Hotel Industry Report

INTRODUCTION

The hotel industry is a sub industry within the hospitality industry, providing paid lodging on a short-term basis. The modern concept of a hotel derives from 1794 in New York where the first ever hotel was built. Over the last few decades, a few large national hotel chains have dominated the hotel industry, many of which fell in several of the categories of hotels in hopes of serving different groups of travelers. This has been supported by guests who are loyal to particular brands due to their dependability. These hotels are at times owned by the national corporation but most are franchised to independent owners. Today, the trend is moving towards companies managing the chain and franchising the individual hotels.

In 2011, significant improvements were achieved in hotel performance indicators in most regions of the world, the global hotel transaction market showed heightened activity, and significant amounts of capital were raised to invest in the sector. International travel and tourism volumes, driven by the burgeoning BRICS economies, are anticipated to increase. Furthermore, mega events in Europe (such as London Olympics) and South America from 2012 through 2016 will significantly impact on the global hotel sector.

MICRO FRAMEWORK ANALYSIS

Porters Five Forces:

Porter's model is based on the insight that a corporate strategy should meet the opportunities and threats in the organizations external environment.

BARGAINING POWER OF SUPPLIERS:

Few of the powerful suppliers are indispensible in terms of quality, training canters for employees and ICT manufacturers who provide IT systems but substitutability of the supplier's is also quite feasible and inexpensive. Overall bargaining power of suppliers is low and industry's attractiveness in terms of supplier bargaining power is high.

BARGAINING POWER OF BUYERS

The end-users of the high-end hotel industry are:

* Leisure traveller

* Business traveller

* Customers who require space for conferences or other events

Apart from the provision of accommodation, hotels also provide additional facilities and services such as restaurants, gyms, spas etc. Therefore their contribution to quality as well as cost for the buyer is very high. Overall, bargaining power of buyers and the industry attractiveness in this respect is moderate.

BARRIERS TO ENTRY

The initial investment in the hotel industry creates a big barrier to entry. Profitability of hotel chains is drastically higher than individual operations. A new entrant cannot compete with established players in terms or quality and price if they cannot establish significant economies of scale. Being a capital intensive industry with a large amount of it, tied down in fixed costs, makes entry even the more difficult. They have high exit barriers due to specialized assets which makes the industry less attractive. Hence in terms if Entry barriers, the industry is moderately attractive.

THREAT OF SUBSTITUTES

A threat from substitutes exists; they could potentially attract a significant proportion of market volume and hence reduce the potential sales volume for existing players. The constant challenge will always be to get the guest to choose your hotel over the competitor.

The major substitutes for the hotel industry are camping and recreational vehicles for tourists, corporate guesthouses for business travellers and other informal means of accommodation with friends and family. Compared to the hotel industry, these are much cheaper alternatives, making their price values very high and the switching costs very low. This makes the industry attractiveness in terms of substitutes low.

COMPETITIVE POWER OF RIVALRY PLAYERS

This force describes the intensity of competition between existing players (companies) in an industry. High competitive pressure results in pressure on prices, margins and on profitability for every single company in the industry. The rivalry among competitors in the hotel industry is fierce, people tend to seek the best price for the best experience and the tendency is to reduce price to be competitive. Overall this makes the industry unattractive.

Competition:

Competition refers to rivalry among firms operating in a market to fill similar customer needs. (Griffith & Jain, 2012). Competition is basic to any industry and is involved in many actions taking place in the market like the prices at which products are exchanged, the kinds of the products produced, the quantities sold, the methods of distribution, and the emphasis placed on promotion (Chamberlain, 1933). Competition at industry level can be based in terms of its concentration and segmentation.

Industry Concentration:

The degree of concentration (high, moderate, or low) of hotel industry tells us whether the market structure can be characterized by monopoly, oligopoly, monopolistic competition, or pure competition. In a high concentrated industry, combined market share of all competing firms, which equals 100 percent, will be dispersed over fewer firms. The higher the concentration level, the less competitive the market will be.

Segmented Competition:

The nine major hotel industry segments include: Deluxe, Luxury, Upscale, Mid-Price with Food and Beverage Facilities, Mid-Price with No Food and Beverage Facilities, Economy, Budget, Extended-Stay - Upscale, and Extended-Stay-Budget.

In a segmented competitive environment, hotels positioned in different segments do not compete directly, but rather, indirectly. The hotel firms face two levels of competition, primary and secondary.

The primary level of competition includes competition between firms from the same segment. They are referred to as direct competitors. In addition, other factors such as geographic proximity and physical amenities are also taken into consideration. For example, a competitive impact analysis for deluxe segment would include competition between Ritz-Carlton and Marriott.

The secondary level of competition includes competition between firms from different segments. They are referred to as indirect competitors. It is based on both price point overlap and customer mix overlap For example, Crowne plaza from the upscale segment could compete with Hilton Hotel of luxury segment when they base lower-priced meetings