Brand recognition can help hotels survive economic downturns

Dec 06, 2010
This isa collage of hotel brand name signs. Credit: Heather Annette Miller, Penn State

Brand named hotels fare better than independently operated properties in economic downturns, according to a team of international researchers.

A study of the performance of hotels during both economic recessions and expansions indicates that brand named hotels are more profitable than independent hotels under all , but the difference is particularly significant during recessions, said John O'Neill, associate professor of hospitality management, Penn State.

"There has been a lot of debate in the industry about the advantages of brand affiliation and independent hotels," said O'Neill. "What we set out to do was study how these hotels performed in a range of economic conditions."

O'Neill and Mats Carlback, doctoral student, University of Gothenburg, Sweden, studied data from Smith Travel Research, an independent lodging research company that examined the of 51,991 hotels in the United States from 2001 to 2008. A total of 29,418, or 56.6 percent, were brand named hotels -- members of chains of three or more hotels operated under a single brand name, such as Marriott and Sheraton.

The researchers examined four core revenue and profit indicators -- a hotel's average occupancy percentage, the average price paid for a room, revenue per available room and net -- that measure the financial performance of both independent and branded hotels. To see how these hotels performed in recessionary and expansionary periods, the researchers then compared these numbers with economic indicators provided by the U.S. Bureau of Labor Statistics and the U.S. Bureau of Economic Analysis.

While there was no significant difference in the net operating income of the branded and independent hotels during economic expansions, branded hotels registered significantly higher net operating income than independent hotels during the recessionary years of 2002 and 2008, the researchers report in the online issue of the International Journal of Hospitality Management.

O'Neill said that the costs and fees associated with belonging to a hotel chain, such as royalties and franchise fees, tend to negatively affect the net operating income. However, the intangible benefits of a brand appear to compensate for these costs through increased occupancy, especially during recessions.

"What we found is that the lion's share of a branded hotel's intangible asset value is in the brand itself," O'Neill said.

During the recession of 2002, the occupancy rate of branded and independent hotels was 58.2 percent and 52.4 percent, respectively. In 2008, another recessionary period, branded hotels posted a 59.1 percent occupancy rate, while independent hotels posted a 56.2 percent occupancy rate.

Also, the average net operating income of branded hotels in 2002 was $2.07 million, while the average net operating income of independent hotels was $1.3 million. In 2008, branded hotels brought in an average net operating income of $2.53 million, and independent hotels had average net operating income of $2.49 million.

The one area where independent hotels outperform branded hotels is in the revenue per available room category. O'Neill said that one reason independent hotels can charge higher prices for their rooms is the perceived uniqueness and exclusivity of independent hotels among clientele.

"In other words, people would pay more to stay in an independent hotel, so those hotels can charge a higher room rate," O'Neill said.

The researchers suggested several explanations for the improved performance of brand named hotels during declining economic periods. In addition to large marketing campaigns, the global distribution systems of hotel chains offer centralized reservation systems, guest loyalty programs and access through online travel agencies, such as Expedia.com and Travelocity.com.

Brands also offer potential guests dependable service and experience, according to O'Neill.

"There's an emotional share with branded hotels," said O'Neill. "In bad economic times, people return to the security of brands."

O'Neill said the study could help hoteliers decide whether the benefits of belonging to a franchise outweigh the costs of the intangible assets of a brand.

Explore further: Study looks at stock market performance of polarizing brands

add to favorites email to friend print save as pdf

Related Stories

Sustainability index could help managers compete

May 12, 2010

(PhysOrg.com) -- Researchers from Cornell and Boston University have developed a standard measurement of expenses for energy and supplies to be used as a sustainability gauge for the hotel industry.

Hospitality turns hostile with envious employees

Sep 28, 2010

Guest relationships can become collateral damage when hotel employees envy the relationships co-workers have with their bosses, according to an international team of researchers.

Recommended for you

Which foods may cost you more due to Calif. drought

12 hours ago

With California experiencing one of its worst droughts on record, grocery shoppers across the country can expect to see a short supply of certain fruits and vegetables in stores, and to pay higher prices ...

Performance measures for CEOs vary greatly, study finds

Apr 16, 2014

As companies file their annual proxy statements with the U.S. Securities and Exchange Commission (SEC) this spring, a new study by Rice University and Cornell University shows just how S&P 500 companies have ...

Investment helps keep transport up to speed

Apr 16, 2014

Greater investment in education and training for employees will be required to meet the future needs of the transport and logistics industry, according to recent reports by Monash University researchers.

User comments : 0

More news stories

Newlyweds, be careful what you wish for

A statistical analysis of the gift "fulfillments" at several hundred online wedding gift registries suggests that wedding guests are caught between a rock and a hard place when it comes to buying an appropriate gift for the ...

Can new understanding avert tragedy?

As a boy growing up in Syracuse, NY, Sol Hsiang ran an experiment for a school project testing whether plants grow better sprinkled with water vs orange juice. Today, 20 years later, he applies complex statistical ...

Roman dig 'transforms understanding' of ancient port

(Phys.org) —Researchers from the universities of Cambridge and Southampton have discovered a new section of the boundary wall of the ancient Roman port of Ostia, proving the city was much larger than previously ...

Crowd-sourcing Britain's Bronze Age

A new joint project by the British Museum and the UCL Institute of Archaeology is seeking online contributions from members of the public to enhance a major British Bronze Age archive and artefact collection.

Hackathon team's GoogolPlex gives Siri extra powers

(Phys.org) —Four freshmen at the University of Pennsylvania have taken Apple's personal assistant Siri to behave as a graduate-level executive assistant which, when asked, is capable of adjusting the temperature ...

Better thermal-imaging lens from waste sulfur

Sulfur left over from refining fossil fuels can be transformed into cheap, lightweight, plastic lenses for infrared devices, including night-vision goggles, a University of Arizona-led international team ...