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 four(4) micro-environmental factors that Hotel Effectiveness faced. Motivate your answer from the case study.
1) Increased occupancy: The steady escalation in occupancy rates has led to an increase in overtime hours for the hotel staff. This has resulted in higher labour costs for the hotel, affecting its gross operating profit (GOP) margins.
2) Tight labour market issues: The tight labour market has made it challenging for the hotel to hire and retain qualified staff. This has further exacerbated the overtime issue and resulted in increased labour costs.
3) Rising hourly wages: The significant increase in hourly wages, with some roles up by 25% or more, has put additional pressure on the hotel's labour costs. This has a direct impact on the GOP margins, affecting the profitability of the hotel.
4) Rising fuel prices: The hotel's guest collection and dropping costs at various locations have been on the rise due to rising fuel prices. This increases the distribution expenses for the hotel, further impacting its GOP margins.
Overall, these micro-environmental factors directly affect the hotel's profitability by increasing labour costs and distribution expenses. They highlight the challenges faced by the hotel's management company in maintaining a healthy GOP margin.
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 the hotel faced the challenge of limited availability of skilled labor in the market, which could have led to higher labor costs and increased overtime.
2) Significant increase in hourly wages: The case study states that the hotel faced a significant increase in hourly wages, with some roles up by 25%+. This factor affected the hotel's gross operating profit (GOP) margins, as higher wages can increase labor costs and reduce overall profitability.
3) 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 indicates that the hotel faced increased distribution expenses, as transportation costs for guests and supplies increased. Higher distribution expenses can also impact the hotel's GOP margins.
4) Balanced mix of leisure and business travelers: The case study states that the hotel has welcomed a balanced mix of leisure and business travelers, with particularly healthy weekend bookings. This factor reflects the hotel's reliance on both segments of travelers for revenue generation. Any fluctuations in the demand from leisure or business travelers can directly impact the hotel's occupancy rates and revenue, affecting its overall profitability.
Based on the information provided in the case study, here are four micro-environmental factors that Hotel Effectiveness faced:
1. Occupancy and labor market conditions: The increased occupancy combined with tight labor market issues resulted in a steady escalation in overtime hours. This factor directly impacted the hotel's labor costs and gross operating profit (GOP) margins.
2. Hourly wage increase: The significant increase in hourly wages, with some roles up by 25%+, posed a challenge for the hotel's management company. Higher wages led to increased labor costs, further impacting the GOP margins.
3. Rising fuel prices: Guest collection and dropping costs at various locations have been on the rise due to rising fuel prices. This factor contributed to the increase in distribution expenses, adding further pressure on the hotel's profitability.
4. Balanced mix of leisure and business travelers: The hotel's market segment comprises a balanced mix of leisure and business travelers, with particularly healthy weekend bookings, room-only guests, and small groups for social events and sports teams. While this factor may not directly impact the hotel's costs, it influences revenue and demand patterns, potentially affecting profitability.
These four micro-environmental factors played a role in the challenges faced by Hotel Effectiveness regarding overtime, labor costs, and distribution expenses, impacting the hotel's gross operating profit (GOP) margins.