Introduction

The lodging industry is matureand very competitive,and occupancy levelsare an important barometer of not only a hotel's success but also of the industry's performance. Occupancy levels in the U.S. lodging industry dropped to the 50% range from 2008 through 2010 as a result of the uncertain economic environment. In 2011, rates improved to 60.1% as a result of an ongoing recovery of business travel in addition to the booking of more corporate events andother group business.With cautious optimism, analysts expectlodging demand toincrease. With the growth of properties at alow of 0.5%, occupancy levels are forecasted to reach 60.9% by year-end 2012. Increased confidence from improved occupancy levels is expected to allow hotel management to increase room rates, which will result in average daily rate (ADR) gains of over 5% in 2012. Globally, the compound annual growth rate for the industry was 3.6% between 2006 and 2010. North and South America account for 39.1% of industry properties, and Europe makes up 31% of theglobal industry. In the UnitedStates and globally,the leisure segment represents approximately three quarters of the industry's total revenue; the remaining one quarter is from business customers.

Industry Overview

The lodging industry providesaccommodations for travelerswhile they areaway from home. The business travelers needsinclude basic roomessentials, meal services,and Internet access. In addition, meeting rooms, duplicatingservices, and recreationaland entertainment options arefrequently desired. Increasingly, lobbies are viewedas social environments wherepeople sit andwork on theirlaptops, so Wi-Fiis an important amenity.

Nonbusiness travelers look for the basic accommodations of bed, bath, telephone, and sometimes meal services. If the location is a destination resort, travelers expect extensive leisure and recreational facilities. Increases in fuel prices, however, can negatively impact consumer travel behavior. Drivers must pay higher gas prices and airlines must add fuel surcharges, and car rental agencies must increase rates to cover the added fuel costs. Price fluctuations and the state of the economy quickly affect the amount of personal travel, whereas business travel follows turns in the economy by three to six months.

As Table A.1 shows, the 2011 U. S. lodging industry average room rate, occupancy rate, and revenue per available room showed improvement over 2010 and 2009. Modest increases in roomrates for businesstravel are expectedfor 2012, particularlywith corporate profits improving in 2011.

Industry Competitors

Although the lodging industry consists of establishments that range from luxurious five-star hotels to youth hostels and Recreational Vehicle (RV) parks, hotels and motels are the major components. In general, these properties are classified as full service or limited service.Full-service establishmentsoffer a varietyof services, andmost include atleastone ormore restaurant andbeverage service options. These optionsmay range from coffee bars to full restaurants. They also provide room service. A number of full-service hotels have featuressuch as laundryand valet services,fitness centers, andswimming pools. Some luxuryhotel chains alsomanage condominium unitsin combination with the nightly rate rooms, giving both hotel guests and condominium owners access to their services and amenities.

Limited-service hotels do not have on-site restaurants or most other amenities offered by the full-serviceestablishments. They usuallyoffer continental breakfasts,vending machines, Internet access, and unattended pools or game rooms.

In 2011, ofthe hotels inthe United States,31% were independenthotels not affiliated with a chain. The chains are multiproperty hotel operators, such as Wyndham Worldwide, Marriott, Hilton,and Starwood. Mostof these operateseveral different brands. Additionally, these large operators have diversified through ownership of casinos, restaurants, and shops. Table A.2 provides an overview of the large hotel establishments.

Market Segments

Marketsegmentation is dividinga larger marketinto segments basedupon different consumer needs or product preferences, and hotel companies have used segmentation as a wayto increase revenues.In the lodgingindustry, segmentation involvesdeveloping different properties to appeal to different types of guests. To attract business, hotels offer packages that include free breakfast and free night stays once a customer reaches a certain number ofvisits. Recently, hotelsare also targetingthe conscientious travelerwho is looking for eco-friendly practices and a commitment to social responsibility.

Within the chain hotels, there are five broad segment types: luxury, upper, midprice, upscale,midscale, economy, andbudget. Table A.3shows the improvement.Forecasts suggest that demandwill increase inall segments exceptthe midscale group.Upper is expected toincrease the mostfrom 2011 to2012 by 4.9%.Table A.3 showsthe comparison of occupancy levels by segment and location. As can be seen, for all segments and locations, occupancy percentages and room rates increased from 2010 to 2011.

Marketing and Technology

E-commerce and theuse of theInternet to contactproperties directly aretechnological developments that will continue to help smooth sales and the delivery of lodging services.

Internet addresses and home pages for hotel chains and for individual properties provide direct access to information about facilities that customers can use to perform their own research in making lodging choices when they or their employees travel. In addition, the use of the Internet for booking reservations will continue to grow.

Technology is alsoenhancing the marketingefforts of hotelfirms. Business analytics provide information about how many times a guest stayed at the hotel and what services were used to differentiate the levels and types of services provided. Hotel companies are also creating marketing affiliations to boost sales. For example, cross-marketing arrangements with airlines provide consumers with frequent flyer miles for staying at certain hotels.

Employment

The lodging industry is labor intensive. Work in hotels ranges from demanding and hectic at peak times to slow and tiresome during off-season and overnight periods. The type of jobs include management positions, accountants, chefs, waiters and waitresses, janitors, maids andhousekeeping cleaners, landscapingand groundskeeping workers,baggage porters and bellhops, among others. Costs are significant, since quality of service plays a key role in a hotel's success. According to U.S. Bureau of Labor Statistics, employment in 2011 in the lodging industry is below 2009 levels and much lower than levels prior to the recession.

Industry Outlook

It is expected that as the economy slowly recovers, the industry will see increased business traveland moderate travelspending from theleisure segment. Managerspay close attention tooccupancy levels, whichcan provide opportunitiesfor yield management through pricing. As in the airline industry, stronger pricing during peak periods and the replacement oflower mid-week leisuretravel with higher-ratedbusiness bookings will boostthe ADR measure,which will affect positivelythe revenue peravailable room. So while the number of new properties is expected to remain fairly stable, the focus for management when lookingfor revenue growthwill be inthe area ofimproved pricing tactics.

Assignment

Please complete Table A.4 and identify if the treat is low, medium, or high. Provide evidence from the case to support yourposition.

Table A.4Five Forces Model

Force	Lodging Industry
Rivalry among existing firms
Barriers to entry
Bargaining power of suppliers
Bargaining power of buyers
Substitutes
Additional forces:
Relative power of other stakeholders
Complementors