Hotel Service Operations Management - Example

Hotel Service Operations Management Name Tutor’s name Course 13 May 2013 TABLE OF CONTENTS 1.0 Introduction............................................................................................................4 2.0 Business Plan for Year 4.........................................................................................4 2.1 SWOT analysis.....................................................................................................4 2.1.1 Strengths..........................................................................................4-5 2.1.2 Weakness............................................................................................5 2.1.3 Opportunities.......................................................................................6 2.1.4 Threats.................................................................................................6 2.2 Objectives...................................................................................................6 2.3 Strategies.................................................................................................7-10 2.3.1 Corporate Market- weekday room..............................................7 2.3.2 Leisure Market – weekend............................................................7 2.3.3 Wedding and social market segments...........................................8 2.3.4 Cost control...................................................................................8 2.3.5 Service quality...............................................................................8 2.3.6 Staffing..........................................................................................9 2.3.7 Physical property condition...........................................................9 2.3.8 Technology Improvement...........................................................10 3.0 Financial Targets................................................................................................................10 3.1 Ave Rooms’ occupancy % 3.2 Average Daily Rate 3.3 REVPAR 3.4 Room Revenue 3.5 Total Revenue 3.6 Income before tax 3.7 Return on capital employed 4.0 Reference List.................................................................................................................12 5.0 Appendices 5.1 Financial calculations...........................................................................................13 5.2 Monthly indicator report for Year 3......................................................................13 1.0 Introduction The Scorpio hotel restaurant is near the airport and a shopping mall. Its location is also close to the sea. The hotel operations and strategies are an important tool for the success of a hotel. Hotel managers need to understand their markets and targets in order to improve their profits. The knowledge of a business also helps in the improvement of sales. This paper carries out a SWOT analysis for Scorpio hotel. It evaluates the plan laid down by the management. Finally, it gives the various strategies that the management needs to implement. The paper also reports on the financial analysis carried out on the hotel. This analysis if applied will help the management of Scorpio hotel to plan and budget for their activities. It will also help them marketing of their services. 2.0 Business Plan for Year 4 2.1 SWOT analysis 2.1.1 Strengths 1. Most customers praise the Scorpio hotel restaurant because of its cleanliness and tidiness. The environs within and without the restaurant are appealing. This is explainable through the refurbishment program. 2. The prices offered by the hotel are favourable to the customers. This enables the management to report increased profits each year. 3. The services offered at the hotel are different compared to other competitors. These include services such exclusive entertainment facilities for customers. These facilities help to attract more customers than their competitors do. 4. The staffs at Scorpio hotel is competent and have the knowledge about their duties. The training programs empower them with more skills than untrained employees. This enables customers to trust them because the high quality services offered 5. The public image of the hotel is good and branded. This is because of the good relationship they maintain with their customers. 6. The annual meeting the Scorpio management holds enables them to discuss various issues affecting the profitability of the hotel. This help the come up with a plan that will make them improve their sales. 2.1.2 Weakness 1. The room occupancy rate of 65.2% reported in year 3 is low in comparison with other competitors (Indicator Averages, 2013). 2. The liquidity of the firm is at risk. This is because of large amounts of liabilities the amount of $1,000,000, which is a bank loan, accrues interest annually decreasing the annual profits (Cash Flow, 2013). 3. The low room occupancy rate was because of the management not considering the seasonal demand changes. The decision they made affected the bookings at the hotel. 4. The lack of hotel facilities and high turnover is a great challenge to Scorpio hotel. There is insufficiency of extra car parking, second bar and room extension compare to competitors. This is harmful to the profits of the business. The company does not have ways of dealing with this issue. 2.1.3 Opportunities 1. Many hotels including Scorpio hotel offer traditional facilities in their operations. Scorpio could introduce modern facilities in their business. 2. The lower taxes offered to the companies should help them expand their businesses. This is because the costs of expansion will be minimal. 3. The hotel can offer transport facilities to the airport and shopping mall for visitors with no vehicles. 4. The hotel can have a fish farm, which rears dormant species of fish because of their closeness to the sea. The fish farm can also provide seafood dishes. 2.1.4 Threats 1 The high numbers of traditional restaurants close to Scorpio hotel increase the level of competition. 2 The high liquidity ratio cause by a large amount of liabilities. If liabilities continues to increase and there is no acquisition of assets, the company would become insolvent 3 The high staff turn over is a threat to the management of the hotel. They should find the reasons for staff leaving the business. This is because their ideas could reach their competitors if they hire the same staffs. 2.2 Objectives: The analysis of operations in year 3 indicates that management has to come up with ways of increasing profitability in year 4. Some of the objectives of the management are 1. The objective of the marketing department is to improve the hotel’s market image by increasing the room market share to 5% from 3.8%, as well as rising average image index to 31 from 24.1 and average public awareness index to 56 from 47.1 in Year 4. 2. In Year 4, the management aims at increasing the average occupancy rate to 75%. This will enable the management to increase its sales. 3. There should be a decrease of staff turnover from 42.5% to less than 35% in Year 4. 4. The profits are set to increase to $8,000,000 of total revenue, RevPAR $60 and 23% ROCE in Year 4. 2.3 Strategies: 2.3.1 Corporate Market- weekday room (discuss each of the following: Product, promotion and sales, pricing and distribution) The corporate market’s product is the room on weekdays, which was 63.08% of average occupancy rate in Year 3 (Indicator Averages, 2013). Scorpio hotel should have exclusive facilities in order to gain a competitive advantage. These facilities include the internet access and online business service. There should be refurbishment of the conference room consistently in order to accommodate the target market who is a business traveller. Advertising of the weekday rooms through the business press will help to increase the room sales and occupancy rate (Thomas, 1999). This is because business press is the most effective channel of advertisement. The hotel should also provide room rates, which factor in the current trends and other competitor prices. In Year 4, the hotel should consider the peaks and future events when setting the room rates. According to the Business Mix Table (Appendix 6.6), the peak season for business customers is in the first quarter, and the off-season is in the third quarter. The revenue for the room rate for weekday corporate rooms will increase to $135 in the first quarter. The occupancy rate will also increase. During the off-peak season, the corporate room rate will reduce to $ 125. This will help increase accommodation rates as well as revenue. 2.3.2 Leisure Market – weekend Leisure is important in the hotel industry because it raises revenue (Bradley & McLean, 2008). In year three, there is an indication that the leisure market is not performing as good as the corporate market. This is because of the slow adoptions of the seasonality factors. In Year 4, Scorpio hotel should conjoin leisure rooms with related facilities such as leisure club expected in January at a cost of $862900. The leisure club will increase revenues and occupancy rates in the third quarter, which is the leisure peak season. To promote rooms for the leisure market and attract families with young children and tour groups who are the hotel’s target market, Scorpio hotel will advertise through direct mail and the hotel will offer rooms at $100 for groups. Scorpio hotel will reduce the leisure room price to $110 during off-season, which is the first quarter in order to increase the occupancy rate and hotel revenue and increase room price to $120 during the peak season, which is the third quarter. There should be the introduction of a flexible pricing mechanism in the corporate market. This will help to avoid the problems of seasonal demand experienced in the last three years (O’Fallon, & Rutherford, 2010). 2.3.3 Wedding and social market segments The corporate and leisure market as well as the wedding and social market are important in the hotel industry. According to Business Mix, there is a slack season for business travellers in the third quarter of the year. In order to increase sales for conference room in off-season, Scorpio hotel has decided to focus on wedding and social event. It could assist on increasing sales of the conference room, and food & beverage (O’Fallon, & Rutherford, 2010). To attract both the engaged couple and married couple who are the hotel’s target market, the Scorpio hotel will implement advertising by PR Agency, which is the most effectiveness and offer 15% of accommodation discount for them. The price of using the conference room for wedding and social event will be set $125 per person per 24 hours. However, the pricing arrangement should depend on time usage (O’Fallon, & Rutherford, 2010). 2.3.4 Cost control Lack of cost control is evident in the past three years. The large amount liability that has accrued interest explains this. The hotel should not build any extra facilities except leisure club in order to avoid borrowing of other funds (Wober, 2002). The price of using the conference room should increase gradually from $105 to $135 during Year 4. This is because set price for the conference room was very low price in Year 3. The room rate for weekday and the weekend will also increase $15 each after refurbished on level three in the third quarter of Year 4. However, Scorpio hotel cut the advertising costs to around 6 to 7% of the total revenue in Year 4. This will increase room, conference and food & beverage sales. Therefore, the hotel will be able to repay the loan during Year 4. 2.3.5 Service quality Scorpio hotel will provide higher service quality in Year 4 to prevent loss of customers. Staff training is one of the most effective ways to improve service quality as well as customer satisfaction (Zeithaml, 2009). Therefore, Scorpio hotel should spend more money on staff training during Year 4. The Average weekly training spent per staff member was $10.6 in year 3 (Indicator Averages, 2013). The Scorpio hotel will increase the average training fee to $12.5 from the first quarter of year 4 to provide high quality service and reduce complaints. 2.3.6 Staffing According to (Indicator Average 2013), although the average staff turnover has reduced gradually during past three years with a decrease from 62% in Year 1 to 42.5% in Year 3, several staff members expressed they were not happy working in Scorpio hotel. To prevent this situation, Scorpio hotel will increase the expenditure on staffing, such as hire more staff to reduce the workload and make the same pay level on brand 2 for all staff (Burrow & Kleindl, 2010). The hotel should forecast the seasonal demand, and upcoming events in order to analyse accurate number of staff, it will assist to the reduction of staff turnover. 2.3.7 Physical property condition Currently, refurbishment status is excellent except rooms. The hotel is planning to maintain all facilities at an excellent status continuously during Year 4. Scorpio hotel will focus more on the refurbishment of rooms than other activities. This is because the statue of rooms is average or good since January, Year 2. There will be refurbishment of 60 rooms as level 3 in the second quarter of Year 4 and 65 rooms as level 3 in the third quarter. The refurbishment of other facilities such as restaurant, bar, front desk and conference room as level two when needed will be in the first and fourth quarter. However, it should be notice that the refurbishment must consider the hotel budget (Knowles, 2006). 2.3.8 Technology Improvement Technology poses various challenges to competitive business (Lord & Velez, 2013). The proper use of technology in an industry helps to improve the competition levels. The Scorpio hotel management should identify appropriate technologies that would enable them gain a competitive advantage. This could include the use of metal detectors to improve the quality of security (O’Fallon, & Rutherford, 2010). Good security will make more customers to book rooms in the hotel than when there are cases of insecurity. Technology is also beneficial in the management because it helps them to achieve their targets. 3.0 Financial Targets: Provide the following financial targets, with evidence of your calculation. 3.1 Ave Rooms’ occupancy% 3.2 Average Daily Rate 3.3 REVPAR 3.4 Room Revenue 3.5 Total Revenue 3.6 Income before tax 3.7 Return on capital employed 4.0 Reference List Bradley, R. & McLean, D. (2008) Financial Resource Management: Sport, Tourism, and Leisure Services. New York: Sagamore Publishing. Print. Burrow, J. & Kleindl, D. (2010). Business Management. United States of America: Cengage Learning. Print. Knowles, T. (2006). The Globalization of Tourism and Hospitality. London: Thomson Learning. Print. Lord W. & Velez, R. (2013) Converge: Transforming Business at the Intersection of Marketing and Technology. United States of America: Wiley Publishers. Print. O’Fallon, M. & Rutherford, D. (2010). Hotel Management and Operations. United States of America: Wiley Publishers. Print. Thomas, A. (1999). The Future of Small Firms in the Hospitality Management. International Journal of Contemporary Hospitality Management, 11(4), 148-154. Print. Wober, K. (2002). Benchmarking in Tourism and Hospitality Industries: The Selection of Benchmarking Partners. United Kingdom: Oxon Publishers. Print. Zeithaml, V. (2009). Delivering Quality Service. United States of America: Free Press publishers. Print. 5.0 Appendices 5.1 Financial calculations 5.2 Monthly indicator report for Year 3 Read More