Creating false hope and unemployment.

international | consumer issues | opinion/analysis Sunday March 24, 2013 20:32 by Gale Vogel - Birds Eye View

Recent business oportunities.

The enthusiasm of people at a recent business offer presentation in the Dublin hotel was contagious. The queues for foreign jobs at a job fare was the opposite. A constant contagion of exploitation of those in need is evident in offers for opportunities offered. Job offers implied following training, the costs invested and the disappointment following discovering it to be not quite accurate have lead to increases in suffering and stress. The promise of cheap holidays and earnings from investing in this hope is growing tiresome.

A colleague recently invited my to a travel company presentation, their fantastic holiday offers were presented together with smiling faces and claims of what appeared to be unreasonably economical offers. It was a hard sell, no time to think or consider options and a claim that there are only two options, yes and no! 'If you leave to consider this, that's a no.' The invitation that I received was for something vague from a business person with whom I had worked. Any expectations that I had were not met. In fact I felt hijacked. There is a membership fee, a business opportunity and the chance for phenomenally economical holidays.

Those who cannot afford to holiday generally don't. Those who can afford to should perhaps question whether their hosts can afford their custom.

As a typical example lets examine the costs associated with fully serviced hotel rooms. The costs noted are typical of the USA for the provision of the space and services by the management.
Room costs taken in isolation are on average about $43 per night.
To provide other services the costs based on each room are on average for a fully serviced hotel $55.
To be very simple, the average costs per room in a hotel are in the order of $100 per night for a fully serviced hotel. These are the running costs.
There comprise administration, wages and other costs.
Administration and other costs that are not directly connected with guests amount to an average of $15,000 per room per annum.
Wage and other expenses per room are in the order of $18,000 per annum.

The costs rise with the rating of the hotel, a fully serviced hotel can include many 3 star and above. Partially serviced hotels are generally 3 star or lower. A 5 star hotel for instance is likely to have much higher costs, due to the initial construction costs, space requirements being very large and the levels of services being extensive.

Where hotel rooms are rented for lower than the costs, it may be assumed that the profits generated from ancillary services are sufficient to offset the apparent loss. When the expected occupancy of the hotel has been achieved, it is possible for the remainder to be rented at special offer rates, the costs have been achieved by the projected occupancy being achieved. The risks involved in the remainder being let at special rates is lowered, furthermore, where the special offer guests use ancillary facilities for which they pay additional premiums, profits may increase. It is often not possible to economically establish the special offers until either the occupancy has been achieved or patterns have been established whereby the offers can be made in advance. Typical occupancy rates for serviced hotels are 70%.

The development of external management cartels in the form of travel clubs, specialist large scale travel agencies and on line booking agents can pressurize hotels into limiting these offers to the cartels. This is the intention of organisation similar to that of the presentation, for the benefit of their members and as an incentive for new members to join. This will only work where the cartels can guarantee occupancy levels for the special offer rooms after the patterns have been established or the projected occupancy levels have been achieved. The risk management policy of each individual hotel or hotel group will dictate to what degree it is possible to negotiate with cartels. Where cartels, due to their claimed power, can dictate to hotels the rental rates for rooms, it is possible that hotels will take higher risks or attempt to reduce costs. The impact that this has on services may have little effect on the guest. However the effect that this has on service, suppliers, employees and the future viability of a hotel may be very great. In order to achieve unrealistic special offers to cartels hotels may reduce the number of staff thereby generating unreasonable expectations on those remaining. They may combine to form cartels themselves with other hotels, or groups of hotels to dictate to suppliers conditions that are not sustainable. There has been much debate about the power of multinational supermarket chains to impose conditions on their suppliers. The hotel industry can operate in a similar fashion.

Where special offers are made to cartels, it is possible though improbable that those taking the offers may in particular cases exceed the reasonable special offer proportion of rooms and thereby place the hotel in a uneconomic situation. Where the cartels may insist on additional free services, say full board included it is likely that in cases the economics for the hotel become unsustainable. The fear of loosing to the competition is the basis for the power of cartels. The costs alluded to during the presentation was for high level 5 star hotels and was significantly below that noted above. In fact, many of the highlighted offers were lower than simple unserviced hotels while being more inclusive. Who bears the burden?

Clubs and organisations that operate on the basis of cartel power make claims and offers that may well appear wonderful. Where these offers extend in time, they become unsustainable. This manifests itself with the particular organisation failing in their initial promise, or by the participating hotels failing in their delivery due to the required cutbacks, or by the pressure and suffering of employees having extended hours and duties. It may be achieved by unreasonable demands on suppliers. It may ultimately lead to failure, business collapse and unemployment rising.

In essence, any sustained special offer to one must surely be a suffering to another. The heightening of wealth in one location depends on expanding poverty somewhere else.

The ethics of special offers it has been claimed needs to be examined. While in conversation with some hoteliers, special offers are cited as a means to fill otherwise empty rooms. This is viable when combined with otherwise sustainable strategies but alone is not.