Question

Astor Lodge Suites Inc.

1. How would you characterize the U.S. hotel industry in early 2005?

2. What is the current competitive positioning for Astor Lodge Suites Inc.?

3. How would you characterize the operational (e.g. occupancy rates, prices, costs per room, etc) and financial performance (e.g. EBITDA and taxes and admin. expenses) of Astor Lodges & Suites, Inc? You need to be able to link sales and marketing expenditures to corporate financial metrics.

4. Given Mr. James charge to senior vice president, how would you portray and assess sales and marketing initiatives, expenditures and outcomes for fiscal year of 2004 and 2005?

5. What should Kelly Elizabeth propose in her fiscal 2006 sales and marketing plan and budget?

Please answer them separately, I really need 1-3 please and thank you.

Answer 1

Answer;

A hotel industry in the United States achieved close to double digit profit in the early 2004 and 2005.

While the turnaround in unit-level profitability is certainly welcome news, the average hotel in the Trends sample is just barely achieving the same bottom line dollars they did back in 1996. Looking at historical ‘financial recovery’ patterns for the lodging industry, the strongest gains in profits usually begin to occur in the third or fourth year of recovery.” PKF Hospitality Research projects profit growth in the range of 14 to 16 percent for 2005.

In 2004, the hotels in PKF’s Trends sample enjoyed a 7.6 percent increase in total revenue, which eventually led to the 11.4 percent growth in operating profits. Of course, these properties were some of the most severely impacted during the 2001-2003 industry recession and, therefore, have the greatest losses to recoup. Of all the different property categories, resort hotels achieved the greatest increase in profitability in 2004. With total revenue growing 9.0 percent, operating profits in this segment grew 17.2 percent. At the other end of the spectrum, profitability for limited-service hotels experienced a gain of only 6.2 percent, but these “drive-to” properties held up better after 9-11. All other property types saw their profits grow in excess of 10 percent in 2004.

This kind of a profit growth was seen mainly because of the other revenue sources that the hotel industry as a whole was able to tap during these times. Revenue from the rental of guest rooms accounts for 67.3 percent of the total revenue for the average hotel. In 2004, revenues from most of the other operated departments (beside Rooms) within a hotel increased for the first time since 2001.

The combined revenues from the Food Department, Beverage Department, Other Operated Departments, and Rentals and Other Income increased by 6.3 percent from 2003 to 2004. Food revenues grew the most, at 6.9 percent, while Rental and Other Income increased by just 4.3 percent. In addition, the cost of operating these other departments grew just 5.9 percent, thus indicating that these supplemental revenue sources also contributed to the increase in overall hotel profitability.

The revenue was growing but still the hotels were not making that much of a profit as desired. This is because of the fact that the expenses are also growing considerably. While 11.4 percent growth in profitability should be considered strong, this level of profit improvement is somewhat disappointing relative to the pace of revenue growth. Back in the late 1990s, 7.0 to 9.0 percent growth in revenues produced 14.0 to 16.0 percent growth in profits. The operating expenses were very high. The major chunk of it was the labor cost. The operating expenses were also not distributed a desired. Major portion of the operating expenses really needs to be tagged against fixed costs. The Insurance costs were also on the higher side. The Hotels were to pay a hefty amount on the third party liability insurance.

Astor Lodge’s IMC Program

Effectiveness

Based on Kerin & Peterson’s (2013) case study of Astor Lodge, we can see there are some particular consistencies that benefit their program. The plan for Astor to drive up overall occupancy succeeded. The particular focus on pleasure and vacation travellers drove weekend occupancy up, which was a 27 percent in 2004 and 35 percent in 2005. Promotions for longer stays were seen as a bit of a success to draw in customers. The total revenue had increased despite closing some properties that were seen as underperforming for various reasons. There were many progressive trends within 2004 and 2005 based on the IMC program.

Ineffectiveness

The biggest inconsistency seen from the drop in the market from 2001 to the present of the case study in 2005 was the fact that average daily rate had dropped between 2004 and 2005. This had to do with the use of promotions with free nights, which offset the overall numbers. In 2005 the average stay had only slightly increased which means the budget allocation for this marketing campaign can be seen as ineffective. Foresight and market testing may have been a better option by not rolling this out company wide. With the IMC program budget being specifically allocated, 2005 would be seen as the third year in a row with a net loss. Overall, it can be seen as a conflict of interest with the allocation of budget when considering which revenue (leisure/ business) creates better revenue.

Astor Lodge’s Positioning and Branding

Current Positioning and Branding

Astor Lodge is surely not the biggest chain of lodging within the United States but they still hold value in the market. Their specific positioning is a limited service hotel falling between economy and full-service competitors. The primary locations focus on premium sites along highways, near airports, office complexes, and shopping centres. They strive to provide clean and comfortable accommodations to business travellers with a minor focus on leisurely travellers. The mix of standard room and suites gives Astor’s a competitive advantage. The room cost has a median of 56 dollars and some change, varying on the occupancy rates (Kerin & Peterson, 2013). Astor Lodge has to continue to build on their net profitability and doing so can be done by reviewing and remaining focused on the bread winning categories.