Performance and Financial Analysis
The report is being prepared with an aim to state the performance of the financial operations of Hotel Sydney over the present year and the scope of improvement for the business of the hotel for the upcoming year. From analyzing the performance report of the hotel in the first year, it can be seen that the revenue of the hotel could not be increased due to the excess of expenses. The budget of the previous year could not forecast the proper financial conditions that were to be faced by the organization and as a result, the business of the hotel was not as successful as expected (Kimes and Wirtz 2015). The financial report of the hotel also reflects that the management has spent too much of the capital on advertisement purpose, but in return, the business could not gain enough profits from the advertised services. The management team of the hotel also took some wrong decisions in the current financial year about the operations of the business and the recruitment of the stuffs.
As for the budgetary plans of the hotel, certain steps need to be taken in order to improve the current financial operational status of the organization. The first thing that should get most priority of the management is to reduce the expenses of the hotel (Alderighi et al. 2015). The expenses can be reduced by omitting the number of excessive hotel employees and the advertisement cost. This will certainly help the organization to recover an amount of lose suffered in the last year. Instead of this, the hotel can offer several promotional deals for its clients in order to increase the revenue of the hotel. The SWOT analysis of the hotel should also be done in order to find the probable key strengths, weaknesses, opportunities and threats. At last, a reliable financial strategy needs to be made in order to indicate the ways of improvement of the current business of the hotel.
The analysis of the performance of the hotel in the first financial year is the main goal of this segment. In order to make any forecast about the upcoming performance of the hotel, it is necessary to signify the current performance of the business unit. The overall performance of the hotel will indicate the scope of improvement and the risks involved in the business (Solnet et al. 2016). In order to analyze the overall financial performance of the hotel, the revenue of the room and the hotel, the occupancy, ADR and RevPAR rate and the return on capital-employed rate should be figured out in order to get a correct assumption about the current operations of the hotel.
Total hotel revenue and total hotel net income
The financial report of the hotel has shown some significant improvement in the report of the current year than the previous year. The total revenue of the hotel has increased than the previous year in the current year. Some significant improvements can be seen in the revenue gained from rooms and food & beverages. As the hotel had taken some appropriate steps to improve its marketing by investing more on advertisement expenses, the result can be seen in the income statement of the hotel (Abrate and Viglia 2016). The management team of the hotel has also succeeded to decrease the total expenses by certain amount in order to increase the net profit of the hotel. Still, the net income gained by the hotel is not adequate as far as the expenditure of the hotel is concerned.
Figure 1: Total revenue and total income
(Source: Created by Author)
In the first half of the current year, the business of the hotel was not that successful in terms of total revenue and net income of the hotel. In January, the hotel experienced a net loss instead of net income. In the successive 3 months, there is some improvements can be seen in the net income from the room as the hotel increased the advertisement rate in order to improve the marketing strategy (Bilegan et al. 2015). However, the income decreased gradually due to the off seasonal crisis of the locality.
In the second half of the current year, the operations of the hotel were not that successful as it can be seen there is a net loss in the monthly indicator of the hotel. However, gradually, the business succeeded to gain a stable and constant income over the upcoming months as the marketing strategy of the hotel started to improve.
Figure 2: Total room revenue and total room income
(Source: Created by Author)
The occupancy rate of the hotel was quite stable in the first half of the current financial year. However, from the month of May, the occupancy rate started to decrease. These stats were continued until July. After that month, the occupancy rate of the hotel was started to gain a hike again due to the improved marketing strategy (Aubke et al. 2014).
The Average Daily Rate of the hotel was quite constant throughout the year. However, the AVR rate of the hotel was increased in the second half of the year due to the hike in peak seasonal demand.
Rooms department revenue and room net income
In accordance with the growth rate of the statistics of the hotel, the REVPAR rate of the hotel started to decrease after the month of April. However, the rate started to gain its hike again from July as the performance stats of the hotel was improved in the due time.
Table 3: Occupancy Rate
(Source: Created by Author)
The ROCE ratio is calculated in order to measure the profitability and the efficiency of a business organization. The ratio is being calculated upon the employed capital on business. It is being calculated by dividing the earnings before interest and tax with the employed capital (Fiig et al. 015). Throughout the operations of the company over the year, it can be seen that the hotel had managed to gain its highest return on capital-employed ratio in last year, as the profitability statistics was highest in this particular month.
The SWOT analysis is used to determine the strength, weaknesses, opportunities and threats of any business organization. It is very important to know about these data before making any forecast about the organization. By doing SWOT analysis, the analyst can focus on the strength, work on the weaknesses, utilize the opportunities and minimize the threats. SWOT analysis is also used to detect the problems occurring in any organization and helps to find an appropriate solution to get rid of it. The SWOT analysis is being given such an importance in analyzing the accounting data for its importance in the business firms (Bodea and Ferguson 2014). The main effectiveness of this analysis lies in the collected information’s from the accounting data, understanding the analyzed statement, identifying the major factors that can affect the performance of the hotel and develop a strong strategy based on the analysis developed from the financial data of the hotel. In order to make a proper analysis, the analyst must have to be aware of all the previous and probable upcoming circumstances of the hotel and the market. All the major SWOT analysis of the Hotel Sydney has been given and analyzed below.
Strengths: – In terms of strength, the key factor of the hotel is its marketing strategy. The hotel spends a lot of money on advertisement in order to increase its market in remote areas. There is no doubt that the hotel has gained a decent amount of business whenever it has emphasized on its advertisement. Another important strength of this hotel is its location and accessibility of public transport (Rajasekar et al. 2016). The hotel is situated in CBD and has access to the major roads that makes it easier for the clients to reach the hotel easily. As the hotel is situated near a business hub, it is easier for the hotel to capture its clients who came there for business purposes. The most profitable way for the hotel to gain maximum revenue is to accommodate business groups in the hotel.
Occupancy%, ADR and REVPAR
Weaknesses: – Apart from the strengths of the hotel, there are several weaknesses that can be observed from the financial report of this business firm. The hotel is suffering from a severe cost management issue regarding the staff turnover, the maintenance cost and the huge amount of advertisement cost. It can be seen the hotel has failed to manage its operating costs properly, which affected the gained revenue of the firm (Vossen and Zhang 2015). The excessive number of untrained stuffs, an old building that takes a huge amount of cost to maintain and the lack of planning regarding the advertisement strategy makes it harder to achieve its goal in the market. The distance for the nearby airport can also be a weakness for the hotel in order to increase its revenue.
Opportunities: – As the hotel is located near a business hub, there is certain opportunities that the hotel can make use. By including modern facilities of accommodation like big conference room, multi-gym, swimming pool or by increasing the occupancy rate, the hotel can gain more clients such as big business groups that can earn huge revenue from its operations. Commencement of different local festivals such as Vivid festival can also attract a decent amount of customer towards the hotel.
Threats: – One of the main threats for the hotel is the increasing rate of competition in the hotel industry. As the hotel is situated in a very good location to attract clients, there is no surprise that certain other entities will also try to open their brunches in the nearby locality. Thus, the hotel has to face a tough competition in order to gain its revenue from the business (Ivanov 2014). If the competition rate became too high, there is a chance that the hotel might face a loss for the inability to compete with other newly developed modern hotels.
The objective of creating this report is to present the probable outcome of the business by making certain changes in the operation of the organization. The primary goal is to taking certain decisions based on the first year in order to improve the performance of the second year. The objective of the following report should be maintained certain criteria, such as the objectives should be specific, timely, attainable, relevant and measurable. In accordance with the financial report of the first year, the primary objective of the organization should be to decrease the cost of employee’s salary that is unnecessarily higher than the need of the organization (Board and Skrzypacz 2016). The hotel needs more employees who are willing to work more than 6 months and the management of the hotel should provide training for its employees in order to increase the effectiveness of the employees and to reduce the operating cost. The second objective of this report is to reduce the expenses regarding the advertisement without hampering the marketing procedure of the organization. Several marketing strategy (like promotional discount, referral discount etc) should be considered as a replacement of the high valued advertisement. It is also necessary to make additional recommendation for the upcoming operations of the hotel in order to avoid further mistakes.
Return on capital employed (ROCE)
The goal of the hotel for the upcoming financial year is to double the revenue so that the loss of the last year can be compensated. The management has set a target of expected room occupancy that is 75% through the summer and 58% in the winter.
The strategies that the company should implement in order to grow the business of the company need to be specific in order to obtain the expected result. As far as it can be seen from the financial report of the company, it can be seen that the expenses of the company was too high in accordance with the gained revenue of the company. Thus, the main objective of the company should be to undertake such strategies that will make a difference in the expenditure of the company (Koenig and Meissner 2015). So that, the probable strategies that should be undertaken by the management of the hotel should include following points:
- The expenses of the hotel in regards to the advertisement should be reduced.
- The management of the hotel should offer more discounts or special offer for business groups.
- The number of stuffs should be lessened and there should be proper training program for the employees of the hotel.
- Some other facilities should be added with the available services of the hotel in order to attract more clients.
Conclusion
The available opportunities for the hotel are quite high in terms of the current situation. There is no doubt that there is room for improvement. The hotel management should look into specific fields in order to evaluate the current position of the hotel and solve the issues that are being a hurdle to its progress. The SWOT analysis of the hotel states the probable scopes of improvement for the hotel and certain areas of caution for the further operating purposes. Several objectives stated by the management team of the hotel in the financial statement of the organization have also been discussed in the present report. Apart from this, the probable strategies to accomplish those objectives are also been given in the end of the report. It is desired that if the firm is succeeded to follow the stated strategies and recommendations, the business of the hotel will certainly observe a hike in terms of revenue and net income.
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