, we have 1,400 guest rooms in inventory thatare available to sell, but we only sell 1,200 rooms. What happens withthe 200 unsold guest rooms? Nothing! We have permanently lost therevenue from these rooms.One other unique characteristic of the hospitality industry to consider isthevariabilityinherent within those that produce and consume. Forinstance, on the production side of the equation, each employee hasdifferent levels of skill, knowledge, ability, and passion for what theydo and therefore we often see variability in the quality of work. And thesame holds true for the guest!In the hospitality industry, we are in business to make areturn oninvestmentfor owners and/or shareholders and society. People investmoney for us to runa business, and they expect a fair return on theirinvestment.192CareersThere are hundreds of career options for you to consider, and it’s fine ifyou are not yet sure which one is for you. The text will explore careersin lodging, foodservice,recreation, and special events to name a few.202Hospitality Industry PhilosophyWe have seen a change in current corporate philosophy. It used to bethat corporate philosophy focused on the manager’s ability to plan,organize, implement, and measure performance. Today there is a morestringent shift toward managers’ counseling associates, giving themresources, and helping them to develop and think for themselves. Thisshift has proven effective in that it promotesempowerment,and strongties toTotal Quality Management(TQM). Major changes includeincreased corporate ethics, morals, fairness, and equality.232, 3

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Service Philosophy Is a Way of Life“Spirit to serve” comes from deep-rooted values. Service should be acommitment to continuous improvement and overcoming adversity.Our culture influences the way we treat associates, guests, and thecommunity, and that affects the success of everyone.Sustainable Hospitality242, 3The concept of sustainability involves “development that meets theneeds of the present without compromising the ability of futuregenerations to meet their own needs.”Sustainabilityis the ability to achieve ongoing economic prosperitywhile protecting the natural resources of the planet and maintaining anideal quality of life forits people and future generations.242,3,6Success in ServiceTo achieve success, exceptional service is required.The satisfaction ofexternal customers ultimately measures a company’s success since theyare the people who are willing to pay for its services. To ensuresuccess, one must also ensure guest loyalty.252, 4Given that approximately 70 percent of theU.S. and Canadianeconomies and an increasing percentage of other countries’ are engagedinservice industries, it is critical to offer guests exceptional service.252, 4This is theage of service, and the hospitality industry is gettingrevamped because guest expectations have increased and the realizationis that “we buy loyalty with service.”A guest is anyone who receives or benefits from the output ofsomeone’s work.252, 4For success in service, it is necessary to focus on the guest,understandthe role of the guest-contact employee, weave a service culture,promote high-touch instead of high-tech, and thrive on change.Guest loyalty is the key.252,3,4Moments of TruthEvery hospitality organization encounters hundreds of moments oftruth (guest encounters) every day. Service commitment is a totalorganizational approach that makes quality of service as perceived bythe customer.283, 4, 5

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The Focus on ServiceGiving great service is a very difficult task; few businesses give enoughpriority to training associates in how to provide service. TheEducational Foundation of theNational Restaurant Association(NRA)developed programs to enhance hospitality students’professionaldevelopment. One of their courses is Foodservice Leadership.Guest service is a central focus of hospitality. It is what hospitality isall about—what we do. Our job, first and foremost, is to enhance thelives of those people (guests, passengers, etc.) to whom we arededicated to serve. Our job is to make the lives of others better in asmall way or big way; it makes no difference.Quality guest service requires that we understand our guest’s needs.The guest needs to feel welcome, comfortable, and they need to feelimportant.Service and Total Quality Management293, 4, 5In the area of service, TQM is a participatory process that empowers alllevels of employees to work in groups to establish guest serviceexpectationsand determine the best way to meet or exceed thoseexpectations. TQM works best when managers are also good leaders.The difference between TQM and quality control (QC) is that QCfocuses on error detection, while TQM focuses on error prevention.292,3, 4The Disney Approach to Guest ServiceThe Disney mission statement is “We create happiness.”Disney’s commitment to service means they understand their productand the meaning of the brand, they look at the business from the guests’perspective, and they consider it their responsibility to create anexceptional experience for each guest.New managers are provided technical training, guests are asked to takesurveys, and encouraging cast members to be innovative in their dailyapproach are all models used by Disney to provide guest services aboveand beyond what is expected.341,3, 4,5Career PathsThe career path of most individuals is not necessarily in a straight line.The path is often a combination of paths such as food and beverage,rooms division, marketing, human resources, or finance andaccounting. Progression from department to department earns you theexperience necessary for the next step.382, 6

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Career GoalsIf you are not sure of which career path to pursue, that’s OK. Now isthe time to explore the industry to gain the information you need todecide which career path to follow. A great way to do this is throughinternships and work experience.392, 6Is the Hospitality Industry for You?We also know that it is an exciting and dynamic industry with growthpotential, especially when the economy is strong. In the hospitalityindustry we are often working when others are at leisure.Ensuring that guests receive outstanding service is a goal of hospitalitycorporations.The personal characteristics, qualities, skills, and abilities you’ll needare honesty, hard work, being a team player, being prepared to worklong hours spread over various shifts, the ability to cope with stress,good decision-making skills, good communication skills, beingdedicated to exceptional service, and having a passion and desire toexceed guest expectations.Recruiters look forservice-orientedpeople, who “walk their talk,”meaning they do what they say they’re going to do. Good workexperience, involvement in on-campus and professional organizations,a positive attitude, a good grade point average—all show a commitmentto an individual’s studies.392Self-Assessment and Personal PhilosophyThe purpose of completing a self-assessment is to measure our currentstrengths and weaknesses and to determine what we need to improve onif we are going to reach our goals. Self-assessment helps establishwhere we are now and shows us the links to where we want to go, ourgoals.Yourphilosophyis your beliefs and the way you treat others and yourwork. It will determine who you are and what you stand for.404, 5Now is the Time to Get InvolvedFor your own enjoyment and personal growth and development, it isvery important to get involved with on-campus and professionalhospitality and tourism organizations and participate in the organizationof events. Recruiters notice the difference between students who havebecome involved with various organizations and students who havenot, and they take that into consideration when assessing candidates forpositions with companies.404, 5

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Professional OrganizationsBecoming a student member in hospitality related organizations showyour commitment to your career and become a basis for recruiters tosee your professional attitude.414, 5, 6Trendsin Hospitality and TourismMajor trends in the hospitality industry include Globalization,Health,Safety and Security, Diversityand changing Demographics, Service,Technology,Sustainability and Green Travel,Legal issues,Travel witha Purpose, and Social Mediaand Mobile.412, 6III. Teaching Techniques/Classroom ExercisesNote: The content of these exercises is such that they may also be used as essayquestions.Exercise One:Have students describe the Hospitality Industry. Their descriptions should includeindustry characteristics and scope, including travel, lodging, foodservice, and recreation.Exercise Two:Have students research and discuss the corporate philosophy of a company oftheir choice, preferably one in the hospitality industry. Be sure to include things such ascorporate culture, missions, goals, objectives, and strategies.Exercise Three:Over the past several years, there have been numerous mergers and acquisitionsthroughout the hospitality industry. An appreciation of “who owns what” and thecompany growth pattern can help readers understand how integrated the industry is.Check Your Knowledge, p. 201)Question:Identify and explain two differences between the hospitality businessand other business sectors.Answer:Hospitality businesses are open 365 days a year and 24 hours a day. Thehospitality industry depends heavily on shift work. (p. 19)Other characteristics are the constant strive for outstanding guest service, theintangibility, and the perishability of the product.2)Question: List and describe the four shifts in the hospitality industry.Answer:Morning Shift: 7 a.m.–3 p.m. This is the early shift and may begin anhour or so earlier or later but typically runs 8 hours.Mid Shift: 10 a.m.–7:00 p.m. Great for experience and is typically covered bythose who need minimum supervision such as supervisors. This shift requires

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coordination with morning shift and evening shift.Evening Shift: 3 p.m.–11:30 p.m. Particularly common with hotels and food andbeverage employees.Graveyard Shift: 11 p.m.–7:30 a.m. Commonly known as the night audit, thisshift often involves several accounting functions that are best done during slowerbusiness times and operations. (page 19)3)Question:Identify some of the highlighted characteristics of the hospitalityindustry.Answer:The hospitality business produces guest satisfaction, an intangible, andits product is perishable. (page 19)Check Your Knowledge, p. 241)Question:Describe Marriott’s “Spirit to Serve”Answer:It is the “Marriott Way” serving the associates, the customer, and thecommunity. These are the cornerstone for all Marriott associates who strive tofulfill the values that originate from deep inside the people themselves; they areauthentic, bone-deep, and passionately held. These values drive Marriot culture.(page 24)2)Question:Define the term corporate philosophy and how it is currentlyunderstood, especially in the hospitality industry.Answer:Corporate philosophy embraces the values of the organization, includingethics, morals, fairness, and equality.(page 23)3)Question:What is sustainability, and how does it relate to the hospitalityindustry?Answer:Sustainabilityis the ability to achieve ongoing economic prosperitywhileprotecting the natural resources of the planet and maintaining an idealquality of life for its people and future generations. (page 24)Check Your Knowledge, p. 281)Question:Explain why service in the hospitality industry is so important. Give anexample from your own experience as a guest, if possible.Answer:It is critical to offer guests exceptional service.This is theage of service,and the hospitality industry is getting revamped because guest expectations haveincreased and the realization is that “we buy loyalty with service.”Student answers will vary.2)Question:List the five things required for success in service.Answer:Focus on the guest, understand the role of the guest-contact employee,weave a service culture into education and training systems, emphasize high-

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touch as well as high-tech, and thrive on change–constantly improve the guestexperience.3)Question:What is a moment of truth?Answer:A “moment of truth” involves face-to-face or physical encounters withservice. A moment of truth occurs between the customer and the service provider.Check Your Knowledge, p. 331)Question:What is the Malcolm Baldrige National Quality Award?Answer:The Malcolm Baldrige National Quality Award is the highest level ofnational recognition for quality that a U.S. company can receive. The awardpromotes an understanding of quality excellence, greater awareness of quality ona critical competitive element, and the sharing of quality information andstrategies. The Ritz-Carlton Hotel Company has won this award on two occasions–both in 1993 and 1999 for groundbreaking levels of service.2)Question:Explain Total Quality Management.Answer:TQM is a participatory process that empowers all levels of employees towork in groups to establish guest service expectations and determine the best wayto meet or exceed these expectations.3)Question:List several ways a leader can empower employees.Answer:Empowerment is a feeling of partnership in which employees feelresponsible for their jobs and have a stake in the organization’s success.Managerscan empower employees by doing the following: take risks, delegate, foster alearning environment, share information and encourage self-expression, involveemployees in defining their own vision, and be thorough and patient withemployees.IV. Answers to Chapter 1 Review Questions1)The satisfaction of customers ultimately measures a company’s success, since they are thepeople who are willing to pay for its service. A key objective of service is to create guestloyalty–keep them happy during their stay and they will keep coming back.2)A mission statement is a short statement of central purposes, strategies, and values ofa company.It should answer the question, “What business are we in?” Somemission statements are very simple: “To WOW the guests.”Moment of Truth is a term coined by Jan Carlson of Scandinavian Airline System.They are guest encounters and an approach that makes the quality of service, asperceived by the customer, the number one driving force for the operation of thebusiness. Every hospitality organization has thousands of moments of truth every day.This challenges employees to maintain their quality service. Service commitment is atotal organizational approach that makes the quality of service, as perceived by the

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customer, the number one driving force for the operation of the business.3)The Disney service model:It begins with aSmile.MakeEye contact and use body language.Respect and welcome all guests.Value the magic.Initiate guest contact.Create service solutions.End with a “thank you.”4)The Ritz-Carlton Hotel won the Malcolm Baldrige National Quality Award for itsprinciples of quality service commitment to guests. The Gold Standards of these corevalues include three steps of service:A warm and sincere greeting.Anticipation and compliance with guests’ needs.A fond farewell, using guests’ names if and when possible.5)Pages 41 to 44 lists several of the more prominent trends facing the industry today.Answers will vary.V. Mini-Case Discussion Question AnswersBeing Promoted From Within1. Students will have various answers. The likely cause is the previous relationshipwith their new supervisor. Familiarity might allow the staff to believe that they areimmune to supervision with their ‘friend’ in charge.2. Tom should assess the current challenges with the staff and meet with them todiscuss (or require) their cooperation in compliance. It’s time that Tom takes charge.3. Perhaps tell Tom that he could maintain a ‘friendly’ relationship with his co-workers, but as a supervisor he could no longer be ‘friends.’

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Chapter TwoThe Hotel BusinessI.Chapter ObjectivesAfter reading and studying this chapter, the student should be able to do the following:1.Describe hotel ownership and development via hotel franchising andmanagement contracts.2.Explain the diamond rating classification of hotels.2.Classify hotels by rating system type, location, and price.3.Discuss the concept and growth of vacation ownership4.Discuss sustainable/green lodging.5.Identify trends influencing the hotel business.II. Key Teaching Elements/Chapter Outline/Lecture SuggestionsHotel Development and OwnershipPageObject.The lodging industry is a more than $155 billion industry thatincludes approximately 53,000 properties with almostfive millionguestrooms.Franchising and management contracts are the two maindriving forces in the development and operation of the hotel business.541FranchisingFranchising in the hospitality industry is a concept that allows acompany to expand morequickly by using other people’s money,rather than acquiring its own financing.561Under a franchise agreement, the company orfranchisorgrantscertain rights–for example, the right to use the company trademark,operating procedures, reservation systems, marketing know-how,purchasing discounts, etc.–for a fee. In return, thefranchiseeagreesto operate the restaurant, hotel, etc., within guidelines set by thefranchisor.561Holiday Inn, Ritz-Carlton, and Howard Johnson’s all grew in the1950s and 1960s through franchising.One of the key factors that ledto the success of Holiday Inn was that they were the first company toenter the mid-price range and that they were located near importantfreeway intersections and in the suburbs. Budget hotel properties(Motel 6, Days Inn) grew during this time period.561Franchising was the primary growth and development strategy ofhotels and motels during the 1960s through the 1980s. Challenges tothe franchise arrangement include the maintenance of quality571, 2

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standards and the financial stability of the franchisee. Franchise feescan vary tremendously and are often negotiated between thefranchiser and the franchisee. The average agreement is 3% to 4% ofroom revenue.Franchising presents both benefits and drawbacks. Carefulconsideration should be given to these factors.57, 581Is There a Franchise in Your Future?It is predicted that more than half of retail sales in the U.S. (includingrestaurants) will soon be transacted through franchised units. Thereare jobs working directly for a franchiser, a franchisee, or you mightbuy a franchise yourself.581Many franchisors own their own units that they use to test newoperational or marketing ideas and to demonstrate the viability of thebusiness to potential franchisees.591Many of the mistakes that a new entrepreneurmay make have alreadybeen overcomeby your franchisor. The companymight provide cashflow. The company might alsoprovide other support servicesat littleor no cost, such as marketing and advertising, site selection,constructionplans, assistance with financing, and so on. All thisassistance leadsto a second key reason for buying a franchise—reducing your risk of failure.591Franchising does have some disadvantages. As a franchisee, yourfreedom is somewhat restricted. You must operate within theconstraints set out by your franchise agreement and the operationalstandards manual.591Referral AssociationsA marketing consortium or referral organization is a group ofindependent properties that refer businesses to one another. Thebenefit of this arrangement is that independent hotel operations areable to compete with chain operations. Hotels with a referralassociation share a centralized reservation system (CRS) and acommon image, logo, or advertising slogan.611Management ContractsManagement contracts have helped stimulate the growth of the hotelindustry since the 1970s. They are popular because little or no up-front financing or equity is involved.621The management contract usually allows for the hotel company tomanage the property for a period of years. In return, the company621

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receives a management fee determined as a percentage of gross or netoperating profits.Today, many contracts are for a percentage of salesand a percentage of operating profit. This is normally 2+2 percent.Hotel companies have increasingly entered into managementcontracts because less capital is “tied up” in managing the propertiesthan is required in owning properties.631Today, hotel management companies exist in an extremelycompetitive environment. They have discovered that the hotelbusiness, like most others, has changed and they are adaptingaccordingly.Today’s hotel owners are demanding better bottom-lineresults and reduced fees. Management companies are seekingsustainability and a bigger share of the business.631Real Estate Investment Trust (REIT)A REIT must have at least 75 percent of itsassets in real estate.Today, about 300 REITs, with a combined market value of $70billion, are publicly traded. Investors like them because they do notpay corporate income tax and instead are required to distribute atleast 95 percent of net income to shareholders. In addition, becausethey trade as stocks, they are much easier to get into or out of than arelimited partnerships or the direct ownership of properties.631Hotel DevelopmentHotel ownership and development is verycapital intensive. Newhotels are built as a business venture by a developer, and because thedeveloper expects to make afair return onthe(substantial)investment, afeasibility studyis done to assess the viability of theproject. The feasibility study determines the degreeto which theproposed hotel project would be financially successful.651One of the most important documents is aSummary OperatingStatement, which details revenues and expenses for a period.651Close to 70 percent of a hotel’s revenue and most ofthe profit comesfrom the sale of rooms. About 26 percent of revenue comes fromfood and beverage sales.651There are two views on new hotels versus remodeled hotels as far asroom rates and profits are concerned. It is often difficult for a newproperty to make a profit for a few years because of the higher cost ofconstruction and the need to become known and to gain a goodmarket share. On the other hand, a remodeled hotel has the cost ofremodeling to pay for plus higher operating costs for energyandmaintenance, so the two options tend to cancel each other out.651

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Older hotels are generally renovated about every seven years. This isbecause they become dated and would otherwise lose market share,which equals profit. Older hotels have anadvantage over new ones—or should have an advantage as a result of positive recognition in themarket.651The Economic Impact of HotelsHotels provide substantialdirectandindirect economic impactto thecommunities in which they are located. For direct impact, consider ahotel that has an average of 240 guests a night who spend $250 at thehotel and in restaurants and stores in the community. That wouldmean $240x$250x365 days=$21.9 million ayear infused into thelocal economy.671The indirect impact comes from the ripple effect, which we describein the tourism chapter; this is where money is spent by the employees(wagesand salaries) of the hotel in the community. It is also moneyused by the hotel to purchase all the items to service the guests.Communities also benefit from the Transient Occupancy Tax (TOT),otherwise known as the bed tax.681Classification of Hotels and Lodging PropertiesAccordingto the American Hotel and Lodging Association (AHLA),in 2013the U.S. lodging industry consists of 52,887hotelsandmotels, with a total of 4,926,543million roomsand $163 billion insales.The LodgingIndustry691Hotels may be classified in several ways and may have one or moreaffiliations. For instance, hotels may be classified using the SmithTravel Research(STR)hotel classification system, theForbes TravelGuide Five-Star rating process,and the American AutomobileAssociation (AAA) Five-Diamond award system. Smith Travel,Forbes,and AAA have all expanded their rating practices outside theUnitedStates.692Hotel AffiliationsA hotel may have multiple affiliations includingbeing part of a chain,parent company, operation (such as corporation, franchise, orindependent), management company, owner, asset managementcompany,and/or a member of a membership or marketing group.693

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Hotels may also be classified as corporate,franchise,or independent.Acorporate hotelis a chain hotel owned or managed bythe chain orparent company. Afranchise hotelis a chain hotel run by a thirdparty, where the chain receives some sort of franchise fee. Anindependent hotelis not affiliated with a chain or parent company.Hotels may also be affiliated with amanagement companythatoperates the hotel on behalf of another party.Hotels may also be affiliated with one or more membership andmarketing groups that provide various benefits, such as marketingassistance and reservation services.Hotels may now be classified as a quasi-chain. Quasi-chains haverecently come into existence and are basically a cross between achain and a marketing group for independent hotels.703Hotel Classification by Rating System: AAA and ForbesThe AAA has been inspecting and rating the nation’s hotels since1977. Aboutthreepercent of the 59,000 (29,000 hotels and 30,000restaurants) properties inspected annually throughout the UnitedStates, Canada, and Mexico earn the five-diamond award, which isthe association’s highest award for excellence. In 2013,the five-diamond award was bestowed on124lodging establishmentsin theUnited States, Canada, the Caribbean,and Mexico712Similar to the system used by AAA, Forbes Travel Guide classifieshotels using a five-star rating system.Out of the 50,000 hotels in theUnitedStates, Forbes rates and recommends about 8,000 properties ayear. Of those, only a few dozen earn the five-star rating.The hotel industry also classifies hotels by location or featuresand benefits. A hotel may be located in an urban or city center,suburban, airport, interstate or freeway, resort, small town/rural,casino, full-service, extended-stay, all-suite, convention, or bed andbreakfast.722City center and Suburban HotelsCity center hotels meet the needs of business and leisure travelers.They offer a range of accommodations and services.753They offer a signature restaurant, coffee shop, or an equivalentrecognized name restaurant; a lounge; a named bar; meeting andconvention rooms; a ballroom; and possibly a fancy night spot.753

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Resort HotelsResort hotels developed initially with the growth of rail travel,In thelate 1800s, luxury resort hotels were developed to accommodate theclientele that the railways brought.753Many resorts began as seasonal ventures, but with the increase of airand automobile travel, many resorts have become year-rounddestinations.773Today, there are numerous resort hotel properties that cater to theneeds of many segments of the population. Some resorts are familyfriendly, whereas others seek to create a quiet get-away for the adult.Many resorts actively work to attract conventions and conferences toincrease occupancy, especially in the off-season.To increase occupancies, resorts have diversified their marketing mixto include conventions, business meetings, sales meetings, incentivegroups, sporting events, additional sporting and recreational facilities,spas, adventure tourism, ecotourism, and more.Because guests are cocooned in the resort, they expect to bepampered.This requires an attentive, well-trained staff; hiring,training, and retaining a competent staff present a challenge in someremote areas and in developing countries.773Airport HotelsIn general, airport hotels have high occupancy rates because of thelarge number of travelers arriving and departing from major airports.Some properties have added meeting space to cater to business peoplewho need to fly in, meet, and then fly out on a very tight schedule.793These hotels are usually full service and have 200 to 600 rooms.793Freewayand InterstateHotels and MotelsFreeway hotels and motels grew most quickly in the 1950s and1960s. They provided a convenient place to stay that was reasonablypriced with few frills.803They aresmaller than most hotels—usually fewer than fifty rooms—and are frequently mom-and-pop establishments or franchised (suchas Motel 6).803Casino HotelsThe casino hotel industry is now coming into the financialmainstream, to the point that, as a significant segment of the803

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entertainment industry, it is reshaping the U.S. economy. Theentertainment and recreation sector has become a very importantengine for U.S. economic growth, providing a boost to consumerspending, and thus creating tremendous prosperity for the industry.One of the fastest-growing sectors of the entertainment field isgamingLarger casino hotels also attract conventions, which represent alucrative business. There are now more than 150 hotels on NativeAmerican tribal land.803Conference andConvention HotelsConvention hotels offer facilities that meet the needs of groupsattending and holding conventions. These facilities may include largepublic areas and banquet facilities, a business center, a travel desk,and an airport shuttle, as well as other amenities.Convention hotels usually have a minimum of 300 guest rooms and aminimum of 20,000 square feet of meeting space andlarger publicareas to accommodate hundreds of people at any given time.Convention hotelshave many banquet areas within and around thehotel complex.Full-Service Hotels813Hotels may be classified by the degree of service offered:full-service,economy, extended-stay,andall-suite hotels.Full-service hotels offera wide range of facilities, services, and amenities for both thebusiness and pleasure traveler.Examples: Hilton, Hyatt, FourSeasons.Most of the major North American cities have hotel chainrepresentation, such as Four Seasons, Hilton, InterContinental,Choice, Hyatt,Marriott, Omni, Wyndham, Radisson, Loews, andStarwood.813Economy/Budget HotelsThese properties provide clean, reasonably sized and furnished roomswithout “frills.” Economy hotels focus on selling beds. They do notoffer meals or meeting rooms, as a general rule.823Boutique HotelsThese hotels offer a different experience. They have a uniquearchitecture, style, décor, size, usually 25-125 rooms offering a highlevel of personal service.823

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Extended-Stay Hotels and All-SuiteExtended-Stay HotelsThese hotels provide accommodations to guests staying longer than 5days. Rates are usually decreased based on the length of the stay.Guests are usually a mix–professionals, business people, andfamilies that are relocating.833Extended-stay hotels offer full kitchen facilities and shoppingservices or a convenience store on the premises.843All-suite hotels usually offer more space per room, for the same rateas a regular hotel in the same price range.The additional space isusually dedicated as a lounge or kitchenette, or both, within the room.These hotels are attractive to guests who may be relocating, attendingtraining seminars, or are on work-related projects.843Condotels, Timeshare,and Mixed-Use HotelsA combination of a hotel and condominium. Developers build a hoteland sell it as condo units.843, 4This means that a hotel may also have residences; condos that peopleuse rather than renting like a condotel. They have spas and sportsfacilities. Can be part of urban or resort development that mightinclude office buildings, etc.853, 4Bed and Breakfast InnsBed and breakfast operations offer variety in accommodation and incost. Although not all B&Bs are owner occupied, they provide analternative to the traditional lodging experience.853A true B&B is an accommodation with the owner, who lives on thepremises or nearby, providing a clean, attractive accommodation andbreakfast, usually amemorable one.There are an estimated 25,000bed and breakfast places in the United States alone.853Best, Biggest, and Most Unusual Hotels and ChainsThe largest hotel in the world is the Izmailovo Hotel in Moscow with7,500 rooms,followed by the 7,372-room MGM Grand in Las Vegasand the Venetian Hotel, also in Las Vegas, which has 7,117 rooms.The Best Hotel Chains863, 6The Ritz-Carlton and Canadian-owned Four Seasons are rated thehighest quality chain hotels.The Ritz-Carlton Hotel Company hasreceived all the major awards the hospitality industry and leading863, 6

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consumer organizations can bestow. It has received the MalcolmBaldrige National Quality Award from the U.S.Department ofCommerce.The Most Unusual HotelsUnusual hotels include The Treetops in Kenya, the Ice Hotel inSwedish Lapland, and the underwater hotel at Great Barrier Reef.883, 6Timeshare,Vacation Ownership, and FractionalOwnershipVacation ownership is the fastest growing segment of the US traveland tourism industry.A variation of the “time share” model is thevacation club. Consumers earn points toward vacation benefits.Flexibility is a key advantage of this type of program. Hotelcompanies have found this segment of the industry to be extremelylucrative. As a result, many leading hoteliers are entering into it.Fees such as yearly maintenance fees are required in addition tovacation ownership charges.883, 4Time share ownership lets owners save on the rising costs of vacationaccommodations over the long term, while providing the space andflexibility to meet the needs of any size family or group.Vacation orfractional ownership is a form of real estate ownership or right to usea property in part. These types ofproperties are often resort or urbancondominiums, town homes,or single family homes, in whichmultiple parties own and have rights to the property and amenities.893, 4Time shares also provide the possibility of worldwide travel bymeans of ownership exchange.By locking in the purchase price ofaccommodations, vacation ownership helps ensure future vacations attoday’s prices at luxurious resorts with amenities, service, andambience that rival any of the world’s top-rated vacation destinations.Travel the World Through Exchange Vacations903, 4Through the international vacation exchange networks, owners cantrade their timeshare intervals for vacation time at comparable resortsaround the world. Most resorts are affiliated with an exchangecompany that administers the exchange service for its members.Typically, the exchange company directly solicits annualmembership. Owners individually elect to become members of theaffiliated exchange company. To exchange, the owner places his orher interval into the exchange company’s pool of resorts and weeksavailable for exchange and, in turn, chooses an available resort andweek from that pool.904, 6

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International PerspectiveThe global economy is segmented into large trading blocks such asthe European Economic Community (EEC) and the North AmericanFree Trade Agreement (NAFTA). Such agreements reducelimitations on the transfer of goods and labor. This can lead toincreasedtravel, tourism, commerce, and industry.911, 6Growth is expected to continue under the EEC and NAFTA. ThePacific Rim is also growing dramatically in the realm of tourism.InAsia, Hong Kong’s growth has been encouraged by boomingeconomies throughout Southeast Asia and the kind of tax system forwhich supply-siders hunger. The Hong Kong government levies a flat16.5 percent corporate tax, a 15 percent individual income tax, and notax on capital gains or dividends.911, 6In developing countries,once political stability has been establishedand maintained, hotel and tourism development follows closely.921, 6Sustainable or Green LodgingDevelopers are more environmentally conscious because it can costfar more not only to build a lodgingfacility but also to run it if it isnot sustainable.925The cost of energy has increased so much in recentyears that lodgingconstructionnow incorporates ways of using natural lighting andbuilding energy efficientbuildings.925Lighting can account for 30 to 40 percent of commercial electricityconsumption.925Water conservation is another method that can greatly reduce waste.Today, many hotels are replacing showerheads, toilets, and faucetswith low-flow water devices.935CareerInformation93There area variety of options related to hotel development andclassification. Some examples would be working in corporate officesor consulting firms. In any case, a variety of positions in hotels willbenefit the person wanting to go into management.Trends in Hotel Developmentand ManagementTopics include capacity control, safety and security, technology,assets and capital,new management, globalization, consolidation,diversification within segments of the lodging industry, rapid growthin vacation ownership, increase in the number of spas and treatments,94-95

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gaming, mixed-use properties, sustainable lodging development, andculinary selectiveness.III. Teaching Techniques/Classroom ExercisesNote: The content of these exercises is such that they may also be used as essayquestions.Exercise One:Ask students to generate a list of hotels in the area using an Internet search sitesuch as Hotels.com. As needed, facilitate the list development by adding to the listproperties that they omit, such as Mom and Pop motel properties, residential hotelproperties, etc. Once a comprehensive list has been generated, ask students to classifythe hotel properties using the categories from the text. Through discussion, analyze thelist. Which hotel types are most prevalent? Why? Which are omitted from the list?Why? Has the lodging industry in the area gone through changes in the past 20 years? 30years? etc.? If so, why?Exercise Two:Send students on a scavenger hunt using the Internet. Have them search forarticles that highlight unusual worldwide hotel properties and/or important hoteliers, inaddition to those listed in the text. Have students share findings. This activity couldeasily be turned into a contest, with“points” being earned for articles that are the mostunusual.Exercise Three:Have students identify which type of hotel they would like to work for and why.Which type of hotel would they like to own? What characteristics make this hotel idealfor their career?Exercise Four:Give students a specific list of hotels that have a broad range of classification.Have students access websites or other sources to find information on the hotels. Mosthotel chain websites will offer details on specific hotels, including rates, amenities, andservices at each property. Using the text have students work independently to classifyeach hotel. This can be used for a discussion and/or debate on how hotels are classified.Check Your Knowledge, p. 631)Question: What main factor changed the nature of the hotel industry? Whatimpact does it have today?Answer:Improved transportation has changed the nature of the hotel industryfrom small, independently owned inns to big hotels and lodging chains operationsby such concepts as franchising and management contracts.

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2)Question:What are some of the benefits and drawbacks to being a franchisee?Answer:Benefits to the Franchisee are as follows:A set of plans and specifications from which to buildNational advertisingA centralized reservation system (CRS)Participation in volume discounts for purchasing furnishings, fixtures, andequipmentListing in the franchisor’s directoryLow fee percentage charged by credit card companiesThe drawbacks to the franchisee are as follows:Franchisees must pay high fees, both to join and ongoing.Central reservations generally produce between 17 and 26 percent of reservations.Franchisees must conform to the franchisor’s agreement.Franchisees must maintain all standards set by the franchisor.The benefits to the franchise company are as follows:Increased market share and recognitionUp-front feesThe drawbacks to the franchise company are as follows:The need to be very careful in the selection of franchiseesDifficulty in maintaining control of standards3)Question:In your own words, definefranchisingandmanagement contracts.Answer:Answers will vary but should be similar to text’s definitions.Franchising is a concept that allows a company to expand quickly by allowingqualified people to use the systems, marketing, and purchasing power of thefranchisor.Management contracts are written agreements between an owner and an operatorof a hotel or motor inn by which the owner employs the operator as an agent(employee) to assume full responsibility for operating and managing the property.4)Question:Explain the nature of a referral association and some of the benefitssuch an arrangement offers.Answer:Very similar to franchising but without the cost. Hotels and motels with areferral association share a CRS and a common image, logo, or advertisingslogan. In addition, referrals may offer group-buying discounts to members, aswell as management training and continuing education programs. Eachindependent hotel refers guests to each of the other member hotels. Hotels andmotels pay an initial fee to join a referral association. Size and appearancestandards are less stringent than those in a franchise agreement; hence, guests mayfind more variation between the facilities than between franchise members.Check Your Knowledge, p. 691)Question:Explain a Real Estate Investment Trust (REIT).Answer:REIT’sfocus on specific sectors such as hotels, office buildings,apartments, malls, and nursing homes. A REIT must have at least 75 percent of itsassets in real estate. Investors like them because they do not pay corporate income

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taxes. They are required to distribute at least 95 percent of net income toshareholders. In addition, because they trade as stocks, they are much easier to getinto or out of than are limited partnerships or the direct ownership of properties.2)Question:What is the difference between direct and indirect economic impact?Answer:For direct impact, consider a hotel that has an average of 240 guests anight, each of whom spends $250 at the hotel and in restaurants and stores in thecommunity per day. That would mean $240$250year infused into the local economy. The indirect impact comes from the rippleeffect, which we describe in the tourism chapter; this is where money is spent bythe employees (wages and salaries) of the hotel in the community. It is alsomoney used by the hotel to purchase all the items to service the guests.Communities also benefit from the Transient Occupancy Tax (TOT), otherwiseknown as the bed tax.3)Question:Identify the two views with regard to new hotel versus remodeled hoteldevelopment.Answer:There are two views on new hotels versus remodeled hotels as far asroom rates and profits are concerned. It is often difficult for a new property tomake a profit for a few years because of the higher cost of construction and theneed to become known and to gain a good market share. On the other hand, aremodeled hotel has the cost of remodeling to pay for plus higher operating costsfor energy and maintenance, so the two options tend to almost cancel each otherout.Check Your Knowledge, p. 861)Question:What is the role of Smith Travel Research?Answer:Smith Travel Research scale categorization is popular for the hotelindustry to classify hotels. Smith Travel uses a seven-scale categorization, withsix categories for chain hotels (e.g., economy, midscale, upper midscale, upscale,upper upscale, and luxury) and one scale category for independent hotels. SmithTravel Research focuses on hotel ADR rather than features or amenities whenpositioning chains into a scale group.2)Question:Identify the characteristics of one through five-diamond, as well as onethrough five-star hotels.Answer:AAA properties:One-diamond properties have simple roadside appeal and the basic lodging needs.Two-diamond properties have average roadside appeal, with some landscapingand a noticeable enhancement in interior décor.Three diamonds carry a degree of sophistication through higher service andcomfort.Four diamonds have excellent roadside appeal and service levels that give guestswhat they need before they even ask for it.Five-diamond properties have the highest service levels, sophistication, and

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offerings.Forbes Travel Guide:One-star hotels are limited-service hotels or inns that are considered clean,comfortable, and reliable establishments.Two-star hotels are considered clean, comfortable, and reliable establishmentsthat have expanded amenities, such as a full-service restaurant.Three-star hotels are well-appointed establishments with enhanced amenities thatprovide travelers with a strong sense of location, whether for style or function.They may have a distinguishing style and ambience in both the public spaces andguest rooms.Four-star hotels provide a distinctive setting with many interesting and invitingelements to enjoy throughout the property. Attention to detail is prominent fromdesign concept to quality of products provided. Staff are accommodating and takepride in cateringto the guest’s specific needs.Five-star hotels are exceptional properties that provide a memorable experiencethrough virtually flawless service and the finest of amenities. Staff are intuitive,engaging, and passionate and eagerly deliver service above and beyond theguests’ expectations. The hotel was designed with the guest’s comfort in mind,with particular attention paid to craftsmanship and quality of product.3)Question:List the characteristics of each hotel segment highlighted.Answer:Hotels are categorized several ways. They are listed under geographicorientations, markets, locations, features, and price. Some of the classificationsare:City Center and Suburban: May include luxury, first-class, full-service,convention, midscale, economy, boutique, extended stay, corporate housing, andall-suite hotels.Resort: May include luxury, midscale, economy suites, condominium, timeshare,convention, boutique, all-suite, all-inclusive, or a mixed-use hotel (e.g., includes afull-service hotel, condominiums, homes, and fractional ownership/timeshareunits on property).Airport: May include luxury, full-service, midscale, economy, and all-suite hotels.Freeway: May include midscale, economy, and all-suite hotels.Casino: May include luxury, upper upscale, and midscale hotels with an attachedcasino operation.Rural and Small Town: May include a mix of midscale, economy, and bed andbreakfasthotels.Check Your Knowledge, page 951)Question:Explain timeshare, vacation, and fractional ownershipAnswer:Timeshare is an “owned” suite that is rented out rather than a hotel roomthat is rented out. Vacation or fractional ownership is a form of real estateownership or right to use a property in part. These types of properties are oftenresort or urban condominiums, town homes, or single family homes, in whichmultiple parties own and have rights to the property and amenities. Ownershipand access are designated in defined periods of time (e.g., one week, two weeks, a

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month, etc.), and the units may be owned forever or on a specified period of timelease or right-to-use basis.2)Question:Identify several sustainable or green lodging strategies.Answer:There are eight steps you can take to start an effective, sustainablelodging program including:1. Organize a waste reduction team;2. Conduct a waste assessment;3. Establish waste reduction goals;4. Secure recycling markets;5. Set up a collection and storage system;6. Buy recycled products.7. Conserving energy through electricity consumption8. Water conservationSee page 93 for the complete explanation.3)Question:List and explain some trends in hotel development.Answer:Some trends are; increased use of capacity control mechanisms,enhanced safety and security programs, the continued increase of technology,globalization, more consolidation in the industry, etc.A comprehensive list is on pages 94–95.IV. Answers to Chapter 2 Review Questions1)a)Management contracts have the advantage of requiring little up-front financing andusually allow the hotel company to manage the property for several years, wherebythe company receives a percentage of the net operating profit as a management fee.This allows for the rapid expansion of the hotel market, especially since increasedcompetition among management companies has decreased the management contractfees.b)The concept of franchising allowed for the rapid expansion of hotels and motels.Franchising allows franchisees to use the brand names and services of a franchisor inexchange for a fee. This has the advantages of involving less up-front capital, acentralized reservation system, national advertising, and increased marketrecognition, but it also includes the challenges of maintenance of quality standardsand avoidance of financial failure on the part of the franchisee.2)a)Resorts are usually located at exotic places with spectacular scenery, offeringrelaxation and recreational activities. The Treetop hotel located in one of Kenya'swild animal parks is architecturally built on the tops of trees, whereas the CocoonHotel in Japan offers guests an affordable alternative space of about seven feet byfour feet with just a bed and television.b)Airport hotels offer extended room service and restaurant hours to accommodateearly and late arriving and departing guests.

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c)Vertical Integration is the trend of having properties in all segments of the market:luxury, mid-scale, and economy.3)Vacation ownership is more commonly known as time-sharing. Vacationers buy the"right" to use a hotel room/condominium/cabin/apartment, etc., for a given amount oftime each year. The destination and the "unit" may be fixed or may be flexible.Vacation clubs provide the greatest amount of flexibility as members can choose fromvarious member destinations.

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