Check in check out managing hotel operations pdf

"The Traditional Hotel Industry"

PART

CHAPTER 1 The Traditional Hotel Industry CHAPTER 2 The Modern Hotel Industry CHAPTER 3 The Structures of the Hotel Industry

1 The Hotel Industry

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Over eons of time, wanderers and single travelers found security and accommodations in trees and caves, castles and churches, homes and estates. Greater political and economic freedom eventually increased their numbers. Soon, the courtesy of friendly hosts gave way to commercial enterprise. The hotel industry was born carrying this culture of hospitality. So hospitality and hotels are related concepts, deriving from the same Latin root. However, the word “hotel,” which comes from the French hôtel, meaning large house, didn’t appear until the 18th century.

The Traditional Hotel Industry

1Chapter

UNDERSTANDING THE HOTEL BUSINESS

The Service Culture

The hotel industry has flourished through the centuries by adapting to the changing environment that marks human progress. These stages have been labeled: The 18th century was the agricultural age; the 19th, the industrial age; and the 20th century the age of service, including medicine, education, and hotelkeeping. The 21st century opened with that same service culture, but will likely close as the age of technology. Innkeeping has started to adapt its hospitality heritage to the new age. The shift translates into newer kinds of, but less personal, services.

A Cyclical Industry

Hotelkeeping is a cyclical industry that closely follows economic phases. Wide swings carry the innkeep- ing industry between peaks of exceptional profits and troughs of outright distress. This rollercoaster has been most evident over the past half century. The entire travel industry was brought to its knees by the oil embargo of 1973. Innkeeping then cycled from bankruptcy to recovery. A decade later, in the early 1980s, the industry witnessed a second such distress when the federal government changed the income tax laws on real estate. (Remember, as hotels are pieces of real estate, any change in real estate will directly affect the hotel industry.) Dominant companies bought distressed properties at that time and recovery followed once again. By the late 1990s, hotel profits had reappeared. Just as the recovery was being consolidated came the tragedy of 9/11, the attacks on the World Trade Center (2001). Travel and tourism bottomed out again. Although recovery was faster this time, it was short-lived. First, a stumbling prosperity and then a dramatic downturn in the U.S. economy in 2008 halted travel once again. Business began an upward crawl anew in late 2010.

Hoteliers stop building during downturns. Three years is the typical span between planning and open- ing a hotel. It’s even longer if there are special financing, zoning, or environmental issues. Over half of the announced projects are never built. For instance, Taj Hotels took 18 months just to renovate The Pierre in New York. When occupancy and profits boom, the competition begins to rev up new properties. So new rooms often come on line—three years later—just as the cycle peaks. That increased supply exaggerates the next downward dip. Supply and demand play their traditional roles in hotel economics as they do for general busi- ness. Overbuilding (excess supply) exaggerates the downturns far more often than does insufficient demand (fewer customers).

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How Hotels Count and Measure

Within the cycles, new hotels and hotel rooms are built and old rooms are removed. One can never say for certain how many hotels or hotel rooms are available at a given time. Governmental agencies (Bureau of the Census) and trade associations (American Hotel & Lodging Association (AH&LA)) track and report the numbers. Other interested parties include the World Tourism Organization (WTO), the International Hotel and Restaurant Association (IH&RA), and pri- vate firms such as Smith Travel Research and PricewaterhouseCoopers. None of the figures ever agree; some not even close.

The Bureau of the Census counts once every decade and takes several years to report. By then, the numbers become inaccurate. The 2010 count, for example, was made during a horrific downturn cycle when many hotels had closed.1 Still, estimates are possible. The previous count approximated 65,000 hotels in the United States with some 5,500,000 hotel rooms. The typical hotel, about half of which are small, nonchain affiliated, has about 85 rooms. Figures get skewed, however, because convention hotels (large hotels) number less than 2% of all U.S. properties, but contain about 12% of all hotel rooms.

Hotels are valued on a per-room cost, either the cost per room to build or the resale price per room—called the per-key cost. Valuing each room at, say, $250,000—unchanged in the past several years because costs rose substantially and then fell even more so—U.S. hotels are worth nearly $1.5 trillion.

Together, Europe and the United States once accounted for two-thirds of the world’s total rooms. However, their leadership has been challenged by the robust growth of tourism and business travel in other areas, such as Asia and South America. For example, international com- panies built 50 five-star hotels in Beijing for the 2008 Olympics. Marriott Hotels opened seven of them, with its Great Wall property alone having 1,300 rooms. Growth like this changes the world’s balance.

OCCUPANCY Occupancy, a measure of supply and demand, gauges the industry’s economic health. While robust demand encourages construction of new rooms, falling demand seals the fate of old hotels. Worn-out rooms are kept in place only during boom periods, when there is a room shortage. They fall to the wrecker’s ball or are converted when they are competitive no longer. Many were renovated into dormitory rooms when American universities were in their boom years. In the 1990s, condo conversion was the hot move as luxury residential units were more valuable than luxury hotel units. One of the most publicized of these conversions was that of the New York City’s famous Plaza. The hotel’s 800 rooms were converted into 152 residential condo units and 282 guest rooms. However, the downturn that began in 2008 put an end to condo conversions.

At any given time, the number of rooms available for sale reflects the mathematics of the old and the new. During the upward cycle, more guests are buying, but fewer rooms are available. Room rates rise. Just the opposite happens in a downward cycle: There are fewer buyers and more rooms, so rates fall. Customer demand is measured by the number of rooms occupied, also called the number of rooms sold. Hoteliers count this figure every night.

Hoteliers also count the number of rooms in their hotels. Although the number of rooms is just an estimate worldwide, hotel managers know their own numbers. Whether for the world, the region, or the individual hotel, that number is called the number of rooms available for sale.

The relationship (or ratio) between the number of rooms sold (demand) and the number of rooms available (supply) measures the property’s health. It is a closely watched value that asks, “How well did we sell rooms relative to the number of rooms that could have been sold?” That big mouthful has a shortcut called the percentage of occupancy, or occupancy percentage, or just occupancy.

1Facts about the lodging industry are reported in the SC Series, but results of the 2010 Census were not yet available for this publication.

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The occupancy calculation is a simple division. The number of rooms available for sale is divided into the number of rooms sold (see Exhibit 1-1):

number of rooms sold number of rooms available for sale

= a percentage of occupancy

Occupancy can be computed by one hotel for one night, one month, or one year. Citywide, regional (the Northeast, for example), and national occupancies are tracked by many agencies. Among them are hotel chains, convention bureaus, and state tourism offices.

Values become less accurate as the count moves from the individual property to a worldwide number. Nevertheless, everyone is engrossed in occupancy figures. More so when estimates suggest that a mere 1% rise in chain occupancy represents millions of dollars of improved profits.

SALES PER OCCUPIED ROOM Occupancy measures quantity, that is, the hotel’s share of the market. Sales per occupied room—also called average daily rate (ADR)—measures quality. Its formula (see Exhibit 1-1) is:

total dollar room sales number of rooms sold

= ADR (a dollar value per room sold)

Given Number of rooms in the hotel available for sale 800 Number of rooms in the hotel 820 Number of rooms sold to guests 600 Number of dollars received from guests for rooms $72,000 Number of employees on staff 500 Number of guests 700

Computations Percentage of occupancy is 75%.

number of rooms sold 1 to guests2

number of rooms 1 in the hotel2 available for sale =

600 800

= 3 4

= 75%

Sales per occupied room (average daily rate, ADR) is $120.00.

room sales 1as measured in dollars2

number of rooms sold 1 to guests2 =

$72,000 600

= $120.00

Sales per available room (RevPar) is $90.00.

room sales (as measured in dollars) number of rooms (in the hotel) available for sale

= $72,000

800 = $90.00

Mathematical check:

ADR * occupancy = RevPar $120 * 0.75 = $90.00

Number of employees per guest room is 0.625.

number of employees (on staff) number of rooms ( in the hotel) available for sale

= 500 800

= 0.625

Percentage of double occupancy is 16.6%.

number of guests - number of rooms sold number of rooms sold

= 700 - 600

600 = 16.6%

EXHIBIT 1-1 Hoteliers track the health of the industry through the measures and ratios shown. Outside of the United States, bed occupancy percentage (number of beds sold,number of beds available) is often substituted for the percentage of room occupancy. Bed (or guest or sleeper) occupancy of 50% approximates room occupancy of 70%.

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The health of the industry is reflected in both occupancy and price. Price, ADR, ($) increases as occupancy (%) increases. The more rooms sold—that is, the greater the demand— the higher the room rate. That’s because lower-priced rooms sell first. Conversely, as occupancy falls, so does the ADR. Supply and demand are at work.

REVPAR (REVENUE PER AVAILABLE ROOM) RevPar is an old industry standby that once was called average rate per available room. RevPar (or REVPAR) measures management’s ability to keep rates high even as occupancy declines. Hoteliers are fond of saying, “hotels fill from the bottom up,” meaning that guests elect lower rates when an empty house allows it. Superior managers strive to keep rates high even as occupancy dips within the cycle. Management does this using yield management, discussed in Chapter 5. RevPar reflects the revenue (sales) relative to the total rooms available for sale. In contrast, ADR measures the revenue per room relative to the number of rooms actually sold. (Remember, “rooms sales” and “room revenue” are interchangeable terms.) Exhibit 1-1 illustrates the computation.

total dollar room sales number of rooms available for sale

= RevPar (measured in dollars)

Both of the values, room sales and number of rooms available, are easily misstated. Total room sales must not include taxes or the value of free breakfasts or parking. Similarly, the number of rooms available must include vacant rooms, but not those permanently assigned to other uses such as offices.

Before 2008, RevPar was rising steadily, increasing at the top of the cycle aided by inflation. That value took a nose dive in 2008–2011 when the average price of a hotel room fell about 16%.

RevPar does not reflect management’s ability to control costs or produce sales in other departments. RevPar is an ideal measure for rooms-only hotels (those with no bars, no laundries, and no restaurants).

DOUBLE OCCUPANCY Exhibit 1-1 continues with the occupancy calculations. Spoken as “dou- ble occupancy,” the value is really a “percentage of double occupancy.”

number of guests - number of rooms occupied number of rooms occupied

= percentage of double occupancy

“Multiple occupancy” is a better term than “double occupancy” because more than two guests may be housed in one room. If the number of guests is greater than two, the formula falters. Assume, for example, two rooms occupied by three persons in one room and one per- son in the other. The calculation would be 4 (guests) - 21rooms2 , 21rooms2 = 1 or 100% double occupancy. In fact, it is only 50%, one room in two.

Double occupancy’s impact on room revenue is much clearer. Additional charges (a double rate) is usually levied when families, skiers, and tour groups double up. Casino/hotels want bodies on the casino floor, so they rarely charge double occupancy rates. High double occupancy is associated with resort properties, giving them a higher ADR.

Another statistical fudge occurs when comps (complimentary—free rooms) are counted as occupied. The occupancy percentage increases but ADR decreases because there are no dollars earned. Similarly, averages for the entire industry are slanted when large hotels are counted along with hotels of 50 rooms or less.

BREAK-EVEN POINT To break even is to have neither profit nor loss. Inflows from revenues match exactly outflows from costs. Hotels have large fixed costs including interest on debt payments, licenses, taxes, and fixed salaries and wages. Reducing fixed costs drops the level of occupancy needed to break even. Similarly, increasing sales from food, beverage, spa, and so on reduces the pressure on room sales. Increasing RevPar also contributes, provided the percentage of occupancy is maintained.

Break-even points are important, because there is no profit until that point is reached. Once the point is reached, profits accumulate quickly. Each sales dollar before the break-even point is used to pay off debt, pay utilities, and pay the staff. Thereafter, each dollar contributes to profits.

Break-even points are expressed in percentage of occupancy. That value has been declining over the past decades. Better hotel design and better financing have held down both variable

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and fixed costs. Changes in market mix and higher room rates have improved revenues, the other component of break even. So break-even points fell throughout the past quarter-century. Recently, however, rising debt and shrinking revenues boosted the break-even occupancy—at the very time when occupancy nosedived.

Special Characteristics of the Hotel Business

Several special characteristics limit management’s flexibility. While some are lodging-only issues, some are found in other industries as well.

PERISHABILITY Vacant rooms are perishable. The industry’s mantra is “an unsold room tonight can never be sold again.” Unlike a can of fruit which inventories on the grocer’s shelf, hotel rooms are time restricted. No way to take last night’s empty room to meet an overflow tonight. Like empty airline, theater, or arena seats, unsold hotel rooms cannot be stored, cannot be saved, and cannot be used anew.

LOCATION According to Ellsworth Statler, who sold his Statler chain to Hilton, “Location, location, location” are the three most important aspects of [hotel] real estate. Good locations are not easy to acquire. Changing neighborhoods and shifting demographics sometimes doom a hotel whose original location was good. Unlike an airline seat, there is no way to move the hotel room. A fixed location in an uneven neighborhood requires astute management and a heavy dependence on marketing and sales.

FIXED SUPPLY Just as the hotel’s location is fixed, so is its supply of rooms. Airlines adjust to demand by adding or removing flights. Not so with hotels. What you see is what you must manage.

HIGH OPERATING COSTS Unlike manufacturing, which offsets high labor costs with large capital investments, hotels are both capital- and labor-intensive. The result is, in the jargon of the trade, a large nut. Large built-in costs continue regardless of occupancy levels. Innkeeping’s break-even hurdle is high.

SEASONALITY Throwing away the key is a traditional practice when a new hotel opens. The act signifies that the hotel never closes. Yet, hotelkeeping is a very seasonal business. Cyclical dips hit commercial hotels every seven days as they struggle to offset poor weekend occupancy. The federal holiday law that extended weekends into Mondays certainly didn’t help.

Occupancy computations must account for this weekend phenomenon. Especially since the business traveler—the very person not registered during the weekend—still accounts for the bulk of the industry’s business. Given the usual profile of the commercial, urban hotel (see Exhibit 1-2), national occupancy in the 70–80% range remains an elusive goal. Annual cycles compound the problem. Commercial occupancy falls off between Thanksgiving and New Years and from May Day to Labor Day.

EXHIBIT 1-2 The difficulty of achieving a national occupancy in the mid-70% range is highlighted by the typical cycle of weekly occupancy for commercial hotels. The challenge is convincing groups, whose members work all week, to hold conventions on the weekends. (Smith Travel Research now tracks U.S. occupancy daily and weekly as well as annually.)

Monday 100% Tuesday 100 Wednesday 90 Thursday 90 Friday 40 Saturday 20 Sunday 20

Total 460% Average per 7 days 66% IS

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Resorts have an opposite pattern: They have busy weekends, but slower midweeks. The slack months of the commercial hotel is the very season of the resort hotel. At one time, resorts opened Memorial Day and closed Labor Day. Winter resorts (December 15–March 15) fared no better. Bad weather devastated both the 100-day seasons.

Both summer and winter resorts have extended seasons with groups, conferences, and special events. Most remain open year-round. Hotels that operate on the four-day season may be worse off than the seasonal hotels. At least the latter have a higher double occupancy.

TRADITIONAL CLASSIFICATIONS

Lodging is an industry of rapid transformation. The inns of old evolved from private homes located along the traveler’s route. Today’s hotel is often a point of destination even as it serves its traditional role of accommodating those in transit. Yesterday’s tavern offered meals with the family. Dining today is a created experience in design, décor, and menu. Early inns were indistinguishable from their neighbor’s homes. Today’s edifice is a sharp contrast in style and packaging (see Exhibit 1-3).

The industry still delivers the basic accommodations of shelter, food, and hospitality. It is the means of delivery that has changed. These variations have been marked by shifting terminology: hostel, tavern, public house, inn, guest house, hotel, resort, motel, motor lodge, motor inn, bed and breakfast, and condo.

The industry’s trade association has undergone similar shifts in identity. The American Hotel Association became the American Hotel & Motel Association, more recently the American Hotel and Lodging Association. “Motel” has been replaced in the professional vocabulary with new hotel types, as we shall see throughout the text.

Changes notwithstanding, several traditional classifications have withstood the test of time. They are size, class, type, and plan. These are not definitive, objective measures. Nor are they self- exclusive. Hotels fall into all categories or into just some. Each category impacts differently on how managers manage. Hence, comes the text’s subtitle, “Managing Hotel Operations.”

Size

The number of rooms available for sale, the very same figure used in occupancy computations (see Exhibit 1-1), is the standard measure of size. Measures such as the number of employees or gross dollar sales are simply not used. Counting available rooms is not as certain a gauge

EXHIBIT 1-3 Unlike the inns of yesteryear, today’s hotels are often architectural attractions, creating a buzz that helps assure their success. Courtesy of the Singapore Sands, Singapore.

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as one would first believe. More rooms may be advertised than are actually available. Older hotels have rooms that are no longer saleable. Newer properties lose guest rooms to unplanned offices and storage. As a rule, the older the hotel, the fewer rooms available relative to total room count.

Hotels are grouped by size for financial reporting, for the U.S. Census and for trade association dues. Traditionally, large hotels are 300 rooms, or more. Medium hotels are 100–300 rooms and small hotels are less than 100 rooms. Recognizing that these definitions are getting dated, the AH&LA boosted its definition of small to 150 rooms. About 25% of its membership falls into the small category.

For hotels seeking government loans, the Small Business Administration’s (SBA) defini- tion of “small” for lodging enterprises is $7 million dollars in annual sales. That value changes periodically. An 80-room hotel with 70% occupancy and an ADR of $100 would qualify. It would only generate $2,044,000 annually (80 rooms : 70% occupancy : $100 ADR : 365 days per year).

Visualizing small- and medium-sized hotels as the lodging industry is difficult when one thinks of famous hotels such as the Waldorf=Astoria in New York City with 1,852 rooms, or the New Otani in Tokyo, 2,057 rooms (see Exhibit 1-4). Small hotels are more common in Europe where they have been traditionally family owned and operated.2 The shift to chains and franchised hotel names has accelerated recently in both Europe and Asia and is changing the structure of the business there. Still, only one-third of Europe’s hotels are branded versus three-fourths in the United States.

2Family-owned hotels account for 94% of Italy’s hotel companies.

Hotel Number of Roomsa Location

Venetian/Palazzob 7,100 Las Vegas MGM grand/Mansion/Signatureb 6,850 Las Vegas Asia-Asiac 6,500 Dubai, United Arab Emirates First World Hotel 6,100 Genting Highlands, Malaysia Wynn/Encoreb 4,750 Las Vegas Luxor 4,400 Las Vegas Mandalay Bay/The Hotelb 4,350 Las Vegas Ambassador City 4,200 Jomtien Beach, Thailand Excalibur 4,050 Las Vegas Aria 4,000 Las Vegas Bellagio 4,000 Las Vegas Circus Circus 3,700 Las Vegas Planet Hollywood (nee: Aladdin) 3,700 Las Vegas Shinagawa Prince 3,700 Tokyo Flamingo 3,550 Las Vegas Hilton Hawaiian Village 3,400 Honolulu Caesars Palace 3,350 Las Vegas Las Vegas Hilton 3,200 Las Vegas Mirage 3,050 Las Vegas Opryland Hotel 3,000 Nashville Monte Carlo 3,000 Las Vegas Venetian 3,000 Macau Cosmopolitand 3,000 Las Vegas

a Room numbers have been rounded to 50. b Built and marketed as separate hotels. c Announced, but not opened. d Opened but not complete.

EXHIBIT 1-4 Megahotels, once exclusive to Las Vegas, are now worldwide. Still, many of these behemoths rely on gaming for their financial success. The Opryland Hotel, which bills itself as the largest U.S. hotel outside of Nevada, is part of Gaylord Entertainment. The world’s tallest hotel opened in 2011: The Hong Kong Ritz-Carlton has 118 floors.

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MOM-AND-POP MOTELS The term “motel” (motor + hotel) was coined after World War II when Americans took to the highways. The concept was refined by Kemmon’s Wilson who created the Holiday Inn chain. Motels replaced the very limited facilities known as tourist courts (see Exhibit 1-5). Many “motels”—the term has now fallen from favor—were family owned and operated. Whence comes the term “mom-and-pop.” There were some 60,000 mom-and-pop motels along the 1960s highways. Rising construction costs and difficult financing headed a list of hurdles that such small entrepreneurs could not overcome. They did not purchase in quantity; they were unable to advertise widely; and they competed against the better management talent that worked for their chain/franchise competitors.

Class

The class of hotel is sensed as often as it is measured, but two yardsticks quantify the appraisal: They are price (ADR) and rating systems.

AVERAGE DAILY RATE Delivering class, elegance, and service costs money. Larger rooms, upgraded furnishings, and extra employees incur larger financing costs, depreciation, energy, wages, and more. So too do better levels of maintenance, 24-hour room service, saunas, and simi- lar extras. All must be recovered by higher rates. More than just a generalization: The better the class of hotel the higher the rate.

Driven by inflation, ADR has been increasing industry-wide for decades. So a higher room rate over time is not the measure. A higher rate relative to competition is critical. Location, location, location also plays a role. Hotels in small towns are different than their big-city counterparts. A $75 rate in Los Angeles conjures up a totally different class of lodging than does that same rate in a small rural town. However, at a given time and with concern for size, type, and location, ADR is a fair measure of class. So published rates help classify the nation’s hotels (see Exhibit 1-6).

FULL-SERVICE TO LIMITED-SERVICE Hotels are as diverse as the traveling public that fills them. Responding to varied needs, the industry has created a range of accommodations from the full-service high-rise to the squat roadside inn. One group offers nothing more than a clean room and a good mattress. Guests do not need swimming pools, closets, or lobbies, goes that argument. This hotelier offers limited service at minimum price. It does so with new language: Limited service is now “select service,” or, better still, “focused service.”

EXHIBIT 1-5 Tourist courts predated the highway motel, which gained momentum from the federal, interstate road construction boom following World War II. Kemmons Wilson’s Holiday Inn chain (1952) set the initial standard for motels. Then came amenity creep.

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One hundred eighty degrees away is the full-service, upscale property. This hotel has superior facilities and a full complement of services. Limited services means lobby vending machines or a nearby restaurant servicing several properties in the area. Full service has a menu of dining options and a range of extras: lounges, room service, newspapers to the room, exercise facilities, and electronic support. Expense-account travelers patronize full-service properties although something less costly may do when the family travels.

Between the two lies the bulk of facilities. Services are added as competition demands and costs allow. Services are pared as markets shift and as acceptable self-service equipment appears. Chapters 2 and 3 introduce some newer in-between-type hotels.

NUMBER OF EMPLOYEES Class as measured by full service or limited service refers as much to the size of the staff as to the physical amenities. Thus, the number of employees per guest room is another measure of class (see Exhibit 1-1).

number of employees on staff number of rooms available for sale

= number of employees per guest room

Budget properties, those without restaurants or amenities such as bars or room service, operate with as few as 0.25 (one-fourth) employee per guest room. An 80-room house might have as few as 20 employees. There’s a limit to how small the staff can shrink. If the property wants the legal benefits of being a hotel, common law requires it to be open 24 hours daily. Now add in staff days-off, plus a minimum housekeeping crew, night security, someone for repairs and maintenance, and the total grows.

EXHIBIT 1-6 ADR, average daily rate, identifies the class of hotel, offering consumers a range of accommodations from the bare-minimum budget facility to the full-service, super deluxe property.

Classification of Hotels by Average Daily Room Rate

Deluxe Hotels (typical room rate: $650 plus/night) Fairmont Hotels Four Seasons Hotels Ritz-Carlton Hotels

Upper Upscale Hotels (typical room rate: $450/night) Le Meridien Hotels Sofitel Hotels W Hotels

Upscale Hotels (typical room rate: $350/night) Hyatt Hotels Marriott Hotels Omni Hotels

Midprice Hotels with Food (typical room rate: $160/night) Four Points (Sheraton) Garden Inns (Hilton) Best Western

Midprice Hotels without Food (typical room rate: $95/night) AmeriSuites Hampton Inns La Quinta

Economy Hotels (typical room rate: $70/night) Baymont Inns and Suites Red Roof Inns Super 8

Budget Inns (typical room rate: $65/night) EconoLodge Microtel Motel 6

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Because a minimum staff is needed, a hotel of 60 rooms might have almost the same num- ber of employees as one of, say, 100 rooms. Each property needs a minimum number at the desk, a manager, a head housekeeper, an accountant, and someone in maintenance. Each must provide for vacations and sickness. Housekeeping is staffed differently. If a housekeeper cleans 15 rooms per shift, every additional 15 rooms requires an extra employee and eventually a supervisor. Hotels minimize that number by using and paying for call-in housekeepers only when volume dictates.

The in-between class of hotels uses an in-between number of employees. That ratio ranges from 0.5 (one-half) an employee per room to a ratio as high as 1:1. Depending on the services offered, a 300-room hotel could have as few as 125 employees to as many as 250. Some may be part-time.

Full-service hotels require more employees to staff a variety of departments. All of them have bells, restaurants, turn-down service, marketing, and pools. Still more staff is needed for properties with theaters, acres of grounds, casinos, and 24-hour room service. The employee– rooms ratio may jump then to 1.5. Thus, a 1,000-room hotel/casino operating 24 hours could have 1,250–1,500 employees. No wonder so many localities with low labor usage—Detroit, for example—have voted for local casinos.

Asian hotels have the largest employee–rooms ratio because labor is less costly. The Bangkok Shangri-La, for example, has 1,073 staff members for 697 rooms, a ratio of 1.5:1. Hong Kong’s Peninsula Hotel operates with 655 employees for its 300 rooms. That’s better than 2:1. The Singapore Sands (see Exhibit 1-3) has a nearly 4:1 ratio: 10,000 employees for 2,560 rooms. (No wonder, Singapore’s few hotel/casinos generate more earnings than all of Las Vegas’ hotels combined.)

Worldwide, the workforce is huge. The United States alone has some 2 million hotel workers. The privately funded World Tourism and Travel Council (WTTC) estimates 225 million employees in the world’s tourism industry. That includes about 13% of Europe’s total labor force.

RATING SYSTEMS Room rates provide good guidance to the class of hotel even when formal rating systems exist. Some rating systems have been publicized; some have not. Some are gov- ernment-run; some are not. Most are standardized within the single country, but not so across borders. Members of the World Tourism Organization have done much to standardize their systems by adopting the WTO’s five recommended classes. Deluxe or luxury class is at the top. First-class, which is not top-of-the-line despite its name, comes next. Tourist class, sometimes called economy or second class is actually third in line. Third and fourth class (really the fourth and fifth ranks) usually have no private baths, no centralized heat, not even carpeting.

International travelers avoid third- and fourth-class facilities. They also know to discount the deluxe category of many Caribbean properties. Similarly, experienced travelers limit stays in Africa and the Middle East to deluxe properties.

Worldwide There are some 100 rating systems worldwide. Most of them rank by using stars; others use coffee pots, alphabets, and even feathers. Britain uses ticks for its holiday parks, which are upscale RV (recreational vehicle) parks.

Europe’s system is the most developed. Its four- and five-star hotels have restaurants and bars. Hotel garni means no restaurant but a continental breakfast is usually served. That’s the usage in England as well as on the Continent and both correspond to the U.S. phrase, “breakfast included.”

The Swiss and Mexican Hotel Associations are unique because they are self-rating, private organizations. The Swiss use the World Trade Organization’s (WTO) five classifications plus a luxury class termed “Gran Tourism” or “Gran Especial.” The Irish Tourist Board takes a differ- ent approach, listing the facilities available (e.g., elevator, air conditioning, laundry) rather than grading them. Directories of the European Community do the same and also classify by loca- tion: seaside/countryside, small town/large city. European auto clubs go further by distinguishing privately owned from government-run accommodations.

Spain has standardized the rating system of its paradors (stopping places) despite a wide range of facilities and furnishings. About one-third of this government-operated chain is at a four-star level.

In 2008, Italy finally adopted a one-to-five-star rating system but left enforcement to indi- vidual regions. One of the rating criteria is room size: The minimum size of a four-and five-star

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Check-in Check-Out: Managing Hotel Operations, Second Edition, by Gary K. Vallen and Jerome J. Vallen. Published by Prentice Hall. Copyright © 2013 by Pearson Education, Inc.

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hotel room must be 15 square meters (155 square feet).3 Hotels will rate four- or five stars only if the staff has foreign language capability.