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HOTS Stimulation Final Report
HMGT3003 HOTEL MANAGEMENT
Owen Ng S227370
Tommy Lam S227431
Eva Leong S227246
John Chao S227307
Alex Kam S227219
Table of Contents
Introduction of the Hotel and Management Team................................................ 2
Assessment of Industry Environment................................................................... 3
Intended Strategies and Adjustments....................................................................4
P&L Statement Analysis.......................................................................................5
SWOT Analysis.................................................................................................... 9
Strategic Decisions for Improvement................................................................. 10
Physical Property Conditions..............................................................................11
Recommendations for the Incoming Management Team................................... 13
Conclusion.......................................................................................................... 14
Introduction of the Hotel and Management Team
Oasis Hotel has a total of 125 rooms, it has a unique look of modern architecture combined
with local culture and decor. The establishment is located in the center of the city, which
naturally comes with ideal transportation options. We strive to provide excellent service and
memorable experiences for our guests.
As a competitive 3-star establishment, Oasis Hotel aims to balance affordability and quality.
Our team is committed to strategically achieving this balance while maintaining the
outstanding food and beverage experience, flexible pricing, and conference facilities.
The management team within our hotel is as follows:
Owen: General Manager
Eva: Director of Sales and Advertising Planning
Alex: Director of Data Analysis
Tommy: Director of Food & Beverage
John: Director of Rooms
Assessment of Industry Environment
During the three-year operation, there has been a huge growth in the Oasis Hotel. The
revenue increased from 2,360,737 in Year 0 to 4,403,747 in Year 2, nearly doubling.
However, Revenue growth slowed down in Year 2, recorded as 5,204,432, and the Net
Income declined from 653,429 in Year 1 to 400,998 in Year 2 due to the facilities' conditions
slipping to the average level, and public awareness also it's came to an all-time low of about
20. Therefore, the management team launched the renovation and strengthened the
advertising& marketing. Meanwhile, Year 2’s low ADR also caused the profit and hotel
service quality to decline. Thus, we raised the room rate near the historical average to recover
the revenue. With the completion of the conference facility, Oasis Hotel’s other departments’
revenue also plays a crucial role. Given that there are only two hotels with conference
facilities in the area. Oasis Hotel utilized a low price strategy to increase its market share
earlier, and slowly increased the price in the later stage. With the gradual increase in market
share and public awareness, the quality of the hotel facilities was maintained at a high level,
and the hotel's revenue doubled again from 5,204,432 in Year 2 to 8,371,305 in Year 3.
Intended Strategies and Adjustments
Our planned strategies aimed to attract various guests and involved technologies to improve
the experience. Environmentally friendly practices were also meant to take place in the
process. On the other hand, engaging with the stakeholders and local community was also in
the planned strategies to boost both revenue and reputation of the hotel. The hotel aimed to be
a 3-star hotel, which means all of our aspects have to meet the standard of a 3-star hotel.
In actual practice, our hotel kept the standard of a 3-star hotel or even reached the minimum
standard. But on the environment-friendly side, we decided to keep a medium to low level of
the EMS because it was costing more than we expected, but was not effective in terms of
return.
In the beginning, we decided to build the facilities first because it would take time to finish,
and we would have more facilities to attract more guests to our hotel. However, we
underestimate how long it took and how much it cost to finish the expansion, which we could
not attract the guests to come because the facilities were not finished, and we could only
spend a little on other parts(e.g., advertising), the occupancy was not good. Then we shifted
our focus to the F&B side, but its performance is better than we expected. We have only
changed the menu type from type 3 to type 4 in January of year 4 and increased the price by
an average of $5 throughout these years. In the hotel rooms, we had a few changes to the
prices. It was around $77 per night at the beginning, then we increased to between $120 and
$130 on average because the expansion finished. One of the earlier changes that had a huge
impact was the conference/function rooms installed in May of the first year, which boosted
our revenue for some time. For our employees, in the first 4 months, we underpay them for
both working and training. Therefore, the turnover rate is either over 100% or 0%, which is
an anomaly we have to solve first before any big changes. After setting everything to the
standard and avoiding short-staffing, we would hire more people before the restaurant
expansion. All these actions have settled the turnover rate to the normal level. We also
included a business service to attract more guests, as we had conference/function rooms
installed. On advertising, we followed the minimum standard to promote our rooms and
restaurant, and it has a good impact on them, so we did not change much on it.
Overall, we have quite different decisions than we expected, especially on the F&B
department. Because no one was expecting it to account for almost half of our revenue.
P&L Statement Analysis
Significant doubling of total revenue from year 1 to year 2, strong revenue despite significant
growth in expenditure, so Income before income taxes narrowed from -1,119,070 in year 1 to
-331,397 in year 2. Also in the expenditure, Other Operated Department increased from
33,391 in year 1 to 344,062 in year 2, which rose by 930.4% because the conference room
was completed.
Revenue growth of 20.2% from year 2 to year 3 slowed down compared to year 1 to year 2,
however, expenditure increased significantly by 23.35%, and Other Operating Departments'
expenditure nearly doubled from 344,062 in year 2 to 614,174 in year 3. Combined, the
Income before Income Taxes loss expanded from -331,397 to -551,659.
Revenues since year 3 to year 4 again grew significantly from 9,069,853 to 5,451,864 by
66.36%, although expenditure also increased significantly from 6,003,523 to 8,557,369 by
42.53%, but the strong revenues resulted in a turnaround of Income before Income Taxes
from a loss of -551,659 in year 3 to 512,466 in year 4, a growth of 192.89%. It can be
observed that the marketing expenses increased significantly from around 20,000 to 31,061
by 50% compared to the previous two years, indicating that the revenue growth might be
related to the success of the marketing strategy to enhance the brand's visibility.
SWOT Analysis
Strengths:
- F&B department: Our F&B department is the strongest part because it accounts our
revenue for almost 50% most of the time.
- Room rates: Our prices are at the medium level of the market, which keeps us
competitive in the market, while we have discounts for groups to attract more guests.
Weaknesses:
- Budget control: We have problems in the middle where we cannot change any
decision because we have exceeded the limit of working capital. This had a strong
impact on us because we could only wait until we had enough revenue to cover the
exceeded working capital.
- Room refurbishment: We did not check the quality of the rooms and refurbish them as
soon as their quality dropped, and we lost many guests during that time.
Opportunities:
- Conference/function rooms and business service package: Business service was
included as conference/function rooms were installed. It increased our chances of
having guests for business purposes come to our hotel, as we have full facilities for
business guests.
- Group room rates: It is discounted to attract more guests to come as a group to boost
our room revenue.
Threats:
- In-room facilities: Our in-room facilities were not the best among the hotels, and it
could be a drawback when it comes to a guest’s choice.
- Leisure club: Our hotel did not install a leisure club, which cannot provide the best
experience to the guests, while our competitors have their leisure clubs.
Strategic Decisions for Improvement
1. Rate and Revenue Management: The discounted average price of housing, which is
already low, may affect the profitability of rooms and the quality of hotels. At the
same time, the pricing of the conference and banqueting department needs to be
upgraded, and prices need to be slowly adjusted upwards after the initial low-priced
marketing strategy to capture market share.
2. Food & Beverage: The catering department, being the major revenue earner of Oasis
Hotel, often receives complaints related to insufficient manpower in reviews, so it
needs to pay attention to the problem of insufficient manpower, and after three years
of operation other hotels have improved their catering standards, so it needs to
continue to increase its attractiveness.
3. Staffing and training: In terms of manpower, attention should be paid to the
manpower deployment of the reception and conference department, which often faces
a manpower shortage during special festivals and events. Enhancing the flexibility of
staff deployment is the primary goal to maintain the quality of hotel services.
4. Advertising: Public awareness has been declining since the year 0 and in the middle
of the year 2, it once dropped to a low of around 20%, which led to a decrease in
revenue, so it is important to pay attention to advertising and marketing decisions to
maintain a certain level of public awareness.
5. EMS: This stands for energy management system, which is about the eco-friendly
actions a hotel can practice. However, it does not help much in making a profit, and
could make a loss because of overusing the EMS. Best to have them on medium or
low levels to save money and energy at the same time.
6. Refurbishment: The quality of all facilities (e.g., rooms, bar, restaurant) has to be
checked frequently to ensure that the quality is always in the best condition. Lower
quality will have an impact on either the room or other revenue.
7. Guest comfort and Facilities: Keeping the complimentary items and in-room
entertainment at higher levels if possible, and always providing concierge and
room/lounge service. Providing guests with comfort will attract more guests with their
positive feedback.
8. Finance: Make sure to pay back some of the loan every amount of time (e.g, a
season), it would not help the performance of the hotel, but it could reduce pressure
on the stakeholders and the administrators.
Physical Property Conditions
During the passing three years. The hotel's physical property conditions have a good
performance, and the property is well-maintained with no major structural issues. First of all,
in the room and restaurant conditions, there are 125 rooms and 125 restaurant seats in the
hotel.
Then, in terms of facility maintenance and updates, the hotel has undergone a comprehensive
renovation in year 1. Upgrading In-Room Entertainment, installing Room Mini-Bar, Hotel
Shop, Conference and Function Room, Internet Access, and Restaurant Extension. This year,
the hotel underwent an upgrade and renovation, and added a large number of facilities, laying
a solid foundation for future operations and competition in the industry. In the second and
third year, the hotel always maintains necessary maintenance and updates to prevent
facilities from ageing, deterioration, and affecting customer experience.
Therefore, the decoration and quality of its guest rooms are constantly improved to meet
customers' expectations for housing and facilities. This has enabled the hotel to take the lead
in terms of overall image and comfort among its peers.
Recommendations for the Incoming Management Team
According to the past three years' operating data, there are several recommendations in
different dimensions, such as room rate, staff, advertising, F&B, refurbishment, etc. First,
based on the data of the past three years, setting the room rate in the middle of the range can
maximize the occupancy rate: weekday 135, weekend 110, group 60. However, the room rate
should also increase with the hotel facilities upgrade to cover the cost.
As for the staff decision-making, it is necessary to note the staff turnover rate and maintain
the ratio of employees in each department. Insufficient manpower will raise a high turnover
rate of department heads and resulting in a decline in service standard. Especially, the
conference and reception are often faced with manpower shortages during special events or
holidays.
Public Awareness is Strongly Linked to Hotel Revenue. Therefore, the advertising
decision-making is crucial. Oasis’ current weekly advertising fee for each item is around 50
dollars, and we promote our product through direct email. There is room for optimizing the
current rates, so it is necessary to continue maximizing the cost of advertising and marketing
while raising public awareness.
The Food and Beverage (F&B) department has consistently been a major contributor to
Oasis Hotel's revenue. Maintaining the leading position of the hotel's catering division in the
region is a top priority. Food prices should be set carefully; if they are too high, sales may
significantly decline, potentially halving revenue. An optimal price range is between $35 and
$50. Additionally, offering a selection of high-quality liquor can further boost the Food and
Beverage revenue.
It is crucial to address the issue of cost overruns seriously. Undertaking too many renovation
projects simultaneously can lead to budgetary issues. However, attention must also be given
to the condition of the hotel's facilities, as a decline in quality can result in losing guests.
Therefore, renovations should be carried out gradually. Furthermore, it is proposed to
increase the number of hotel rooms and restaurant seats over the next three years.
Data Analysis
1. Total revenue and net Income (source: Graph A)
Overall Revenue: From Year 0 to Year 3, the total revenue has been increasing in a curved
trend (Graph 1). Year 0's total revenue: $2,360,737, Year 3: $ 8,371,305 ( 3.5 times others)
Seasonality: Aug is the high of revenue for the year, while Jan and Dec have lower revenue,
causing it with holidays & off-season of tourism.
Net income : Year 0 net income ( $-23,739 in loss) rose to $1,180,600 in Year 3, where it
went from a loss.
Important months: The Year 3 Apr & May had the biggest net income with $185,318 and
$195,248, respectively may be the peak season for tourism, with increases in activities.
2. Room Department revenue and Net income (Graph B)
Room RevPPR: Total room revenue in Year 0 was $1,262,000, which grew to $4,500,000 by
Year 3
ADR (average daily rate): The room rate strategy was working as ADR increased from
around $105.05 (Year 0) to about $82.21 ( Year 3).
Net Income: The net income of rooms in Year 3 stayed steady, and especially Aug achieved
as high a record for net profit of $ may only be directly linked to the occupancy rate: 100%.
3- Food & Beverage (F&B) – Revenue and Net Income of the department
(Graph C)
Sales growth Year 0 Food and Beverage revenue: $ 900,000, increased to $3,500,000 in Year
3.
Net Profit fluctuation: Loss of Nov, Nov Year 1 was high (-$24,216), but the Nov Year 3 Net
Profit grew to $206,126 and could be linked to cost management and promotions.
4. Other departments (Figure D)
Revenue contribution: initially small, but increased in Year 3, peaking at $40,765 in Nov.
Net profit: mostly negative, with -31,932 in April of Year 3, indicating that cost management
needs to be improved.
5. ROE and operating profit margin (Figure E)
ROE: increased from -4.45% in Year 0 to 5.06% in Year 3, reflecting improved
profitability.Operating profit margin: increased from -434.67% to 17.55%, indicating
improved efficiency in converting revenue into profit.
6. Occupancy rate and average room rate (Figure F)
Occupancy rate: increased from 10.29% in Year 0 to 100% in Year 3, reaching a peak in May
of Year 3.
Average room rate: increased in sync with occupancy rate, indicating that the revenue
management strategy is effective.
Conclusion
During the three years of running the hotel, the overall trend for the hotel was positive.
However, there are still many areas that need to be improved in hotel decision-making to
ensure that future decisions can achieve the expected results.
First, although the hotel achieved the expected income, the actual result was that the
expenditure was greater than the income, which caused our financial situation to fall into
trouble. This caused us to waste a lot of time waiting for funds to flow in.
Secondly, Although our catering department is one of our strongest sources of income, as it
often brings us more than 50% of the total revenue, we did not pay much attention to staff
training and manpower control in the early stage, which resulted in the hotel often lacking
manpower during holidays and large-scale events.
Thirdly, in addition to focusing on our own decisions, we also need to pay attention to the
movements of our competitors, such as their room rates, discounts offered, and the latest
facilities. When our opponents take action, we must also make appropriate changes to
maintain our competitiveness.
And overall three years of operating, we finally achieved positive income. Therefore, when
running a hotel, operators should learn to adapt to market changes and actively seek
opportunities for breakthroughs to make the most appropriate decisions for the hotel.
Graph A: Total Revenue & Net Income Overall
Graph B: Rooms Department Total Revenue & Net Income
Graph C: F&B Department Total Revenue & Net Income
Graph D: Other Department Total Revenue & Net Income
Graph E: Overall ROE & ROS
Graph F: Occupancy Rate & ADR
