Business Management in the Hotel Industry
Overview of the Hotel
The development of good rail and road transport is one of the factors that contributed to the growth and expansion of the hotel. There is also a good road network from the hotel to the airport, thus making it easier for the clients to access it conveniently. Although it is not a modern hotel, the facility attracts customers mostly during the off-season breaks. Its proximity to the shopping centre is also a factor that makes it attractive to the customers. The rise in tourism is a major reason that the hotel’s economic background has developed since the 1970s when the popularity for the off-season breaks and coastal vacations grew. During this time, the high demand for the tourism led to the creation of recreational events that enhanced the growth of the hotel even further. The rate of growth of the hotel in the 1980s began to drop due to the reduced demand for commercial room nights. The population of the city grew and the economic status of the residents developed as well. As a result, there were many business meetings in the city thus the need for conference rooms. The hotel took advantage of the situation and built a large conference center that would serve the interests of the business people. The diversification of the city’s economy provided a good opportunity for the growth of the hotel industry but this did not last long. In the late 1980s, the performance of the hotel began to decline as the number of tourists declined as they looked for new experiences. The decline in the number of tourists was also due to the criticism of the hotel’s facilities most of which were traditional. The only factor that attracted tourists was the annual tourism event that was well established. However, not all the previous tourists had interest in the event anymore. The hotel was able to maintain only about 50% of the tourists by mid 1990s. The decline in the tourism sector in the region led to low tax revenues in the city thus affecting its ability to develop the necessary infrastructure, making it even harder for tourists to visit the hotel. The performance of the hotel was restored in the early 2000s, as the economic development of the city developed. The local authorities in the city attracted investors due to low tax rates and relatively low commercial costs thus boosting its economy. Many small and medium sized companies relocated to the region and the local authorities were able to collect a large amount of tax. This tax revenue was used to develop the essential facilities thus meeting the expectations of the modern tourists.
Most of the customers visiting the hotel are aged between 30 to 50 years in the middle to upper management level s. About 60% of the customers who visit the hotel during weekdays use the conference facilities while 40% use the leisure facilities. During the weekends, the demand for leisure activities is high attracting about 70% while the conference facilities are used by only 30% of the customers. The hotel offers packages suitable for families such as large rooms to accommodate the need for the clients who bring their families along. The customers can access internet in the hotel for entertainment and various business activities especially for the business travelers. The visitors enjoy delicious meals and beverages served by a well-trained team of waiters and waitresses. There are also recreational facilities that the visitors enjoy such as swimming pools and games. Those who wish to get away from their daily routine by just relaxing find the hotel a good place for this because it has quiet lounges where they can relax. The rooms have television sets to meet the entertainment needs of the visitors. The guest rooms have air conditioners and the individual’s privacy is guaranteed by the private bathrooms available on the hotel. To meet the unique needs of the customers, the rooms vary in size and decorations. The reception is open throughout the day and night to meet the needs of families, couples and single individuals who may wish to visit the hotel. The short time taken to check in or out of the hotel is one of the factors that keep the customers coming back. The full service restaurant provides the visitors with convenient meals any time they need it. The major challenge that the customers face in the hotel relates to the car parking space. The hotel has a parking that is able to accommodate about 120 cars and any additional car is parked at a neighboring park at an additional cost.
Current Business Landscape
The hotel has undergone various challenges both in its external and internal environments that have affected its financial position over the year. The success of a business is determined by its ability to generate income that covers the costs incurred. During the 72-month period, the demand for the conference facilities was started picking in the 18th month. This is because the hotel took some time to adopt modern technology in the conference facilities to meet the demand of the business visitors. The hotel recorded a total of 61 customers during the weekdays and 21 customers during the weekend in the 18th month but this trend has completely changed. The highest number of customers that the conference facilities have received is 466 towards the end of the five-year period, indicating the growing demand for the hotel’s conference facilities. Although the performance of the hotel over the last 72 months has not been perfect, the business is still promising and has the potential to yield a high rate of return on invested funds. This works for the benefit of the investors who get a high return on their investment. There are growth opportunities and emerging trends in the hospitality industry that may boost the economic performance of the company.
Relating to the conferencing facilities, the hotel is likely to have increased returns because the demand for the facilities is on the increase. Unlike in the past years where most business meetings were held in offices, the meetings are held in hotels due to convenience. As a result of the increased globalization, different business leaders from different subsidiaries in a company do not necessarily meet in the offices but can choose a central place such as hotels (Wang, Kuan-Yu and Shiu-Chun 125). The fact that the hotel has modern conference facilities is an opportunity that may see it attract and retain many business customers. The modern lifestyle is an opportunity for the demand of the hotel rooms to increase due to the rise in leisure visitors (Kandampully and Dwi 349). The work environment in the modern era is very challenging and most individuals use their weekends and free time relaxing to regain energy needed to get back to work. The company’s plan to enhance the security of the hotel as well as increasing the recreational facilities is a growth opportunity for the demand of hotel rooms. The demand for the rooms has been on the increase over the last five years due to the development in the city and the hotel’s facilities such as internet connectivity. Most of the companies in the modern era also provide paid holidays for the employees as a way of motivating them. This is a trend that has not been in the society for long thus its impact is expected to increase the return on investments for the customers making the hotel a suitable place for one to commit their funds.
The increase in the number of leisure activities in the hotel will boost the revenue collected from the food and beverage section. The more time that the customers spend in the facility the higher the chances of purchasing more foods and beverage and this will enhance the profitability of the hotel (Noone, Sheryl and Renaghan 20). The hotel also aims at sharpening the culinary skills of the employees so as to increase the quality and variety of foods offered. This is set to increase the amount of revenue collected from sale of foods and beverages. The economic growth and development in the region has the potential to increase the amount of revenue gained due to the high propensity of the consumers to spend. A high amount of disposable income is as a result of the economic growth that leads to an increase in the demand for leisure activities. This has a positive impact on the amount of revenue that the hotel is likely to earn.
Over the past 72 months, the growth in the company’s revenue has not been constant because it started with a 67% increase but the rapid growth started decreasing since the second year the hotel realized only a 15% increase in revenue. The trend continued to deteriorate in the third and the fourth year which recorded a stagnated growth in revenue. The fifth year was even worse because the total revenue collected dropped by 3%. The total expense in four consecutive years was constantly increasing thus affecting the total revenue and net income. The high amount of expenses can be attributed to the negative net income that the company has had over the past 72 months. The hotel has involved the internal auditors to look into the possible causes of the high expenses in the company over the past five years. A rise in expenses should correspond to an increase in the amount of total revenue and net income generated but this has not been the case for the company (Tajeddini 312).
The auditors identified the major causes of increased expense to inaccurate accounting records including inaccurate payroll records. With the help of the auditors, the management has come up with appropriate strategies to solve the challenges that face the hotel so as to reduce the amount of money spent. Some of the measures include delegation of duties in the finance department and regular audits to control the level of fraud in the hotel. With these measures in place, it is likely that the expenses of the company will be accurate thus enhancing the performance of the company (Han, Li-Tzang and Chwen 330). The investors and other shareholders should not worry about the well-being of the company since it will improve its financial performance in the next five years. The funds collected from the investors will help improve the performance of the company by facilitating the measures set to improve the image and well-being of the company such as increased security.
The hotel has been able to make good profits by using the price discrimination marketing strategy in its activities. The customers pay different rates to use the conference facilities during the weekend and weekdays. This pricing strategy has worked effectively for the hotel because the demand for the conference facilities during both the weekdays and weekends has risen over the 72-month period. The pricing if the conference facility is further divided into the group and events with varying rates. The groups demanding conference facilities during the weekends pay less than those using the facilities during the weekends. This is due to high demand for the group meetings during the weekends (Chu and Tat 370). In the last 18 months, the demand for the events has been zero implying that the pricing strategy that the hotel uses in the events is unsuitable. There is a high probability that the consumers have shifted to the other hotels that offer better packages for the hotel. The price discrimination strategy in the rates of food and beverages is not efficient enough because the amount collected from meals is too low compared to the one collected from liquor. There have been changes in the major financial indicators of the hotel and if the situation is not addressed the hotel may end up losing a significant amount of revenue. The revenue collected from the events for instance, has dropped to zero in the last eighteen months and this is an indication that the hotel is not efficient in providing the services.
Strategies aimed at increasing the revenue of the Hotel
The survival of the business for more than four decades has been due to the changes that the hotel has embraced. During the 1990s, the success of the business was threatened by criticism of the facilities that the consumers thought were traditional. It had to embrace the modern technology to survive in the industry. In the recent years the business have not been making maximum profits thus it is crucial for the management to come up with effective strategies that may help the hotel survive in the highly competitive business environment (Akbaba 190). Over the next five years, the hotel aims to expand its business by establishing a new conference hall and the necessary facilities. The security of the hotel is set to be boosted to enhance the image of the hotel. The security will also include smart lock technology to avoid unauthorized access to the hotel rooms. The other area that the hotel aims to develop is the recreational facilities where it is set to increase the number of activities that the leisure customers can get involved in. In addition to constructing a new swimming pool, the hotel will have a wide range of activities including bowling (Chung 480). The hotel will also change the price discrimination strategy on meals during the weekends and weekdays to make the rates uniform. The proposed strategies are suitable to the success of the business as they will enhance the demand for the company (Sigala 400). The change in pricing strategies for meals is likely to boost the demand for the meals thus increasing the revenue that the hotel collects from sale of foods and beverages. By boosting security in the hotel, the number of consumers willing to hold their events in the hotel as well as other clients may increase (Manaktola, Kamal, and Vinnie Jauhari 370). The rise in the productivity of the hotel in the next five years is set to increase the return on investment. The rate of return on assets is also set to rise as a result o increase in the hotel’s annual earnings. The pay-back period of the business is likely to be shorter due to the ability of the hotel to reach its break-even point within a short period.
Reasons why the hotel would be profitable for potential investors
Owing to theprojected strategies to turn around the financial performance of the company, investing in the Hotel is one of the bets decisions that any investor could make. The Hotel promises a high rate of return on investment through the increased revenue set to be generated. There are growth opportunities and emerging trends in the hospitality industry that may boost the economic performance of the company. The hotel is likely to have increased returns from the conferencing facilities due the high demand of business meeting centers. The improved security as planned is likely to boost the number of visitors using the hotel rooms thus increasing revenue.
The increase in the number of leisure activities in the hotel will boost the revenue collected from the food and beverage section. This is likely to increase the amount of money collected thus boosting the financial performance of the company. The increased financial performance in the hotel is likely to attract more investors thus making it possible for the company to expand its activities even further. The company therefore offers the investors a good opportunity to have their investment objectives achieved within the shortest time possible.
Akbaba, Atilla. “Measuring service quality in the hotel industry: A study in a business hotel in Turkey.” International Journal of Hospitality Management 25.2 (2006): 170-192.
Chu, Raymond KS, and Tat Choi. “An importance-performance analysis of hotel selection factors in the Hong Kong hotel industry: a comparison of business and leisure travellers.” Tourism management 21.4 (2000): 363-377.
Chung, Kyoo Yup. “Hotel management curriculum reform based on required competencies of hotel employees and career success in the hotel industry.”Tourism Management 21.5 (2000): 473-487.
Han, Heesup, Li-Tzang Jane Hsu, and Chwen Sheu. “Application of the theory of planned behavior to green hotel choice: Testing the effect of environmental friendly activities.” Tourism Management 31.3 (2010): 325-334.
Kandampully, Jay, and Dwi Suhartanto. “Customer loyalty in the hotel industry: the role of customer satisfaction and image.” International journal of contemporary hospitality management 12.6 (2000): 346-351.
Manaktola, Kamal, and Vinnie Jauhari. “Exploring consumer attitude and behavior towards green practices in the lodging industry in India.” International Journal of Contemporary Hospitality Management 19.5 (2007): 364-377.
Noone, Breffni M., Sheryl E. Kimes, and Leo M. Renaghan. “Integrating customer relationship management and revenue management: A hotel perspective.” Journal of Revenue and Pricing Management 2.1 (2003): 7-21.
Sigala, Marianna. “Integrating customer relationship management in hotel operations: managerial and operational implications.” International Journal of Hospitality Management 24.3 (2005): 391-413.
Tajeddini, Kayhan. “Effect of customer orientation and entrepreneurial orientation on innovativeness: Evidence from the hotel industry in Switzerland.”Tourism Management 31.2 (2010): 321-336.
Wang, Cheng-Hua, Kuan-Yu Chen, and Shiu-Chun Chen. “Total quality management, market orientation and hotel performance: The moderating effects of external environmental factors.” International Journal of Hospitality Management 31.1 (2012): 119-129.