Faculty & Research
Quantifying Impact: The Effect of New Hotels and Brand Conversions on Revenues of Existing Hotels
Vol 5 No 8
By: Arturs Kalnins Ph.D.
Executive Summary: The 1990s, the study described in this report examined eight hotel chains that are mostly franchised and two chains that are mostly company owned. The study finds that when franchisors approve new same-brand hotels in the vicinity of existing hotels, these new hotels do, indeed, cannibalize the incumbents' revenues. Rather than apply a fixed mileage distance, the study looked at new properties that are within ten, fifteen, or twenty chain hotels away from the existing property. In particular, the study found the following effects when a franchisor opens a nearby same-brand hotel.
- Within franchised chains, a new same-brand hotel opened within the closest ten hotels of an incumbent hotel is associated with a quarterly RevPAR loss of $66 for the incumbent from the time of the new hotel's opening onwards
- As the mean hotel size among the ten chains studied here is 110 rooms, the revenue losses associated with same-brand entry translate into a total loss of $7,360 per quarter, or 2.7 percent of the typical hotel's mean revenues.
- The losses from a same-brand entry are statistically significantly greater in magnitude than those associated with the entry of hotels of other same-tier brands ($36).
- In contrast, properties in company-owned chains register revenue gains when new same-brand hotels open in their vicinity.
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- Quantifying Impact: The Effect of New Hotels and Brand Conversions on Revenues of Existing Hotels By: Arturs Kalnins Ph.D.
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Other Reports or Articles You May Find of Interest
- Understanding Switchers and Stayers in the Lodging Industry by Iselin Skogland and Judy Siguaw, Ph.D.
- Why Discounting Doesn't Work: The Dynamics of Rising Occupancy and Falling Revenue among Competitors, by Cathy A. Enz, Ph.D., Linda Canina, Ph.D., and Mark Lomanno
About Arturs Kalnins Ph.D.
Arturs Kalnins is an associate professor at the School of Hotel Administration. His primary research focus is on hospitality, franchising and small business strategy with an emphasis on geographical issues. Specific projects include analysis of impact, agglomeration and immigrant-entrepreneur business groups in the lodging industry, franchisee selection and intrabrand competition within fast food chains, and development commitments in master franchising ventures. His work has been published in many leading publications including the Journal of Economic Perspectives; Management Science; Marketing Science; RAND Journal of Economics; Strategic Management Journal; Academy of Management Journal; Academy of Management Review; Journal of Economics and Management Strategy; and the Journal of Law, Economics, and Organization. Among his recent works are "The U.S. Lodging Industry," Journal of Economic Perspectives," 2006; and "Social Capital, Geography, and Survival: Gujarati Immigrant Entrepreneurs in the U.S. Lodging Industry" (with Wilbur Chung), Management Science. Kalnins has consulted for United Parcel Service and AT Corp. Kalnins holds a B.A., Swarthmore College; an M.B.A., Lehigh University; and a Ph.D., University of Michigan.
For more information visit http://www.hotelschool.cornell.edu/research/facultybios/faculty.html?id=150
