US HOTEL INDUSTRY

Learning Outcomes:

U.S. Hotel Industry Performance

Working on the case study will assist students in developing the following student learning outcomes.

1. Name key hotel performance metrics;
2. Define average daily rate (ADR), occupancy (OCC), and revenue per available room (RevPAR); 3. Discuss positive and negative sides of using each of the metrics for hotel performance

evaluation;
4. Interpret data and appraise evidence;
5. Dis0nguish, compare, or contrast diverse points of view and/or alterna0ve conclusions; 6. Ar0culate personal insights about complex issues or problems.

Background Information:

The hotel industry serves the accommoda0on needs of tourists, those visitors who are staying at a des0na0on overnight, but no more than one year (World Tourism Organization, n.d., para. 1). Hotels come in different forms. They may be branded, which means affiliated with a par0cular chain (e.g., Marriot, Hilton, Accor), or independent. Hotels differ in service level that they provide and may be grouped into such categories as economy, midscale, upscale, and luxury. Based on location, hotels may be classified as urban, suburban, airport, or interstate properties.

The hotel industry was comprised of 55,900 hotels in 2018 (Oxford Economics, 2019). These hotels directly (hotel operations) and indirectly (supply-chain employment) supported 8.3 million jobs, which is the equivalent of 1-in-25 jobs in the U.S. Taken all together, hotels contributed close to $660 billion to the U.S. gross domestic product (GDP), and supported $185 billion of local, state, and federal taxes. Given the impact of the hotel industry on the local and national economies, it is important to learn how to evaluate hotel performance. Therefore, the focus for this case study will be on hotel performance metrics. Such metrics may be applied to each individual hotel, a group of hotels, hotels in a given state, country, or worldwide.

Hotel Performance Metrics:

The hotel industry uses a variety of metrics to assess hotel performance and the economic impact of hotel industry. The key performance metrics include average daily rate (ADR), occupancy (OCC), and revenue per available room (RevPAR). Each of these metrics describes an important aspect of hotel operations. And, taken all together, they assist hotel managers in evaluating the performance of their properties from different angles. Let’s explore what these metrics can teach us about the performance of the U.S. hotel industry.

HOSP 3010 Principles of Hospitality and Tourism Management

ADR may be defined as “the average selling price of guest rooms during a specific 0me period, such as a day, week, month, or a year” (Hayes & Miller, 2011, p. 20). ADR may be calculated by dividing the total room sales revenue by the number of rooms sold. In other words, ADR the average price that guests paid for hotel rooms during a specific period. The graph below demonstrates the monthly ADR of the U.S. hotels from January 2011 to June 2020 (Sta0sta, 2019).

Questions:

1. Please look at the ADR line graphs from 2011 to 2019. What did you learn about ADR ofU.S. hotels? Do you see any trend or a pattern in how ADR changes from month to month and year to year?
2. Each line does not seem to fluctuate a lot indicating a minimal change from one month to another. Does this mean the hotels in the U.S. make about the same revenue every month? Why or why not?
3. Think of a limitation to using ADR alone for hotel performance evaluation. Please describe.

RevPAR may be defined as “the average revenue generated by each available guest room during a specific time period” (Hayes & Miller, 2011, p. 21). RevPAR is calculated by dividing the total room revenue by the number of available rooms. In other words, RevPAR may be understood as an average revenue earned from each room available for sale. An important difference between ADR and RevPAR is that ADR looks at the sold rooms, and RevPAR looks at all rooms that are available for sale in a given hotel during a specific time period. Below is the graph that reports the monthly RevPAR of the U.S. hotels from January 2011 to June 2020 (Statista, 2019).

Questions:

1. Please look at the RevPAR line graphs from 2011 to 2019. What did you learn about RevPAR of the U.S. hotels? Do you see any trend or a pattern in how RevPAR changes from month to month and year to year? How does RevPAR compare to ADR? Please explain your observations.
2. RevPAR lines seem to have larger fluctua0ons within a year compared to those of ADR. Why do you think this is happening?
3. Please think of a limitation to using RevPAR alone for hotel performance evaluation.

Occupancy percentage (OCC) is the portion of hotel rooms sold during a specific time period. OCC may be calculated by dividing the number of rooms sold by the number of all rooms available for sale. In other words, OCC may be understood as a metric showing how full or empty the hotel is. While two previous metrics look at the average revenue made from each sold (ADR) or available (RevPAR) room, OCC looks at the number the rooms sold in relation to available rooms. Below is the graph that presents the monthly OCC of U.S. hotels from January 2011 to June 2020 (Statista, 2019).

Questions:

1. Please look at the OCC line graphs from 2011 to 2019. What did you learn about OCC of the U.S. hotels? Do you see any trend or a pattern in how OCC changes from month to month and year to year? How would you explain such a pattern?
2. The OCC graph is cumulative for all hotels in the U.S. Could you think of a destination in the U.S. or abroad that would exhibit a different OCC pattern?
3. Please think of a limitation to use OCC alone for hotel performance evaluation.

JOBS LOST IN TENNESSEE HOTEL INDUSTRY DUE TO CORONAVIRUS PANDEMIC 28,288 DIRECT HOTEL-RELATED JOBS LOST • 72, 632 TOTAL JOBS LOST SUPPORTING HOTEL INDUSTRY MISSISSIPPI HOTELIERS SHARING THEIR HARDSHIP Debbie Davis – Knoxville, TN “By Monday, March 16, 2020, we were forced to lay-off half of our team, 11 wonderful, service-oriented people. As I write this, Tuesday March 17th, we closing our breakfast buffet to reduce the threat to our guests and team members. We have also shut down two full floors of rooms, and will consider taking even more drastic options just to stay in business.” Rakesh Patel – Germantown, TN “As a hotelier in Tennessee I have experienced firsthand…A steep decline in business. We have no choice but to cut hours/staffing. These are our busy months.”

Impact of COVID-19 on the Hotel Industry:

American Hotel & Lodging Association (AH&LA), a major professional association that represents the interests of the hotel industry, prepared reports of the COVID-19 impacts on each state. Please read the above excerpt from the report about the state of Tennessee (AH&LA, 2020, p.1) and answer the following question:

Questions:

10. Using the ADR, RevPAR, and OCC graphs together with the AH&LA report excerpt for the state of Tennessee present your understanding of how COVID-19 impacted the hotel industry in the U.S. What is the trend or pattern that you are seeing?

References:

AH&LA. (2020). Tennessee: COVID-19 impact on state’s hotel industry.

https://www.ahla.com/sites/default/files/2020-04/a…

Hayes, D. K., & Miller, A. A. (2011). Revenue management for the hospitality industry. Hoboken, NJ: John Wiley & Sons.

Oxford Economics. (2019). Economic impact of the U.S. hotel industry. https://www.ahla.com/sites/default/files/oxford201…

Sta0sta. (2019). Hotels in the United States. hVps://www-statista-com.umiss.idm.oclc.org/ study/47531/hotels-in-the-united-states/

World Tourism Organizti0on. (n.d.). Glossary of tourism terms. https://www.unwto.org/ glossary-tourism-terms