Chapter 3 Lodging


Quickly expands your company by using other people's money instead of your own.

Franchisor (owner of the company)

Grants rights to use trademarks, logos, and proven operating systems and procedures.


Signs a contract to operate the hotel/restaurant, etc. under the guidelines of the franchisor. Has the financial backing, but lacks expertise and recognition.

What year did franchising begin, and with which hotel?

1907 with the Ritz Carlton

Midprice family hotel created by Kemmons Wilson in 1957

Holiday Inn

the 60s, 70s and 80s.

Primary growth of hotels came in these decades

Trends of Franchising

Fresh looks, location, expansion to smaller cities, foreign expansion

Average Agreement fees (between franchisor and franchisee)

3-4% of room revenue fees

Benefits of Franchising (benefits of the franchisee)

Standard set of plans
National advertising
Central reservation system
Volume Discount pricing
Lower fees by credit card companies

Drawbacks of Franchising

High Fees.
Central reservation system only account for 17-26% of reservations.
Must maintain franchise standards.

Pros for the Franchise Company

Increased market share and recognition.
Franchise fees are typically 3-4% of room revenue.
Up-front fees

Cons of the Franchise Company

They need to be careful choosing partners.
Difficult-to-maintain standards.

Management Contracts

responsible for the hotel industry's rapid growth since the 1970s.
Requires little up-front financing
Real Estate and phsyical plant are owned by different entities

Management Fee

Typically 2 to 4.5% of gross revenue

Why do people prefer Management Contracts?

Less capital is tied up in managing properties as opposed to owning properties.

Real Estate Investment Trusts

Around since the 1960s.
Investors don't pay corporate income tax.
Investors required to distribute at least 95% of net income to shareholders.
Trade as stocks (easier to get in and out of)

True/False: The US has a formal government classification of hotels.

False: they do not.

American Automobile Association(AAA) and Forbes Travel Guide

Two organizations that rate hotels (based on diamond and star ratings)

Ways to classify hotels

Level of Service

City Center Hotels

Meet the needs of business and leisure travelers

Airport Hotels

Full-service hotels built near airports. (200-600 rooms)

Freeway / Interstate Hotels /Motels

Convenient place with limited amenities

Casino Hotels

Make more money from gaming than from rooms

Conference and Convention Hotels

Provides facilities for guests attending meetings

Full Service Hotels

Lodging facilities with food and beverage outlets, room service, and bell staff in addition to upgraded rooms

Economy/Budget Hotels

offer clean, reasonably sized rooms with no frills

Extended Stay Hotels

A moderately priced, limited-service hotel marketing to guests desiring accommodation for extended time periods (generally one week or longer). Gives 25% more space than regular hotels.

Mixed Use Development

development that combines housing and businesses in one area. Include permanent residences.

Bed & Breakfast

Owner lives on property and provides accommodations and breakfast


Inclusive and diversified in accommodations

Vacation Ownership

Timeshares. One-time purchase price plus annual maintenance fees.
Fastest growing sectors of the travel industry

The EU and NAFTA

account for 508 million consumers.

Trends in Hotel Development

Safety and security
Increased number of spas
Sustainable practices