Hotel Industry Is Currently in the Middle

Hotel industry is currently in the middle of its economic cycle. The industry tends to be strongly affected by macroeconomic conditions. When the U.S. slipped into recession in 2008-2009, the hotel industry slumped as well. As Turner (2010) notes, "trading volume fell sharply…lodging operating metrics of RevPAR and ADR deteriorated accordingly." While the economy recovery somewhat over the past couple of years, there are signs now that growth is slowing again. In particular, RevPAR declined in September (De Lollis, 2012). After an optimistic start to the year, the slow pace of economic recovery appears to be weighing on the industry. That said, because the economy is at a key juncture where it could begin to improve rapidly or it could slip back into recession, the hotel industry finds itself in roughly the same position.

Choosing the right type of hotel is important to its success. If the brand is going to be a national chain, one might assume that the national demographics and economic conditions are key. However, for the local conditions it has been decided that the hotel will be located in New Orleans. The local economic conditions are generally unfavorable -- Louisiana has a low per capita income and the state has only a moderate population density. However, a mitigating factor is that the city draws tourists from across the globe. The local tourism industry has recovered strongly since it was devastated by Hurricane Katrina. Civic leaders have promoted conventions and a series of major events to boost occupancy rates and to bring more attention to the city, all as part of the long-term recovery plan. The tourism industry is reported to be thriving in recent months, as these efforts have resulted in bringing in more big events (Eggler, 2012).

Travelers to the city typically stay in large chain hotels, although there are a number of boutique options as well. Most visitors are of medium income or higher, and because they are traveling for pleasure they bring with them a high amount of disposable income. Due to a number of factors, most stay in the French Quarter or adjacent areas -- many cite safety concerns for avoiding large parts of the city. There is room, however, in the luxury segment. A large number of visitors to the city are retired, and others are wealthy. The luxury segment is not as well served as the mass market. Yet, luxury attracts visitors to the city, as evidenced by a number of highly-successful high-end restaurants. This hotel should be a medium-sized luxury facility, in the range of 100-120 rooms. The target market should be 45 years and older, mainly couples, and with a mix of American and European. This market will be mainly those on holiday, staying between 2-5 days. A couple will probably budget $500 a day for the trip, not including airfare.

3. The hotel's organizational chart will feature the following organizational chart. . The Front Office will head the hotel, with the General Manager in charge of the Front Office. There are going to be seven different units: food & beverage, front office, human resources, operations, facilities, sales, and accounting. Each of these divisions will have ahead that reports back to the General Manager. Each unit head will have a staff under him or her, and the larger staffs will have other hierarchical layers. For example, the Executive Chef will control the kitchen, and work at an equal level to the Bar Manager, who is in charge of the bar staff.

The reporting relationships will be kept simple. The Front Office will oversee each unit, and within the units the organization should be flat. There will not be a direct reporting relationship between the Front Office and the lower-level members of the different functional groups. If there is conflict between the Head Office and the work unit manager. Each front person will have specific responsibilities. In the general sense, each will be charged with the task of setting and implementing policy within their department, in accordance with the hotel's mission, vision and policies.

The Controller is head of accounting, and is responsible for all financial and managerial accounting functions, as well as finance. The Controller's group will also work with the Sales department and the other units to create the budgets, perform internal auditing and the development of internal controls and will also be responsible for settling accounts. The Sales Manager is responsible for developing sales forecasts, managing the sales team and developing marketing strategy. The Facilities Manager is in charge of maintaining the facilities (building and property), including maintenance, landscaping, security and plumbing. The Customer Service Director is in charge of housekeeping and laundry. The Food and Beverage Director is in charge of the kitchen, the bar, banquets and catering. The Front Office Manager is in charge of the front desk, the retail shops, reservations and customer satisfaction management. Lastly, the human resource manager is in charge or hiring/firing, benefits packages, compensation packages, anti-union strategies, training and evaluation.

4. The first part of the budget forecast is to understand the hotel's cost structure. This will consist primarily of fixed costs, since the hotel will generally operate at full staff and capacity at all times in order to ensure high-end service. Once the cost structure is known, the hotel will determine its breakeven price for a number of different occupancy rates. This will be measured against the estimates for market demand.

The demand forecast is going to take into account a number of factors. There are market factors, such as the size and growth characteristics of our market. Trends for the New Orleans hotel industry in general will be gathered. From this data, estimates of the potential market size will be put together. The next step in forecasting is to estimate the occupancy rates, and then gather information about price elasticity of demand. Gathering data on other hotels' prices, quality and occupancy rates will be important. The benchmarking technique is going to be used, by comparing the rates we want to charge, with the contribution margin that we need, and a select handful of close comparable hotels in the city. With this information, we should be able to estimate demand at a number of different price points. It is important that all real figures are gathered and compared with the forecasts, in order to determine how well the hotel is performing, and what changes to price need to be made next year in order to increase RevPAR, occupancy and ADR.