215LON: Case Study The Hellisima is a 150-Room Resort Hotel Within an Exclusive Island in Singapore: Corporate Financial Management Assignment, CU, Singapore

Case Study

The Hellisima is a 150-room resort hotel within an exclusive island in Singapore.  Facilities include an 18-hole golf course, spa with 12 treatment rooms, 2 restaurants, and 2 bars, and extensive meeting and event space.

The hotel is currently owned & operated by the Ho family which began the property’s development 20 years ago and opened the hospitality business in 2017.  The hotel attracts a mix of local members, business and leisure customers.

The hotel’s budgeted average room rate is $600 with an average spend per day from hotel guests of $150 and $90 for spa and golf per person.

The hotel’s current organizational structure is shown below:

Historically the Executive Committee above has collaborated in the setting of room rates, but Malcolm is now considering hiring in a Revenue Manager.

REQUIRED:

Answer the following questions, making sure to reference academic journal articles and current trade journals. Include a reference list at the end.

Question 1

Discuss the roles, responsibilities, and reporting line of the Revenue Manager.  Evaluate how the Revenue Manager might determine a competitive set for this property.

Question 2

Discuss how the scope of the Revenue Manager’s role is likely to extend past the Rooms Department in this property.

Question 3

The hotel’s owners think that there are opportunities to join a brand or consortium.  Discuss the benefits and challenges of the hotel working with a global brand or consortium.

Question 4

One of the concerns the owners have is maintaining ethical practices in setting prices and revenue management.  Assess the areas where ethics in revenue management may arise.

Question 5

Historically the property has not worked much with Online Travel Agents (OTAs), preferring to work closely with direct bookings and specialist travel agents instead.

There are gaps in mid-week (Tuesdays & Wednesdays) in February and March 2020. (8 weeks)

As of October 2019, there are 50 rooms on the books, each Tuesday & Wednesday during this period, at $550 per night with 50% double occupancy.

Fixed costs are $80 per night. For these full-rated customers, variable costs are $30 per guest.  These guests are expected to spend an additional $70 on F&B and $90 on Sports & Spa per person.

There are 2 options to push the occupancy up:

1. A series of corporate promotions with 80 rooms at $320 single occupancy (net of commission), with $100 on F&B and $20 on Sports & Spa spend per person
2. Opening the business up to OTA with an attractive mid-week room rate of $450 based on double occupancy. Expected F&B spend is $50 and $75 on Sports & Spa per person.  The commission that OTA’s charge on booked rooms is 20%.

Create a table outlining the options and their profitability.  You will need to estimate the number of rooms coming through OTA’s for this option to be realistic.

Explain the benefits and challenges of working with OTA’s.

Question 6

The global brand consortium that the Ho family is considering joining has recommended some additional investment in Hellisima’s rooms so that it is in line with the quality expected from the brand name.

The Ho family is looking at the refurbishment in the following detail.

• The capital investment needed will be $36,000,000
• Profit required after tax is 30%
• The tax rate is 25%
• The interest payable on the loan taken to pay for the work will be $4,000,000
• Other non-operating expenses will be $1,500,000
• Annual fixed costs will be $3,750,000
• Variable costs per occupied room will be $30 per room
• Operating income from F&B is expected to be $3,500,000 and from non-rooms departments to be $2,500,000

Assuming occupancy of 75%, what will be the additional room rate Hellisima needs to charge to achieve the required return on investment for a year?

Use the Hubbart room rate formula and show calculations.

What room rate will be needed if occupancy were 90%? Use the Hubbart room rate formula and show calculations.

Explain why the Hubbart formula works well here.