The Home Away from Home: An Analysis of the Lodging Industry in 2015

By Ahmad, Naveed; Walter, Hannah et al. | American Journal of Entrepreneurship, June 2016 | Go to article overview

The Home Away from Home: An Analysis of the Lodging Industry in 2015


Ahmad, Naveed, Walter, Hannah, Sherman, Herbert, American Journal of Entrepreneurship


Introduction

Much has changed in the United States lodging industry since Conrad Hilton purchased his first hotel in 1919. Large corporate chains, budget motels, and boutique hotels offer a wealth of options to suit a wide range of traveler preferences. For cities and towns dependent on tourism, the lodging industry plays a critical role in generating sustainable revenue. This symbiotic relationship with the economy at large, in which lodging can help drive tourism while the industry itself is affected by the strength of the national economy, provides incentive to understand the status of the industry today. This analysis provides an overview of the lodging industry (external and internal key factors), current trends, and forecasts.

Description

The primary purpose of firms operating within the lodging industry are to provide a shelter for consumers, typically travelers, on a short-term basis. Lodging may also include other amenities besides a standard room such as food, beverage, fitness centers, conference room, or pool. The amenities that are offered depend on the firm and its level of luxury. Over time, the purpose of the lodging industry has evolved for other uses beyond vacation destinations for tourists, such as conferences, competitions, and exhibits. The United States lodging industry is composed of approximately 40,000 hotels, motels and resorts operating roughly 53,000 total properties. Annual revenue for the lodging industry is approximately $160 billion. Please note that this analysis of the lodging industry excludes casino hotels and focuses primarily on the four pricing categories of hotel and motel lodging:

* Luxury - On average more than $200 per night (e.g. W Hotels, Ritz-Carlton)

* Upscale - On average more than $100 per night (e.g. Marriott, Sheraton)

* Midscale - On average $60 to $100 per night (e.g. Holiday Inn, Comfort Inn)

* Economy/Budget - On average below $60 per night (e.g. Motel 6, EconoLodge)

Prices can vary according to region (California and Northeast hotels are commonly priced higher), season, and level of occupancy.

Key Success Factors

Every industry has their own combination of factors that play a critical role in its success. Key factors play a role both externally and internally. Below we will establish both sets of factors and the effect they have on the lodging industry.

External Key Factors

External key factors are aspects outside of the business that can have an impact on the firm's operations. These external factors are specific to the lodging industry and should be taken into account during the business life cycle. More specifically, these are the factors that have a direct effect on the industry and how it operates. The lodging industry has four external key factors: the economy, tourism/travel, location, and technology.

Economy

A variety of factors affect the lodging industry's ability to succeed. From a macro perspective, the health of the US economy directly impacts tourism and business spending. The lodging industry relies on travel to fill its facilities. Without travel, empty hotels equate to loss of profit. After the 2008 recession, many businesses turned to technology to increase virtual meetings to reduce travel costs. Although in response to the global economic downturn, studies show that companies may have cut spending on travel more than necessary between 2007 and 2009, further impeding future economic recovery.

Between 2011 and 2015 as the US economy recovered with an 18.5% increase in Gross Domestic Product (GDP) and a 3.5% decrease in unemployment, total domestic business and leisure travel increased 7.1%, showcasing the symbiotic relationship between the economy-at-large and travel and lodging industry.

Tourism/Travel

As previously stated, the economy has a direct effect on tourism but the inverse relationship is also true - tourism has a direct effect on the local economy. …

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