The Manhattan Hotel Industry Has Returned Healthy Figures For The Third Quarter Of 2014, Which Are Given Below: Essays Example
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Individual Strategic Plan Report
Decision Making Process – decision are influenced by a number of external and internal factors. Since this is a global chain. the external influences are the host country’s economic heath, the trade laws and regulations, the people’s spending power, the inflation rate and the stability of the government. The internal factors are the employees, the operations management and the overall growth strategies. The Hilton group’s brand is amongst the strongest in the hospitality sector. It has been able to maintain sustained growth over 90 years by fostering strategic partnerships, global presence and employing advanced technology. They started with offering basic accommodation and later diversified into gambling also. One of their strongest strategies has been to promote customer loyalty by ensuring customer satisfaction, thereby guaranteeing repeat business and the spread of good word of mouth publicity. Hilton’s strategy of creating different brands to relate to different customer segments has paid off. Waldorf Astoria Hotels and Resorts spell luxury. Embassy suites caters to business travelers with free breakfast and complimentary drinks. Hilton started the LightStay environmental management process in 2008 and its franchisees are scored on these parameters.
In January 2006, Hilton Hotels Corp offered $5.7 billion to acquire Hilton Group PLC, for their international business. These two businesses were one till 1964. This was in direct response to its two biggest competitors, Marriot International and Starwood Hotels and Resorts worldwide. Hilton too wanted to expand overseas. The hospitality business is truly global in the sense that international chains can utilize their captive customer base from one country to increase sales in another. The Hilton chain works on developing brands for different segments while consistently checking the standards set by the parent company. In 2005, they sold off 20 properties while at the same time scouting for fresh acquisitions and mergers. Selling properties in congested markets and acquiring new properties in less populated markets is a strategy for increasing revenue from rooms. These decisions to acquire new properties, to create segments for differing requirements, to enhance customer service and use IT (Ghee, 2014) and the social media to advantage are taken after a lot of hard work on market research and analysis of factors affecting expansion and growth.
Managing Risk – Hilton Hotels employ world class systems for managing risk. Risks for the hospitality industry are mostly in the form of property, people, operations, legal and commercial risks. Property risks are covered by having airtight lease / rental and ownership documentation along with adequate insurance coverage. Risks through people are adequately covered through stringent recruitment processes, training and induction, hands on training and a continuous feedback capturing mechanism. Operations risks are taken care of by implementing international food safety standards, workplace safety, safety inspections, security, incident reporting, fire safety norms, loss prevention and control and a comprehensive training plan for not only new recruits but also periodic training for existing personnel. Commercial risks are managed by Hilton Worldwide’s Revenue Management Consolidated Centre, which was started in 2004. This centre analyses data of past and present trends to determine pricing and inventories. Cost models are customized for each hotel ( Hilton Worldwide, 2014) the perspectives of market complexities, environment and size of the property. High end technology, market intelligence and data analytics ensure that the group stays ahead of competition.
Future Strategies – The Hilton group is already into acquisitions and mergers in a big way. Some future strategies which could be embraced by the group are :
Green Technology and reduced carbon emission: The world today is concerned with pollutants destroying the earth’s environment. The group could become a leader in understanding and implementing such technologies which are kind to the earth’s atmosphere. Recycling waste , using green fuel, using environmental friendly building materials, using more solar power, implementing procurement of organically produced fruits and vegetables across their operations and reducing the use of non-bio degradable materials. All this will enhance the image of the group as an environment friendly organization and attract more customers while keeping existing customers happy.
Expansion in Asian Countries: The economy of Asian countries are getting healthier, and it is estimated that the rate of growth of Chinese and Indian economies will outstrip that of the Western world not too far into the future . Considering the populations in both these countries and the growing economy, it makes business sense to start planning more properties in these locations while the property rates are still reasonable. The growth will ensure increase of both local and international business travelers, who will require world class accommodations and services.
More Resort Locations - The world across, the spending power of people are going up. They are working harder than ever and the need to take vacations in tranquil locations are increasing. Seaside resorts, forests resort and mountain resorts are going to be in great demand and the group should capitalize on this trend to stay ahead of the curve.
Social Media – Most people have formed the habit to check interactions on the social media on a regular basis. This platform can be used to update customers on new developments, forthcoming events, CSR (Corporate Social Responsibility) activities, special offers and other news of the group. Facebook and Twitter are the two most popular in the social media space and leveraging these can increase the stickiness of existing customers and attract new ones also.
Human Resource Management – Hilton group has 665 managed properties with an estimated 100,000 manpower strength. Their learning and development staff impart high quality training to equip the personnel to attain the best level of guest service. Regional training managers interact directly with their managed properties. The group maintains connections with the best Hotel schools for their recruitment needs. They firmly believe that the people are the key to success and spare no efforts to recruit and retain the best talent. They employ ethical standards while recruiting and no bias is allowed in terms of race, color, gender and disability. It is an equal opportunity organization. The focus of recruitment is on today’s youth. Hilton plans to arm the young people with the right skill sets, put employee development plans into action and recognize high potential and current performers. For school and college drop outs, Hilton has a program which gives them 6-12 months of paid placement along with ion the job training. Through partnerships with educational institutions, Hilton has been able to improve the image of the hospitality industry. Hilton has a code of ethics standard which is expected to be followed by all employees, irrespective of seniority or position.
The Hilton Group of hotels is one of the strongest brands in the market. They are ambitious and willing to take strategic risks to expand the business globally. The customer loyalty programs are excellent and build brand image. It is an organization with deep rooted ethical standards. Their top management leadership strategies are extremely cohesive and their management practices are fair. The human resources department believes in equal opportunity and no discrimination. The new recruits are made adept with hand on training programs, which ultimately benefits the organization. The Hilton’s business decisions are taken based on extensive market research, trends analysis and inputs from experienced hands. They are on the right track to expand globally specially ion the developing countries, where they do not have any presence.
The Manhattan hotel industry traditionally has governed by high CAPEX (Capital Expenses) with a high ration of fixed costs to total costs. The high fixed cost are entailed because of high overheads incurred. The public areas and restaurants air conditioning, lighting etc have to be kept on irrespective of the number of customers, whether five or fifty. The high costs involved demand that the property be managed with the optimum cost effective use of available resources.
The primary factors which enable a hotel to do better than another is the location and the quality of service. The hotels in this area enhance their revenue by cross selling food and beverage products to both in-house as well as external guests. The growth of the industry in the Manhattan area is limited by the available space crunch. Trade regulations are investor friendly. Competition is acute but varies with the segment and targeted customer base. A luxury segment hotel will not compete with a premium or a mid priced one. Therefore, competitive segments are quite clearly demarcated. The entry barriers are high, due to the existing infrastructure already in place, high capital investment and economies of scale. The threat of substitution is very limited in the Manhattan area. The market segments are clearly defines. The only threat is a competitor offering the same services at a lower cost. But this can be overcome by offering better quality of services (Cheng, 2013). Though the customer is price conscious, that is true only for certain segments of customers. Others are willing to pay for superior services and ambience. The Manhattan hotel industry is not very susceptible to the bargaining power of suppliers. There is intense competition amongst suppliers and in this case the hotel is the client who is buying. But nonetheless, most hotels in this area as well as globally have fixed suppliers to enjoy lower rates all year round. For a sustainable business over a long term, hotels stick to the same suppliers for the cost advantage, which increases their competiveness. Certain buyers exercise a lot of influence over the hotels. These are the bulk purchasers of rooms like airlines and tour operators and large corporate houses which host regular conferences and conventions. This is more significant in the lower tier hotels who are more dependent on tour groups than business or leisure travelers.
There is an increased flow of travelers to Manhattan. The last quarter of 2014 showed an increase in the number of air passengers arriving at the three major New York airports (Newark Liberty International Airport, LaGuardia International Airport and John F. Kennedy International Airport ) up 5,5 % from the same period in 2013. In actual numbers it translates to 32.4 million passengers compared to 30.71 million. These are huge numbers and most arrivals need a place to stay unless they are returning home or visiting relations. 2014 saw a total of 52 million tourists visiting New York and Manhattan and the figure is expected to touch 55 million in 2015. Currently Manhattan borough has approximately 348 hotels with 82000 rooms. Average occupancy is 86.7% with an average rate of $280. This is in sharp contrast to 61% occupancy and $107 national average. The total rooms in Manhattan contribute to 1.6% of the total rooms in the U.S, and the revenue earned is 6% of the total revenue earned nationally for rooms. Half of Manhattan’s rooms belong to recognized brands like Hilton, Marriot, Starwood etc, one third are independent hotels and the remaining are contributed to by boutique brands. Hilton leads with a 12% presence, followed closely by Marriot at 9.6% and Starwood at 9.3%. The Manhattan market as had long consecutive months of double digit ADR increase in the late 90s. In 2011, the market surged to double digit ADR at 10.1% in March 2011. A total of 89 new hotels entered the Manhattan hotel space between 2008 and 2013. These added another 15799 rooms. This was the single largest foray into the Manhattan hotel space in the last 25 years. This large entry did not impact the occupancy rates of the existing hotels much. This goes to prove that the demand was always there, but trips were perhaps rescheduled due to non availability of rooms. There is a planned addition of another 7500 rooms, spread over nearly 35 properties, which is an almost 10% increase. These figure are indicative of the immense potential of the area. Luxury and upper mid scale room occupancy had a negative growth of 1.2% and upscale and upper upscale had a positive growth of 1.4% from the same period in 2013. As the number of tourists are increasing at an average of 10%, it is a reasonable assumption that the demand for rooms will at worst, match it. Therefore, it is estimated that room growth demand would also be 10% for the next few years. As the recovery from the last recession happens, the demand is expected to outstrip supply.
The figure below illustrates the trend as well as probable forecast:
The investment fund group should follow strategic management principles in that they should first draw up the purpose, linked to their culture, capability and environment. Then going by a conclusive PESTEL (Political, Economic, Social, Technological, Environmental and Legal) framework, they should zero down on specifics. In the Manhattan area, location plays a crucial part. It is difficult to get available space to build from scratch. Midtown East performed the best amongst all locations, and that would be the ideal space for the invest group to search for the required space. Investment groups are dependent on lenders who will demand answers to all their actions in relation to new investments. Besides the locations, the trends indicate that upper scale and upper mid scale hotels have had positive occupancy growth over 2013 and 2014. That is the segment the new investors should look at. The best possible solution would be to either acquire or enter into a strategic alliance with one the existing hotels which suit the requirements as mentioned earlier. An independent hotel would be easier to break into rather than a affiliated one. Once acquired /partnered, the investment group’s strategic choices would come into play. Envisioning ,developing intent and mission, freezing upon disciplinary measures, developing strategic capabilities, achieving synergies, scale advantages, transferring knowledge, monitoring, improving business performance and forming new strategies based on the market trends. Research in the Manhattan hotel industry revealed that new entrants prefer to locate closer to similar hotels but not with similar pricing. With different pricing, the competition is less intense.
Risks – Most hotels start up with loans. The revenue management team of the investment group will have to ensure that there is a realistic “amortization period”, which means in this period the outstanding will stand at zero. Ideally for the hotel industry it is 25 years. Have a shorter duration will pay off the loan faster but strain the budget. Also they will have to keep in mind the DCR (debt coverage ratio), which is the ration of the annual debt payments with the net annual income. A healthy ratio is 1.2 or higher calculating it as Net annual income / Debt payment = 1.2 or higher. The Manhattan hotel industry (deMilleret, 2014) is showing an upward growth and a greater optimism was discernable as strong capital markets, healthy demand and supply ratios and larger investor appetites improved transaction volumes. Amidst geopolitical uncertainties, stagnant economy and growing health concerns, the hotel industry is showing increased growth. Global investments in the hotel industry touched $54.5 billion in 2014 compared to $52 billion in 2013. Overseas investments into the U.S increased 13% in 2014 over 2013. Investors from Canada, China, Malaysia, Japan and Singapore have earmarked large capital investments into the U.S. hotel industry. Both full service and limited service hotels showed increased investments with large deals on the anvil. Due to the strong fundamentals in the U.S hotel sector, capitalization rates dropped to 5.5% in 2014 against 6.9% in 2013 in six major markets, which included San Francisco, Boston and New York. Third party management companies provide operational expertise and financial and accounting support to hotel and franchisee owners. These third party management initiatives have accelerated the mergers and acquisitions in the hotel industry in recent times. At the end of 2013, there were 18 management companies in the U.S hotel industry, each attached to 50 or more hotels. Considering all these facts, the risks, and there will be risks in any venture, are minimal compared to the values which can be appropriated.
The investment company should look towards an asset light model, wherein the actual bricks and mortar structure and they concentrate on their operation strengths. This asset light model allows investment companies to enter the business with lesser to risks, since the cost of exit, in case desired is less expensive. This model increases the efficiencies of economies of scale. The investment group can follow some more initiatives to ensure success amongst competition:
Analyze the market for opportunities and position themselves accordingly.
Target customer segments and stay within the ambit of their expectations.
Ensure that basis of the differentiating service provides an unique experience to guests.
Identify the purpose and objectives clearly and build the organization culture on the same lines.
Plan a long term evolution for the brand.
The KPIs (Key Performance Indicators) would be to first match existing trends in terms of ADR, RevPAR and food and beverage sales and then try and better those with excellent customer service, building brand loyalty , cutting edge technology and innovations.
2015 is expected to fuel growth in the Manhattan hotel industry, so yes, it is a good time to invest here. So far the trends and the inflow of tourist and business traveler traffic shows that the Manhattan Hotel Industry is growing in a healthy way. Yes, the investors should definitely invest in the company they select in the Manhattan hotel industry.
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