18.4 As a consultant for the Feasability Company, you are to estimate the under

Question

18.4 As a consultant for the Feasability Company, you are to estimate the under supply of rooms for the greater Remington area. Remington has five hotels with current occupancies: Hotels Rooms Average Daily Occupany Alpha 200 68% Beta 250 78% Charlie 150 72% Delta 200 84% Echo 180 92% Expected annual growth in demand Is as follows: Sales Mix Annual Compound Growth Business 50% 10% University 20% 6% Government 20% 8% Convention 5% 2% Tourist 5% 2% Assume that at 65% average occupancy is reasonable for hotels in this area to make reasonable profits. REQUIRED 1. What is the average daily demand for room nights at this time? 2. What is the average annual growth rate? 3. What is the projected average daily demand 5 years hence? 4. Based on the above information, calculate how many more rooms the entire area could support and still achive a 65% daily occupnacy in 5 years? 18.4 As a consultant for the Feasability Company, you are to estimate the under supply of rooms for the greater Remington area. Remington has five hotels with current occupancies: Hotels Rooms Average Daily Occupany Alpha 200 68% Beta 250 78% Charlie 150 72% Delta 200 84% Echo 180 92% Expected annual growth in demand Is as follows: Sales Mix Annual Compound Growth Business 50% 10% University 20% 6% Government 20% 8% Convention 5% 2% Tourist 5% 2% Assume that at 65% average occupancy is reasonable for hotels in this area to make reasonable profits. REQUIRED 1. What is the average daily demand for room nights at this time? 2. What is the average annual growth rate? 3. What is the projected average daily demand 5 years hence? 4. Based on the above information, calculate how many more rooms the entire area could support and still achive a 65% daily occupnacy in 5 years?

Explanation / Answer

1. average daily demand for room nights:

Alpha = 200*68% = 136

beta = 250*78% = 195

charlie = 150*72% = 108

delta = 200*84% = 168

echo = 180*92% = 165.6

total average = 136+195+108+168+165.6 = 772.6

2. average annual growth rate = sum of (annual compound growth rate*sales mix )

Business annual growth = 50%*10% = 5%

University annual growth = 20%*6% = 1.2%

Government annual growth = 20%*8% = 1.6%

Convention annual growth = 5%*2% = 0.1%

Tourist annual growth = 5%*2% = 0.1%

Total annual growth rate = 5% + 1.2%+1.6% + 0.1%+ 0.1% = 8%

average annual growth rate = 8%

3. current average daily demand for rooms = 772.6

8% annual growth

projected average daily demand after 1 year = 772.6*8% + 772.6 = 772.6*1.08 = 834.41

projected average daily demand after 2 year = 834.41*1.08 = 901.2

projected average daily demand after 3 year = 901.2*1.08 = 973.3

projected average daily demand after 4 year = 973.3*1.08 = 1051.2

projected average daily demand after 5 year = 1051.2*1.08 = 1135.3

projected average daily demand 5 years hence = 1135.3

4. total rooms required in 5 years = 1135.3

65% daily occupany

Hence total rooms the area can support = 1135.3/.65 = 1746.6 rooms

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