HADM 1350 - Reading Questions
What do independent or "Soft Brands" provide property owners?
"Soft-branded" properties benefit from the reservation and marketing platforms of a large hotel company (often with international recognition), while maintaining nearly total control of business strategy, yield management, amenity offering, and creative design elements
When did the industry recover? Why did it take so long? What did the industry learn?
1994 Customers became educated of their bargaining power Loans from 1980s were due and cash flow was interrupted How to decrease costs and improve margins
In a big box hotel, like the New Orleans Marriott (Behind Closed Doors at Marriott), what percent of the business comes from groups?
60%
Define: Hotel Franchise Fees
A fee paid by the third party, a franchisee, to operate a franchise branch of a larger company, a franchisor
What is a franchise hotel?
A franchise hotel is a chain hotel run by a third party where the chain receives some sort of franchise fee
What is a chain managed hotel, sometimes referred to as a corporate hotel?
A hotel managed and/or owned by the chain or the parent company
What do most hotel lenders believe that a hotel in today's market needs in order to be competitive?
A strong franchise affiliation
What is a touch point? Some companies refer to touch points as moments of truth.
A touchpoint is an interaction between customer and business
What was the theory behind having many price points (or chain scale diversification)... also known as many brands under one umbrella?
Any customer, any need, any part of the world. Ability to create loyalty to the company, target different markets, strengthen the brands, brand extension
Which iconic company sent five of their store GM's through the Ritz-Carlton service training?
Apple, Steve Jobs
Briefly describe Arne Sorenson's background and how he became CEO of Marriott.
Arne Sorenson worked as a lawyer for Marriott, then head of the MNA, CFO, head of Europe, COO, CEO
Mr. Rubenstein asks Arne Sorenson to explain, "The concept that Marriott more or less invented or perfected." What concept was he referring to? How did Mr. Sorenson respond to this question?
Asset-light model. Sorenson said that it is better to manage and operate hotels, and it doesn't require large capital and debt
What technology is likely to transform the hotel business of the future? What technology do YOU think will influence or transform the hotel business of the future?
Automated check-in and room control from your phone
Why did Marriott not publicize that they owned the Ritz-Carlton Brand for many years?
Because Marriott was associated with lower segment, and Marriott did not want guests to associate Ritz with lower brand
Why would the Revenue Manager NOT want to be the first hotel to sell out in the market?
Because if other hotels sell out, revenue manager can charge a premium because of the limited supply
Why did Chris Nassetta decide to move Hilton's headquarters from Beverly Hills to Washington, DC?
Beverly Hills is very expensive to operate, high living costs, commuting is long, 3 hour difference, core members were located on the East coast. Reset the culture of the brand
Who bought Hilton in 2007 and made it a privately held company?
BlackStone
Why did Chris Nassetta say Hilton is agnostic when it comes to managing or franchising a hotel? When would Hilton want to manage a hotel rather than franchise the business?
Both methods produce high margins with low risk. If it is a big property with a lot of potential and details, he would prefer to manage it
What is a boutique hotel? Would you consider Edition to be a boutique hotel? Who did Marriott develop the Edition brand with?
Boutique hotel is small, stylish, upscale or luxury. Edition is a soft brand. Ian Schrager assisted with Edition Brand
Why is it harder to extend a brand up... and what Hilton brands will you never see the Hilton name used to promote the brand?
Brands that are higher in class then Hilton won't ever have Hilton name, but brands that are below will always have it. This is called brand extension
STR maintains a database of all the 170,000+ hotels in the world. What is this database called?
Census
What are the four reservation channels or sources of bookings for hotels?
Centralized Reservation System, Global Distribution System, Online Travel Agencies, Brand Website
Why is service quality more difficult to evaluate than goods quality?
Consistency, different expectations, perception
Rather than measure customer satisfaction, Ritz-Carlton uses a proprietary metric it calls "customer emotion," which reflects the concept of emotional intelligence. It also uses elaborate benchmarking procedures to ensure accountability for key priorities. What are the priorities that they look at?
Customer and employee loyalty, financial success, continuous improvement initiatives.
Name the four principles that are common to nearly all top-performing luxury brand companies.
Customer-centered culture Rigorous selection process for staff Constantly retrain employees Measure and reward customer centric behavior from staff
Explain the inverted organizational pyramid. Who should be at the top of the pyramid and who should be at the bottom?
Customers are at the top and executives are at the bottom because sales are making the most important business decision while executives support them
The "Go-Go Eighties" were a time when hotel development boomed. Several factors contributed to the increasing attractiveness of hotels as an investment. What were they?
Decrease in interest rates, foreign investments, wealthy people invested in hotels because unprofitably on paper, accelerated depreciation schedules.
What happened in late 1990s - early 2000s, when did the industry recover?
Demand decreased and investors sold their stocks ADR and RevPAR were increasing and profits as well Quadruple Whammy - Slowing of the Economy • Attack on America • War with Iraq • A long, hard recession Industry recovered in 2004
Why do hotels charge for Internet? What do you think the model will be for Internet in hotel rooms in the future?
Demand for Internet is really high and it's costly to provide. Different layers of Internet are available: simple email, video streaming. Eventually, mobile Internet will replace WiFi.
The Tax Reform act was passed in 1986. How did the act impact the hotel industry? Why did the hotel industry see record supply growth of 7.6% in 1987?
Depreciation schedules were increased, investment tax credit repealed. Most of projects that were started during 1981 got completed increasing supply by 7.6%
List the franchise cost as a percentage of rooms revenue for each of the HVS chain scales: Economy, Midscale, Upper-Midscale, Upscale and "First Class"
Economy 8.9% Midscale 9.9% Upper Midscale 11.3% Upscale 11.8% First Class 12.1%
What is entitlement and how can it impede the ability to genuinely be of service?
Entitlement is a selfish characteristic with the focus on oneself. It is difficult to be focused on yourself and give best service.
What distinguishes a stay at the Ritz Carlton from a night at a comfortable mid-scale hotel chain?
Exceptional customer service
In the one day that CNBC "followed the money" at the New Orleans Marriott what were the hotel's revenues and expenses for the day?
F&B makes more revenue, total profit is $222k, roughly 40%
Hotel Cycles
Finance Cycle Development Cycle Operational Cycle
What is the FDD and why is this document so important to the franchisor (Zor) and the franchisee (Zee)?
Franchise Disclose Document describes fee structure and removes all potential variables
Payroll is the largest operating expense a hotel will incur. Name another expense that can represent one of the largest operating expenses for many hotels—an expense that may show up in several different departments on the financial statement based on the Uniform System of Accounts for Hotels.
Franchise Fee is one of the largest expenses, averaging at 10.8%, median at 11.5%
HVS categorizes hotel brands into five hotel chain scales. How do these categories differ from the STR categories?
HVS combined Upper-Upscale and Luxury into First Class; others stay the same. Luxury brands do not franchise
Why did Trump have to convince an experienced hotel operator to come in with him BEFORE he actually had a hotel deal?
Having an experienced partner would help with negotiations with banks and government
Why did Chris Nassetta take the job of CEO at Hilton and how did he describe the situation at Hilton before he took over?
He saw an opportunity as Hilton was an iconic brand but was poorly managed with a lot of debt
Why was JW Marriott scared to death of the hotel business?
He was afraid of taking on debt
Briefly describe Chris Nassetta's background and how he became CEO of Hilton.
He worked in various real estate companies. Prior to Hilton, he was the CEO of Host REIT.
Hilton, as a company, suffered for many years because of the fact that is was put together through merger and acquisition. Explain what they are referring to.
Hilton was acquiring brands to diversify its market share and presence in various segments
The separation of ownership from management happened when hotel companies realized that they were really a combination of two businesses. What were the two businesses?
Hotel real estate ownership and hotel management. Hotel management is operated on large profit margins while real estate on interest expense and depreciation. A lot of hotel companies sold properties but signed long-term management deals.
Do hotels make money on mini-bars and room service? Why or why not?
Hotels don't make money on room service or mini bar. People have to always refill mini bar, purchase new food. Same with Room service
If you walk into a Hilton or Marriott hotel and can tell that it is a franchise property verses a managed property... then what has happened?
If there is a difference then the company has failed
What are the characteristics of services that make them different from products?
Intangibility - services are performances Heterogeneity - consistency is difficult to ensure Inseparability - production and consumption are occurring at the same time
Beginning in 1981, changes in the tax laws dramatically increased the attractiveness of hotels as an investment. What changed in the tax laws?
Interest rates fell and encouraged borrowing. Accelerated Depreciation schedules were introduced, allowing to depreciate an asset faster.
Why do parent companies create multiple chains?
It allows companies to diversify, target different markets, integrate loyalty program.
What does the Initial Fee cover?
It covers cost of processing the application, reviewing the site, assessing market potential, evaluating property, providing services during opening or conversion
Why would a privately held company want to become a publicly owned company?
It increases cash flows for rapid expansion
What is a service audit and why is a service audit important to perform?
It is a quality check. Employees need to listen to clients and ask themselves about potential way to improve
Kaizen is a Japanese term. What does it mean and why is it important to businesses that strive for service excellence?
It is a term for improvement. Competitors are always improving, and you have too if you want to be competitive
Frequent Traveler Programs are very expensive to operate. Franchisees are required to bear their fair share of the costs associated with these programs. How are the costs of frequent traveler programs shared by franchisees?
It is either a one time fee, fixed dollar amount for each room occupied by the member, percentage of total revenue generated by the program, or all three combined
When was the modern hotel industry, as we know it, born? What caused the first boom in hotel development?
It was born after the WWII. The economic boom made people wealthier; people owned more cars and recreational travel became national pastime.
What kind of flexibility do front desk clerks have in negotiating rates with guests who walk in to a hotel (without a reservation) and are looking for a room that night?
Limited to none as revenue managers assign all prices
What are the three things that people care about when they are looking for a hotel room? (Can you list them in order?)
Location, Brand Affiliation, Loyalty Program
Why is it important to make the lobby comfortable and appealing to guests?
Longer people stay - more money they spend
Arne Sorenson explained something about the system that Marriott has today and why it could not be as big as it currently is if they owned their hotels themselves. Explain what he is talking about.
Marriott has $150B of RE under management, but owns only $1B. If they owned RE, they won't be able to globalize and develop their brand
What is the overall average franchise cost and the industry median cost for a typical franchise, according to HVS?
Median franchise fee is 11.5%, average is 10.8% of room revenue
What fees make up the Continuing Fees?
Monthly fees that include royalty, reservation, marketing and advertising, frequent traveler program, and miscellaneous
Quasi chains or soft brands—what are they and what do they do?
More unique, boutique hotel, but still they can take an advantage of the parent company reservation system and loyalty program.
What did Nassetta and Sorenson say is the greatest pleasure they get from running a global hotel company?
Nassetta enjoys working with 300,000 of his employees; people of organization. Sorenson says that it is a pleasure to operate business that everyone likes
What is an independent hotel?
Not affiliated with a chain or parent company
"The advent of market segmentation marked the maturation of the lodging industry into its present form." What is market segmentation?
One hotel company has different brands that are aimed at different customers.
What is a management company and what does it do?
Operates a hotel for another party. Company has a management contract where it receives payment and/or some portion of profits. May manage different chains
How frequently are the Continuing Fees paid?
Paid monthly over the term of an agreement
Where are you more likely to find a lower price for a Marriott or Hilton hotel room... on Expedia or Brand.com? If you are a loyalty program member where would you receive the best deal and why?
Prices are the same, but you can get loyalty point if you book through the website
What is a PIP?
Property Improvement Plan
Why are quality and its requirements not easily articulated by customers?
Quality is an elusive and indistinct construct, not clearly defined, depends on perception
What happened in 1989... and most likely contributed to Bill Marriott's three heart attacks?
Real estate market crash and company had a debt at a record high
What is an asset management company?
Represents the owner in the operation of a hotel, strives for the best return on the asset. A hotel can have both a management and asset management company.
Which brand is known for saying, "Ladies and Gentlemen Serving Ladies and Gentlemen"?
Ritz-Carlton
In a big box hotel, which departments may not actually make money? (They may only cover their costs). Think about Rooms; F&B: Banquets, Restaurants, Room Service, and Beverage
Room Service
On what night of the week can you get a reservation at a hotel at a significantly lower rate? Why?
Sunday night as business travelers come in later in the week and leisure travelers are leaving on Sunday
Why did Trump choose the Commodore as his first hotel to purchase?
The Commodore was unprofitable, had a lot of debt and could be bought at discount. It had an amazing location by the Grand Central
In the early 1990's the lodging industry went into its worst tailspin since the Great Depression. What three factors created the "triple whammy" that caused demand growth to falter?
The Persian Gulf War 1990-1991 National Recession Supply from 1980s outgrew the demand, and occupancy fell
What is "the fade"? Why does the Revenue Manager want no part of "the fade"?
The fade is when a person offers below price. Revenue management does not want to train customers
How did the major hotel brands expand their market presence in the late 1960's and early 1970's? Did this expansion require a lot of capital? Why?
The interstate highway system was nearing completion. Easy access to the capital because of the available mortgages from REITs and aggressive franchise sales by major companies. Major companies expanded with no large capital investments. The demand rose 18.9% in 1972.
What happens if the hotel is sold out and a platinum member calls the hotel for a room?
There are a few rooms left for platinum members
Franchisors offer incentive programs to reward guests for frequent stays. What are these programs designed to encourage?
These programs are designed to encourage brand loyalty
How are Royalty Fees typically calculated?
They are calculated as a percentage of rooms revenue
If you look at independent hotels in the US as a group, what do they typically have in common?
They are small, low price, and located in rural areas
What is the difference between a chain and a brand?
They are the same
What does the Royalty Fee represent?
They represent a major source of revenue for a franchisor and are calculated based on a percentage of rooms revenue; some brands charge extra for F&B
What is the Golden Rule, the Platinum Rule and the Double Platinum Rule?
Treat others the way you want to be treated Treat others the way they want to be treated Treat others the way they don't know they want to be treated
What was the restrictive covenant that Trump wanted to get (and finally got!) from Hyatt?
Trump had the right to allow/restrict building of Hyatt's hotels in NYC and airports
Which hotel company did Trump decide to partner with?
Trump partnered with Hyatt
How does the percent of chain hotels vs. independent hotels differ from the US versus worldwide?
U.S. has significantly higher chain hotels than the rest of the world. 70% vs 50%
How does Ritz-Carlton select employees and why is this critically important?
Uses variety of scientific tools and assessments. After interview, candidates spend time with current employees. It is crucial because good hires yield high profits
In the article, "Be My Guest: 7 Ways to Improve Service," what do operators need to do to consistently deliver outstanding customer service?
establish service culture focus on quality, not quantity listen to your employees empower your team answer online feedback in a timely manner respond to new challenges go above and beyond