Last Updated 27 May 2020

Background of the Hotel Industry

Category Hotel, Innovation, Tourism
Words 1598 (6 pages)
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The hotel industry is a part of the hospitality industry. The hospitality industry is a broad category of fields in the service industry that includes lodging, travel, tourism, food and beverage, recreation, and tourism. This research focuses on hotels in the U.S. market. Each hotel has its unique features and services provided to consumers and can vary from one hotel to another. Hoteliers aim to engage customers through their pricing and marketing strategies, hotel amenities, and via the range of services they offer overnight accommodation to consumers. Due to the nature of the hotel services, it is closely associated with the travel and tourism industry.

In the past ten years, the industry has collided with economic turning points in the U.S. emerging markets. The statistic for the U.S. travel, tourism, and hospitality industry indicates travelers spend more than $300 billion on traveler accommodations in 2017. The hotel industry supports nearly 2.1 million U.S. jobs.

According to the Department of Commerce projections, the United States will welcome 95.5 million international visitors annually by 2023 (nearly twice the amount in 2000). The United States leads the world in international travel and tourism export and ranks third in terms of total visitation (Travel, Tourism & Hospitality Industry Spotlight). The hotel industry remains a growing sector; therefore, it is getting more competitive ever.

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Description of Industry participants

The major hotel chains in the U.S. Market are Marriott International, Hilton Worldwide, Wyndham Hotel Group, Intercontinental Hotel Group (IHG), Choice Hotels International, Best Western International, Inc., Hyatt Hotels, G6 Hospitality, Magnuson Worldwide and RLH Corp. (Hotel Management, 2018).

Hotels are either part of the brand portfolio or a group of hotels operated by the same company or owner. A chain hotel retains various brand portfolios and brands are characteristics by hotel location, size, segment, or operation type that affect a hotel’s daily operations. The general categories of hotel type are luxury hotels and resorts, upscale full-service hotels, boutique hotels, focused or select-service hotels, economy & limited service, extended stay, timeshare and destination clubs, motel, and micro-stay hotels, etc.

Competitive factors of the Industry: External-Environment

Uncontrollable factors

The hotel industry is still a growing sector in the U.S. market; however, it is critical to be aware of these uncontrollable factors like political, legal, and regulatory factors, sociocultural factors, natural environment and the unpredictable economic cycles of a nation or natural disasters.

These factors will affect those who are working within the industry. There are multiple signs that these uncontrollable factors are replacing, but it is frequently difficult for the hoteliers to quickly discern what the resulting influences will be and the size and nature of the impact these influences will have on the industry.

For instance, the trade war between the US-China has been going on for 15-month now. The trade war hurts the tourism industry in the U.S. China is causing a dampening effect on Chinese tourism in the U.S. since the conflict erupted in early 2018. The continuing tension is projected to result in a loss of 2 million Chinese tourists through next year, according to a recent estimate from the Tourism Economics, an Oxford Economics company.

In the next two years, it will add up to $11 billion in lost spending for the U. S. market. The number of tourists from China to the U.S. so far this year has fallen almost 5% last year (McCarthy, 2018). This is a domino effect on the hotel industry the occupancy rate and revenues are dropping as the trade war continued.

Another unexpected event also had affected the hotel industry tremendously was in 2001. The 911terrorist attack had the biggest impact on hotels around the U.S. The short-term effect after the first few months following the attacks, the U.S. has the worst downturn in tourist arrivals- a loss of 6.8% in 2002, a significant number considering that just in the last quarter of 2001, they experienced a loss of around 22.6% (Belau, 2003).

An abrupt and dramatic impact in reducing the hotel's occupancy and rates briefly followed occupancy downward.
The series of political events and man-made or natural disasters in the past ten years have impacted the economics of the hotel industry. Hoteliers must scan the external environment for potentially crucial for out-ring developments. It should further assess these impacts and influence of the uncontrolled factors. Hoteliers need to adapt or change the company’s strategies as needed.

Technological Advancement

The hotel leaves no stone unturned in today’s extremely competitive business environment, and a key weapon in their arsenal is technology. Technology has become the driving force to reshaping the hotel industry now and near the future. Digital innovation helps form a lattice for entirely new segments to not only enter the market but thrive. Consumers demand the industry to fight cyberattacks and secure sensitive personal data, like names, phone numbers, addresses, and credit card details.

The digital technologies are shifting the power towards the consumers; therefore, hotels provide free Wi-Fi access, digital key, virtual concierge, in-room voice recognition control on temperature, and drapes, etc., as part of the hotel amenities to accommodate customers need. Hoteliers not only recognize technology is one of the important emerging trends but also incorporate more tech devices to improve the guest experience.

Seven latest technology trends suggest using in hotels ( There are several latest technology trends that hoteliers to keep up with and of utmost importance to improve the guests' experience. The first one is biometrics. It is being used for authentications customer’s purchases.

It benefits hotels to reduce process time for guests check-in and out of the rooms. The second is using the Internet of Things (IoT) to connect in-room devices and appliances. An example is the room temperature can be automatically adjusted by Internet-enabled thermostats. This technology can be deployed for lighting, television, and speakers. The third one is data collection. Hotelier uses this information for pricing strategies to fit guests’ budget range, identify guests' trends, and so on.

Technology in a constant state of flux and constantly unlocking new opportunities to improve customer satisfaction and boost internal efficiency, hotels have their task cut out leveraging technology to remain one-up competition. Cyberattacks, fraud to natural disasters and geopolitical tension are affecting the growth of the hotel industry. It is easy for hoteliers to lose perspective on just how much technology has shaped hotel operations in such a relatively short time.

The Uphill battle with Private Accommodation

Private accommodation has befitted one of the competitive forces in the hotel industry in recent years. Private accommodation was going under the notice until Airbnb become a threat to the hotel business. What is private accommodation? It is the independent owner of private property rent out short or long-term accommodation through an online market place like Airbnb, Oodle, VRBO, Walk Score, HomeAway, Apartalbe, and B;B. Airbnb is most noticeable to people around the world.

According to the Bureaus of Labor statics, Airbnb has listed more rooms for rent than any hotel chain in the world. Airbnb has experienced divergent growth and presence across the United States, with supply shares ranging from less than 1% in small cities to over 15% in big cities. Moreover, Airbnb reduced hotel profits by up to 3.7%, in 2014. With the presence of Airbnb offers accommodations, hotel revenues drop by 1.5%. Airbnb has increased room availability, resulting in reduced prices for consumers, especially during high peak times. When demand is in high peak coupled with the limited capacity of hotels results in higher prices for the consumer.

Airbnb can extend supply during these peak times to accommodate the higher demand for available lodging. As Airbnb becomes more successful and grown to be larger than the companies in the hotel industry, the rhetoric has changed. The hotel industry realizes they had something to worry about and is considered Airbnb as a threat to the industry itself. Airbnb rises suddenly impacting trends and what consumers seek when traveling.

According to the Boston Hospitality Review that consumers seek to travel with new trends like seeking out unique, authentic experiences, changing the nature of brand loyalty, accepting co-up (share) concepts and access-based consumption. Changing trends and dynamics are making hotel industry key players rethink the brand and the consumers' experience.

Changing in market trends and dynamics: Threaten Profit Margins

The Business Chief points out that the top 10 hotel chains in the U.S. according to their 2017 revenue figures are Marriott International, Hilton Worldwide, Best Western International. Hyatt Hotels Corporation, AccorHotels, and so on. Hotels in U. S. enjoyed constant growth in the past ten years.

In accordance, the 11th edition of the Uniform System of Accounts for Lodging Industry indicates it is becoming increasingly challenging for U.S. hotels to achieve both revenue and profit gain. A new report from HotStats on U.S. hotel performance paints a healthy picture for full-service hotels, which recorded a 2.9% increase in profit per room in 2017. Still, there is not too much on the bone for hoteliers. Hotel operating costs are determined by a variety of factors like hotel type, service level, hotel organization, hotel divisions and departments, housekeeping operations.

The single biggest expense is payroll and food and beverage costs. Hoteliers often face irregular cash inflows year around. It is a norm that hotel operation does not have a steady revenue stream. Moreover, the profit margin for hotels is varying and slimmer due to the rising cost of operations such as labor, food and beverage costs, etc. and competitiveness of the price war. It is very important for hoteliers to know the bottom line and to find the break-even point, forecasting revenue stream and budget, and control labor costs.

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