Sample Tourism Essay Paper on Manhattan Hotel Industry

Manhattan Hotel Industry

List of Tables and Figures

Table 2-1. 10-year period (2007-2017) Global Net Operating Income in the hotel industry

Figure 2-1. Manhattan Q1 RevPAR growth by month

Figure 2-2. Brand Affiliations

Figure 4-3. Porter’s five forces model

Figure 4-4 Revenue obtained in Airbnb reservations in New York

Figure 5-5. Manhattan Hotel Industry SWOT Analysis


Executive Summary

Scope and Purpose

The purpose of this report is to carry out a strategic analysis using specific tools on the hotel industry in Manhattan. This helps in determining the suitability of Manhattan for a new investment in the industry.


The hotel industry has continued to grow in Manhattan, New York over a hundred years. In the early days, travels were mostly self-sustained, involved sharing of homes, inns, taverns and ultimately hotels were introduced. Currently, there is a wide variety of accommodations provided through brands in the hotel industry and individual business ventures ranging from corporate, luxury and, resorts economy.


In this report, PESTEL analysis identifies the factors in the external environment with an impact in the hotel industry in Manhattan. Porter’s five forces model finds out the competitive nature of the industry, threat of new entry and substitutes, and the supplier and buyer powers. Finally, SWOT analysis identifies the industries strengths, weaknesses, opportunities, and threats. The findings help in recommending appropriate strategies.


The report concludes by providing an overview of the strategic analysis and the recommendations that focus on how the investors should invest in the hotel industry in Manhattan.


The global hotel industry registered revenue in 2013 was $ 551.1 billion and had a 5.9 percent compound annual growth rate (CAGR) from 2009 to 2013. In this total global revenue, 74.9 percent was attributed to the leisure segment while 25.1 percent was from the commercial segment. Various factors both internal and external affect global travel and in turn affect the global hotel industry (Lehr 8). Some of these factors include recession, gas prices, regulations, brand strength, availability of labour, epidemics in health, terrorism, natural calamities among others. The presence of certain major events also has positive influence in this industry such as sports events like the World Cup, conferences, conventions, art exhibitions, Super Bowl, and other others.

Table 1. 10-year period (2007-2017) Global Net Operating Income in the hotel industry

2007+7.2%2012 +10.2%
2008-3.8%2013 +10.1%
2009-35.4%2014F +17.3%
2010+9.8%2015F +13.2%
2011+12.7%2016F +10.1%


Manhattan Hotel Industry Summary

Manhattan has the strongest market for the hotel industry in the United States. By the end of 2013, its volume of transactions in the industry had reached $ 1.8 billion (Ember 2015). In a one-year period ending the year 2013 March, the overall occupancy level obtained by Manhattan had increased to 86.7 percent. This is despite an achievement of the highest supply increase that had not been experienced in the industry in a span of 25 years. However, an increase in the number of new properties in the industry provided a limitation to the operators’ ability to maximize the daily average rates (Acitelli 2015). Forecasts made indicate that the average rate of growth would be moderate over a period of three years from 2013 and range from 5.6 percent to 5.9 percent. The forecast was due to the predictable increase of supply-approximated by15 percent over the same period. Moreover, by midyear 2014, the revenue per available room (RevPAR) was forecasted to go back to its former peak levels elevating the Manhattan hotel industry to a highly possible full recovery (Ember 2015).

Figure 1. Manhattan Q1 RevPAR growth by month

Source: PWC

The total number of hotels in the market amounted to 348 as at March 2013 comprising of about 82,000 rooms. In comparison to a prior 61.6% national occupancy level at an average daily rate (ADR) of $ 107.00 per room, these hotels had attained 86.7 percent, overall occupancy level at an average rate estimated at $280.00 per room in the one-year period that ending March 2013. During a similar period, the supply in Manhattan was about 29.5 million rooms that generated revenue of $ 7.2 billion for all the rooms (Acitelli 2015). Traditional brands such as Marriot, IHG, Hilton, and Starwood provided a half supply of the rooms in the first quarter of 2013 while more than a third of the supply was independent. Boutique brands including Thompson, Affinia, Gansevoort and Morgan hotels took the supplied the remaining (Lehr 10)

Figure 2. Brand Affiliations

Source: PWC

PESTEL Analysis


The political environment in the United States supports economic growth and the establishment of businesses in all parts of the nation. The democratic setup is well built and the rule of law that is effective applied. The nation leads in having elections that are considered to be conducted transparently and fairly. However, the country has faced criticism for having policies that are considered to intervene in the affairs of other countries in their war against terror. This spoils certain foreign relations and fuel terrorism threats (Issa & Issa 2014)


 Manhattan is expected to continue being the biggest, diverse and expansive economic force, translating to a high demand for hotels. The key economic indicators forecasts that the gross domestic product will change at the rate of 2.9 percent in 2016 as compared to 2.6 percent change in 2015. The rate of changes in employment is expected to remain similar to 2015 at 1.3% in 2016. The rate of personal incomes is expected to increase by 4.9 percent in 2016 as compared to a 4.6 percent change in 2015 (Pricewaterhouse Coopers 2015). Manhattan benefits from its global position as a financial capital and a number one tourist destination. These attributes ensure that it maintains a strong demand for lodging facilities that is essential for the market. There was a reduction in gas prices in 2014/2015 has an economic effect in the industry due to an increase in travels (Issa & Issa 2014).

There is declining rate of economic growth in China and the economic crisis in Europe has not ended. Therefore, if the stock market in China collapses and the Europe debt crisis continues, individuals buying power declines affecting their travelling capability. It will also affect the amount of foreign capital available in Manhattan that may be invested in the hotel industry (PWC 2015). High exchange rates due to the rising strength of the dollar may also discourage tourists from visiting U.S and affect the hotel industry negatively. Although there is a considerable increase in the levels of employment, there is an increasing inequality of growing incomes, and middle-class wages remains stagnant. This reduces the number of people capable of travelling and staying in hotels within America (PWC 2015).


The growth of population globally increases the number of people likely to travel internationally. For instance, in 2013/2014, people willing to travel increased by 13 percent. Moreover, the number of travelers intending to stay in hotels increased by 3.4 percent in 2014 from 2013. The cultural changes that include a higher number of Chinese and Asian travelers with varied tastes could have a positive impact on the industry since there is an increase in the target market. The demographics that are comprised of the elderly and young people provide a customer base with a wide array of tastes and preferences (Issa & Issa 2014).


Technological advancements increase the level of competition for businesses. Increased researches and innovations in this field are likely to bring huge changes in the hotel industry. Technology enables better customer engagements both nationally and globally, which is likely to increase the number of customers and improve brands. Online platforms and various technological devices like smart phones and tablets provide an opportunity to develop new strategies.


Environmental factors have both short term and long-term effects. For instance, efforts to reduce greenhouses gas emissions through the reduction of coal burnt in power plants may increase electricity costs. Climate changes that may create storms may raise the ocean levels, affecting the location of businesses near water bodies. Higher temperatures due to global warming reducing the comfort of customers and may result in closure or relocations of businesses (Issa & Issa 2014)


 There is an increase of favorable legal terms and regulations in the industry for individual ventures offering home sharing services such as Airbnb. This is an Online Vacation Rental Platform (OVRP) that enables hosts to rent either a private room (Vivion 2015). However, the industry is still protected by the existing legislation that limits the number of nights a host can rent out a room, which could help in reducing the growth of such companies in the number of rooms booked per night. More than 72% Airbnb rental units that are operated as businesses are reputed to be illegal. Thus, they are at a higher risk of violating regulations in the hotel industry, safety and health and commercial mortgage covenants and policy restrictions in insurances than the hotel establishments (Weed 2015). There are also concerns that Airbnb does not pay taxes on lodging incomes, which will not be supported by local authorities. The laws on minimum wage have been proposed to be as high as $15 that may lead to more costs of labour and reduction in services offered (Issa & Issa 2014).

Porter’s Five Forces Model

The model assesses the situation under which an industry is operating. In this case, the model has been used to conduct an evaluation of the Manhattan hotel industry. It used as a tool to analyze how feasible a new hotel will be in Manhattan. Travel costs, tourism trends, major events, global economic conditions are among the factors that shape the hotel industry. In this report, the five forces of the Porters model consider the Manhattan market (Cheng 2013).

Figure 3. Porter’s five forces model

porters 3.png

Threat of New Entry

The high costs of capital, scarcity of land, increasing costs of construction and challenges of obtaining entitlements are likely to cause low threats of new entry (Cheng 2013). Manhattan continues to remain at the top globally in new investments due to the huge availability of foreign capital. Foreign capital took 13 percent of the total volume of investment in 2013. Established investors could also acquire debts easily. About 43% of acquisitions by active buyers of hotel assets in Manhattan in 2013 were the of private equity firms. In spite of the a few sites available for sale for the purpose of developments, land was sold at an average price ranging from $250 to $400 per sq. ft. In 2014, the deal volume was predicted to continue rising with the private equity investors leading with their significant power of buying. Additionally, REITs were expected to continue selectively acquiring key properties in 2014 while Asia and Middle East buyers were expected to continue targeting the best assets in Manhattan (Lehr 2015).

Threat of Substitution

A high threat of economy substitutes that can be shared is high including Airbnb a major player in Manhattan hotel industry (Jacks 2015). The expansion of brands in the hotel market provides a moderate threat of substitute products (Baum & Lant 2013). Video conferencing is also a moderate threat in the industry since it acts as a substitute for business travel. The threat of substitutes is at the highest during recessionary times in this industry; travelers have to consider the costs of travel and its poor conditions during these times (Lehr 2015).

Supplier Power

There are various categories of suppliers in the hotel industry including owners of properties, developers, contractors, architects, interior designers and manufacturers of information technology (Cheng 2013). The current supplier power in Manhattan is high; the increasing number of constructions ensures properties owners are not willing to sell properties at low prices. The cost of labour offered in different areas is very high; labour suppliers have the power to negotiate higher pays. The high cost of living makes it hard to find the skilled labour and unionized labour influences the amount of wages, rules of work, welfare, health, and pension costs (Lehr 2015).

Buyer Power

There is high customer bargaining power in the hotel industry, however, in Manhattan customers presently lack a strong bargaining power because of the high occupancy of 86.7 % and an ADR that is very high. Forward integration is not an issue because the end consumers are the buyers of hotels. On the other hand, the beginning of shared economy through online platforms like OVRP’s and Airbnb has led to backward integration becoming a factor.  For instance, with the backwards integration becoming a potential factor Airbnb allows the public to rent rooms in their homes. In Manhattan with 348 hotel rooms and the additional rooms in the shared economy, the supply increases causing downward pressure on the prices charged by operators. The trend of increasing revenue for Airbnb as indicated in the figure shows the high buyer power (Lehr 2015).

Figure 4 Revenue obtained in Airbnb reservations in New York


Competitive Rivalry

The number of hotels in Manhattan is high resulting in an increase in the total number of rooms available to travelers. This represents an environment with intense competition (Baum & Lant 2013). The use of technology to enhance the services offered increases the rate of competition since every operator can come up with competitive strategies targeting customers globally (Lehr 2015).

Strength and Weaknesses Analysis

The SWOT analysis that is comprised of an analysis of Strengths, Weaknesses, Opportunities, and Threats is a tool used to come up or review an existing strategy in an industry. This tool mainly looks at strengths of the resources, aims at overcoming weaknesses observed in the resources, seeks to identify the best opportunities and aims at defending itself against threats to sustainable success (Ember 2015).


Opportunities in the market are essential factors in shaping appropriate strategies of an industry. The changing tastes by the millennials for desires that are experiential provide a new concept that is very critical. The key to the growth of top line revenues is the expansion, expansion into new brands that comprise of independent means of survival. The growth of interest by investors from Asia in the local Manhattan industry provides an opportunity for expansion (Ember 2015).


These factors threaten the success of the industry in the long term. In Manhattan, the threats include reduced prices by competition due to increased supply and less demand. Advancement in technology that reduces travels such as video conferencing and terrorist threats and causes fear of travel. Moreover, negative changes in the environment that may make certain locations inhabitable (Lehr 2015).

Figure 4. Manhattan Hotel Industry Strengths and Weaknesses Analysis


This strategic analysis helps in identifying the success factors, profitability, and financial benchmarks in the hotel industry. These factors are then applied in developing the strategic choices the investors have in this industry. The success factors in the industry are measured in terms of competitive strategy, the style of management, quality performance, the position of the market, cost structure, financial strength, and location. The profitability is measured through internal factors such as cash flow, the cost of occupation, revenues, and operating profits. The industry’s financial benchmarks are assessed through standards measurement, the average daily room rate (ADR) together with the occupancy percentage are used as the basis for determining the performance of a hotel. The (PevPAR) metric is arrived at by taking the number of rooms that are being sold over the number of days in the specific period being measured and using it to divide the total revenue obtained from the guestrooms. The data obtained is then compared to a similar metric in the previous years to determine the trend of growth in the market (Lehr 2015).

Thus, I would recommend that the investment group to enter the Manhattan hotel industries by following certain strategic plans that would ensure their success. Firstly, the investors should develop strategies that allow the business to obtain a sustainable competitive advantage against the other players from the beginning. A sustainable competitive advantage looks at various aspects of the industry to develop strategies that will ensure the investor performs well in the industry (Baum & Lant 2013). One strategy involves planning and budgeting for the availability of unlimited resources in terms of land, labour, and assets, financial and technological resources that will be used presently and for future expansion. A good plan will show how much the investors needs to source from lenders if their funds are not enough. Additionally, it will ensure that all needs in terms of resources are met on timely basis and adequate time is provided to scan the market for the best supplies at considerable costs. The need for extra funds will also be obtained at minimal borrowing costs because there is enough time to evaluate the available sources of funds.  The plan will help in saving costs by and avoiding excesses or acquiring items and at the best price in the market. This strategy should also be future oriented such that the available resources continue having long-term enhancements that will provide an advantage to the hotel (Wilson 2014).

In this case, the investors should take advantage of improvements in the availability of debt and equity capital from both domestic and foreign lenders and investors to enhance their resources. They can also enter into partnerships with already existing investors, merge or acquire an existing hotel to increase the capacity and competitiveness of their chosen entity, which will ensure they get high returns (Wilson 2014).

Another strategy is focusing on the needs of the customers. In this case, the investor will have to look at the quality of products offered, the brand positioning strategy, and the resources at the disposal of the organization. The investor will have to conduct periodic market research to identify customer needs and the trends in the market. Consequently, a wide range of hotel packages such as personalized services that meet the needs of customers should be provided. The hotel should work towards improving their brand in the international markets in order to increase their customer base. Resources such as technological resources should be used maximally to enhance the products quality and improve customer engagement (Serlen 2015).

A third strategic plan would entail investing in a third party hotel management platform whereby the investors will provide various services to hotel owners. They will help in managing the daily operations of their properties including providing both financial and accounting support. In this case, they would assist other investors to maximize their investments in existing of newly acquired hotels by developing value-adding strategies that will increase their performance and profitability (Serlen 2015).


In conclusion, the hotel industry in Manhattan is favorable for investment, this is because the increasing supply of hotels the industry demand has not been affected in the international markets. The industry is characterized by a cycle of boom and down turns due to certain risks such as recession, high gas prices, terrorism, and events such as major sports events, and concerts. The analysis reveals various environmental factors, the status of the industry and certain strengths and weaknesses in this industry. Based on this analysis, the investor can use three strategies to enter in the hotel industry in Manhattan and obtain a sustainable competitive advantage.  The investors can take advantage of an increase of debt and equity capital to enhance their resources and subsequently plan or budget for resources required in the short term and long term will be an effective strategy. Second, conducting a needs-based assessment strategy will ensure a good brand is created, and consumers’ needs are meet. This strategy will ensure the new venture gains competitive advantage by moving from the traditional products and trends in the markets to those that are recent. Finally, the investors may invest in a third party hotel management platform and provide services to various players in the industry at a fee.


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