Cornell: Hotel Brand Changes Can Boost Performance

Hotels that convert from one brand to another generally see improved occupancy, revenue and profit, reported Cornell University, Ithaca, N.Y.

Cornell’s Center for Hospitality Research analyzed hundreds of brand conversions and found that hotels that changed brands–such as when a Ramada Inn-flagged property became a Holiday Inn or a Hampton Inn became a Courtyard by Marriott–improved both their top and bottom lines.

“An astonishing number of hotels convert from one brand to another, and the results are frequently quite favorable,” said Cornell Associate Professor Chekitan Dev. He and Professors Yi-Lin Tsai of the University of Delaware and Pradeep Chintagunta of the University of Chicago analyzed financial statements from 3,000 hotels spanning 18 years for the report, Hotel Brand Conversions: What Works and What Doesn’t.

The study compared a set of hotels that converted brands to a set that matched the converted hotels in every way except they did not convert brands. “Two factors seem to drive the financial results for converted hotels–the relative strength of the brand to which the hotels converted and the fit between the brand and the property,” Dev said.

In addition to the overall conversion effect, the study said performance changes depended on whether the hotels moved upscale or downscale with their new brand. “Hotels that moved downscale saw increased occupancy, which improved their revenue and profit ratios,” Dev said. “On the other hand, hotels that moved upscale did not see notable changes in revenue or profit.”

Independent, non-chain hotels that converted to a brand generally improved their performance and renovations did boost occupancy regardless of whether the hotel converted to a new brand, Dev noted.

Dev called one finding somewhat puzzling. “We found that hotels that stayed within their brand family when they switched brands did not generally see improved occupancy, but those that moved to a similar brand in a different brand family did see improvements,” he said.

Dev said brand managers–who depend on conversions to grow their portfolio and fee income based on hotel revenue–often disagree with hotel owners seeking to maximize profit on how much a brand adds to a hotel’s top and bottom line in return for the substantial fees paid to the brand.