THE LUXURY HOTEL – CASE STUDY -
Eight months ago, you were promoted as the Executive Team of the Luxury Hotel, a landmark property in the heart of Singapore and you recall with great clarity your excitement when you heard the news. Since then, there has not been a dull moment, each day bringing with it a different set of challenges. Today, as you walk through the lobby, you do not have time to enjoy the exotic flowers that form the beautiful centrepiece. You are preoccupied with the meeting this afternoon with your GM in which you are going to present your strategic plan for the Luxury Hotel. For the past month, you and your team have been reviewing your hotel’s performance in light of the changing competitive and customer landscape. You recognise that if the Luxury Hotel is to retain and strengthen its position in the region, some breakthrough changes will have to be made. A key objective this afternoon will be to get a buy-in from other participants in the Strategic Leaders Session to the strategic plan that you and your team have put together - in specific, applying the steps described by the facilitator of your session (vision, etc). Located in the heart of Singapore’s business district, the Luxury Hotel is the flagship hotel of the large Elite Luxury Hotel Group, which has properties based in Asia, Europe and the Middle East. Comprising of the East, West, North and South Wings, the property is known in Singapore as one of the most ‘prestigious’ hotels, with its award-winning spa, speciality restaurants, and well-appointed guestrooms. Home to a cascading waterfall, koi ponds and lush green gardens, the recently renovated East Wing comprises of environmentally friendly rooms and suites that are inspired by nature. The West and North Wings are relatively new as compared to the other two Wings. Accessed through a private lobby, these epitomise the very best of luxury accommodation in Singapore. The South Wing with 458 keys, the highest amongst all Wings, is the oldest in the hotel. While the Luxury Hotel tends to cater predominantly to senior executives in the banking and financial services sectors, the diplomatic community, high-ranking government officials, celebrities, and various high net-worth individuals travelling in Asia; of late, the hotel has seen an inflow of families About the Luxury Hotel
and well-heeled youngsters. Past data also indicates a 30% year-on-year increase of family travellers who prefer larger-sized rooms over the standard rooms. In 2016, the Gross Operating Revenue (GOR) and the Gross Operating Profit (GOP) for Eastern Paradise were S$192Mn and S$68Mn respectively. A quick look at the historical financials (Appendix 1) reveals that while GOR has been improving since 2011, the Gross Operating Profit has been relatively stable. Expenses have been gradually increasing, as has the labor cost as a percentage of GOR. In 2016, the Luxury Hotel attained an ADR of S$385. Additionally, family ADR is comparable/only marginally lower than overall ADR. Also, while mid-week occupancy remains healthy, occupancy over the week-ends may soon become a cause of concern.
The Changing Environmental Landscape
At the 2017 Hotel Data Conference, co-hosted by STR andHotel News, the keynote speaker wisely said1: "Disruption is when you wake up and you realize you're in trouble and you either didn't see the change coming or you
In an increasingly dynamic and competitive environment, the way hotels react to guests' expectations has a dramatic impact on their profitability. Guests are continually voting with their wallets through their purchases. Immediate accessibility, mobile obsession, personalized experiences and contradictory preferences—these are just some of the challenges that you need to tackle with daily. Guests also realize the power they have via social media and online reviews - and will not hesitate to use it when not satisfied with a service. While generation-based profiles have their place, it is important to keep in mind that a millennial guest on family vacation has different expectations to that of the same millennial on a business trip. As new technologies emerge, hotels of all sizes, irrespective of the genre, can't afford to sit on the side-lines. Mobile devices are increasingly becoming an essential part of the guest journey - before, during and after their stay. In fact, sixty percent of all travel-related searches begin from a mobile device. In addition, the hotel inventory distribution landscape has changed dramatically over the past 10 years. With the advent of new technologies and platforms, there is a proliferation of 3rd-party distribution channels, such as Booking.com and Expedia. As a result, there are a number of questions around true profitability of each distribution channel that you
need to look into, as also the profitability of different segments. As an example, online travel agents (OTAs) often charge commissions/buy lower net rates than Eastern Paradise. Additionally, the hotel needs to pay to be connected to the OTAs via conduits such as SynXis and EZYield. Even if the Luxury Hotel obtains the business with a direct relationship with the customer through Elite.com, reservation fees need to be paid to HQ for the bookings materialized via Elite.com. Digital marketing dollars also need to be invested (e.g., search engine marketing, display marketing and metasearch marketing) to attract online traffic to come book via Elite.com rather than jumping to OTAs or other channels. The future of hospitality is all about being innovative and using technology to strengthen guest relationships and improve guest experiences while at the same time keeping an eye on the bottom line and making day-to-day operations more efficient. In order to maximize profitability you know you need to look beyond top-line revenue figures with an objective of optimizing the business mix that can yield the highest profits. As the Executive Team of the Luxury Hotel, you need to constantly keep your pulse on emerging trends to avoid disappointing guests and falling behind competitors. Over the last few years the number of rooms available in Singapore has been on the rise. Competition has intensified and several other 5 star hotels in the vicinity are also targeting a similar segment mix as the Luxury Hotel. Added to which, the SouthWing is beginning to look a little tired in comparison to the competition. A similar story is echoed in F&B, with competition coming in from speciality restaurants that have opened in the luxury Mall development a short walk from the hotel. One of these is a Michelin Star Italian restaurant that is giving the Italian speciality restaurant at the Luxury Hotel, a run for its money. Current Challenges at the Luxury Hotel
Please find in the next pages further statistical information that will help you understand the current reality of the Luxury Hotel.
Overall P&L – The Luxury Hotel –
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