Faculty & Research
Developing the Full Picture on Hotel Industry Averages
By: Kate Walsh Ph.D., Cathy A. Enz Ph.D., and Linda Canina Ph.D.
Executive Summary: Hotel operators and observers often employ
industry-wide averages as key points of
comparison and analysis for room rates,
occupancy, and revenues. The use of
simple averages, however, can be misleading
if one does not take into account the
possibility that a mean will be pulled in one
direction or another by extreme values.
This analysis of three industry averages
shows that those averages are, indeed,
subject to distortion, or skew. The analysis,
which examines figures for virtually all
brand-name hotels in the United States,
determined that the means for average daily
rate (ADR) and revenue per available room
(RevPAR) are skewed in a positive direction
by hotels with extremely high rates. On
the other hand, occupancy is skewed in a
negative direction by a group of hotels with
inordinately low occupancy levels.
A more complete picture of the
industry's ADR, RevPAR, and occupancy is
gained by examining two other measures:
the median, which is a measure of the
data's middle value, and the mode, which
states the most common data point. By
comparing the mean with the median and
the mode, one can determine the extent to
which the mean overstates the industry's
ADR and RevPAR and understates the
typical occupancy. Specifically, 61 percent
of U.S. hotels recorded a RevPAR below
the overall mean and 63 percent saw an
ADR below the mean, but only 48 percent
reported occupancy below the mean.
Many of the extreme values are found
in the top-25 markets, which have hotels
with inordinately high ADRs . Analysis of
those markets shows that, once again, the
overall statistics are distorted by a relatively
small set of hotels with exceptional ADRs
and occupancies. However, each of the top
markets shows a distinctive rate and occupancy
pattern.
The pattern of skewed operating
statistics carries over into individual lodging
segments. The greatest distortions arise in
the luxury and upscale segments, while
economy and budget hotels record more
consistent (normally distributed) statistics.
Finally, the analysis shows that although
the events of September 11, 2001,
created much turmoil for the industry, the
hotel business had already cooled substantially
from its record pace of a year earlier.
In conclusion, managers must be
careful in applying overall industry statistics
to their own situation and should take into
account the factors that distort operating
statistics.
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- Developing the Full Picture on Hotel Industry Averages By: Kate Walsh Ph.D., Cathy A. Enz Ph.D., and Linda Canina Ph.D.
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About Kate Walsh Ph.D.
Kate Walsh is an Associate Professor of Management at the School of Hotel Administration. She received her Ph.D. from the Carroll School of Management at Boston College and her M.P.S. degree from Cornell University’s School of Hotel Administration. She holds a Bachelor of Science degree in Accounting from Fairfield University. Dr. Walsh’s primary research is in the area of services management. She also conducts research examining the role of strategic human resource initiatives on organizational performance. In addition to contributing to numerous books, her articles are appearing or have appeared in such outlets as Journal of Management, Journal of Service Research, Journal of Vocational Behavior, Human Resource Management Review, Organization Science, Trends in Organizational Behavior, Research in Management Consulting, Journal of Applied Behavioral Science, The Learning Organization, International Journal of Hospitality Management and the Cornell Hospitality Quarterly. Dr. Walsh’s pervious work experience includes the Director of Training and Development for Nikko Hotels International, Corporate Training Manager for the former Bristol Hotels and Senior Auditor for Loews Corp. Dr. Walsh is also a Certified Public Accountant.
For more information visit http://www.hotelschool.cornell.edu/research/facultybios/faculty.html?id=95
About Cathy A. Enz Ph.D.
Cathy A. Enz is the Lewis G. Schaeneman Jr. Professor of Innovation and Dynamic Management and a full professor in strategy. She recently served as Associate Dean for Industry Research and Affairs, and served as the Executive Director of the school’s Center for Hospitality Research from 2000-2003. Dr. Enz has published over eighty journal articles, book chapters, and three books in the area of strategic management. Her research has been published in a wide variety of prestigious academic and hospitality journals such as The Administrative Science Quarterly, The Academy of Management Journal, The Journal of Service Research, and The Cornell Hospitality Administration Quarterly. Dr. Enz teaches courses in innovation and strategic management. In addition, she developed The Hospitality Change Simulation, a learning tool for the introduction of effective change, which is available as an online education program of e-Cornell. Three additional courses in hospitality strategic management will be available through e-Cornell in 2008. Dr. Enz also presents numerous executive programs around the world, consults extensively in North America, and serves on the Board of Directors of two privately owned hotel companies. Prior to her academic activities, Dr. Enz held several industry positions including strategy development analyst in the office of corporate research for a large insurance organization, and operations manager responsible for Midwestern United States customer service and logistics in the dietary food service division of a large U.S. health care corporation. Dr. Enz received her Ph.D. from the Fisher College of Business at Ohio State University, and taught on the faculty of the Kelley School of Business at Indiana University prior to arriving at Cornell in 1990.
For more information visit http://www.hotelschool.cornell.edu/research/facultybios/faculty.html?id=27
About Linda Canina Ph.D.
Linda Canina is an associate professor in the School of Hotel Administration's Finance, Accounting, and Real Estate department. There, she teaches undergraduate and graduate courses in corporate finance. Canina also serves as editor of the Cornell Hospitality Quarterly. Her research interests include asset valuation, corporate finance and strategic management. She has expertise in the areas of econometrics, valuation, IPO's, payout policy, mergers and acquisitions, options and the hospitality industry. Canina's current research focuses on strategic decisions and performance, the relationship between purchased resources, human capital and their contributions to performance, the relationship between various liquidity measures and profitability, and measuring the adverse selection component of the bid/ask spread. Her recent publications include: "Agglomeration Effects and Strategic Orientations: Evidence from the U.S. Lodging Industry" in the Academy of Management Journal. Canina's other work has appeared in the Journal of Finance, Review of Financial Studies, Financial Management Journal, the Journal of Hospitality and Tourism Research, and the Cornell Hotel and Restaurant Administration Quarterly. She holds a Ph.D. degree from New York University.
For more information visit http://www.hotelschool.cornell.edu/research/facultybios/faculty.html?id=10
