You are the CEO of Greater Canada Hotels Company Limited (GCHCL). GCHCL has been successfully owned (private equity) and operated for over 20 years. However, some of the properties are very much dilapidated and accordingly need repair, renovation, and capital improvement work. As such, your CFO, David Johnson, has identified the need for GCHCL to generate at least $45 million in EBITA from room sales to foreign hotel guests in order to finance the required property enhancement projects. This specific task has been assigned to your VP - RM, Samantha Hughes.
Samantha has been with your company for about 10 years and has done an excellent job with building a rewarding and sustainable relationship with local (domestic) and foreign (international) markets. Accordingly, throughout the calendar year, with the exception of peak periods of demand, local (domestic) patrons are offered room discounts for the hotels located in Niagara Falls. Therefore, discounted room rates will be available to local patrons during the high, shoulder, shoulder low, and low seasons in Niagara Falls. Based on pre-covid demand and other historical data, Samantha believes that demand for these four (4) seasons will be as follows and in order of season: 380, 890, 1620, and 2070 room nights.
As such, Samantha will have to figure out the room mix required amongst GCHCL properties in order to achieve this target EBITA of $45 million from international guests. The additional revenue generated from local (domestic) guests will go into a capital reserve account for emergency expenditures.
David Johnson has been very helpful with respect to this RM project and has done some additional research work. Based on historical room sales data, David has determined that Average Room Rate (ARR) has varied and improved across the different seasons. This information has been provided to Samantha in the MS Excel template that Samantha will be working with in order to come up with an optimal room mix solution. These values are identified as ARR Seasonal Multipliers in said MS Excel template.
Furthermore, David and Samantha participated in a joint RM – Finance meeting earlier today and have determined that the local hotel guests will contribute about 40% of Net ARR in comparison to their international guest counterparts.
Case Study Requirements
1. Use MS Excel and the project template provided to determine a room mix to achieve the $45 million EBITA target from international hotel guests. (30 Marks)
2. Using MS Excel, extend your work in question 1 to develop an optimization template that addresses all the issues raised in the case. The objective is to maximize the sum of the local revenues in the four seasons that Hotels A to E in Niagara Falls are open to local residents.
The case has two decision variables. These are the room mixes needed to market to
a. foreign guests across the five seasons at the 10 hotels, and
b. local guests across all but the peak season in Hotels A to E in Niagara Falls.
The first decision variable has already been defined in question (1) one above.
The second decision variable pertains to the room mix to be sold to local residents during the high, shoulder, shoulder low, and low seasons at Hotels A to E in Niagara Falls.
3. After you are done with the optimization template, provide a formal written report in MS Word which speaks to how you would
a. make the $45 million EBITA target easier to achieve, (20 Marks) and
b. raise a higher amount for financing CSR projects. (10 Marks)
NOTES: Please make sure you adhere to and comply with APA 7th edition.
You need to provide as much detail as possible. Do NOT provide a one or two sentence response to question 3a and 3b.
This is a formal report and therefore ensure it is written with both clarity and direction.
You must include your MS Excel workbook as part of your case study submission package.
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