This industry comprises commercial establishments known to the public as hotels, motor hotels, motels, or tourist courts, primarily engaged in providing lodging, or lodging and meals, for the general public. Hotels that are operated by membership organizations and open to the general public are included in this industry. Hotels operated by organizations for their members only are classified in SIC 7041: Organization Hotels and Lodging Houses, on Membership basis. Apartment hotels are classified in SIC 6513: Operators of Apartment Buildings; rooming and boarding houses are classified in SIC 7021: Rooming and Boarding Houses; and sporting and recreational camps are classified in SIC 7032: Sporting and Recreational Camps.
721110 (Hotels (except Casino Hotels) and Motels)
721120 (Casino Hotels)
721191 (Bed and Breakfast Inns)
721199 (All Other Traveler Accommodations)
The hotel and motel industry played a vital role in the development of trade, commerce, and travel in the United States. In supplying everything from a cheap night's accommodation on the road, to meeting and convention spaces and coordination for large corporate events, the remarkably diverse services that American hotels provide have made the hotel industry significant. According to the American Hotel & Lodging Association (AH&LA), the industry's revenues total about $103.6 billion annually.
In the United States, there are 4.2 million rooms at approximately 41,400 properties, or roughly one hotel room for every 74 U.S. citizens. About one-third of these are at suburban locations, and another 42 percent are situated along highways. The rest are located in cities (11 percent), alongside airport strips (8 percent), and at resort sites (5 percent). The room supply is rising most significantly in suburban areas, and new construction is focused primarily on limited-service facilities—an increasingly popular option for cost-conscious travelers not inclined to frequent more elaborate full-service properties.
The AH&LA reports that some 60 percent of all properties are occupied on any given night. About 24 percent of lodging industry customers are leisure travelers, and another 20 percent are staying in a hotel for personal or family reasons. Among leisure travelers, 47 percent spend one night, 27 percent stay for two nights, and the remainder spend three or more nights. The typical leisure-related visit is by two adults (51 percent) who are traveling by auto (74 percent), and who pay about $87 per room night. The typical business-related visit is by a male (70 percent) who is a white-collar worker (53 percent), paying $95 per room night.
In recent years, modest gains in occupancy and the average room rate have resulted in higher revenues and profits for all types of hotels. According to the AH&LA, the industry reached record profitability in 1998, grossing $20.9 billion in pretax profits, up from a loss of $5.7 billion in 1990. Likewise, industry revenues increased from $62.8 billion in 1990 to $93.1 billion in 1998. In 2000 the industry recorded its most profitable year ever, as profit levels reached $24 billion. However, in 2001 economic conditions took a turn for the worse, and the terrorist attacks of September 11 that year severely affected both leisure and business travel. Profits fell drastically, declining 33 percent to $16.1 billion. Amidst these conditions, new hotel construction declined considerably. By late 2002 levels remained strongest in the limited-and full-service ends of the mid-market class.
Most analysts classify the industry into full-and limited-service enterprises. Full-service hotels constitute the majority of all properties, although this ratio is dwindling. Typically, they are large properties—averaging about 280 rooms—that often generate about 30 percent of their operating income from food, beverage, and such services as restaurants, room service, and meeting spaces. Limited-service hotels, by contrast, are smaller establishments—averaging about 130 rooms—that do not offer food and beverage services or extra facilities. They rely on room sales for nearly 95 percent of their revenue base.
Vast differences exist in the expenditures that each type of hotel incurs for various services, including room maintenance, food and beverages, and telephones. These costs can diminish profit margins considerably in years with low occupancy rates, especially given that hotels must also keep room rates low in such years to compete for a reduced number of customers. Full-service hotels with significant departmental expenses have, in general, been hurt far more by the oversupply of the industry. Their occupancy rates have not been markedly different from those of limited-service hotels, but room rates have been kept far too low to pay for the cost of servicing them.
All-suite hotels came to prominence in the late-1980s and, because their segment's demand for growth remains healthy, continue to capture attention. Such hotels—most of which are branches of specific brand chains—conventionally offer consumers both a living and a bedroom area. While most all-suites offer both food and beverage services, this is not always the case. Indeed, limited-service all-suites often report substantially more attractive profit margins—again, as a result of much lower departmental expenses—and have subsequently attracted increasing interest. Their occupancy rates have been higher than those of their full-service counterparts, relative to the rest of the industry, without a tremendous drop-off in room rates.
Resorts, hotels with gambling facilities, and conference/convention center hotels represent three smaller but important industry categories. Like all-suites, their demand growth and occupancy rates have generally been higher than the average and will probably remain so, simply because they are so capital intensive to build and maintain. Casino hotels have grown in popularity due to the expansion of legalized gambling, and the convention center has become a popular component of efforts to reinvigorate urban infrastructure.
The casino segment of the hotel industry currently remains clustered in Las Vegas and Atlantic City. In Las Vegas several new spectacular destination resorts, such as the Luxor and the Bellagio, were constructed in the 1990s. In contrast to convention center hotels and resort hotels, most hotels with gambling ventures tend to offer low room rates; the gambling activity of the hotel patrons is thus central to the establishment's success. In recent years, the gaming industry has attempted to market its lodging to entire families.
The resort phenomenon is also highly regional and, inasmuch as they have had to become more price competitive, resort hotels perhaps rely more on overall regional promotion than anything else. The South Atlantic (primarily Florida) has grown into the country's most lively resort region. Even after a number of years of steady growth, its occupancy rates are still the highest of any region in the country, regularly upwards of 75 percent. The second largest resort market in revenue, the Mountain and Pacific region, has steadily lost market share in recent years.
Industry Strategies. There are essentially three forms of participation in the hotel and motel industry: straight ownership of properties, management agreements, and franchising or licensing a brand name. Most large hotel companies are active in all three categories, keeping themselves flexible to utilize varied strategies as the market dictates. Owning a hotel is a capital-intensive endeavor, yet it imparts control and can be very lucrative in an expanding market, when asset values show sizable appreciation. Since the 1980s, managing other people's hotels has become a widespread activity.
The trend away from straight ownership, and its inherent risks, has given franchising a greater appeal. Large franchise chains are first and foremost based on the benefits of brand name recognition, for which an operator either pays a straight fee or gives up a percentage of revenue. The name represents a specific concept and standard, consistent at every location. This familiarity appeals to many consumers. It also provides the company a greater efficiency in the use of resources, especially as the chain grows. Through license or franchise agreements, hotel companies can generate revenues from limited capital investments and can market their product more pointedly. In an attempt to segment the market, some companies have successfully developed a variety of chains that are advertised aggressively and provide varying levels of service.
Eager to expand their lodging chains, many companies have turned to conversions of existing hotels rather than new construction in an already bloated market. The scope of industry conversions has more than doubled since 1988, with approximately half of these involving the switching of chain affiliations.
Affiliations and Partnerships. As the travel industry became increasingly sophisticated and global in nature, hotel operators have developed competitive advantages through agreements of various kinds with other industries that serve travelers. Frequent-flyer/guest/renter programs have been developed in cooperation with airline and car rental companies. These programs offer "points" for air travel, hotel visits, and car rentals that can be redeemed for upgrades and awards through any of the three partners. These programs are geared towards fostering brand loyalty, both in the individual leisure traveler, who receives regular statements, and in the corporate traveler who, through side agreements with certain companies, is often given corporate rates or some other preferred-customer benefits.
Relationships with travel agencies and tour operators are also an integral element in the success of many hotels. Agencies, which book approximately 40 percent of the hotel rooms in the United States, are a crucial sales mechanism for the industry, and many hotels operate centralized commission payment systems to make agents more confident about prompt and accurate payments of commissions—generally between 5 to 10 percent. Many hotels also feature toll-free travel agent help-desks to answer questions about commissions and to assist in solving reservation system problems. Agreements with tour operators to offer substantial room discounts on bulk bookings are ubiquitous in the hotel and motel industry, as properties benefit not only from the added business but also by the free publicity from appearances in tour operator brochures.
Associations. The American Hotel and Lodging Association (AH&LA), formerly known as the American Hotel and Motel Association, is the major trade association of the industry. It works in partnership with 51 member state associations representing more than 13,000 member properties. The AH&LA conducts surveys and industry analysis, and keeps its members up to date on industry trends through newsletters and educational conferences. Primarily, however, it serves as a promotional mechanism for the industry, both in publicity campaigns and in lobby efforts aimed at national and regional governments. AH&LA member properties account for a large percentage of total industry revenues.
The earliest versions of hotels were tiny, single-room dwellings that traveling merchants used in the sixth century B.C. The first such American lodging was the colonial inn, counterpart of the English inn, which flourished during the late 1700s. Colonial inns and taverns dotted the seaport towns and stagecoach roads. They became popular not only with travelers but also with locals, who came to use them as public gathering places for town meetings, schools, and even courts of law.
Hotels as we know them today arose quickly as the major cities grew. The very first, the 73-room City Hotel at 115 Broadway in New York City, was completed in 1794, and similar establishments were soon constructed in Philadelphia, Boston, and Baltimore. The number of hotels increased dramatically in the 1800s, as hotels moved westward. With each new hotel, it seemed, some new service was added, thereby forcing existing hotels to change or face obsolescence. The City Hotel became so outdated that it was converted into an office building only 38 years after it opened. Behind many of the transformations of the industry was a trend towards luxury accommodations that was sparked by the Tremont House in Boston, which was the first to offer such amenities as private guest rooms, locks on doors, a washbowl with free soap, bellboys, French cuisine, and an annunciator that enabled the front desk to communicate with guests in their rooms. Ironically, the Tremont House itself later fell prey to the very trend it had initiated, as it closed for major renovations after just 20 years and was regarded as an outdated establishment toward the end of its 65-year history.
In the mid-1800s, hotels followed the railroads further west, and the properties became increasingly lavish in such cities as Chicago, St. Louis, and San Francisco. Often the hotels' capacities far exceeded potential demand. Curiously, the industry continues in its third century to suffer from many of the same ills that these early development tendencies demonstrated: propensity towards overdevelopment and rapid obsolescence as a result of constant changes in transportation patterns, customer preferences, and new competition.
The First Boom and Bust. Many nineteenth-century American travelers, unable to afford accommodations at the luxury hotels, were forced to lodge in threadbare rooming houses. Medium-range accommodations were rare, but with the growth of the middle class and the increasing affordability of rail travel, a sizable market for comfortable yet affordable lodging emerged. The first to recognize and serve this market was E. M. Statler, who built the country's first truly modern commercial hotel. The revolutionary Buffalo Statler opened in Buffalo, New York, in 1908 with such conveniences as circulating ice water and a free morning newspaper. Its slogan was "A room and a bath for a dollar and a half" and, in making cleanliness and comfort accessible to so many, the Statler, and its imitators, contributed greatly to the middle-class travel bug.
As the American economy flourished in the 1920s, the hotel industry was poised for its first major boom. Occupancy rates were close to 90 percent as the decade opened, and hoteliers were encouraged to expand existing properties and build many new, larger ones. At the height of the activity, in 1927, Chicago's Hotel Stevens—now the Conrad Hilton—was hailed as the world's largest hotel and remained so until the 1960s. The Depression brought an abrupt halt to the industry's expansion and sent many hotels into foreclosure or receivership, as occupancy rates fell to around 50 percent. At the same time, however, the economic crisis provided the initial impetus to develop hotel chains because it allowed those hoteliers who survived the collapse to increase their holdings inexpensively.
World War II rewarded the aggressive buyers of the 1930s by refilling the existing hotels with transient defense industry workers and military personnel. Occupancy rates approached 90 percent. The 1950s witnessed the beginnings of a complete transformation of the industry. Hotels increasingly catered to a more affluent and mobile society. Americans embraced the convenience of highways and airplanes, making the railway system a less important factor in travel.
Motels, Budgets, and Another Boom. The early "no-frills" motels were put up quickly and cheaply on large plots along highways. These enterprises, which appealed to lower-income vacation travelers, salesmen, and middle-management businessmen, competed effectively with hotels in the 1950s. The initially significant differences between the two types of lodging—size, start-up costs, operating ratios, and management needs—began to diminish in the 1960s, as motels franchised, grew in size, and started offering more amenities and services. At the same time, a sector of the hotel industry modified itself to compete with motels. Eventually, these hybrid properties came to be known as motor hotels.
Lodging at motor hotels was priced somewhat higher than at the original motels, once again creating a void at the low end of the rate scale. This was soon filled by so-called budget motels. Budget motels were essentially larger, more standardized motels that operated on the same principles as their predecessors—lower initial investments and fewer frills—but were more consciously part of an overall plan to profit by fitting more beds in less space and filling them.
The commotion over the introduction of budget motels to the market coincided with the creation of the real estate investment trust (REIT), which enabled small investors to hold real estate mortgages and equities. This resulted in an unprecedented availability of financing for ambitious builders. Large hotel chains had also started to pursue further expansion through franchise agreements. As a result, the industry became overextended and fell into disarray in the mid-1970s amid the oil crisis, which reduced travel overall; deepening inflation, which caused construction costs and interest rates to soar; and the recession, which forced businesses to cut back on travel and convention spending.
In the 1980s, the hotel industry completed yet another full cycle of growth and retrenchment. As room occupancies reached record levels by the end of the 1970s as a result of an improving economy, the usual losses by attrition, and the suspension of building activity, the industry was poised for a new phase of construction in 1979. The subsequent postponement of expansion, the result of the Federal Reserve's tightening of the money supply, only made the expansion more dramatic, when the Reagan administration began easing these lending constraints and creating tax incentives for developers. In total, the extraordinary building activity added about 7,000 hotels and 900,000 rooms to the industry, priming the industry for yet another oversupply condition.
While the growth during this period was remarkable in itself, transformation of the industry's structure remains its more enduring legacy. Although the market had undergone some segmentation previously with the introductions of motels and budgets, the proliferation of such new lodging concepts as all-suites in the 1980s is unparalleled. The acquisitions that companies made were often diversification measures, which provided their customer base with an assortment of property-types from which they could choose. Segmentation also allowed companies to plan more specifically and apply their resources more efficiently.
During the 1990s, the industry had finally absorbed the overcapacity created by the phenomenal building activity of the 1980s. Lodging industry profits have improved dramatically in recent years, boosted by stronger consumer demands and the absence of significant new capacity. According to the AH&LA, the industry's pretax profits reached $20.9 billion in 1998, a 23 percent increase over the previous year and nearly twice the profitability of 1996. This represents a dramatic turnaround from the $5.7 billion loss suffered by the industry as recently as 1990.
A number of noticeable trends occurred during the 1990s. Construction increased, as companies increasingly looked to develop new chains by building new facilities. Increased automation of labor-intensive functions, such as hotel check-in and checkout, reduced long-term operating costs and increased customer satisfaction. An emphasis on business-related amenities, such as voice mail, fax, and computer services, appealed to business travelers. Involvement by hotel companies in time-sharing projects provided a means to leverage their expertise in real estate and financing. Finally, extended-stay enterprises, which offered such amenities as separate living room areas and kitchen facilities, enjoyed growing popularity.
The U.S. hotel and motel industry experienced a period of remarkable growth in the mid-to late 1990s and achieved its most profitable year on record in 2000. However, conditions changed the following year. In 2001 economic conditions weakened, and terrorist attacks against the United States on September 11 had a devastating effect on business and leisure travel levels. Citing data from Smith Travel Research, Hotel & Motel Management reported that in 2001 the industry lost some 400 hotels and between $7-$8 billion in room revenue. When related businesses like food and beverages are factored into the equation, this total was estimated to be much higher. Overall, revenues fell from $108.5 billion in 2000 to $103.6 billion in 2001. New hotel construction activity also fell considerably.
In the third quarter of 2002, Deutsche Bank reported that hotel construction levels were down more than 17 percent from the previous year, according to Hotel & Motel Management . At that time, total room counts were down 22 percent from the previous year's levels. By late 2002, the publication reported that many of the industry's indicators—including average daily rate, revenue per available room, and occupancy levels—were down in comparison to 2001. This was partially attributable to sluggish business travel activity, which had not recovered, as well as the leisure travel segment. Overall, travel expenditures remained weak in 2002, according to the Travel Industry Association of America (TIA). TIA indicated that both domestic and international travel expenditures were expected to fall almost $2 billion in 2002. According to different reports, industry analysts expected conditions to improve gradually and reach pre-2001 levels sometime in 2003 or 2004.
In the early 2000s, Marriott International, Inc. was the world leader in the lodging industry, with more than 2,500 hotels and annual revenues of approximately $10.2 billion. The company's product line included Marriott Hotels, Resorts, and Suites and Ritz Carlton (full-service); Courtyard hotels (moderate price); Residence Inn (extended stay); Fairfield Inn (economy segment); as well as Renaissance Hotels and Resorts/Ramada International; TownePlace Suites by Marriott; Spring Hill Suites by Marriott; and Marriott Conference Centers. Marriott International was formed in October 1993, when Marriott Corp. was divided into two companies. Host Marriott Corporation was established to concentrate on real estate and airport concessions, while Marriott International focused on the lodging industry.
Cendant Corporation was formed through the December 1997 merger of CUC International and HFS Inc. With more than 6,600 properties, Cendant is the world's largest hotel franchiser. CUC International, founded in 1973, was a direct marketer and provider of home shopping and discount wholesaling clubs; it later acquired operations in online apartment rental, value-added tax refunds, and software publishing. HFS was founded in 1992 as the holding company of the Howard Johnson, Ramada, and Days Inn hotel chains. Several years later, HFS diversified into real estate through the acquisitions of Century 21, Coldwell Banker, and Electronic Realty Associates; into car rental through the purchase of Avis; and into tax preparation through the acquisition of Jackson Hewitt. In 2001 Cendant posted revenues of $8.8 billion. The company operates approximately 555,000 rooms, or some 13.5 percent of all U.S. lodging facilities, and is home to such well-known brands as Days Inn, Howard Johnson, Knights Inn, Super 8, Travelodge, Ramada, Wingate Inns, Villager, and AmeriHost.
Six Continents Hotels Inc., formerly known as Bass Hotels & Resorts, Inc., ranked as the second leading hotel company in the early 2000s. The company was part of Bass PLC until the parent company sold its brewing interests and changed its name to Six Continents. The subsidiary was home to more than 3,200 hotels in more than 100 countries in the early 2000s, some 73 percent of which were located in the United States. Among the company's brands are Holiday Inn, Holiday Inn Express, Crowne Plaza, Inter-Continental Hotels & Resorts, Holiday Inn Select, Holiday Inn Garden Court, Holiday Inn SunSpree Resort, Forum Hotels & Resorts, and Staybridge Suites by Holiday Inn. Six Continents had sales of $2.8 billion in 2001, at which time it employed more than 35,500 workers.
The AH&LA reports that the hotel and motel industry employs more than 1.9 million workers. Its workforce is highly diverse. It often includes minimum-wage restaurant staff, room and building maintenance workers, middle-income administrative and marketing positions, and high-salary upper management personnel. The primary union in the industry is the Hotel Employees and Restaurant Employees International Union, based in New York City.
Since increasing numbers of U.S. travelers are leaving the country for both business and leisure, many U.S. chains are expanding oversees. Most of the major U.S. hotel companies have already expanded into Europe and are likely to continue to increase their global presence to accommodate the growth of international travel. The opening of Eastern Europe, coupled with the relaxation of trade barriers between European countries, has given further momentum to the enthusiasm for developing international operations.
"2002 Third Quarter Development Pipeline (Construction Report)." Hotel & Motel Management, 18 November 2002.
Adams, Bruce. "Rate, Occupancy Trouble Hoteliers." Hotel & Motel Management, 18 November 2002.
American Hotel & Lodging Association. "The 1998 Lodging Industry Profile." 1999.
——. "The 2001 Lodging Industry Profile." 2001. Available from http://www.ahla.com .
——. "The 2002 Lodging Industry Profile." 2002. Available from http://www.ahla.com .
Cendant Corp. "Home Page." Available from http://www.cendant.com .
"Domestic and International Travel Expenditures Are Fore-casted to Decline $1.9 Billion to $535.3 Billion in 2002 Compared with 2001, According to the Travel Industry Association of America." Hotel & Motel Management, 4 November 2002.
Higley, Jeff. "Hoteliers Foresee Bumpy Road to Recovery." Hotel & Motel Management, 1 April 2002.
"Investors Pessimistic about Industry Outlook." Hotel & Motel Management, 4 March 2002.
"Job Losses Total 257,000 During Six-Month Period." Hotel & Motel Management, 18 February 2002.
Marriott International, Inc. "Home Page." Available from http://www.marriott.com .
"The Number of Hotels in the Total Development Pipeline Declined by 99 or 4.8 Percent in the Third Quarter, Declining to Less Than 2,000 Projects for the First Time According to Lodging Econometrics." Hotel & Motel Management, 4 November 2002.
Six Continents Hotels. "Home Page." Available from http://www.sixcontinentshotels.com .
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