The Productivity Challenge Facing the Global Hospitality Industry

The Productivity Challenge Facing the Global Hospitality Industry

Sigbjørn L. Tveteraas (University of Stavanger, Norway) and Martin Falk (Austrian Institute of Economic Research, Austria)
Copyright: © 2016 |Pages: 16
DOI: 10.4018/978-1-5225-0201-2.ch013
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Abstract

This chapter introduces the global productivity challenge facing the hospitality industry. Global competition in the hospitality industry has led to increasing pressure on profit levels. To leverage profits hotels increasingly are forced to evaluate their operational performance. Specifically, the global productivity challenge entails that hotel managers to a greater extent must encompass a cost minimization perspective. With the integration of productivity-enhancing software systems in hospitality organizations hotels are becoming increasingly knowledge intensive. This chapter discuss measurement issues, productivity analysis and relevant research findings from empirical research. The empirical research on hotel productivity shows that there are many factors to keep in mind for managers that wish to improve productivity in their organizations. Hopefully this chapter will contribute to clear up the meaning of concepts and broadened the perspective of how productivity are related to all parts of the hospitality enterprise.
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The Global Productivity Challenge

The main benchmarking performance measure in the hospitality industry is revenue per available room (REVPAR). The overall trend in inflation-adjusted REVPAR following the post financial-crisis period of 2008 have either been flat or negative depending on which region one looks at. For example, REVPAR in Europe and Asia has increased less than the general inflation level based on global hospitality data from Smith Travel Report (STR). This could imply that prices of inputs (e.g., labour, food and energy) have been increasing more than room revenue and, as a result, have put pressure on hotels’ profit margins.

To understand why growth in earnings have been flat we need to look at the effects of globalizations. Importantly, the Internet has completely changed the marketing and distribution channels for hotel rooms during the last couple of decades (Buhalis & Law, 2008). On the one hand, the Internet has led to a far wider distribution making it easy for travelers to book rooms worldwide, but, on the other hand, the Internet has also changed the profit distribution in hospitality companies’ disfavor. Specifically, the explosion of Internet distribution channels such as Expedia, Tripadvisor and Hotels.com have shifted market power from hotels to online distributors and customers (Lee, Denizci Guillet, & Law, 2013). For example, Expedia ask hotels commission of up 25% of sold room rates. This not only means that revenue growth has stagnated but the share of revenue going to hotel companies is also decreasing putting hotels’ earnings under pressure. Thus, the market power issue in hospitality has widened from the typical worry about, say, tour operators negotiating power in relation to contracting hotel capacity (Tveteraas, Asche, & Lien, 2014), to a much wider impact of online distribution channels. Furthermore, the increased transparency of hotel pricing through the Internet has made room pricing more efficient due to consumers’ exploitation of arbitrage opportunities.

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