Overbuilding of hotels and a surplus of room inventory.

The beginning of the twenty-first century was characterized by extreme changes for the lodging industry and the North American lodging industry in particular. The losses experienced by the industry were related to a weakening economy, the tragedies of September11, the war in Iraq, and the outbreaks of SARS, H1N1 and current pandemic Covid 19. Unlike the lodging industry crisis of the 1990s, the challenging times starting in 2001 were not directly related to overbuilding of hotels and a surplus of room inventory. Overbuilding, however, is always concerned in terms of how it can significantly and negatively impact the industry even in better economic times, such as the turnaround that started in 2003 and the subsequent decline beginning in 2007. Indeed, the increasing role of public capital markets, increases the availability of capital for possible overbuilding. The low variable cost of the industry makes price cutting in the short run temptingand price cutting is always tempting when overcapacity is a problem. Moreover, technological changes related to where, how, and when a hotel room is sold are changing the marketplace every day. The impact of the Internet on the hotel pricing structure has been a major factormore than ever could be imagined when hotel-related Web sites first emerged

The top-ten hotel companies of the world.

In this research assignment, you will answer the following questions:

1. Identify the five conditions of competition in lodging, and explain their effects on the hotel

business.

Five conditions are:

A Fragmented market

A Cyclical market

Cost Structure

Securitization

Technological Revolution

INDUSTRY CHARACTERISTIC

IMPACT

Fragmented ownership

Unpredictability, especially in down markets

Cyclical

Overcapacity exerts downward pressure on prices

Periodic overbuilding

Low variable cost

Exerts downward pressure on prices

High fixed cost

Increasing securitization

Makes capital more available for development

Technological revolution

Heightens role of travel intermediaries (travel

agents, reservation services, airlines, etc.), adding to marketing costs and reducing control over price

2. List the strengths and weaknesses of the use of yield management in the hotel business.

3. Explain how partnerships and frequent-guest programs operate and why they are important to

marketing the lodging industry