The Effect of New Hotels and Brand Conversions on Revenues of Existing Hotels.
By Arturs Kalnins Ph.D.
Wednesday, 20th February 2008
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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