Introduction
On the 6th July 2005 London has won the right to stage the summer Olympic Games in 2012. From that moment it became clear that winning the bid will have a big impact on the hospitality industry in the UK capital. In preparation for the big event a project was given to our team by the Director of Inventory and Analysis Management in Marriott Hotels Helen Goymer. The idea behind giving out this project was to study the impact of 2012 Olympic Games on London Hotels so that the client could prepare and adapt an appropriate strategy to benefit from the event in the most efficient manner. The team studies this from three different perspectives, the pre Olympics stage, the Olympic year and the legacy or post Olympic phase. The group determines this by researching and studying the occupancy trends of the past few cities around the world that have had the opportunity to host the international Olympics. It looks at the effects in which the Olympic Games and their associated activities have had on the hotel industry of the individual cities before forecasting the London hotel situation in 2006-2016. Among the Games examined are Athens 2004, Sydney 2000, and Barcelona 1992 with a brief overview of Beijing 2008. Finally the report issues some recommendations that may be of interest for the Marriott Hotels in London.
Methodology
Upon receipt of the project the team had developed a four stage negotiations, (Opening, Testing, Moving and Agreeing) within the context of the 7 consultancy stages and used team dimensions theory to identify weakness and strength within the team so as to assign individual team members to the parts of the project where they will achieve their full potentials. With selection stage completed, the crew had then moved on to advise their approach to the client and time scale with specific deadlines was agreed with the full support of the client.
Research limitations
The team has faced several hurdles during the research of the project among which is the short supply of publicly available relevant data. There are very few books and academic journal articles written about the Olympic Games in general which are not necessarily designed to address the core question of this project “the impact”. The fact that two of the Games that the team intended to research (Beijing & London) are pending has also contributed to the difficulties. Furthermore, it became apparent to the panel that obtaining primary data on the subject was not easy as contacts communicated with were either unsure of what to advise or unwilling to disclose information that may have an strategic value for their organisations. Please see appendix ( ……. )
Olympic Games overview
Olympic Games are the biggest and most popular sport event in the world, held once in every four years with over 10,000 participants watched by around four billion people according to United Nations Research cited on Chalip (2002).
According to Jamie (2005) There’s no greater prize for any city than winning the honour of hosting the Olympics Games and Paralympics Games. The Games are the world’s greatest publicity; they are watched by a TV audience of some four billion, while hundreds of thousands of visitors do come to the host city just for the Games.
They mean different things to different cities that host them. Some of the small and relatively unknown cities may gain international media exposure which helps them raise their profile and put them on the world map while larger and already well-known cities may experience increased popularity and enhanced image.
Barcelona
An example of the former, smaller and rather less-known city before the event, may be Barcelona. It is widely agreed that the best thing Olympic Games could provide to a host city or nation is media exposure. The importance of this exposure would obviously vary from one place to the other. (Brunet 1995) In the case of Barcelona, this was critical for the cities profile and publicity. Barcelona was not the richest city in the richest country in the world as was Los Angels 1984. It was the second largest city in Spain with limited history or technological treasures to offer. It had high unemployment and rather scrubby infrastructure prior to wining the hosting of the Olympics 1986 (Brunet 1995) However; this has changed as intensive regeneration programmes undertaken by the state of Catalonia in the years between 1986 & 1992 has made Barcelona one of the most modernised cities in Europe. The extensive urban beautification programme that the city has undergone meant that outside interest in the city has grown and investment started to pour in and so were the foreign visitors with foreign currency.
According to (Brunet 2004) the effect of Olympic Games on Barcelona’s hotel industry was exceptional. There are three times more hotels in the city now than there were in 1986 and the number of foreign visitors has doubled reaching staggering 3.5 million visitors per year. This study was reinforced by HVS International (2006) which states that from 1990 to 2005 visitation to Barcelona has increased by an inspiring 192%, which means a healthy 7.4% compound annual growth. According to HVS International (2006), after peaking to 100% during the games, the room occupancy of the city stands 76 -77% all year around with the exception of December and January when it drops down to just below 70%.
Sydney
Sydney hosted the International Olympics in 2002 and has seen an increase in the room occupancy rates in some parts of the city prior and during the Games with sharp decrease after the games according to Chalip (2002) He goes on to say that the sharp drop in occupancy was inevitable as the room demand could not match the room supply.
Furthermore, Noenchen, (2002) suggests that the industry which is mostly impacted by the Olympics in any country is the hospitality industry. The games bring high number of international visitors including the participants, media crews, spectators, organisers and foreign diplomats who will utilise the services provided by that industry such as the accommodation, food, drink and services. He goes on to say that in return the hospitality industry generally benefits from the Olympics and the related traffics of people that come along with it. This was reflected in Sydney, where according to Australian Tourist Board (2000), the room occupancy went up dramatically during the games 2000 especially in the areas neighbouring the games base such as Parramatta and Bankstown which recorded the highest occupancy rate 91% and 88% correspondently(see Apendix ).
The evidence assembled indicates that Olympics 2000 have had a highly positive impact on the hotel industry of Australia, in particular, in the New South Wales State where the occupancy rate remains relatively higher than the rest of the country, even several years after the medals were given out.
Athens 2004
The Olympics had enabled Athens to reposition itself to one of the great capitals of Europe. The media coverage and the reinvented image of the city appear to have had a positive impact on the hotel performance. From the day that the Games officially stared the hotel occupancy climbed up reaching 100% occupancy (see Apendix….).
This surge was due to the fact that unlike Sydney, Atlanta and Barcelona, Athens authority had initially limited the building of new lodging facilities for the Olympic demand and when that was exhausted the visitors started to compete for accommodations which forced higher prices to match the demand. Deloittes report (2004) suggests that as the conventional hotel capacity did not expand too much in preparation for the Games, it is unlikely that the city will experience the same post –Olympics drop in occupancy that some other cities have suffered, this is so because the publicity that the city had experienced will generate enough visitors to off set the room supply vacated by the departing Olympic officials and visitors.
Beijing 2008
Beijing is to hold 2008 Olympic and according to Ritchard (2004) it is expected that Beijing’s room occupancy will be stronger in 2007 than 2008 due to event-displacement effects in the months surrounding the Games.
Occupancy levels will then drop slightly in 2009 as the market begins to digest the new supply. Rates will characteristically grow by 15% to 20% in the Olympic year [as they did in Sydney and Atlanta, correspondingly] In the year following the Games, room rates will be expected to drop back to 2006 levels as the market waits for the Olympic demand stimulus to get some grip according to Chinese official Olympic information website.
Market-segmentation trends will also encounter fluctuations in the years ahead. Today the Beijing hotel market is dominated by low-yielding group-tour business, and tour operators need significant inventory control over an extended period of time. After the Olympics this will be replaced by increased-demand growth from higher-yielding corporate and conference sector. The independent leisure travelers are also expected to remain stable as the new and much improved infrastructure appeals to many of them (Ritchard, 2004).
The scale of a London Olympics
According to Arup (2002) the number of media staff, athletes, sponsors and spectators increases event on event. In London there will be expected more visitor of any type than ever before.
Number of media from previous Olympic
Barcelona
13082
Atlanta
15108
Sydney
16033
Athens
16245
2012 London Olympic game (16 days)
athletes
11 000
coaches and officials
5000-6000
members of the Olympic family
4000-5000
media
20 000
sponsors
Over 7000
Total
Minimum 47000
Paralympics (12 days)
athletes
4000
coaches and officials
2500
members of the “Olympic family
8000-9000
media
20 000
sponsors
Over 7000
Total
Minimum 41500
Source:www.olympics.org.uk
Location
Venues
According to “London 2012” (2005), the 2012 Summer Olympic venues are mostly located in the host town of London, though some other events require facilities located in different place. The 2012 Olympics will use a mixture of newly built venues, existing facilities, and temporary facilities. The majority of venues have been divided into three zones within Greater London: the Olympic Zone, the River Zone and the Central.
Olympic Zone The Olympic Zone will encompass all of the facilities within the 500 acre Olympic Park in Stratford. This park will be developed on existing waste and industrial land. The nearest Marriott hotel in this area is canary wharf branch and St’ Pancras.
River Zone
The River Zone will feature five main venues in the Thames Gateway area straddling the River Thames. Again, the Canary Wharf is the closest Marriott to the venues and is located within the River Zone.
Central Zone
The Central Zone will be formed out of all the remaining venues within Greater London. This is the biggest Olympic zone and contains most of Marriott hotels in central London.
Transportation
According to Mayor of London website (http://www.london.gov.uk/), transportation is one of the key factors to make success Olympic game.
More than £17 billion will be spent on London’s transportation system prior to 2012. This investment will enhance the London transport system to an unprecedented degree enabling the athletes and the spectators to travel between Olympic venues fairly quickly. For instance:
80 per cent of athletes within 20 minutes of their events
97 per cent of athletes will be within 30 minutes of their events
It is estimated that 80% of spectators will arrive by rail
10 railway lines carrying 240,000 people every hour to the Olympic Park
240 km of dedicated Olympic lanes
Every day 500,000 people will visit the Games. This will allow about 320,000 people an hour to go in and out of Stratford.
Everything is geared to make it easier to reach the vast Olympic Park at Stratford with a journey from King’s Cross to there taking only 7 minutes. There will be faster and more frequent services with 10 trains an hour. Stratford will be only two hours away from northern Europe as a result of the Chunnel link.
As a result of its strategic position, close to M25 and the Dartford International railway station, the Bexleyheath Marriott hotel may experience greater demand for its rooms than other Marriott hotels in London. However, other Marriott properties located in Central and West London should also be in a good position to sell their rooms due to the improved transport links in the capital for the time of the Olympics.
Economic Overview and Forecast 2006-2009
According to Keynote report (2005), the gross domestic product (GDP) in the UK is forecast to continue to grow year-on-year over the next 5 years. This will provide a positive environment for ongoing investment in the hotel sector. It will also encourage business travel and sales in the corporate sector in the years to come.
Forecast of UK Growth in GDP 2006-2009
2006 2007 2008 2009 2.4 2.6 2.7 2.6
Inflation is also forecast to continue to rise at around 2-3% level over the next 5 years. Rising prices will impact on the hotel sector in terms of both product and staff costs. As a result, in years leading up to Olympics, hotel operators will be looking to maintain margins through higher prices.
Forecast UK Rate of Inflation 2006-2009
2006 2007 2008 2009 2.4 2.5 2.5 2.6
From 2006, there is likely to be a slowdown in the growth of the hotel trade (Keynote Report, 2005). The slowdown in the global economy, high fuel prices, as well as weak US dollar will adversely impact on tourism. For the years prior to Olympics, the challenge to hotel industry will be to maintain revenues per available room and not to give in to pressure to reduce room rates in order to increase occupancy (Keynote Report, 2005).
London Hotel Industry Overview
According to the IOC Evaluation Commission Report (2005) for the Games of the XXX Olympiad in 2012 (www.olympics2012.org) the current hotel room capacity in London is estimated at 103,000 hotel rooms within 50km radius of the city centre. This exceeds by far the IOC requirements of 40,000 rooms for which the IOC already issued letters of guarantee. Apart from the above number of rooms, there are another 30,000 non-serviced rooms available to choose from. It is estimated that there would be sufficient hotel capacity for spectators and visitors during the games. Over and above these numbers, a further 17,000 new hotel rooms are due to come on the market between now and 2012.
According to Hotel Development Monitor Report for March 2006 (www.visitlondon.com) the luxury sector is planning to open over 4,000 hotel rooms in London over the next five years. The major luxury developments pointed to by the same report is the construction of two hotels, 400 rooms, at Battersea Power Station, one of which is to be run by Hyatt Hotels. Further more, a new Marriott is due to open at St.Pancras with 240 bedrooms, Radisson Edwardian at New Providence Wharf with 169 rooms, and a number of luxury focused operators, currently without a presence in London, are now set to open new hotels at various locations in the coming years. These include Asian’s leading luxury group, Shangri-La Hotels, who has signed a deal for a 195 room hotel at London Bridge Tower, while Spanish group Silken will open a 170 room hotel at the intersection of the Stand and the Aldwych.
Current Visitors Numbers Overview
According to Visit London website, the arrivals to the UK and London grew strongly over the whole 2005. The majority of overseas markets expanded but domestic visits were down. This uneven growth was caused by the London bombings with an immediate unwillingness from domestic tourists to travel to the capital (evidence suggest that domestic visits decreased by as much as -30% in July and August 2005). However, the positive sign is that foreign visitors continued to flow into the UK.
It seems quite likely that the London bombs will not have a lasting impact on tourism in the city (PKF, 2005). The strongest overseas growth levels in 2006 are likely to come from Eastern Europe and Asia taking foreign visits to a record level of 14.9m with spending increasing by +4.5% to £7.2bn. London Tourist Board estimates that by 2010 there will be at least 200,000 tourists from China each year, rising to 500,000 by 2020.
The domestic market is facing a number of factors that adversely impact on the number of visitors coming to the capital. The lower consumer spending and the continuing availability of cheap air flights are having negative effect on domestic tourism in London. According to Visit London website if the current trend continues, domestic visits are predicted to fall by 2.1% to 11.75m in 2006 and spending decrease by 1.9% to £2.6bn.
However in 2006, the total visits to London are expected to grow by +1.2% to 26.6m in 2006, while visitor spending is forecast to grow +2.7% to £9.8bn.
According to Blake ( 2005) from the Nottingham University Business School the extent to which the Olympic Games attract visitors to a country or city is difficult to estimate. However, based on the research and analysis of the trends in tourism arrivals before and after Olympics by the PrinceWaterHouse (2004) the estimates, involving ‘low’ and ‘high’ scenarios, prior to and after the London 2012 look as follows (% change in Tourism Arrivals and Spending)
UK level Low Central High
2006-2011 0 1 2
2012-2016 -4 1.5 7
London level
2006-2011 1 2 3
2012-2016 -2.5 3 8.5
The figures clearly indicate that London is well positioned to grow in visitor numbers over the next ten years. However, what the percentage is going to be depends on too many factors to give the exact figure.
Expectations:
According to Pateman’s report (2004) the Olympic Games have a much smaller impact on high profile cities such as L.A., London, Paris, or N.Y. as opposed to relatively lesser-known cities such as Barcelona. This could affectively limit London’s impact as the city is already well-known international destination. However, the Olympics should help to raise the profile of the city even higher and make it possible to compete successfully with other European destinations in the future (Pateman, 2004). The influx of people should benefit the whole hospitality industry including restaurant chains and pub operators (Sunday Times, 2005).
Hotel Market in London 2006-2011.
According to Banard (2005) London’s hotel market is set to develop and add further 17,000 rooms between now and 2012. This will increase current room supply quite substantially, which may adversely impact on the market reducing rates due to significant increase in number of hotel rooms available on the market. However, if the predictions of the increased number of international tourists who intend to come to London in the next few years come true; than the market may be able to absorb the additional figures and the room rates should not decrease (PKF, 2006).
Having said that, the tourism market in London is set to increase about 1-2% in international visits every year (www.visitbritain.com, 2006). This led the industry watchers like PKF to believe that in 6 years time the number should increase by about 10-12%. The hotel market in London is set to expand in the same period by 17,000 rooms i.e. 17% (PKF, 2006). Bearing these figures in mind we can see that even before the Olympics 2012 the hotel market in London may suffer overcapacity due to oversupply of hotel rooms. It means that the competition will become even stronger among hotel operators in the capitol in the years to come. The consequences of intense competition may include lowered rates, diminished margins and reduced revenues (www.visitlondon.com, 2006).
Hotel Market in London 2012.
According to Drayton (2005) in the Olympic year, if London is to follow the trend of Athens, Sydney and Atlanta, the number of visitors will drop in the lead up to the Olympic Games. Los Angeles and Tokyo tourism suffered in their Olympic years as visitors postponed trips due to fears of overcrowding and delays (Sunday Times, 2005). Sydney for example experienced a phenomenon described as “displacement” where the normal levels of tourism decreased and were not replaced by visitors coming to Sydney specifically for the Olympics (Pateman, 2004). Also Athens experienced a decline in demand in time leading into the Games which was not expected. Some of the reasons include increases in the price of airfares and accommodation as well as overcrowding (Pateman, 2004).
During the Olympics however the hotel operators should not have a reason to complain. According to the referenced data from other Olympic cities, the occupancy levels should climb up to 100%, rates should increase as well as revenues. If London is able to cope with the increased traffic of tourists in terms of transportation and security, the hoteliers can be sure that for the period of Olympics 2012 the hotels should be full.
Hotel Market in London 2013-2016.
The post-Olympic period however looks rather less favourable for the industry. In almost all cities that hosted the Games before, the demand as well as the arrivals dropped sharply after the event has finished (Deloitte, 2006). In Sydney 2,000 hotel rooms were converted into residential homes. Athens did not suffer that much because of the undersupply of rooms for the Games. Only Barcelona did well and came out of the Olympics as a big winner. After hosting the Games Barcelona experienced an increase in tourists’ arrivals of 40%. Today the city enjoys annual occupancy levels of around 75% and it was ranked by the International Congress and Convention Association (ICCA) as the number 2 destination in Europe in 2002 for MICE-meeting, incentive, conference and exhibition (PKF, 2006).
London is set to follow rather Sydney than Barcelona in the post-Olympic period. The main reason for it may be the overcapacity of hotel rooms as well as high living costs in the UK capital. This trend, however, may be reversed if London and its hotel operators take advantage of Barcelona experience in terms of managing tourism flow after staging Olympic Games (PKF, 2006).
RECOMMENDATION:
To Start Early Job Recruitment and Staff Training:
It is expected that the tourism level will rise both before and during the Olympic and therefore recommend an early start to recruit both skilled and unskilled staff. It is necessary to get influx of new skills to cope with the increased demand.
According to British Hospitality Association (2006) there is already a huge shortage of both skilled and unskilled workers and BHA predicts that thousands of extra staff will need to be recruited.
Rhodes (2006), Skills Director at the Learning and Skills Council ( Personnel Today 2005) also feels forward planning, especially with training, is vital when London hosts the Olympic Games in 2012. She continues to say, “HR teams need to understand how their industry will be affected and identify the skills needed. This is a great opportunity to offer work placements and apprenticeships. Training young people now can help to build a skilled workforce for 2012. But her concern is that employers won’t plan early enough.”
Joanne Tiffany, regional HR director for Hilton London, believes the games could put extra pressure on the current skills gaps in food and beverages staff. To help combat this, the Hilton is looking at working with food preparation colleges to train staff. The hotel group may also look outside the UK to bring in extra staff. Hilton hotel will be in a position to move staff from other Hilton hotels in order to help them through the busy period.
Helen Kaylan, head of HR at Novotel London hotels, says the sector must look outside the UK to guarantee a full workforce. Novotel is already recruiting from countries such as Poland and Romania to fill junior and manual positions.
Marriott will require well trained staff to be able to cope with the increased guest traffic. Biliguistic staff will be appropriate as they will be different type of guests from all over the world. Marriott can try to work with other Marriott hotels around the country to also assist them during the Olympic Games.
Employment Contracts:
It’s essential for Marriott to ensure that they have specific employment contracts for the staff that will be employed purposely to assist with the Olympics. The contract should have the specific length of time to avoid future problems.
Targeting Various Visitors:
During the Olympic Games there are three types of visitors that are very important for this event. These visitors are mainly leisure tourists, business visitors and MICE (Meetings, Incentives, Conferences and Exhibitions).
The Olympic Games therefore needs to be used as vehicles to help build the interest of potential tourist in the UK. Sydney Conventional and Visitors Bureau estimates that the average business visitor spends nine times more money per day than the average leisure tourist. Laurence Chalip (Leveraging the Sydney Olympics for Tourism) continues to say that although leisure tourists are the largest category, MICE visitors offer a higher yield. Business visitors on the other hand add impact by bringing new business into the country.
According to PKF, (http://www.pkf.co.uk) the Olympic Games do not only generate a short term fillip to the leisure market, they also stimulate the meetings, convention and exhibition sectors. This occurs before and during the games. Fringe meetings of the Olympic family are now almost as important and big as the Games themselves. Barcelona and Sydney have both recognised the importance of this market and therefore both cities have been successful in leveraging the Games and its facilities to win highly lucrative meeting and convention business. Marriot will be required to target the MICE visitors and can do this by ensuring that they have the adequate facilities in their hotels.
These facilities would include large meeting rooms, business centres and conference facilities. Vigorous marketing and Advertising campaign focussing on the conference facilities would assist the Marriott hotel gain this specific business.
Corporate Rate:
As the hotel demand may not be high as expected due to the numerous hotels that will be ready during the 2012 it may be advisable for Marriott hotels to negotiate a good rate with their corporate clients to ensure that all their rooms are occupied. The rates would be slightly higher than their usual rates however lower than the best available rates on the day which would be accessible to everyone else. Corporate client will replace leisure clients.
Liaise with the Olympic Committee:
By working with the Olympic Committee Marriott may be able to get deals during and after the Olympics. This may be in terms of being offered tickets which they may use to sell as a package with their rooms.
Maintain High Profile and Integrity:
Due to the surplus hotels that will be ready by 2012, Marriott is required to maintain their high profile and integrity as the hotel competition will be very high. Marriott should promote their services and be able reach greater numbers of audience.
Designated team to Deal with Olympics and Associated Business:
A designated Olympics team in the Marriott will be there to deal with Olympics and associated business pre, during and post the Olympic. This team would be one recommended to work with the Olympics Committee Officials.
Cancellation Policies:
The current cancellation policy at the Marriott hotel is 4 pm on the day of arrival. To ensure that 100% occupancy is gained the cancellation policy should be much tighter. Therefore if a guest cancels on time, Marriott will still have adequate time to re sell the room or alternatively is their cancel late there would be a full charge and there would still be hope of re selling the room again, making double profit.
Check out policies:
During this period Marriott should pay a particular attention to the check in and check out times due to increased traffic and heavy demand on the rooms.
Package Rates:
Currently most of the Marriott hotel clientele book their rooms through the internet and therefore offering packaged rates may attract a lot of overseas visitors. These type of packaged rates would include offer various visits to UK attraction sites, dinners or alternatively theatres. Marriott hotel can also join forces with some airlines to be able to offer packages room rates that would include air ticket. This would be convenient for overseas visitors and can be advertised on their website. Although the hotel would be working with online players and offering the rooms at discounted rates, their overhead commissions and call centre cost would decrease and they would also expect a lower cancellation and no-shows as merchant fees translate into cancellation rates far below traditional booking models.
Strategy in Room Sale:
Marriott hotel can consider selling their rooms at the last minute in order to achieve higher rates. However, it may be risky if the demand is low. In order to avoid the disappointment they should look at opportunities to reduce costs, especially during the Olympics, and reposition themselves on the market as inexpensive alternative.
Others:
Incorporate Olympics 2012 image into the Marriott logo for the time leading up to the Games. This may help the potential visitors to associate Marriott with the Games in 2012 and promote the hotel image.
Design a pre- and post-Olympic touring booklet for both corporate and independent holiday travellers to the Games – a selection of Marriott hotels, attractions and regional highlights.
Focus on brand and create brand awareness among the potential clients. Today, more than ever before, consumers look for branded products and the “security” associated with branded offer.
Conclusion
Winning the Olympic bid is only one step on the route to making the Games a great event and taking advantage associated with staging Olympic Games. Benefits include: new jobs, increased tourism, enhanced image of the city and the country hosting them. It opens huge opportunities for the whole hospitality sector and particularly the hotel business. However, in order to fully benefit from the event hotel operators need the study the trend and prepare for the unexpected.
The report is a product of the research and investigation on the impact the Olympic Games have had on the hotel industry in cities that staged them before. It looks at the occupancy rates and visitor numbers changes before, during and after the event. It also examines the current trends in hotel industry in London. The data gathered during the course of this report suggests that London hotel industry is likely to follow Sydney pattern. This is because the city of London has excessive room capacity already and is poised to increase its room capability in the region of 17000 rooms between now and the 2012. This sharp increase will inevitability lead to an oversupply of rooms both during and the post Olympic period as the new supply enters the market. Based on these information obtained by researching this report the team recommended that the client considers certain points deemed both relevant and beneficial to the client’s set of circumstances.
Credit:ivythesis.typepad.com
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