About the Author
Paul Slattery is a director of Otus & Co, a company that provides and corporate finance services and strategic advice to the hospitality, travel and transport businesses. Otus operates the world’s most sophisticated hotel chain database with analytical tools that project the structural development of the economies, hotel demand and hotel supply, hotel portfolio management and the effectiveness of hotel brand infrastructure. Otus advises most of the significant international hotel chains, online travel agencies as well as equity and debt providers about investment in hospitality and travel. Paul worked for Dresdner Kleinwort for 15 years until 2002 in both equity research, where he was head of hospitality research and in investment banking where he built the bank’s franchise in the hospitality arena and advised companies such as Compass Group, Scandic Hotels, Thompson Travel Group and Whitbread. Prior to that he worked at the University of Huddersfield in the UK where he led the BA(hons) Hotel and Catering Administration and was responsible for management research at The Hotel and Catering Research Centre. Early in his career, Paul worked for several international hospitality companies. Paul writes regularly for academic and industry publications, is a fellow of the Institute of Hospitality and is past Chairman of The International Hotel Investment Council.
Excerpt. © Reprinted by permission. All rights reserved.
This book is about the hotel business and the economic contexts in which it has evolved. The central thesis is that the size, structure and growth of the hotel business in a country are functions of the prevailing economic structure. Thus, fundamental to comprehending the economic ascent of the hotel business is an understanding of the structural development of the economies in which hotels operate and which provide the fertility for hotel demand and supply to grow. The book draws on contemporary data and events to chart the historic development of economies and of the hotel business to illustrate patterns in this fundamental relationship. The book also focuses on the economic conditions that produced hotel chains of different sizes, structures and growth patterns and it seeks to provide a more comprehensive basis on which future developments in hotel demand, supply and performance can be contemplated.
The economic ascent of the hotel business has not been uniform because the development of economic structures has not been uniform. Europe and North America are the centre of the hotel universe, so that, with a combined population of around 700 million and with around 10 million hotel rooms, they have a supply ratio of 14 hotel rooms per 1,000 citizens. The rest of the world accounts for a population of around 6 billion with 6 million hotel rooms, a supply ratio of one hotel room per 1,000 citizens. The fundamental question is: what is it about the economies of Europe and North America that generate a much higher volume of hotel supply, and by implication hotel demand, than the rest of the world? Those economies from Africa, parts of Asia, parts of South America and parts of Eastern Europe that are grounded in agriculture and basic manufacturing generate the lowest volume of demand for hotels, have the lowest supply of hotel rooms and throughout history the economic ascent of their hotel businesses has been minor. At the other end of the continuum of economic structure, the most advanced economies such as the US and Britain, have progressed to be driven more by service businesses. They generate the highest volumes of hotel demand and need the highest volumes of hotel room supply per citizen to accommodate them. It is in these countries that the economic ascent of the hotel
business has been greatest. Thus, identifying the historical development of the economic structure of these countries and the parallel development of their hotel businesses is necessary to make sense of the different size, shape and prospects of their hotel businesses.
In the most advanced economies the hotel business has existed and grown throughout their economic history and has been dominated by two major trends. First, the provision of hotel facilities and services has developed from small inns, which were an extension of the home of the innkeeper, with primitive communal sleeping and eating facilities for handfuls of travellers at any time to modern mammoths such as Wynn Las Vegas, opened in 2005 with a development cost of $2.7 billion in 2,716 rooms and suites, an 111,000 square-foot casino, 22 restaurants and bars, an 18-hole golf course, approximately 223,000 square feet of meeting space, an on-site Ferrari and Maserati dealership and approximately 76,000 square feet of retail space.
Second, from the middle of the 19th century in Britain, hotel chains emerged. They developed gingerly during the next 100 years, but the emergence of chains and therefore the growth in concentration of the hotel business was a feature of the second half of the 20th century, most notably in the US and Britain.
The experience of the US and Britain is that hotel chains come to prominence when the development in economic structure is driven most by the growth of service businesses. Of the two countries, the US has by far the larger hotel room stock, because it is the larger economy with a larger and faster growing population and the larger physical size, but also, crucially, because throughout the 20th century the structural development of the US economy progressed at a faster rate than Britain’s. At the start of the 20th century both economies were grounded in manufacturing and their hotel businesses were closer than they have been since. In 1900, the US, already the world’s largest economy, had 500,000 hotel rooms and a supply ratio of 6.6 hotel rooms per 1,000 citizens, while Britain had 270,000 rooms and a supply ratio of 7.1, higher than the US. Britain started the 20th century with a higher level of concentration in the hotel business than the US due to the vertical integration of railway companies and of brewers, which accounted for most of the hotel chains. However, throughout the 20th century, the US economy progressed more speedily to be driven by service businesses and the country had a political philosophy of small government, which facilitated faster structural development of the economy.
In contrast, Britain took longer to make the transition to service businesses and did so with a political philosophy of big government, which slowed the structural development of its economy. The progressive growth in total hotel room supply and in hotel chain supply in both countries reflected the divergence in their economic structures. By 2008, the US hotel business had grown to 4.7 million hotel rooms, a supply ratio of 15.5 hotel rooms per 1000 citizens and hotel chains accounted for 69% of total room stock. In contrast, British hotel room stock had grown to 510,000 rooms, a supply ratio of 8.4 hotel rooms per 1000 citizens and a concentration of only 57%.
Wow! eBook
