Economic drivers of sustainability
In the US an average hotel spends about US$2,196 peravailable room in energy costs, representing six per cent ofall operating costs.
The Energy Information Administrationexpects most fuel prices to continue rising in 2010 andbeyond. These prices will increase further with forthcomingCO
regulations, making energy efficiency an importantissue for hotel operators.Water is an additional concern for many luxury hotels.As water resources become more constrained,governments will begin charging higher rates or limitingwater use at commercial properties. Water usereductions will limit a hotel’s ability to use fresh waterfor landscaping, spas and swimming pools.Given the importance of these features for resortguests, such reductions may have an impact on revPAR.However, improving water efficiency can also lower ahotel’s sewage bill, which is sometimes even larger thanthe cost of water.As input prices rise, the industry is exposed tocommodity risks and margin reductions, so hoteliers willneed to focus on operational efficiency. Modifyingexisting properties is expensive and, in the short term,we expect the industry to focus on efficiency initiativesprimarily on new construction and major retrofits.
Just a ten per cent reduction in energyconsumption would have the same financialeffect as increasing the ADR by US$0.60 inlimited-service hotels and by US$2.00 in full-service hotels.
“Technological improvements haveprogressed so quickly that it ispossible to save money and protectthe environment – so I amoptimistic for the future.”
Chief Executive Officer,Strategic Hotels Capital
Sustainability drivers for hospitality1.Hospitality is an asset-heavy sector with a large environmental footprint
Hotels rely on a wide range of natural resource inputs and generatesignificant waste through their lifecycle. Once built, buildings are expectedto last for decades and major retrofits can be expensive.
Since existingbuildings contribute almost 80 per cent of the carbon emissions in somelarge cities
through their energy use, there is significant risk of economiccost and negative media publicity as marketplace concern around climatechange grows. As consumer attitudes and public policy continue to changethe sector will not be able to hide.
2.Regulatory changes and commodity prices will impact the bottom line
Reliance on scarce resources such as water, electricity, and natural gas forbuilding operations exposes the industry to commodity risks and fallingmargins as prices rise. Planned and pending regulation around the globetargeted at increased efficiency and putting a ‘price’ on carbon will furtherimpact the industry. For example, in the UK, the CRC Energy efficiencyscheme will see hotel brands required to participate in a new cap and tradescheme aimed at reducing carbon emissions and creating a marketmechanism to facilitate this. A public league table will also explicitlymeasure performance and seek to influence consumer attitudes.Sustainability will become a driver of improved profitability as theregulatory landscape evolves and resource prices increase.
3.Marketplace awareness of environmental sustainability is growing
Recent studies by Deloitte indicate a growing consumer preference for greenhotels. Rating agencies are recognising this growing trend and plan tointroduce EcoRating of hotels in 2010. Current consumer behaviour suggeststhat location and price remain the most important selection criteria andguests will only select a green hotel if all other things are equal. Howeverthis is changing. In the next five years sustainability will increasingly becomethe norm and part of consumer expectations. Strategy and operations thatare considered environmentally irresponsible will negatively impactstakeholder decision making from investors through to consumers.As consumer attitudes continue to change, expectations that influencechoice and inform perceptions about product and brand will also change.
Operational efficiency has always been central toeffective hotel management but sustainability isrefocusing attention on this area and raising the bar fornew builds. The City Center development in Las Vegas,one of the largest single site hospitality projects evercompleted, has sustainable practices at its core, withGold LEED certification and operational focus in thisarea.The key challenge that the industry will face in 2015and beyond is the adaptation of the existing hospitalityasset base, which will be expensive and disruptive.Companies that do not address this may findthemselves displaced by new assets and large operatorswill need to watch this dynamic carefully. A weakportfolio from the perspective of sustainability is likelyto have an increasingly detrimental impact on brandperception and profitability.