Hotel Continental

In July 1989, Mr. Oscar Mendoza, owner of Triumph Tours read in the newspapers an advertisement for the leasing of Hotel Continental’s facilities. During the last six months, Oscar Mendoza has been seriously thinking about operating hotel to complement his travel agency business. Oscar Mendoza had been experiencing difficulties in getting hotel accommodation for his tour groups’ last year during the peak travel months of December, January, July and August.

Hotel Continental is a 27 room hotel located in Diliman, Quezon City along Don Mariano Marcos Avenue. It has three function rooms that can seat twelve to forty persons, a coffee shop, a fast food cafeteria, a formal dining room and swimming pool. During the last two years, the hotel incurred losses of about P2 to 3 million pesos which led management to the decision of leasing out its facilities (See Exhibit A).

The room capacity of the hotel is just right for the Triumph Tours’ requirements during the peak months. “My travel business can provide annual capacity utilization of the hotel to as much as 40% only,” Oscar Mendoza told his Marketing Manager, Ernesto de los Santos. “ How do we fill up the remaining 60%? Before Cory became President, I read in the daily newspaper that most of these five-star hotels in Metro Manila were utilized? What led to this situation? Could you gather some data that will help me in deciding whether or not I should bid for the Hotel Continental? The data could also help me in figuring the appropriate bid price.”

Ernesto de los Santos immediately called his staff after meeting with Oscar Mendoza. He told his staff to gather data raw data related to the hotel industry. “ Just give me the data. It’s up to you how you will divide the work. I’ll take care of writing the report for the boss,” he informed his staff.

Several days later, Oscar Mendoza found on his deck a packet of information jointly submitted by two of the five staff members of the marketing department (See Exhibit B.). Ernesto delos Santos immediately read the data see if he could prepare a preliminary report for Oscar Mendoza.

QUESTION:
1.) What are the major determinants of success in the hotel business?

2.) Who are the competitors of Hotel Continental?

3.) What are the three most critical sets of data that you would need to seriously consider pursuing this opportunity?

Exhibit A
HOTEL CONTINENTAL INCOME STATEMENT
For the years 1987-1988

| |1987 |1988 |
|Revenues | | |
| | | |
|Rooms |P1,969,722.18 |P2,515,575.96 |
|Food |4,843,486.42 |5,426,843.o98 |
|Beverage |637,862.39 |684,983.02 |
|Laundry |23,070.24 |29,175.00 |
|Telephone |147,417.16 |175,163.14 |
|Swimming Pool |156,718.28 |182,718.45 |
|Other Income |660,336.83 |842,985.15 |
|Total Revenue |P8, 438,613.50 |P9,857,444.70 |
| | | |
|Cost of Sales | | |
| | | |
|Food |2,123,270.37 |2,441,662.31 |
|Beverage |123,378.81 |190,992.64 |
|Telephone |328,312.73 |229,564.95 |
|Payroll and Related Expenses |2,280,340.43 |2,620,443.06 |
|Bonus |428,870.60 |440,980.43 |
|Other Expenses |906,883.33 |761,904.65 |
|Total Cost of Sales |P 6,191,056.27 |P6,685,548.04 |
| | | |
|Gross Operating Income |P2,247,557.23 |P3,171,896.66 |
| | | |
|Administrative and General |1,109621.53 |1,360,885.31 |
|Marketing and Promotion |159,036.26 |166,660.36 |
|Property Operations, Maintenance and Energy | | |
|Cost |3,978,297.27 |3,893,292.15 |
|Employees Benefits and Related Expenses | | |
| |67,006.97 |89,748.01 |
|TOTAL OPERATING EXPENSES | | |
| |P5,313,962.03 |P5,510,585.83 |
|Net Loss | | |
| |P(3,066,404.80) |P(2,338,689.17) |
| |

Exhibit B
REPORT ON THE HOTEL INDUSTRY

Number of Competitors in the Lodging Industry

Hotels - 90
Inns - 67
Resorts - 60
Apartel - 9
Pension - 35
Lodges - 151
Motel - 8
Unclassified - 10

Metro Manila Hotels (28)

Hotel Continental Century Park Sheraton Holiday Inn Hotel Intercon Manila Hyalt Regency Manila Manila Pavilion Manila Hotel Mandarin Oriental Manila Midtown Hotel Manila Peninsula Philippines Plaza Hotel SILAHIS International Admiral Hotel Ambassador Hotel
Bayview Prince Plaza
Hotel Mirador,Inc.
Aloha Hotel
Boulevard Mansion
Camelot Hotel
Hotel Aurelio
Hotel Las Palmas
Hotel MacArthur
Manila Manor Hotel
Midland Plaza
Rothmann Hotel
Royal Palm hoel
Solanie Hotel
Sulo Hotel

New Hotels to be Constructed (6)

Shangri-la Makati
Shangri-la at Edsa
Asia world in Manila Bay Area
Regent of Manila
New World Ayala
Omega in Cubao

Industry Historical Background

Spanish period - hotels were situated in Manila; mainly served Spanish visitors.
American regime - more hotels were built (e.g Manila Hotel); In 1934, Pan Am Clipper landed in the Philippines.
After World War II - hotels were reconstructed, Philippine Tourism and Travel Association embarked to 1950s on program to attract tourist; A total of 742 tourist class rooms were made available by industry.

1960s - not too profitable for the industry; low number of tourist arrivals.
Early 1970s - there were about 2,158 tourist class rooms but average occupancy rate was only 50%.
Mid 1970s - tourist boom started; occupancy level rose to 95%. By then, there were 4,447 tourist class rooms; In 1975, the IMF-World Bank convention was held in Manila attended by 5,000 tourist. More hotel were constructed increasing capacity to 12,000 tourist class rooms.
Late 1970s - after the IMF-World Bank Conference, occupancy rate declined to 50%-60%; low tourist arrivals due to worldwide recession.
Early to Mid-1980s - same conditions as in the 1970s; Peace and order situation in the country discourage tourists.
Late 1980s - Cory Aquino became President; Philippine economic conditions improved and hotel occupancy rates are expected to increase; at least 1 million tourist are expected to visit the Philippines. In 1988, occupancy rates of five-star hotels averaged 80%.

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