Carlos Amaro- Chapter 2 Summary

In chapter two “The Hotel Business”  the text discusses the fundamental nature and the current state of the hotel and lodging industry. It begins by giving us a timeline of pivotal events and developments that have the concept of a hotel as we know it today. From there it leaps into detailing the various methods used in modern hotel development. This section begins with referring to the popular vehicle of hotel expansion known as franchising which is a double edged sword of sorts due to the contractual limitations it places on both parties. Then they refer to the confederation style arrangement of referral associations and how they incorporate the use of shared branding and a central reservation system. The chapter ends the section by detailing management contracts  and the traditional investor oriented practices of hotel development. They mention the significant positive impact that hotels have on local economies. Furthermore, the chapter delineates the nature of hotel classification, and it gives the example of the American Automobile Association’s diamond award system. According to the chapter, hotel classifications are usually predicated on location, price, and type of services offered. Afterword, the chapter shares certain ongoing trends and development in the hotel industry. The chapter tells of the growing trend of vacation ownership such as timeshares. Then it shifts focus to the growing internationalization and market diversity of the hotel industry. It also notes the increasing emphasis on environmentally friendly sustainable lodging. the chapter concludes by sharing the growing variety of career of options in hotel development and classification along with the employment value they can provide.

Key Terms

1. Capital intensive- Textbook def: Something requiring a lot of capital. My example: Pharmaceuticals is very capital intensive due to all  resources a business must pool to be even remotely successful.

2. Fair return on investment- Textbook def: A reasonable return for the amount invested. My example: Apple’s 40% profit margin is a more than fair return on investment.

3. Feasibility study- Textbook def: An assessment of the viability of a project. My example: an affective feasibility study looks at things like market supply and demand in a specified area.

4. Direct economic impact- Textbook def; The infusion of particular business’ revenue stream into the local economy. My example: The direct economic impact of a restaurant is determined by factors such as product pricing.

5. Indirect economic impact- Textbook def; The potential economic stimulus a local economy can receive purely from the operation of a particular business. My example: A restaurant has an indirect economic impact when it sources its supplies from local vendors.

6. Franchise- Textbook def: 1. The authorization given by one company to another to sell its unique products and services. 2. The name of the business format or product that is being franchised. My example: McDonald’s is synonymous with the concept of franchising.

7. Management contract- Textbook def: A written agreement between an owner and an operator of a hotel or motor inn by which the owner employs the operator as an agent (employee) to assume full responsibility for operating and managing the property. My example: Management contracts  allow for investors to be successful in fields they may not have much knowledge of.

8. Real estate investment trust (REITs)- Textbook def: A method that enable small investors to combine their funds and protects them from double taxation levied against an ordinary corporation or trust; designed to facilitate investment in real estate in much the same way a mutual fund facilitates investment in securities. My example: REITs by nature can be very lucrative because they are obligated to distribute the vast majority of their income to stockholders.

9.Referral associations- Textbook def: Associations that refer guests to other participating members. My example:  A overbooked hotel in referral association will gladly suggest a fellow member hotel to would be guests.

10.vacation ownership- Textbook def: Offers consumers the opportunity to purchase fully furnished vacation accommodations in a variety of forms, such as weekly interval or points in a point-based systems, for a percentage of the cost of full ownership. My example: Timeshares are a popular form of vacation ownership.


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