UNDERSTANDING THE HOTEL BUSINESS

UNDERSTANDING THE HOTEL BUSINESS

 The Service Culture The hotel industry grew and flourished through the centuries by adapting to the chang￾ing social, business and economic environment that marked human progress . During modern times, these stages have been labeled for easy reference. The 18th century was the agricultural age; the 19th, the industrial age. The 20th century has been the age of service. The sale of services, such as medicine, banking, education and hotelkeeping, has outpaced the manufacture and distribution of goods. The 21st century has opened with that same service culture even as it launches what is likely to be the age of technology. A Cyclical Industry Hotelkeeping is a cyclical industry that closely follows the nation's economic phases. Wide swings carry the hotel business between peaks of exceptional profits and troughs of out￾right distress. Unfortunat ely, the industry both lags the general recovery and precedes the start of the decline . This rollercoaster has been very evident over the past half century. The entire travel industry, including innkeeping, was brought to its knees by the oil embargo of 1973. Hun - dreds of hotels! went through bankruptc y. Then came recovery. A decade later , the early 1980s, saw a second collapse when the federal government changed the income tax laws on real estate. That debacle took down many banks as well. (Remember : Hotels are pieces of real estate above all else, and real estate is the basis of bank loans.) Recovery followed once again. A dozen years later, late 1990s, hotel profits began to appear. Just as the recovery was consolidating came the tragedy of the World Trade Center (2001). Travel and tourism bottomed out again. Recovery was faster this time. About 100,000 new rooms were announced in 2005 alone. The 2004-2008 period has been one of great prosperity. Rising oil costs beginning in 2005 laid the groundwork for another scenario reminiscent of 1973. Equally devastating has been the industry's rush to build. Hoteliers stop building during the downturns. Three years is the typical span between planning and opening a hotel, even longer if there are special financing, zon￾ing, or environmental issues. Over half of the projects are never built and those that are often have fewer rooms than announced. Hotel occupancy and profits boom before the competition revs up new properties. So new rooms usually come on as the cycle peaks. That increased inventory accelerates the next downward dip. Supply and demand play their traditional roles in hotel economics, as they do for general business. Overbuilding, excess supply, exaggerates the downturns far, far more often than does insufficient demand, fewer customers. !In Austra lia, hotel means a bar or pub; on the subcontinent, it means a restaurant.