Reference no: EM131908136

Qusetion: Hotel XYZ is an independent city centre hotel property with 200 rooms. In general its Average Daily rate is approximately €100 throughout the year, and its runs at an average of 65% occupancy.

Its distribution channel mix is relatively simple. Currently approximately 50% of its bookings arrive at the hotel through direct channels, with business, leisure and meeting customers contacting the hotel directly. The hotel is listed on the major GDS, generating approximately 10% of its business, while OTAs generate about 20% of its bookings, for which on average it pays a commission of 20% per booking. The hotel has a direct brand.com website, which generates 10% of its bookings, while the remaining 10% come from other miscellaneous sources.

In terms of costs, the hotel estimates that the variable cost of selling a room is about €12. Each month the hotel's labour cost is about €80,000 and Utilities / power & light about €50,000. The hotel has also budgeted €32,000 per month for sales and marketing expenses. A recent refurbishment of the property was financed by a bank the interest on which currently runs at €60,000 per month.

Right now the hotel's owner is not happy with the level of profitability at the end of the month. Your general manager has asked you to quantitatively evaluate three different scenarios:

(1) Increasing the hotel's average daily rate by 10%

(2) Increasing the number of bookings coming through OTA channels by 10%

(3) Increasing the number of bookings coming through your brand.com website by 10%

A spreadsheet with the above figures is provided in the "peer review documents" page, to help you undertake your assessment.