Term Paper on "Hyatt Hotels"

Term Paper 14 pages (3885 words) Sources: 1+

[EXCERPT] . . . .

Hyatt Hotels

The Hotel Industry

Figures showed that the growth of worldwide hotel chains went down from 5.1% in 2000 to 3% in 2001 and 1.9% in 2002, with 40,000 properties registering under 290 brands and 175 corporate-operated chains (MKG Consulting 2004). Although the world supply remains geographically larger for North America, which claims 6 out of 10 rooms, expansion of hotel chains was more dynamic in Europe at +2.5% than in North America at only +1.6% during this period. These chains in North America have 88,000 rooms while those in Europe have 48,000, as of latest count. The other nationalities that shared the industry's supply of chain groups were South America, Pacific Asia, and Africa-Middle East (MKG Consulting).

In the 2004 ranking, European hotel chains assert themselves against the dominant American chains. Europe's InterContinental, Accor and Hilton are among the 10 largest that control more than ae of the hotel supply of the 100 largest hotels (MKG Consulting 2004). The top 15 chains are Best Western, Holiday Inn of the Intercontinental chain, Comfort Inns and Suites, Marriott International, Days Inn of America, Sheraton, Super 8 Motel, Express of the Intercontinental HG, Ramada of Cendant, Radisson of Carlson, Motel 6 of Accor, Quality Inns, Hyatt Hotels, and Hilton (MKG Consulting 2004). The Hyatt Hotels chain has more than 88,000 rooms worldwide. The total capacity of the 100 largest hotels in the world combined is 110,745 rooms. Critics view the expansion of chains at this time as "healthy." In the overall, American hotel brands or chains still lead, with 13 out of the largest 20 globally. They also retain supremacy in Asia Pacific where they operate four out of 10 rooms in the region. The 10% increase in hotel supply keenly interests international chain operators, who keep a keen eye on the economic potentials of Asia, especially China (MKG Consulting).

The latest ranking indicates that the most significant developments and changes in the global hotel industry have been happening in Europe. The hotel division of Forte/Compass was dismantled, Golden Tulip and Tulip Inn were purchased by NH and then resold, and the Scandic chain by Hilton International, turning over to the British chain group the leadership in the Scandinavian market (MKG Consulting 2004). It has been a case of internal brand growth. It is noted that top chains in North America have almost all been of American origin, while those in Europe are of European origin, different only in their management style. American brands have tended to increase their franchise development, as in the case of Choice or Cendant, while European brands have tended to develop through their subsidiaries.

The latest ranking also shows that the British are making their international presence felt with Best Western and Holiday Inn with 312,207 and 297,710 rooms, respectively (MKG Consulting 2004) and with a margin of 100,000 rooms over the third-ranking Days Inn. American chains generally form the densest networks, owning 80 of the 200 surveyed chains. But the French chain Accor has accomplished the unprecedented feat of placing its four brands - Motel 6, Mercure, Ibis and Novotel - in the top 20.

The budget categories appeared to be the most dynamic under the present growth conditions. In the U.S., the 9/11 event influenced the growth of American chains, whereby those intended to respond to international demand were either put on hold or postponed.

The same ranking reflects the growth of chains under the budget categories by 5.8% and those in the up-market at only 1.4% and those in the luxury market at only 1.2% (MKG Consulting 2004). Growth opportunities for development appeared better, particularly for chains in Asia, where there is not much budget hotel supply. These were most profitable least affected by the economic slump of 2001, which was most severe in Europe (MKG Consulting 2004).

The economic or political crisis, however, does not discourage the hotel chains from globalizing, but rather choose to respond to it by resorting to flexible forms of integration, such as mergers and acquisitions (MKG Consulting 2004). The development potential of the industry remains large, particularly in Europe and Asia. Global growth reached 3%, Europe 4.4% and North America 3.3%. By the end of 2001, 60% of the almost 3 million rooms in chains were in the North American continent, achieved through multiple franchise networks, and Europe accounted for close to a quarter of the rooms. This meant that other geographic zones fell behind (MGK Consulting).

It times of slow economic growth, these large international chains carefully evaluate the situation and their options, whether buying competing brands or through organic development (MKG Consulting 2004). The trend began in the early 90s and continues when business slows down again.

The American hotel industry at the start of the 20th century consisted mainly of small and independent operators (Working for America Institute 2004). With the invention of the automobile and the increase of long-distance travel and better-educated workers, national chains evolved. An analyst described how chains allowed customers to interact with the same organization while traveling across the country, reduced uncertainty and improved public expectation of good service. Chains grew faster than the industry itself, so that, in 1900, less than 1% of all rooms were not part of a chain-owned hotel. Chain ownership went up to 15% in 1930 and more than 50% in 1980 (Working for America Institute).

With these developments, new administrative structures were created that needed new occupations, such as a new set of managers and specialized workers (Working for America Institute 2004). These new structures and positions, in turn, made a division between management and ownership possible, wherein management companies sold their expertise to hotel owners without owning the hotels themselves and real estate investors could join the market without the need to recruit people or manage the operations themselves. These investors could take advantage of the reputation of management companies and realize profit through it. With the administrative mechanisms in place, chains could now move more quickly in responding to the demands of real estate investors. Management companies, in turn, could themselves grow and develop expertise without having to own hotel property. This was how chains grew faster than individually owned and operated hotels in the continent (Working for America Institute).

The real estate boom of the 80s saturated the hotel market and led to a recession in 1990 to 1991. This was marked by reorientation and retrenchment in the industry and a fall in market share to 45.9% of properties by 1990 (Working for America Institute

2004). Competition among hotel management companies rose in the early 90s with fewer new properties coming in. Within the owner-management setup, owners exercised greater power in negotiating fees and using incentive fees, incorporating performance standards into contracts and adding safety clauses in case of poor performance.

Chain hotels returned to the scene with renewed vitality in the mid-90s because of new mergers and acquisitions reoriented to new market conditions. New properties began to develop quickly, in 2000, the hotel chain clearly became the dominant figure in the industry at 60% of the properties, 68.9% of the rooms and 69% of the market (Working (for America Institute 2004). It is also noted that hotel employment rose by almost 50% or an addition of almost 600,000 jobs between 1984 and 2000 despite the industry's retrenchment in the early 90s. The expansion of transportation increased tourism and business travel and this boosted the hotel industry. Travel by U.S. residents in 1990 alone went up by 29% and the industry's contribution to GDP also went up from.7% in 1987 to.9% in 1999. This was more so in major tourist destinations. Hotels accounted for more than 5.4% of the GDP of Hawaii and 15.1 of Nevada (Working for America Institute).

The recession that started on March 2001 has not let up and would continue to limit growth opportunities for management companies. Renewed growth in the number of hotels and jobs is deemed unlikely until the economy could recover significantly or public investment could create opportunities to boost it back. With increased tourism and business-related travel, the hotel industry has become a target for public investment as part of comprehensive economic development plans to reinvigorate downtown areas (Working for America Institute).

The industry's market segments are upper-scale, upscale, mid-scale with food and beverage service, mid-scale without food and beverage service, and economy. Those in the upper segments, often large and located in major cities or resorts, serve business and convention travelers and middle-to-high-income tourists who are more particular with service quality than price (Working for America Institute 2004). Those in the lower segments are mostly smaller, located in major areas and more particular about price than quality of service.

Hotels may compete by using high or low-road strategies. Low-road competition involves developing marginal hotel property, reducing investment by regularly remodeling and upgrading property, charging lower price for rooms but offering or providing fewer amenities and on-site attractions. A marginal hotel property is often not in prime locations or in major localities… READ MORE

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