Team Rainbow-Bridge Hotel - Performance Analysis - Case Study Example

TOPIC: HOTEL PERFORMANCE ANALYSIS By student’s Name: Code+ Course: Instructor’s Name: University Name: City, State: Date of submission: Executive Summary Team rainbow-Bridge hotel deals in a range of tailor made services and products for the benefit of the clients. The key departments are, the room service department, the beverage and food department and other operating departments. Each department is under a department head and all of them work toward realization of the mission and vision of the hotel. Team- Rainbow Bridge hotel aims at becoming the leading hotel in Australia through maintaining quality services and products. In the last three years, revenue realized has been growing significantly and this has increased the profit margins of the hotel. The room occupancy is constant throughout the year, while the consumption of food and beverages has been increasing over the same period. The hotels boosts of a well-trained workforce and competent personnel to ensure customers are given quality services during their stay at the hotel premise. In the last three years, the ROCE has been increasing meaning better management and repayment of debts and a stable future. The current financial position of the hotel is relatively stable, before tax income is $1,321,957. Devising ways to bring down the high costs incurred in the course of conducting business is the main challenge. Over the three years, cost has been increasing and this has substantially reduced the profit and income margins. The hotel has registered an immense growth. In future, the hotel plans to put some of its finances in long-term investments due to overgrowing demand for its services and facilities. To realize this dream the hotel management will work together with policy makers to make sure that their mission is accomplished. In coming years, the hotel also plans to expand its operations in various states of Australia to bring its services closer to its clients. This will ensure that the hotel is competitive enough as customers’ demands, tastes and preferences become more sophisticated. In order to accomplish its mission, the hotel management has come up with various advertising campaigns, which includes advertising through local newspapers, direct mails, business press as well as using the search engine. The hotel boosts of its strategic position, which makes its easily accessible to its customers and this has resulted to its current significant increase in its clientele base. The hotel also prides itself for having some of the best-refurbished rooms for hotels of its category in Australia. The hotel recognizes its various stakeholders’ contribution to its success who includes the staff members, investors, creditors, shareholders and customers who play distinct roles in accomplishing the hotel’s mission. This is done through holding various meeting between the hotel management team and all the stakeholders to discuss various issues to improve the management of the hotel as well as rewarding stakeholders’ efforts accordingly. Recently, the hotel has continued to increase its profitability significantly which is as a result of its extemporary services to its customers and this is intended to persist even in the near future as the hotel continue comes up with various strategies to remain competitive. Currently, there is also a considerable increase in revenue from the hotel’s three key departments, which includes the room service department, the beverage and food department and other operating departments and it is expected to persist even in the coming years. Table of Contents 2.2: Year 1 8 2.2.1: Objectives 8 2.2.2: Strategies 9 2.3: Year 2 10 2.3.1: Objectives 10 2.3.3: Outcomes 11 2.4: Year 3 11 2.4.1: Objectives 11 2.4.2: Strategies 11 3.0: Financial analysis 12 3.1: Total hotel revenue and total hotel net income 12 3.2: Rooms department revenue and total hotel net income 14 3.3: Food and beverage department’s revenue and total hotel net income 16 3.4: Return on capital employed (ROCE) 16 3.5: Occupancy and average daily rate (ADR) 17 3.6: Refurbishment spending and occupancy 18 4.0: References 22 5.0 Appendices 23 5.1 Monthly indicator reports 23 5.2 Statement of Income for Year 1, 2 and 3 30 5.3: Current Balance Sheet 32 1.0: Introduction Hospitality provision growth and development has a long history. Towards this development, the hotel industry has played a major role. A hotel by definition is as an establishment where people pay for staying in a room and for meals. Typically, hotels have at least four bedrooms and offer the lodging facilities (bed and breakfast) for short durations. There are many reasons and ways for classifying hotels, which vary across different countries. One of the main reasons for hotel classification is for market analysis that aid comparisons, market strategies, performance analysis, requirements by customers and market gaps identification as well as promotional and advertising (Brown & Atkinson, 2001). The following description of a hotel may be used: Rural, urban, suburban or island; nearby attractions, resort, airport or business centre; Ownership form e.g. syndicate owned, hotel chain or franchise; Available facilities such as cable television, conventions, condominiums, golf, ski, boating, etc Star rating whether 1, 2, 3, 4 or 5 and in terms of size Number of beds or bedrooms However, a hotel may fall under more than one category. This may be the case especially in the situation where the hotel seeks to expand its operations, support greater occupancy or increase the number of bedrooms. Nonetheless, the changes made in the hotel depend on customer tastes and preferences. Various classifications considered to fit demands for tourists as well as hotel guests. Classification based on three stars may vary across countries or regions. For instance, in New Zealand and Australia, facilities for tea and coffee making are similar and this might not be the case in other countries (Hales, 2005). However, a hotel may fall under more than one category. This may be the case especially in the situation where the hotel seeks to expand its operations, support greater occupancy or increase the number of bedrooms. Nonetheless, the changes made in the hotel depend on customer tastes and preferences 2.0: Overview Hotel total revenue for the period of three years was $34537.875 and the net revenue was $ 89.131.This decline in income can be associated to a decline in revenue realized for the past 18 months of the hotel operation. During the first quarter, first year’s revenues collected from the rooms were significantly far below the expected average, therefore at the end of the financial period the firm realized a net loss in income of $919,860. This was generally attributed to high cost of operation in the firm’s three departments during the first year of operation. During the second year, the hotel improved its strategy on advertising. This significantly contributed to increase in the clientele base as revenue from room occupancy, food and beverages as well as revenue from other departments increased significantly. The hotel made a net income of $ 201,765 as compared to the net loss of income made from the first year. This can also be attributed to improved provision of services by hotel due to staff training and refurbishment of the rooms. During the third year of operation, performance of the hotel was even better as compared to second year. This is due to the introduction of more strategies of advertising for instance using the search engine. Revenues from the food and beverages, rooms and revenue from other departments surpassed that of the second year. This implied that the hotel has attained more customers due to investment in advertising and improvement of its facilities and services. At the end of this year, the hotel realized a net income of $ 5129312 that indicated that the hotel was making profits. 2.1: Positioning and Mission statement Currently the hotel has three major sources of revenue that includes; rooms, food and beverages as well income from other operated departments. Analysis of the last three-year period indicates that the hotel is making profit and breaking even as its revenue is more than its expenditures. Team- Rainbow Bridge Hotel is currently enjoying benefits accrued from economies of scale as the sales of its products have increased significantly from the second year of its operation. Its clientele base has improved evident from huge revenues realized from room, food and other revenues from operated departments. The mission of the Team- Rainbow Bridge Hotel is to become one of the leading hotels in Australia. Over the past three years, the hotel has come up with various strategies to fulfill its vision. The hotel is continuing to improve its profitability by increasing its clientele base. This has been made possible through its efforts to increase its investments on advertising, staff training and improving the quality of its facilities and services as well as offering some of its products at relatively lower prices as compared to its competitors. 2.2: Year 1 2.2.1: Objectives Team- Rainbow Bridge Hotel objectives for year 1, included; Ensure absolute clientele satisfaction by providing quality facilities and services, standard food and beverages as well as similar products at relatively low prices. Generate 75% of hotel revenue from room revenue as well as food and beverages. Uphold their position in the market as a reliable and dependable hotel to their customers. Link with investors, source for contracts and manage hotel ventures in the most appropriate way possible. 2.2.2: Strategies One of the strategies adopted by the company was to advertise its products and services through direct mails, local newspapers ad business press. This was expected to increase the number of its initial customers in order to attain a larger market share for its facilities and services. Similarly, the hotel management sought to improve its human resource policies such as training its employees, providing discounts to its customers based on room occupancy on weekdays and weekends. This was meant to increase the hotel’s profitability through offering quality services to its clients. Similarly, the hotel aimed at adopting ethical standards as well as commercial policies that will best suit their customers, suppliers of various goods and services and improving their contacts. Finally, the hotel had to adopt measures that will enhance their customers’ comfort in the rooms such as entertainment, improving the condition of the conference rooms, enhancing their menu type and liquor as well harmonizing the prices of foods and beverages. 2.2.3: Outcomes During the first year of operation, the hotel did not meet its entire objective of profit maximization as it made a net loss of $919,860. This may be due to failure of channeling enough funds on advertising campaigns and the fact the hotel never obtained any income from conference, events and contracts from the first year of its operation. 2.3: Year 2 2.3.1: Objectives Increase the profitability of the hotel to make it more competitive and preventing it from operating on losses. Increase their clientele base by maintaining a flat rate on weekday and weekend room occupancy. Adopt proficient advertising campaigns by investing more into it so as create more awareness to their prospective customers. 2.3.2: Strategies One of the strategies in the second year was to increase the number of departmental heads, hotel services staff, food and beverage as well as in the front desk. The hotel also sought to maintain a constant meal price of $ 24.95 in the first three months, increase the prices gradually to $ 37.95, and sustain the prices for the rest of the year. In addition, it increased the number of bedrooms to a required capacity to meet in order to improve the customers turn out. Similarly, the hotel undertook to train staff in various departments to improve the quality of services offered by the hotel and attract more customers. 2.3.3: Outcomes During the second year, there was a considerable improvement in performance of the hotel as it realized a net income of $ 201,765. This can mainly be attributed to change of its some of its objectives and development of better strategies. 2.4: Year 3 2.4.1: Objectives Maintain hotel property, equipped and properly furnished to meet the qualifications of a 3 Star category, and retain the hotel at this position. Invest more money on advertising to increase their clientele base to realize more revenue from hotel services, facilities and their products. 2.4.2: Strategies One of the hotel’s strategies in third year was to increase the number of hotel services in January to 16 as compared to the previous year, which were 12. In addition, it increased the number of bedrooms to accommodate more customers who increased the hotel’s revenue as compared to the previous year due to well-refurbished rooms. Another strategy was to increase an extra facility in the hotel that included opening a hotel shop, which further improved the performance of the hotel, as it helped to raise additional revenue to the hotel as well as diversifying the hotel’s portfolios. 2.4.3: Outcomes During the third year, the objectives and the strategies of the hotel were realized with an overall net income of $1,321,957 as compared to the previous year. Revenue from rooms increased from $ 4,154,424 from the previous year to $ 5,129,312 in third year was attributed to increase in the number of customers to properly refurbished rooms and quality services and facilities offered in the hotel. Income from food and beverages also increased by $ 679,562 in the third year because of better laid out strategies. 3.0: Financial analysis 3.1: Total hotel revenue and total hotel net income The total hotel revenue for the three years was $34537.875. The net revenue on the other hand was $89.131. The low net income was mainly because of low revenue made in the 18 months. In the first quarter of the first year, the revenue collected from the room, food and beverage department were considerably low. In the second and third quarter of the first year the revenues stabilized especially from the room department they were still significantly low. In the last quarter of the first year, the revenue collected from the three departments started to increase gradually. The highest revenue was realized in December. The total revenue for the first year was $4944.86 while the net revenue was $-1020.501. The losses emanated from the fact that room occupancy was still very low, with the highest occupancy being recorded in December of 50 percent. Throughout the year, the ADR was fairly constant. The low net revenue realized was mainly due to the high operating costs incurred in the first year in all the three departments. In the first quarter of the first year marketing alone through, advertising consumed $7275, a significantly high score relative to the low room occupancy in the same period. The low revenue recorded in year one was also because no revenue realized from conferences, events and contracts form the room department. In the second year the total revenue drastically increased, the total annual revenue for the year was $7500.747 while the net revenue was $-&201,765. The net loss was lower than one recorded in year one. In the first quarter of the second year the room occupancy gradually increased, comparatively year two revenue that was r realized from the three key departments was higher than in the first year. The high total revenue was because of increased consumer awareness through advertising. In second year unlike in the first year, the hotel introduced advertising of conference rooms, events and groups through advertisement in Sunday newspaper and business press. The introduction of web designers and more intense online advertising contributed greatly to the increased consumer awareness and thus the high total revenue realized. This significantly increased the cost and as a result, the net revenue realized was still negative. Total expenses were 72,298.082 and increase of 23.20 percent from the first year’s 5864720. Net Income increased from -919,860 in the first year to 201,765 in year two. Income that emanated from room services increased by 1613340, while that from food and beverage department increased by 37.6 percent from 2321602 in the first year to 3196026 in the second year. Income from other operating departments improved by, 2.9 percent from 82174 in the first year to 150,297 in the second year. In the third year total revenue was $9646.66, while the net revenue was $1548.34. This could be traced to the reduction in menu price and improved advertisement. The introduction of search engine greatly improved consumer awareness and significantly reduced costs. The refurbishment of more rooms ensured customers satisfaction and loyalty, and this can be traced back to the improved command of market share. 3.2: Rooms department revenue and total hotel net income During the first year, room department increased from 2,232,344 to 2,541,081, representing a 13.83 percentage increase from the previous year. This was accounted for 51 percent of the year’s total revenue. In the second year, room revenue increased from 2,541084 to 4154,424 of the total revenue, which was 63.5%. Third year of operation saw an increase of the room revenue from 4,154,424 to 5,129,312 representing a 23.6 % the total revenue of the total revenue. Despite the fact that total revenue for year 1 had increased from 3,574,199 to 4,944,860, the net income reduced from -475,632 to -919,860. In the second year, net income increased from -919,860, to 201765. In the third year, there was a significant increase in net income from201765 to 1321957. This reduction of the net income can be linked to the increased costs of operations, which had increased from 4,049,831 to5, 864,720. Increase in room revenues in following years can be attributed to increased sales and marketing, which led to increased number of customers. 3.3: Food and beverage department’s revenue and total hotel net income Food and beverage increased from 1,280,995 to 2,321608, representing a 81.235 percent increase from the previous year. In the second year, revenue increased from 2321,602 to 3196,026, a 37.67% increase from the previous year. In the third year food and beverage, revenue had increased by 3,875,588 representing 4.01 percent of the total revenue. 3.4: Return on capital employed (ROCE) Return on the capital employed is the percentage of profits on the shareholders net capital employed (Hales, 2005). ROCE in the first year was -10.6, this is attributed to the increased costs which overrun the revenue. In the second year, Return on capital employed was 2.0%. This is due to increased revenue and the relative lower costs. In the third year, ROCE rose to 14.1% due to high revenues recorded compared to relatively lower costs of operations. The succeeding increase in ROCE shows improved stability and increased return on the capital invested in the hotel. Higher ROCE showed increased net worth of the hotel thereby increased value of the hotel to the shareholders. This increased net worth is a good indication of the hotels stability and increasing value of the shareholders capital. 3.5: Occupancy and average daily rate (ADR) Average daily rent had a significant impact on the levels of occupancy whereby increased average daily rate significantly reduced occupancy. In the first year, total average occupancy was 963.54 with a total average daily rate of 423. In the second year, average occupancy was 993.62 was a result of 656.6 average daily rate. The final year, the occupancy rate was 1022.17 and 774.5 .Every succeeding year saw a decreased occupancy level compared to the increasing average daily rate. 3.6: Refurbishment spending and occupancy There is a direct relation between the refurbishment cost and the occupancy level, whereby increased refurbishment cost leads to increased occupancy. This can be attributed to the good appeal refurbished rooms have on clients. Due to this positive relationship between refurbishing the hotel and the occupancy level, a more elaborate plan of refurbishing the hotel was adopted .Initially the refurbishing costs were lower but were increased with time. There was a notable increase in refurbishing cost in the 12th month augmenting to $800 that attracted an occupancy level of 400 occupants and in the first year and on the first month of the third year that hit the highest heights of $ 900 and attracted 650 occupants. This trend can be shown on the graph below; 3.6: Long term and short-term stability ratios The significance of the long- term stability is to assess the degree to which an enterprise is funded by external sources such as debts, to determine riskiness of the enterprise for a period of five years and to know whether the business will be in a position to borrow extra funds. During the first year of operation 11.85% debt ratio was used to fund the business, subsequently the ratio increased to 21.66% in the second year indicating that the hotel was mostly funded by external debts and the hotel could be at risk if the situation was not improved. During the final year, the situation stabilized as the ratio decreased showing the hotel’s capability to remain profitable. This could be due to hotel’s aim to expand its operations and funding long-term investments. Short-term stability access the liquidity of an enterprise and its ability to remain competitive. In this case, the hotel continued to increase its profitability from the first year of its operation up to the third year with increment in profitability ratios. Profitability ratio during the first year was 1.02, subsequently the hotel continued to maximize its profits in the second year with a ration of 1.91 and during the third year of its operation the hotel was even more profitability with an outstanding ratio of 3.02 this implied that the hotel was liquid enough to meet its short term financial requirements. 4.0: References Brown, B. and Atkinson, H. (2001), “Rethinking performance measures: assessing progress in UK hotels”, International Journal of Contemporary Hospitality Management, Vol. 13, No. 3, pp. 128-135. Hales, J. (2005), “Accounting and financial analysis in the hospitality industry”, Elsevier Butterworth-Heinemann, Burlington USA and Oxford UK 5.0 Appendices 5.1 Monthly indicator reports 5.2 Statement of Income for Year 1, 2 and 3 5.3: Current Balance Sheet TEAM-RAINBOW BRIDGE HOTEL BALANCE SHEET FOR YEAR 3 Fixed Assets Rooms……………. (5,129,312* 14.1) = $ 72,323,299 Property….………… (1,643,038 * 85.9/ 14.1) = $ 10,009,713 Long- term liabilities Bank loan ………… (36,001* 85.9/ 14.1) = 219,325 Capital……………………………………………………………………………= 82,113,687 Read More