Optimizing Pricing strategies

[ceylan KUMAN]

hello this is ceylan,
i am just confused alot can u give me some ideas about the problem below if u have any.
thank you!

Rezidor Investments is asking me to evaluate their hotel’s financial performance for the past five years. The issue at hand is whether the rule-of-thumb approach that was adopted to setting their average rate when they bought their hotel was successful for acheving their 25 % desiredd on investment for all 5 years.
They provide me with the following details :

Five years ago,they bought the 150 room Station Hotel as a real estate investment at a price tag of 6.375.000 Euro.It is an economy/limited service property with no F&B service (except breakfast) and no meeting facilities. This hotel was ten years old at the time of the purchase and was profitable for the previous owners.
This acquisition included the land ,building, and interior furnishings. The previous owners agreed to pay off all outstanding operating expenses. Residor Investments paid 25% of the purchase price in cash and financed the rest an annual rate of 8% for 20 years.
As we know, the owners used the rule-of-thumb approach to set rates. They charged 1 Euro for every 1.000 Euro of cost per room. However,they also reasoned that the rate should help them make future investments in the faculty,since renovation would be necessary within five years . therefre,they added 3 Euro into the rate . Residor Investment insisted that the hotel not drop its rate during the years of decreasing occupancy.
In the first two years (2000 and 2001) ,the rate was heald steady.In 2002 ,the rate was raised by 1 Euro, in 2003 the rate was raised by additional 2 Euro,and in 2003 it was raised by another 3 Euro.
Selected operating statistics for the Station Hotel over the past five years incude :
2000 2001 2002 2003 2004
Occupancy 70% 69% 68% 70% 72%
Rooms Division Expense % 22% 23% 24% 21% 20%
Undistributed Operating Expenses % 28% 29% 29% 28% 27%

The annual HHH payment was 486.981 Euro during the period. Fixed charges did not vary by year and were 318.750 Euro per year. Income taxes were 30% of profits after the HHH payment. To develop my evaluation I must follow the 4 points mentioned below :

1) Determine the average rate and room revenue per year (365 days per year)
2) Determine the actual rooms division profit,undistributed operating expenses,profit before fixed charges,profit before taxes, profit after taxes ( undistributed operating expenses are a % of per room revenue)
3) Determine Residor Investment’s actual return % for all 5 years , bades upon the cash payment it made when it bought the hotel
4) As Residor Investments wanted an annual ROI oof 5% for each of the five years ,use the Hubbart Formula to calculate the required average rate in order to meet this goal.
5) Comment your final conclusion and advise residor Investments what approach to pricing they should use for eventual future investments.

[THB - RevDev]

One more time Mr Ceylan Kuman / Albana : Short educational memento & usefull game rules.

This time, your message has nothing to do with Yield Management. ???? And this forum is not a business school. In real life, the problem you submit never happens.

A property is not acquired upon investment capabilities solely, but from market analysis, feasability study and S&M plans, etc, that lead to consider if the investment should be done or not and consequently drives to negociate it accordingly (against it's R.O.I.). This case study is one of the more stupid has seen and has been designed to train your calculation and reading capabilities. Please do your home work by yourself.

We are most likely to help anyone - of course forums members get a priority - The basic game rule is that even if you don't know, it should not refrein you from thinking and propose solutions.

Lazzy students or professionals that come to us with an issue and do not show any goodwill in solving their own problems are not welcome.

This place is wide open for people that share and bring something to the community.

It's that easy. Cheers - THB
_________________
Best regards

Thierry Blottin
Hotel Yield / Revenue Management
http://www.revdev-consultants.com

[cb]

merci d'avoir "recadré" les choses

[Monica]

un peu gonflé de balancer ses devoirs comme ça !
travaillez iun peu, ça ne fait pas de mal.
Monica
_________________
Sincères salutations
Monica