This excerpt taken from the WYN 10-K filed Feb 27, 2009.
Wyndham Hotel Group Overview
Wyndham Hotel Group, our lodging business, franchises hotels in the upscale, midscale, and economy segments of the lodging industry and provides hotel management services to owners of luxury, upscale and midscale hotels. Through steady organic growth and acquisition of established lodging franchise systems over the past 18 years, our lodging business has become the worlds largest lodging franchisor as measured by the number of franchised hotels. Our lodging business has over 7,000 franchised hotels, which represents almost 593,000 rooms on six continents (including over 4,000 rooms from 14 unmanaged, affiliated and managed, non-proprietary hotels). Our lodging business has a strong presence across the economy and midscale segments of the lodging industry and a developing presence in the upscale segment, thus providing individual consumers who are traveling for leisure or business with options across various price points. Our franchised hotels operate under one of our lodging brands, which are Wyndham Hotels and Resorts, Wingate by Wyndham, Hawthorn, Ramada, Baymont, Days Inn, Super 8, Microtel, Howard Johnson, Travelodge and Knights Inn. The breadth and diversity of our lodging brands provide potential franchisees with a range of options for affiliating their properties with one or more of our brands. As of December 31, 2008, our franchised hotels represented approximately 10.2% of U.S. hotel room inventory.
In 2008, our franchised hotels sold 8.5% or approximately 86.2 million, of the one billion hotel room nights sold in the United States. In 2008, our franchised hotels sold approximately 19.7% of all hotel room nights sold in the United States in the economy and midscale segments. Our franchised hotels are dispersed internationally, which reduces our exposure to any one geographic region. Approximately 79% of the hotel rooms, or over 470,000 rooms, in our franchised hotels are located throughout the United States, and approximately 21% of the hotel rooms, or approximately 123,000 rooms, are located outside of the United States. In addition, our franchise systems are
dispersed among numerous franchisees, which reduces our exposure to any one lodging franchisee. Of our approximately 6,100 lodging franchisees, no one franchisee accounts for more than 2% of our franchised hotels. Our lodging business franchises under two models. In North America, we generally employ a direct franchise model whereby we contract with and provide services and assistance with reservations directly to independent owner-operators of hotels. In other parts of the world, we employ either a direct franchise model or a master franchise model whereby we contract with a qualified, experienced third party to build a franchise enterprise in such third partys country or region.
Our lodging business provides our franchised hotels with a suite of operational and administrative services, including access to a central reservations system, advertising, promotional and co-marketing programs, referrals, technology, training and volume purchasing. We also provide our franchisees, as well as our managed hotels, with the Wyndham Rewards loyalty program, which is the worlds largest hotel rewards program as measured by the number of participating hotels. As of December 31, 2008, we were providing hotel management services to 34 hotels associated with either the Wyndham Hotels and Resorts brand, the Ramada brand or the CHI joint venture. Our hotel management business offers owners of hotels professional oversight and comprehensive operations support.
Our lodging business derives the majority of its revenues from franchising hotels. The sources of revenues from franchising hotels are initial franchise fees, which relate to services provided to assist a franchised hotel to open for business under one of our brands, and ongoing franchise fees, which are comprised of royalty fees, marketing and reservation fees and other related fees. The royalty fees are intended to cover the use of our trademarks and our operating expenses, such as expenses incurred for franchise services, including quality assurance and administrative support, and to provide us with operating profits. The marketing and reservation fees are intended to reimburse us for expenses associated with operating a central reservations system, advertising and marketing programs and other related services. Because franchise fees generally are based on percentages of the franchisees gross room revenues, expanding our portfolio of franchised hotels and growing RevPAR at franchised hotels are important to our revenue growth.
We also earn revenue providing hotel management services, which revenues include management fees, service fees and reimbursement revenues. Our management fees are comprised of base fees, which typically are calculated based upon a specified percentage of gross revenues from hotel operations, and incentive fees, which typically are calculated based upon a specified percentage of a hotels gross operating profit. Service fees include fees derived from accounting, design, construction and purchasing services and technical assistance provided to managed hotels. Reimbursement revenues are intended to cover expenses incurred by the hotel management business on behalf of the managed hotels, primarily consisting of payroll costs for operational employees who work at the hotels. We also earn revenue from the Wyndham Rewards program when a member stays at a participating hotel. These revenues are derived from a fee charged to the franchisee/managed property owner based upon a percentage of room revenue generated from such stay.