Hotel Effectiveness, a 120-room select service hotel with a strong ambience, was having issues with its gross operating profit (GOP) margins including overtime, labour costs and distribution expenses. Two years ago, the hotel began experiencing a steady escalation in overtime hours due to increased occupancy combined with tight labour market issues. The significant increase in hourly wages created a challenge—some roles were up by 25%+. And, guest collection and dropping costs at various locations have been on the rise due to rising fuel prices. All these cost increases posed a problem for the hotel’s management company. The staff comprises of 40 people, blending longtime employees with newer hires. The hotel has ten different job positions, including supervisory roles. Since opening 15 years ago, the hotel has welcomed a balanced mix of leisure and business travellers—with particularly healthy weekend bookings, which include room-only guests, and small groups for social events and sports teams.

Question

Hotel Effectiveness, a 120-room select service hotel with a strong ambience, was having issues with its gross operating profit (GOP) margins including overtime, labour costs and distribution expenses. Two years ago, the hotel began experiencing a steady escalation in overtime hours due to increased occupancy combined with tight labour market issues. The significant increase in hourly wages created a challenge—some roles were up by 25%+. And, guest collection and dropping costs at various locations have been on the rise due to rising fuel prices. All these cost increases posed a problem for the hotel’s management company. The staff comprises of 40 people, blending longtime employees with newer hires. The hotel has ten different job positions, including supervisory roles. Since opening 15 years ago, the hotel has welcomed a balanced mix of leisure and business travellers—with particularly healthy weekend bookings, which include room-only guests, and small groups for social events and sports teams.

List two (2) micro-environmental factors that Hotel Effectiveness faced. Motivate your answer from the case study.

Answer 1

1) Tight labor market: The case study mentions that the hotel had difficulties with labor costs and overtime hours due to a tight labor market. This indicates that there was a high demand for labor in the area, making it challenging for the hotel to find and retain qualified employees. The tight labor market is a micro-environmental factor as it directly affects the hotel's workforce and labor costs.

2) Rising fuel prices: The case study states that guest collection and dropping costs at various locations have been on the rise due to rising fuel prices. This indicates that the hotel has to bear the cost of increased transportation expenses for guest services. Rising fuel prices are a micro-environmental factor as they impact the hotel's cost structure and can reduce the hotel's profitability.

Answer 2

1. Tight labor market issues: The case study mentions that the hotel has been experiencing a tight labor market, which means there is a scarcity of available workers in the market. This factor has led to an escalation in overtime hours for the hotel due to increased occupancy. The increased overtime hours result in higher labor costs, impacting the hotel's gross operating profit (GOP) margins. This micro-environmental factor is directly affecting the hotel's operations and financial performance.

2. Rising fuel prices: The case study mentions that guest collection and dropping costs at various locations have been on the rise due to rising fuel prices. This factor increases the distribution expenses for the hotel. With higher fuel prices, the hotel is likely to incur additional costs for transportation or shuttle services, which can impact the GOP margins. The increasing distribution expenses are a micro-environmental factor that contributes to the financial challenges faced by Hotel Effectiveness.

Answer 3

Based on the information provided in the case study, two micro-environmental factors that Hotel Effectiveness faced are:

1) Tight labour market issues: The case study mentions that the hotel experienced a steady escalation in overtime hours due to increased occupancy combined with tight labour market issues. This indicates that finding and retaining qualified staff members was a challenge for the hotel. The tight labour market made it difficult for the hotel to hire and maintain a sufficient number of employees, leading to increased overtime hours and potentially higher labour costs.

2) Rising fuel prices: The case study also states that guest collection and dropping costs at various locations have been on the rise due to rising fuel prices. This implies that the hotel faced increased transportation costs for services such as airport transfers or shuttles. The higher fuel prices would have directly impacted the hotel's distribution expenses, potentially affecting its gross operating profit (GOP) margins.

To determine these micro-environmental factors, I analyzed the information provided in the case study regarding the challenges faced by Hotel Effectiveness. The mention of tight labour market issues and rising fuel prices directly impact the hotel's operations and profitability, making them relevant micro-environmental factors.