Limited-Service Hotels

Limited-service hotels appeared on the hotel scene in the mid-1980s. Hampton Inn and Marriott were among the first organizations to offer limited-service properties. The concept of limited service was developed for a specific segment of the market— business and cost-conscious travelers. The range of accommodations and services may include reservations, minimal public dining and meeting facilities, cable television, personal computers, personal services (valet and laundry), and ground transportation to and from an airport. The size of the property can range from 100 to more than 200 rooms.

Limited-service hotels are found in center-city, suburban, and airport locations. They are

usually located near restaurants for guest convenience. Guest stays can be overnight or long-term. These properties sometimes specialize in catering to the business traveler and offer special business technology centers.

Extended-Stay Hotels

In “Survey Results of the Extended Stay Lodging Industry, ” The Highland Group of Atlanta, Georgia, reports the following information, about this newest hotel product on the market which includes the 31 extended-stay brands as well as some independent hotels. Extended-stay hotel room supply in the United States increased more than 50 percent in 1997 over 1996. There will be more economy-price than upscale extendedstay rooms before the end of 1998. This is a significant reversal from prior years and indicates a change in the way extended-stay lodging is used by American travelers.

Projected extended-stay hotel supply will be more than half a million rooms through 2002. At this level, extended-stay hotel rooms will represent some 12 percent of total lodging inventory. Assuming supply growth projections are fully realized through 2002, this represents a significant change from the current price distribution of extended-stay hotels and marks a change in the way Americans use extended-stay lodging. Use of extended-stay lodging will have expanded from the corporate expense-account market to encompass most demographic segments. Corporations are taking advantage of the availability of these facilities for training, relocation and temporary assignments at all levels.

At Hilton’s Homewood Suites, the following room amenities are included: kingsize bed or two double beds in the bedroom and foldout sofa in the living room; two remote-controlled color televisions; fully equipped kitchen with a microwave, refrigerator with ice maker, coffeemaker, twin-burner stove, and kitchen utensils; a spacious, well-lit dining area; and ceiling fans and iron and ironing board. Additional hotel services include a business center, an exercise room, and a pool. This hotel concept also structures its room rates to attract the long-term guest.

Market Orientation

Market orientation in the hotel industry is categorized into two segments: (1) residential hotels, which provide guest accommodations for the long term; and (2) commercial hotels, which provide short-term accommodations for traveling guests.

Residential properties include hotels, all-suites, limited-service, and extended-stay properties. Services may include (but are not limited to) public dining, recreational facilities, social activities, and personal services. These hotels are usually located in center-city and suburban areas where other activities (shopping, arts and entertainment, business services, public transportation) are available to round out the living experience. Commercial properties service the transient guest, whose stay is short in duration rate of $55 per night. These expectations have been extensively capitalized upon by major hotel chains, by developing different properties to meet the expectations of various segments of the hotel market, as discussed earlier in the chapter.

Yield Percentage

Yield percentage measures a hotel manager’s efforts in achieving maximum occupancy at the highest room rate possible. It is sufficient to note that this concept is relatively new in the hotel industry. Prior to the 1990s, hotel managers relied on occupancy and average daily rate as indicators of meeting financial goals. Yield percentage forces managers to think in more active terms.

RevPAR (Revenue per Available Room)

RevPAR is determined by dividing room revenue received for a specific day by the number of rooms available in the hotel for that day. The formulas for determining RevPAR are as follows: room revenue number of available rooms or hotel occupancy _ average daily rate For example, RevPAR for a hotel that has $10, 000 in room revenue for the night of September 15 with 200 rooms available would equal $50 ($10, 000 _ 200 _ $50).

This same hotel on September 15 with 200 rooms, room revenue of $10, 000, 125 rooms sold, an average daily rate of $80 ($10, 000 _ 125 _ $80), and hotel occupancy of 62.5 percent (125 rooms sold _ 200 rooms available _ 100 _ 62.5 percent) would still produce the same RevPAR (.625 _ $80 _ $50).

RevPAR is used in hotels to determine the amount of dollars each hotel room produces for the overall financial success of the hotel. The profit from the sale of a hotel room is much greater than that from a similar food and beverage sale. However, the food and beverage aspect of the hotel industry is essential in attracting some categories of guests who want conference services.

Consider the following article, “January RevPAR Grows Nearly Ten Percent at Suburban Lodge Company-Owned Hotels, ” which was published on-line. It shows Suburban Lodges of America’s use of RevPAR to inform its shareholders. (Suburban Lodges of America owns, franchises, and manages Suburban Lodge hotels, the nation’s largest chain of economy extended-stay hotels, and franchises GuestHouse International hotels, the midmarket nightly-stay hotel chain with the franchisee-friendly franchise agreement.)

This article addresses the importance of using RevPAR to present a fuller financial picture that is based on factors that impact room sales, such as economic conditions, weather patterns, and business and personal travel.