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This report examines the external environment surrounding Fairmont Hotels & Resorts Inc. over the next five years to determine if the outside world will either assist or hinder the company in realizing its mission.

Extracts from this document...

Introduction

Table of Contents 1. Introduction 2 2. Fairmont Overview 2 3. PEST Analysis 4 3.1. Political Factors and Trends 4 3.2. Economic Factors and Trends 6 3.3. Social Factors and Trends 7 3.4. Technological Factors and Trends 8 4. Porter 5-Forces Analysis 10 4.1. Existing Competitors 10 4.2. Potential Competitors 11 4.3. Substitute Products 13 4.4. Customers 14 4.5. Suppliers 15 5. Conclusions 16 6. Bibliography 18 1. Introduction Often a firm's success or failure, or the degree of either, is not under its direct control. A well managed firm can fail while a mediocre firm can be highly successful simply by being in the right industry or geography at the right time. It is therefore important not only to examine a firm's management, products and track record but also the external factors affecting its success. This report examines the external environment surrounding Fairmont Hotels & Resorts Inc. over the next five years to determine if the outside world will either assist or hinder the company in realizing its mission. First, this report will provide an overview of the company's operations, structure and goals. Second, it will use PEST Analysis to examine the effects on the firm by the macro-economy, followed by an analysis of the industry environment using the Porter 5-Forces Model. Finally it will come to a conclusion as to whether the external environment will have a positive or negative effect on the firm and to what degree. 2. Fairmont Overview Fairmont Hotels & Resorts Inc. is one of North America's leading luxury hotel and resort management firms. Its portfolio consists of luxury and first class hotels in Canada, the United States, Mexico, Bermuda, Barbados and the United Arab Emirates. Fairmont manages 39 distinct city center and resort hotels such as The Fairmont San Francisco, The Fairmont Banff Springs, Le Ch�teau Frontenac, and The Plaza in New York City. It holds a 100 percent interest in Delta Hotels, Canada's largest first class hotel management company, which manages and franchises a portfolio of 39 city center and resort properties in Canada. ...read more.

Middle

While this at first may be a source of competitive advantage, it represents a substantial upfront and ongoing cost. Wiring a hotel can cost up to $500 per room21. As competitors also upgrade, this expense will merely allow the firm to stay even while shrinking margins22. While taking orders over the web can be a substantial cost savings, the internet has allowed customers to much more easily compare prices. While only 5% of hotel reservations are made over the web, 55% of business travelers and 53% of leisure travelers use the internet to plan their trips23. This will put significant downward pressure on room rates. While cost savings can be obtained through online reservations, online booking is growing far slower than online research. Losses in per room revenue will outstrip savings in booking costs over the next five years. With cuts to travel budgets, many businesses have turned to video conferencing to conduct these meetings. Lower transmission costs through internet protocols, and better picture and sound quality have made video conferencing a viable alternative. With the costs of a video conferencing room ranging from $20,000 - $80,000 the price is out of the reach for all but the largest corporations if purchasing a system for their own use. Hotels, already a common source for meeting spaces, are in a prime position to offer these conference rooms and are able to achieve rates of up to $700 per hour24. While less business travel means lower room rental revenues, this loss in revenue can be more than compensated for through the increase in conference room revenue. According to Al Zaccario, manager of information systems at the Hilton Woodcliff Lake, it will likely evolve from profit center into a free-of-charge business meeting amenity25. Although for the next five years this will be a positive for the companies that invest in it. In the short term companies that embrace these technological trends will have a competitive advantage, in the long term all of these technological changes will not benefit the industry. ...read more.

Conclusion

Its primary challenges are a poor economy and the threat of technology to drastically reduce business travel. The main political factors Fairmont is facing is government regulation of its use of natural resources and local pressure groups lobbying for tougher constraints on the hotel chain. While this will create additional cost for the company to maintain its brand and defend itself legally, these same regulations will keep competition out and protect some of its premier locations. The current poor state of the North American economy as a whole and the hotel industry in particular will hurt the company for at least the next two years before fear of travel dwindles, the economy recovers and leisure travel returns to its previous levels, however a larger issue is the permanent shift in how companies view the need for business travel. Fueling this shift is alternatives like video conferencing. Over the next five years Fairmont can capitalize on this opportunity for revenue growth in its meeting room business but beyond that the service will become an amenity offered for free or very little cost to conference holders. High speed internet access is another technology that will serve as a competitive advantage for Fairmont and other hotels that invest early over the next two years but will then become a required cost of business that does not add to its margins. The Porter 5-Forces Model leads to the same conclusions as the PEST Analysis. Fairmont is in a highly competitive, low growth industry. It is forced to launch new service offerings yet is experiencing downward price pressure on rates. There is not a major threat of new entries to the field and customers and most suppliers do not yield significant power, however technology is a huge threat to its business travel revenue. While Fairmont may have a competitive advantage within its industry and may yet be a company that can sustain steady long term growth, over the next five years the industry it competes in will just be crawling out of an economic downturn and continue to face a dwindling of its business travel base. 6. ...read more.

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