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HTM2102 Tourism and Hospitality

Business Environment

Topic: Can environmental-friendlyhotel survive in Hong Kong?

Group Members:

Lau Hiu Yan, Lee Kin Ting, Yee Nathalie

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Hotel industry is one of the pollution

industries

Resources

Air-conditioner

Some hotels began to take social

responsibilities

IntroductionIntroduction

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Introduction (cont.)Introduction (cont.)

Green Hotels in overseas and HK

The market structure

Elasticity of individual hotel

and green hotel

The operation costs

Survival or not

Demand and supply in HK market

Recommendations

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Do you know any green hotels

in HK?

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Green Hotels in overseas market

The Gaia Napa Valley Hotel California

LEED Certificate

38% of travelers have stayed at anenvironmental friendly hotel

9 % specifically seek out this kind of hotel

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Green Hotels in Hong Kong

Island Shangri-la Hong Kong

- 4R-Reduce

Hotel Nikko Hong Kong

- 6R-Reduce

ISO14001 Certificate

- for companies which good at

environmental management

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Market Structure

Close to the perfect competition markets

Have to accept the market price

Increase their own price above market price

Consumers purchasing from competitor firm

Demand curve of an individual hotel is fairly

elastic (Ed>1)

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Elasticity of Individual Hotel

Hotel sets at a higher

price for room rate (P1-

>P2)

Consumers might

switch to other hotel

Demand quantity ofroom will

drop significantly

(Q1->Q2)

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Elasticity ofGreen Hotel

Hotels products are heterogeneous

Environmental-friendly hotel promote environmental

policy to attract green customers

distinguish by service

The demand curve would change to inelastic

Get the competitive advantage and gain economic

rent

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Operation Costs

Acquisition cost

- Business Registration

Certificate

Possession cost

- Fire insurance

Operating cost

- Fixed cost : rent

- Variable cost : labor

cost

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Survival or not?

Economic rent :

- Difference between what a factor of

production is paid and how much it wouldneed to be paid to remain in its current use

Wealth-maximization :

- The most profitable output level occurs where

marginal cost (MC) and marginal revenue (MR)

are equal

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Survival or not? (cont.)

Short-run

priceaverage variable cost

(AVC)

Equilibrium

marginal revenue (MR) =

marginal cost (MC)

Economic rentP1 > AVC1

The shaded area in red

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Survival or not? (cont.)

Long run

price average cost (AC)

Equilibriummarginal revenue (MR) =

marginal cost (MC)

LossAC1 > P1

The shaded area in

blue

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Survival or not (cont.)

If total revenue less than the total variable cost

Hotel will close immediately(shut-down point)

In short run

In long run

Total revenue is equal to the total cost

Hotel will stay in the market (break-even point)

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Demand of the Green Hotels

Disposable income increased

- Hotels normal or superior goods

- Consuming power increase willing to affordmore

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Demand of the Green Hotels

(cont.) Comparative quality

- Focus on quality > price- Value added

- Different target markets

- Customers own choice

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Demand of the Green Hotels

(cont.)

The success of overseas green hotels

- Main target :Tourists from Western countries

- Survey from Orbitz.com

- 63% of Americans would pay a little more to stay

in green hotels

- 52% of Americans willing to donate a part of

their vacation budget to save the environment

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The customers preferences changed

- Past focus on the services and facilities

- Now seek for quality of life

- Impetus of the environmental organizations

- Reduce the social costs

Demand of the Green Hotels

(cont.)

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Supply of the Green Hotels

Cost reduction

- Shangri-La International

70-90 kilos ofwashing and laundry saved

- Reduction in energy and water consumption

from 10.7% to 15.2%

- Financial saving 1.5 million (within 2 years)

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Supply of the Green Hotels (cont.)

Social benefits increased

- Surcharge scheme :

cost will be charged accordance with the volume

of water consumed

- Decrease of water consumption

surcharge diminish

private cost reduce

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Supply of the Green Hotels (cont.)

Gaining the competitive advantages

Increasing reputation

- Nikko Hotel & Shangri-La International

- ISO certification

- Staff morale boosted

- Generate more business- Create a positive image

- Entry of new competitors supply increase

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Supply of the Green Hotels (cont.)

Develop a network effect system

- Sharing experiences- Gain return customers

- Expand the market share

- Enhance the economic rents

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Recommendations

Government

- Give more support and allocate more

resources

- Introduce the benefit

- Provide guidelines

- Technical supports

- The Hong Kong Tourism Board (HKTB) promote

to the world

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Recommendations (cont.)

Hotels

- Interested hotel can explore the EPDs website to get

more information

- Take overseas hotels experience as reference

- Provide discount to the local resident

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Recommendations (cont.)

Environmental societies and the citizens

- Put pressure to urge the hotels reducing

pollution

- Show support

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Conclusion

Main target market will be the Western tourists

Reduction of the costs and the increase of the

social benefits

Potential market in Hong Kong

Win-win situation in our society

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