Hotels have a high degree of operating leverage, a relatively high level of fixed costs, and a relatively low level of variable costs. This level of operating leverage makes the business volatile. When a hotel is below the break-even point, it can lose money very quickly. But once it gets over the break-even point, the marginal cost of filling one more room and servicing one more guest is insignificant. Profits increase dramatically.
The hotel industry is much more volatile than other real estate industries, like office buildings and shopping centers. It is much more similar to the airline industry, which has comparable operating leverage.
If a plane has 100 seats and has sold 99 seats, the marginal cost of selling the last seat is a few cents. The passenger gets half a can of soda and some pretzels. But the plane neither hires any more flight attendants nor another pilot. So, the marginal profitability of selling that last seat is pretty close to 100%.
The hotel industry is similar in that the marginal profitability of selling each additional room after crossing the break-even point is remarkably high. So, its profits increase quickly. On the flip side, when business deteriorates, the economy weakens, a hurricane comes, or there’s a health or other momentous event that affects people’s travel plans and disrupts the travel cycle, hotels can suffer drastically. It is very challenging for the industry to tighten its expenses to cut losses.
Hotels are always trying to be nimble, but they’re working against the structural aspects of the industry. It is hard to be efficient. When the hotel industry is doing well, profits rise dramatically. But when the industry is suffering, profits can erode rapidly.

Entrepreneur is a French word taken from entreprendre, which means “adventurer” or “one who undertakes.” Entrepreneurs look for and recognize opportunities. They also take an enormous amount of risk to move on to these opportunities and create value for their industries.
An entrepreneur is a risk-taker because success is rarely guaranteed. But, as Edison says: “I didn’t fall a thousand times. I learned many new things.”
Entrepreneurs try to solve problems in either the product or service industry. Products are more tangible items, whereas services are more like hotel, legal, and financial services. #
Lauren Grench details her journey into entrepreneurship, and what it means to blend all these services into a cohesive, memorable experience:
“So LLG is an event management and design firm that specializes in luxury destination weddings. We plan and design luxury destination weddings. That encompasses planning the guest experience. It also includes all the budgeting, vendor negotiations, and contract negotiations.
“Anything with destination planning means complex logistics, [which means] understanding international law, international relations, socioeconomics, understanding what’s going on within our political atmosphere with all the different countries that we’re working with.”
According to Grench, the customer experience defines the industry.
“Hospitality is at the epicenter of event management. You need phenomenal customer relations. You need to make sure that your guest experience is also just as important as your client experience and your vendor experience and your venue experience.”
Each of these areas is vital to the success of any event. Optimizing customer service, customer relations, and the guest experience is about getting them all to work together and ensure the proper execution of the event.
“A common thread for entrepreneurs is that they tend to be really creative, innovative individuals,” Grench says. “They’re always looking after something new, something that would solve an existing problem for the industry. This could be a hospitality industry, financial industry, even a regular taxi industry just like Uber did.”

Professor Richie Karaburun is originally from Turkey and is currently a Clinical Assistant Professor at New York University’s School of Professional Studies Center of Hospitality.

Professor Karaburun has been in the hospitality industry about 25 years. He started as a management trainee in Los Angeles, then climbed up the ranks. When he left the company, he was the Vice President of Product Development and Contracting.

He was then recruited to be a president of Gulliver’s Travel, which was one of the largest wholesale travel business at the time. After they sold the company, Professor Karaburun joined The Radius, which was one of the largest corporate travel companies at the time.

Here, says Professor Karaburun, “I had my entrepreneurial ideas come up and we founded a company called Roomer Travel. And we raised money. Roomer was an online travel agency similar to Stop Hub.”

Currently, Karaburun is studying marketing and consumer behavior. His research interest is all about social connectedness and its impact on consumer behavior.

He is considered to be a hospitality guru. After 25 years in different aspects of hospitality, he is now proud to teach at NYU Tisch Center of Hospitality, predominantly business development, entrepreneurship, and hospitality marketing.

In this course, you will learn about entrepreneurship and innovation: what does it take to be an entrepreneur? You will also learn whether you are a true entrepreneur.

You will explore hospitality industry disruptors such as Airbnb, and what it takes to create a company from an idea. You will learn how to draft a proper business plan, get funding, hire a team, and manage the team.

Finally, you’ll examine how to create value for the industry you are in, and how you can plan an exit strategy for your business.

In terms of hospitality services — hotels, airlines, cruises — Google is a significant power, simply because so many people start their planning at the search engine. As a result, you need to have Google Ads.

In other words, you need to pay to get your brand in front of searching customers.

For example, search “Times Square hotel” in Google and see what comes up. First off, search engine optimization (SEO) plays a part in which brands appear in the first few pages of results. But there are hotel companies that have paid to have their name at the very top. You have to pay for Google Ads to get your name out there.

Say you’re a Moxy Hotel, a Marriott brand targeted at Millennials. You want to make sure that when a consumer in this demographic searches for ‘Moxy Hotel New York City,’ you’re at the top of the first Google page.

The advantage of sites like TripAdvisor, Expedia, and Booking.com is that they can compare rates for several hotels.

If you go directly to the website for a Moxy location, you’re not comparing rates with other properties. There’s more information comparison — and maybe transparency — happening on Expedia, Kayak, etc., than at the hotel’s specific site. But it’s more costly. For example, if the customer books on Expedia, they could pay 10-20% more.

Simply put, hotel brands want consumers to visit their sites directly. How do they do this? For starters, they offer price matching. If you find a lower price than on their site, they’ll match it.

Hotel brands also say that you won’t collect loyalty points if you book through external channels like Expedia or Booking.com. Booking directly gives you loyalty points, and you’ll also get preferred treatment at the hotel.

Finally, in some cases, inventory — not the desired rooms — shows up in search results of external booking sites. Instead of offering a garden or ocean view, these could be on a lower level, windowless, or facing a busy highway.

Ultimately, hotel brands show a preference for consumers who book directly on their site. Having your hospitality brand at the top of Google search results means you’re more likely to have direct bookings.

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The hospitality industry is part of the service industry. That makes it challenging since it’s an intangible service, and it isn’t easy to know what to expect beforehand. Also, if you don’t sell the room, the seat, or the berth on a cruise ship before it departs—it’s gone.

These are companies that have a high fixed cost. To make money, you must first establish a specific level of use and demand. For airlines, it may be that to make money, 85% of seats on a given customer flight or a particular type of plane must sell at specific prices. The occupancy rate for cruise ships is 105%. That means there are more than two people in every berth and cabin.

New York City’s hotels are in high demand. The occupancy rate is now hovering around 90%. In the United States, the average occupancy—the percentage of occupied rooms each night—is roughly 65%.

Another variable is the average daily rate. For example, New York City hotel rooms can range from $300 to $500, depending on the market. It could cost around $300 for select service or lifestyle hotels. The average daily charge for a luxury hotel room might be $1,000.

The same is true for airlines and cruise ships. The cruise ship’s average charge per seat determines the average cost of a five-day cruise. All of these businesses are in the business of managing yield. It’s referred to as “yield management.” You want to maximize revenue from a purchase made by a hotel guest, airline passenger, or cruise passenger.

Some of these companies have revenue-generating opportunities when customers use their services. For instance, hotels may sell guests food and beverages, wifi, and spa treatments. Cruise lines sell additional services like retail, restaurants, excursions, and various other onboard activities. Airlines have some limitations. Food is available for purchase onboard, but the selection is minimal. Tax-free purchasing is sometimes available on international flights.

To summarize, when a customer buys a ticket, you want to maximize the yield per ticket. Once they’re on board, you’ll want to maximize the revenue. This is called ticket net yield, or yield, followed by an onboard spending yield.

One of the biggest challenges for a service and hospitality business is intangibility. Another is disappearing inventory – if you don’t sell it tonight, it’s gone.

More importantly, you want your customers to dream about staying onboard your cruise and coming to your hotel. With social media and electronic marketing tools, you can actually cost-effectively reach more customers.

But, there’s an overabundance of information. How do you get your information across? When does the consumer use their cell phone? When are they on their desktop? When is the best time to reach them? When are they dreaming? When do they make decisions?

For example, March. January, February, March are the heavy booking times for summer cruises. That’s the time to promote and reach your customers. You can do this through traditional advertising too!

Carnival Cruise Line is involved with many TV shows. They use the old love boat method where consumers see a mini-series happening on a cruise ship. As a result, they get the desire to travel.

Many cruise lines still heavily rely on travel agents. Why?

Because the market penetration of cruise lines in the United States is 13%. Only 13% of the population has taken a cruise. Globally it’s 2% – only 2% of the global population has taken a cruise. In China, it’s only 1%. There is a lot that needs to be done in those markets to build awareness. In many cases, travel agents are still the best way to reach customers. But then if you look at airlines, nobody goes to a travel agent to book a flight.

Customers often use distribution channels, like Expedia and Kayak, which consolidate all the information from various websites. The distribution challenge for airlines is to make sure that if you check through Kayak, the best rate for a flight is on your own site.

If a person books through Expedia, the airline may have to pay 10% to 20% to Expedia. The same goes for hotels. They may have to pay 10% to 20% per booking to booking.com, hotels.com, or Expedia. So you want these customers to book directly with you on the Marriott site or the American Airlines site.

But if you are a small or independent hotel, then you don’t have the marketing power. You don’t have the budget. So often, you may need Expedia to build awareness. It’s a trade-off. You may pay 20% for Expedia to get the booking, but if you don’t do that, you might get no business.

But slowly and by going through consortiums, like Leading Hotels of the World, you can get distribution power behind your brand. You’ll also get access to the consumer. With the exception of grocery stores, many of the hospitality services – car rentals, airlines, hotels, restaurants, are all booked electronically. You can generate demand by taking advantage of these platforms.

As a business, it’s important that you meet and exceed customer expectations. Consumers need to see value in the products that you offer.

There are two types of loyalty – attitudinal and behavioral.

Attitudinal loyalty is when a customer likes a brand but they don’t necessarily buy from them. Behavioral loyalty involves liking and buying from a brand.

So, how do loyalty programs generate loyalty towards a brand? They do so in two ways. The first is that you give them a reward for buying your products, such as points. The points can add up to provide discounts.

For example, after spending a certain number of nights in a hotel or taking a particular number of flights with an airline, a customer might earn enough points for a free weekend away or a free flight.

Rewards are important, but what’s more important now is recognition. Many customers enjoy surprise rewards, too. For example, if a customer is checking into your hotel and you offer a free wine as part of your loyalty program, it’s a nice surprise for the customer.

Every big hotel company, such as Marriott and Hilton, provide loyalty programs to their customers. Similarly, the big airlines, like United Airlines and American Airlines, also provide great programs.

Companies use something known as Customer Relations Management, shortened to CRM. These are huge databases that use sophisticated data mining, artificial intelligence, and deep learning to figure out the consumer behavior.

If you have lots of data about the purchasing behavior of a consumer across the course of the year, you can use this data to estimate when the consumer is likely to travel throughout the year. You can then adjust your prices and rewards to provide more attractive offers to customers to boost their loyality to your brand.

The hospitality industry offers a variety of rewarding roles. We encourage people to consider careers beyond servicing and managing rooms, food, and beverage. Completion of an appropriate hospitality education could lead to roles requiring managerial expertise to manage and control the operations in several departments.

There is a complexity of services and managerial effort that sits on top of the direct operating departments. We have an administrative and general department with a manager that oversees all the departments. These departments include marketing, maintenance, housekeeping, finance, human resources, and information and telecommunication services

The marketing department conducts sales and marketing activities to drive business for rooms, food, and beverage. Within this department are roles like marketing managers, marketing coordinators, sales managers, sales coordinators, and reservation agents.

Maintenance departments keep things working and looking their best. Responsibilities include keeping the hotel looking fresh and keeping the landscaping looking attractive. The energy department keeps ensures the air conditioning and heat work well.

The information and telecommunication services department manages a fair amount of hardware and software systems. They make sure charges from guests in the gift shop get properly transferred to their ledger to be paid when the guest checks out.

We hire for a lot of positions in the hotel. The housekeeping department requires room attendants and housemen. We hire public space attendants to look after our lobby, bar, hallways, and other public gathering areas. We also hire front desk agents, bell door attendants, cafeteria attendants, PBX operators, also called guest experience agents. There are roles that support our back-of-house spaces. Managers in food and beverage, front office, and guest experience supervise all staff. All of the openings are within our operations. The restaurant is a separate entity from the hotel, so we do not hire for these positions.

Today’s hotel industry
Over the years, the hotel industry has evolved into two basic organizational types:
* Hotel operating companies who run hotels but rarely have significant real estate holdings
* Privately or publicly held hospitality enterprises owning real estate
Many well-known hospitality companies like Hilton Worldwide, Marriott International, Hyatt Hotels and others may own few (if any) properties in terms of controlling the involved real estate. Similarly, many hotel ownership groups don’t take part in the day-to-day of hotel operations.
Only a few organizations work both sides of hotel operations. Some examples of publicly traded hotel groups include LaSalle Hotel investors and Pebblebrook Hotel Trust. Meanwhile, privately held companies, like Lubert-Adler or Colony Capital own various real estate groups, including some hotels.
Hotel perks make guests happy
In the hospitality business, we have this saying, “you don’t replace the carpet in the lobby when it wears out, you replace it when fashions change or when customer expectations change.” This adage is the definition of functional obsolescence (when hotels or other businesses no longer meet their customers’ expectations.)
Hotel managers are familiar with the constant pressure to keep properties fresh, and for facilities, services and other features to always meet customer expectations. We know that though a hotel may have adequate TVs, if they have only 12-inch screens—or other flaws—guests aren’t going to be incredibly happy.
Keep investing in customer satisfaction
Expect to make large annual reinvestments for room upgrades and to refresh hotel lobbies and restaurants.
It requires significant effort to manage daily hotel operations, particularly any investments needed to ensure a hospitality property’s image for years to come.

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Hotels often expand into what is called neighboring businesses. This concept is in addition to their core business of operating rooms for overnight guests.

Many hotels in resort destinations may feature a timeshare component. Overnight guests can buy weekly intervals of units.

It’s not uncommon for hotels to be a part of apartment buildings in urban areas. Residents who own apartments above or below the hotel property feel a unique sense of pride or value. They are happy having their units affiliated with a luxury hotel brand. As a result, hotels have expanded into businesses that are complementary to the hotel industry.

In resort markets, hotels have evolved into timeshares, residential condominiums, lot sales, and even community care facilities for the elderly.

Hotels need a large quantity of support space to ensure operations run properly. You might have basement sales offices, accounting offices, paint shops, upholstery repair shops, and more to assist the process. Yet, revenue is in selling guest rooms and food and the provision of food and drinks.

There is a lot of pressure in the hospitality industry to maximize the space in the hotel that generates money. Hotels must optimize efficiency with “facility programming.” It’s also essential to minimize the areas that are simply required for the support of the operation.