The Luzern Townhouse Hotel Case Study

The Luzern Townhouse Hotel Case Study

The Luzern Townhouse Hotel is a boutique hotel located in the proximity of the railway stationandtheatre in the Hirshchengraben area of Luzern.The hotel falls into the 3 to 4 star category with 60well appointed and stylish, twin studio type rooms. The property was converted from office buildings in 2006 and was acquired by its present owners 3 years ago.

The hotel is open throughout the year and currently offers two tariffs on a per room basis: Monday to Thursday nights for primarily a business market and Friday to Sunday nights for a tourist market. The mixed market approach shows the guest mix as tourists 58%; business customers 37% and conference 5%. The average length of stay is approximately 2.5 nights. The tariff and occupancy statistics are shown in Appendix 1.

The hotel does not operate the restaurant and bar facilities on the ground floor of the property. These are outsourced to an independent operator and the hotel has its own access to the restaurant facility for breakfast service and other meals. A service of light snacks and drinks is available for residents and is provided by the restaurant operators.

The hotel is currently managed by the owners. They also employ a permanent team to service the rooms who are employed on a full and part time basis. The owners have good relations with their staff and labour turnover is minimal.

The hotel owners have recently purchased a 15 year lease on another office building for SFr 2,500,000with the intention of converting it into a further 20 hotel studios, this property is adjacent to the hotel property. Both the hotel and the new acquisition are in a good state of decoration and repair and whilst the owners have limited financial resources at this stage, it is envisaged thata limited capital budget of SFr 1,500,000 will be available for refurbishment of the property. The SFr 4 million development is to be funded by a SFr 2 million investment from the owners and a bank loan of SFr 2 million at 6% interest.

The owners have employed you, a hotel school graduate, as assistant manager since their recent acquisition. They have developed the hotel over the past three years and are happy with their current life style but believe their expertise is limited, in particular when considering the poor rooms performance of the past year, the need to expand the business and the implications of the acquisition of the new property.
YOU ARE REQUIRED TO:

Prepare a report for the owners to advise them on the current and future financial situation of the hotel, the report should include the implications and possibilities through the acquisition of the new property and your proposals to improve room sales and profitability over the coming year

Your report should cover the following issues:

STAGE 1 (30% weighting)

An analysis and evaluation of the current financial and market position of The Luzern TownHouse Hotel.

Your evaluation should be in the form of a SWOT analysisand focus on:

(1) identifying any strengths and weaknesses the hotel has in its sales and market environment
(2) identifying any strengths and weaknesses from expected operating and financial bench marks for this type of hospitality operation and its location
(3) identifying any opportunities and threats by this new acquisition

(800 – 1000 words)
STAGE 2: (70% weighting)

1. An outline ofa new revenue management strategy to include a pricing structure and room packages for The Luzern TownHouse Hotel.

This outline should focus on:
(1) A review of current room rates
(2) Increasing accommodation revenue through developing existing markets
(3) Identifying new accommodation markets e.g. conference and leisure
(4) Other sources of possible revenue.

An outline of your proposals in 1500 – 2000 words is required
2. Present a budget proposal for the coming year 2015, the budget should be prepared by using and adapting the template used in the case study data file.

The proposal should include:

(1) New sales forecasts incorporating any changes in demand that may be influenced by your pricing strategies outlined in response to question 1 of this case study.
(2) An operating budgetfor 2015incorporating any new cost targets that you have recommended through your SWOT analysis in response to question 1 of this case study.
(3) A forecasted balance sheet of the business at 31 December 2015
3. Using the budget you have prepared above, analyse and evaluate the data by using standard hospitality and business ratios and identify any strengths and weaknesses. (800 – 1000 words)
PERFORMANCE CRITERIA CHECKLIST

1. Identification of sales strengths and weaknesses
2. Identification of cost and financial strengths and weaknesses
3. Identification of opportunities and threats to the new acquisition
4. Making appropriate recommendations for the whole operation
5. Identification of accommodation markets
6. Developing room pricing strategy
7. Developing a package pricing strategy
8. Preparation of appropriate sales forecasts
9. Preparation of appropriate operating budgets
10. Analysis and evaluation of the budget forecast
11. Use of computer technology
12. Presentation of the report
Attachments:
Case Study Appendicies 1 – 4
Swiss Tourism Statistics – 2011
Swiss Hotel Industry Data – 2012
Luzern Tourism Data
Events in Luzern 2013

THE LUZERN TOWNHOUSE HOTEL CASE STUDY
Financial and Business Data – 2014
APPENDIX 1: HOTEL ROOM RATES, OCCUPANCY & YIELD ANALYSIS

ACCOMMODATION
Market segment – Range of business activity Nights Rooms available Maximum Room Nights Room Rack rate (£) Rooms sold (occupancy rate) Actual Room Nights Sold Room revenue at rack rate (£) Average Discounts / Commisions of Rack rate Actual Room Revenue (£) Rooms occupied by 1 person Rooms occupied by 2 person Actual Guests in house
Current business: Mon – Thurs 208 75 15,600 140 65.0% 10,140 1,419,600 10% 1,277,640 40% 60% 16,224
Current business: Fri – Sun 157 75 11,775 95 60.0% 7,065 671,175 10% 604,058 60% 40% 9,891
New business – – – – – 100% –
New business – – – – – – 100% –
New business – – – – – – 100% –
New business – – – – 100% –
New business – – – – 100% –
New business – – – – – – 100% –
New business – – – – – – 100% –
New business – – – – – 100% –
Totals 17,205 2,090,775 1,881,698 26,115
Maximum possible Room Nights 365 75 27,375
NB: Rates are quoted per room, with an additional Breakfast charge per lodging guest of £ 13.50
The average spend per guest on lobby food and drink is £ 8.50
Telephone Revenue per room: £ 2.00 Total telephone revenue: £ 55754
Other revenue per room (e.g. videos): £ 1.70 Total other room revenue: £ 47391

APPENDIX 2: HOTEL DEPARTMENTAL OPERATING STATEMENTS &
INCOME STATEMENT FOR YEAR ENDING 31/12/14 Definitions from Appendix 4

HOTEL OPERATION Cost as % %age of £ £ £ Sf Fixed Costs Sf Variable Costs
Sales 1,881,698
Other Revenue 103,145 1,984,842
Direct Room Labour Costs 10.7% of hotel sales 212,000 212,000
Direct Room Operating Costs 4.5% of hotel sales 84,676 296,676 84,676 4.5%
Departmental Operating Profit 1,688,166
FOOD & DRINK Total sales
Breakfast Sales 352,553 2,559,372
Lobby Sales 221,978 574,530
Food & DrinkCost 57.8% of F&B sales 332,078 Total purchases 332,078 57.8%
Direct Labour Costs 51.0% of F&B sales 292,776 332,078 292,776
Direct Operating Costs 30.9% of F&B sales 177,300 802,154 177,300
Departmental Operating Profit -227,624
TOTAL DEPARTMENTAL OPERATING PROFITS 1,460,542 –
less Indirect Expenses Cost as % of sales
Salaries & Wages 15.0% of total sales 383,800 383,800
Utilities (Fuel) 7.9% of total sales 201,161 162,770 38,391 1.50%
Cleaning & Maintenance 4.6% of total sales 118,712 86,720 31,992 1.25%
Property Tax 9.2% of total sales 236,400 236,400
Administration Expenses 1.5% of total sales 38,440 38,440
Business Expenses 3.2% of total sales 82,600 82,600
Advertising & Promotion 3.1% of total sales 78,530 78,530
Motor Expenses 0.6% of total sales 15,300 15,300
Miscellaneous Expenses 1.4% of total sales 36,200 1,191,143 36,200
Hotel Operating Profit before Depreciation and Interest 269,399 1,802,836 487,137
Less Depreciation 275,667 Total sales 2,559,372
less Interest 4.5% % of loans 33,750 309,417 Contribution margin 2,072,235 81%
NET PROFIT / LOSS -40,018 Break even (BIT) 2,226,644

APPENDIX 3: The LUZERN TOWNHOUSE HOTEL – ABRIDGED BALANCE SHEET at 31/12/14
ASSETS
Fixed Assets Original Value Current value Deprn New Value Key Financial Ratio Analysis
(£) (£) (£) (£)
Premises (20 year Lease) 3,000,000 2,400,000 150,000 2,250,000 Rooms Operating profit / Sales 85.05 %
New acquisition 840,000 56,000 784,000
Furniture & Equipment 1,000,000 800,000 50,000 750,000 Food & Bev Operating profit / Sales -39.62 %
New acquisition 160,000 10,667 149,333 %
Motor Vehicle (new 2013) 45,000 9,000 36,000 Hotel Operating Profit / Sales 10.53 %
4,245,000 275,667
Total fixed assets 3,036,000 Net Profit / Sales -1.56 %
Current Assets
Food Stock 980 Loan Interest Cover -1.2 times
Other stocks 3,160 4,140 Capital Gearing Ratio 3.3 :1
Accounts receivable 17,430
Cash at bank 120,000 141,570 Current Ratio -7.95 :1
Total Assets 3,177,570 Liquidity Ratio -7.72 :1

EQUITY AND LIABILITIES Stock Turnover Period 1.5 per week
Equity attributable to Shareholders
Share Capital 2,250,000 Return on Capital Invested -1.78 %
Reserves (Accumulated profit from past years) 235,400 Return on Capital Employed -0.01 %
Net Profit / Loss -40,018
Accumulated profit / loss 195,382
Total equity 2,445,382
Liabilities – Long term
Bank Loan 750,000
Current Liabilities
Accounts payable 27,888
Short term: Overdraft / Bank Balance -45,700
Total Current Liabilities (17,812)
Total equity and liabilities 3,177,570

ACQUISITION OF ADDITIONAL PROPERTY at 1/1/15
FIXED ASSETS
Acquisition of property – 20 year lease 840,000
Proposed Refurbishment Costs 160,000
1,000,000
FINANCED BY
Capital Invested 250,000
Loans 750,000
1,000,000
APPENDIX 4: The LUZERN TOWNHOUSE HOTEL – ACCOUNTING & BUDGETING POLICIES

FIXED & VARIABLE COSTS
Fixed Variable
HOTEL OPERATION Direct Room Labour Costs All
HOTEL OPERATION Direct Room Operating Costs All
FOOD & DRINK Food and DrinkCost All
FOOD & DRINK Direct labour Costs All
FOOD & DRINK Direct operating Costs All
Salaries & Wages All
Fuel 90% 10%
Cleaning & Maintenance 80% 20%
Business Rates All
Administration Expenses All
Business Expenses All
Advertising & Promotion All
Motor Expenses All
Miscellaneous Expenses All
Depreciation All

BUDGET CONSIDERATIONS
LABOUR Proposed increase of 2% for coming year
FIXED OPERATING COSTS Expected overall increase of 2% for coming year with the exception
of Property taxes which are forcasted to increase by 5%