What's Unique About the Hospitality Industry?
The hospitality industry includes the lodging industry as well as airline travel, restaurants, cruise ships, resorts and charters. It is a service-based industry rather than a merchandise-based business. For example, when you book a hotel room, you are buying the right to occupy the space for a specific period of time, you aren't buying the room. When you buy an airline ticket, you're paying for the service of being transported from one location to another. The lodging industry generated $155.5 billion in sales in 2012 according to the American Hotel and Lodging Association.
Revenue is generated through providing a service such as a hotel room, airline seat or cruise ship cabin. Two factors determine the amount of revenue: how many rooms or seats are rented of the total available -- occupancy -- and the rate at which the room or seat is sold -- average daily rate in the lodging industry. RevPAR is another widely used revenue statistic. It's the revenue generated per available room -- occupancy multiplied by average daily rate. Another way to calculate RevPAR is total revenue divided by the number of rooms in the hotel.
When you go into a drugstore, you assume the price of a tube of toothpaste remains relatively constant. You might be able to bring in a discount coupon or find the toothpaste on sale. However, you won't be able to negotiate for a better price. In the hospitality industry, it's the norm that the same room will range in price depending on how full the hotel is projected to be for that day, whether it's high season, special events are occurring in the area such as a major professional golf tournament, or even whether it's the weekend or weekday.
Staffing for the hospitality industry is considered either back of the house or front of the house. Guests are not directly aware of the back-of-the-house staffing such as housekeeping, cooks, maintenance workers, auditors and most of the executive staff and support, with the exception that the general manager of the hotel. Front-of-the-house staff are those workers that directly interact with the guests including front desk personal, wait staff and room assistance.
Hotels have no cost of goods sold for lodging and meeting rooms. Other segments of the hospitality industry, such as restaurants and cruise ships do have a cost of goods sold for the food and beverage. Airlines have a cost of services which includes fuel and oil.
Once the plane has taken off, the cruise ship sailed or the day has passed for a hotel, the inventory is gone. You can't sell seats on yesterday's flights. That's one of the reasons that hotels, cruises and airlines discount their services the closer it is to the time of departure.