Hotels have four main departments to make profits, room revenues, food & beverages revenues, telephone revenues, and miscellaneous incomes. Room and food & beverage revenues are the main drivers for the profit, while the other revenues are minor drivers. In the hotel industry, room and F&B service is very important and crucial in order to make profits. Thus increasing the customers who stayed in the hotel is also important to increase their profits. TO determine profits, main size and performance measures are used to check and maximize the profit. Examples of this are occupancy rate, annual sleepers, GUR (number of sleepers per available bed) ARR (Average Room Rate), Revenues PAR (per available room), Revenues POR (Per Occupied Room).
The cost factor are divided by elements such as administration & general, marketing, repairs and maintenance, energy costs, etc. Also fixed charges include equipment, other rent/lease, real Estate and taxes, and various types of insurance.
Recently there are new factors to make the profit such as internet based booking and the new real estate financial structures. Internet based booking can reduce the costs of booking and also increase marketing for hotels. Therefore, the result is an increase in the overall hotel occupancy rate with no decrease in the Average Room Rate. The other factor is new real estate ownership, where the trend is changing that financial investors increasingly owned ownerships of the hotel real estate. They consider more for the financial cash flow and profits like stockholders than the characteristic of the industry’s professional manager. In fact they want a large profit by taking the risk of the long term investments.
In this hotel industry, supply and demand is increasing. For example, JW Marriott plans to build 40 hotels in India by 2013 and Ritz-Carlton President Simon Cooper gives insight into new hotels emerging in Asia and the Middle East. Also hotel, room prices in Europe from Trivago (a booking website), rooms are selling for increased rates, which means both the demand of the hotel room and the supply of the hotel room increases together - a good sign for a hotel industry.
It is interesting to see that hotels are still able to make significant money in an economy like the one that the United States currently has. Do you think Marriott and other hotel companies are building hotels in places like India, Asia and the Middle East because the economies are better there? Great post Wonho.
ReplyDeleteI find it interesting that during a period of economic turmoil, the hotel industry is still finding ways to increase revenue and minimize costs, however many there are to consider.
ReplyDeleteIt is usually the case that during a period of economic instability, luxury goods and services are the first to suffer. I find it most encouraging to find out that these hotel groups are actually building more hotels in these countries. It just makes me wonder if, during troubles in the economy, there are enough people rich enough to keep the revenue of the luxury industry stable.
It is interesting to see that hotels are still able to make significant money in an economy like the one that the United States currently has. Do you think Marriott and other hotel companies are building hotels in places like India, Asia and the Middle East because the economies are better there? Great post Wonho.
ReplyDelete