Wednesday, January 17, 2007

Hospitality and Tourism

Hospitality's broad scope

The hospitality and tourism industry is made up of a variety of interconnected sectors, including lodging (everything from roadside motels to luxury resorts), recreational activities (theme parks, cruises and the like), rental cars and food services. All of these sectors work in tandem with the transportation industry to bring consumers to the destinations where they'll spend money on the local goods and services. In the industry, this is known as an "upstream" effect: the more likely travelers are to board a plane to get somewhere, for instance, the more in demand the hospitality and tourism industry's services become. According to the World Tourism Association, worldwide spending by vacationers was $682 billion in 2005 -- more than $2 billion per day.

Because of the relationship between tourism, hospitality and transportation, the after-effects of the September 11 attacks, along with other turmoil overseas, had a chilling effect on the industry from 2001 through 2003. The subsequent dip in the economy also led to slashed budgets for business travel, the bread and butter of the lodging and rental car sectors. But recently, a variety of factors -- including a perception that the economy is improving, increased confidence about security and lower-cost plane fares -- have led to an overall rebound. PKF Hospitality Research predicts that hotel revenue (along with costs, unfortunately) would be up for the fourth consecutive year in 2007.Even high gas prices haven't managed to dampen travelers' wanderlust. According to a survey conducted by AAA, 1.2 percent more people will take a trip of 50 miles or more over the weekend of July 4, 2006 than did the year before. The Travel Industry Association (TIA) forecasted in May 2006 that the average trip would cost $1,000, but they also noted travelers would economize on food and hotels in order to reduce the sting of high prices at the pump.

Checking into hotels

In 2004, according to the Bureau of Labor Statistics (BLS), nearly 62,000 establishments -- including upscale hotels, RV parks, motels, resorts, casino hotels, bed-and-breakfasts and boarding houses -- provided overnight accommodation in America, employing 1.8 million wage and salary workers in the process. Two thirds of these workers were employed in service occupations such as housekeeping and food prep.

Hotels fall into five basic categories: commercial, resort, residential, extended-stay and casino, with some commercial hotels classified as conference facilities, featuring spaces designed to accommodate large-scale meetings and events. In recent years, the industry has seen the most growth in extended-stay properties, accommodating guests for visits of five nights or longer. By eliminating traditional services like lobby facilities, 24-hour staff and daily housekeeping, the sector has been able to reap profits. Average revenue per available room (known in the trade as RevPAR) increased 8.2 percent in 2005 to $57.29.

Top hotel corporations include Marriott International, Starwood and Intercontinental. Another hospitality giant is Cendant, considered the world's largest hotel franchiser, with Days Inn, Super 8 and other brands under its roof. In July 2006 Cendant's board voted to divide the company into four parts. Its travel booking services would become Travelport; the Cendant name will be attached to the company that controls the Avis and Budget car rental firms; and the hotels and time shares will be owned by Wyndham Worldwide. Realogy was created to take over the company's real estate functions.

Inhospitable climate

If you've had a bad customer service experience in the hospitality and tourism industry, you're not alone -- and the industry itself is taking notice. The industry has struggled for some time with human resource issues, and "the current bad situation is worsening," says the International Society of Hospitality Consultants (ISHC). The ISHC frets about the way the "spirit of hospitality is deteriorating," with guest services compromised by staff reductions, high turnover and poorly trained workers. Recent news indicates things are looking up, however: the American Hotel and Lodging Association (AHLA) reported in 2006 that hotel consumer satisfaction had improved by nearly 3 percent over the previous year.

Labor issues also continue to dog the industry. As hotels compete with other sectors like retail and fast food for unskilled and semi-skilled labor, costs are rising, and workers are becoming increasingly demanding of benefits. In addition, for a sector that relied heavily on an immigrant labor population, post-September 11 border tightening has also put strain on the industry. But, according to the ISHC, the challenge which will most affect the lodging industry in 2006 is higher operating costs, especially those associated with labor and fuel, which have certainly taken a bite out of revenue. Hoteliers must also contend with rising insurance premiums (especially in areas prone to natural disasters such as hurricanes), escalated competition between accommodations, stiffer "brand standards" and the rising cost of construction and renovation.

The wired customer

Hotels, along with nearly every other portion of the hospitality and tourism industry, are adjusting to the increased presence of the Internet in travel planning and spending. Industry analysts predict that 60 percent of travel bookings will be made online by 2008. According to a TIA survey, online bookings in 2005 were up 25 percent over 2004, with consumers preferring the comforting glow of their computer screen to waiting on hold (telephone bookings down 16 percent), or, heaven forbid, leaving the house (travel agent bookings were down to a mere 4 percent). The Internet has had the effect of empowering customers, allowing them to comparison shop for the best deals through so-called "e-mediaries" like Expedia, Orbitz and Travelocity, all of which sell rooms and other travel services such as rental cars, often at discounted rates. Consumers' ability to compare prices before booking has created downward pressure on room rates, which, according to the ISHC, will continue to affect hotels' profitability. The flip side to this situation is that, while online hotel and transportation bookings allow customers to compare prices, travelers who book online have a tendency to be profligate with their pinched pennies once they arrive at their destination: the TIA reports that in 2005 online bookers spent more and participated in more activities while on vacation than those who arranged their trips by phone.

Global distribution

At the same time, hotels are becoming more reliant on electronic database systems and the Internet to book rooms. Indeed, across the industry, electronic distribution -- an online means of allowing travel agencies, consolidators, consumers and other bookers to access available rooms, rental cars, flights and even golf course tee times -- has become the norm. This trend stems from the Global Distribution System (GDS) and Internet Distribution System (IDS) models that form the inner machinery of the travel industry. There are four main GDSs, or booking systems, in the world, allowing access to bookings for airlines, car rentals, hotels and cruise reservations. Known by different names in various parts of the world, the GDSs are familiar to American travel bookers as Amadeus, Galileo (a subsidiary of Travelport), Sabre and Worldspan.

The GDS sector arose in the 1960s as a means for airlines to keep track of their schedules, seat availability and prices. Formed by airline leaders such as American (which founded Sabre), the GDSs were installed in travel agencies in the 1970s, marking one of the first successful business-to-business e-commerce ventures. A few decades later, e-commerce travel sites like Expedia and Travelocity, using Sabre and other GDS systems as their information engines, made travel booking available to the connected masses. In addition, the more than 500,000 travel agents operating worldwide now have a wealth of electronic methods to plug into and shop from. This means that few entities that want to survive in hospitality and tourism can afford to be shut out of these systems.

To be represented on a GDS, a hotel or hotel chain has to select a method of branding, as either a private label chain, part of a larger marketing brand or as one of a collective group of similar properties. In any case, according to the Hotel Electronic Distribution Network Association (HEDNA), cost per booking for hotels through a GDS or IDS is cheaper than any other distribution method, including bookings made directly through the property.

De-commissioning agencies

But ironically, what started off as a tool to help travel agents access and sell travel to consumers has now led to the steady erosion of the travel agency sector itself, as empowered consumers no longer need to rely on a middleman to purchase airline tickets and even travel packages. The agency industry is dominated by traditional retailers of travel like American Express, Carlson Wagonlit and Navigant. But e-retailer Expedia's position as the 2006 market leader illustrates the agencies' plight. Airlines, once a steady source of income for travel agencies, also have caught on to the diminishing agency trend. Beginning in the mid-1990s, major air carriers, after decades of providing at least a 10 percent commission to agents on sales, slashed or eliminated these commissions entirely. The loss of income drove some agencies out of business, while others consolidated. According to the BLS, the number of travel agents in the U.S. was just under 89,000 in 2005, while the agency reported a number around 100,000 in 2004. Associations such as the American Society of Travel Agents insist that the industry can continue to thrive by providing the extra attention to detail, insider knowledge and customer service that consumers crave.

Feeding the masses

In the vast lodging and recreation territory, there has to be a way to deliver food and other sundries to guests cheaply and efficiently. That's where companies which specialize in outsourcing come in. With a revenue of more than ??11.68 billion in 2005, French company Sodexho is a powerhouse in providing outsourced food and services to hospitality facilities (as well as a host of other institutions from nursing homes to elementary schools). It ranks fourth in market capitalization among all players in the restaurant industry, coming in behind McDonald's, Starbucks and Yum! Brands. Another global contender is Aramark, which in 2001 purchased ServiceMaster Management Services and boosted revenues to more than $10 billion in 2005. Aramark scored a huge contract in 2004 to provide food services for the Olympic Village at the Summer Games in Athens, its 13th time providing such services at the competition.

Tours of duty

The good thing about hospitality and tourism is that there's almost always a job to be found. In the US, the travel and tourism industry is expected to contribute 10.5 percent to the GDP and 10 percent of jobs in 2006, according to the World Travel & Tourism Council. The BLS further reports that jobs in accommodation and food services as a whole are expected to increase 17 percent between 2004 and 2014. There are a wide variety of jobs in the industry for people of all skill sets and education levels, and high turnover in the industry means they have a wide availability. Most entry-level jobs in hotels require little training. Housekeeper and janitor positions require the least training and education and fewest opportunities for advancement, though they can be attractive to people who might want seasonal or temporary work. Those who work in guest services, as a host or hostess or desk clerk, can advance to supervisory positions with sufficient experience. Completion of a program in hotel management will lead to more rapid advancement. Hotels may also need people in the food service industry, such as chefs and restaurant staff if they have a restaurant in-house. Hospitality involves 24-hour service, and low seniority may mean working night and weekend shifts, at least initially. Travel agents need at least a high school diploma, good sales, research, and computer skills; though a BA in geography or travel services helps. Currently, 13 states require travel agents to be certified.