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%