Due to a weak local economy, business is slow at the Haymen House, a 300-room property owned by the Haymen family. Last month's ADR was $159.00. Occupancy was 58.5 percent— down from the prior year's same month occupancy of 65 percent. Bill Zollars, RM for the Haymen House, and Rebecca Mornay, the hotel's GM, forecast that this month's occupancy will also be approximately 58.5 percent and at the same ADR.

 

"We're down six and half occupancy points from last year! That's a 10 percent decline. We need to cut prices so we can fill these rooms," says Andrew Haymen. "If we increase our discounts, I think we can shoot for a $139.00 ADR, sell more rooms, and get our revenue back up to where in needs to be."

Assume Mr. Haymen mandates his new rate strategy and that he is correct in his prediction that the next month's overall ADR is $139.00.

 

1. What would be the percentage decrease in ADR experienced by the Hayman House?

 

2. Assume that this month and last month each contained 30 days. How many total rooms would have to be sold at an ADR of $139.00 to equal the rooms revenue achieved last month?

 

3.  What would be the percentage increase in occupancy required to equalize the rooms revenue achieved last month?

 

4.  Why does a 10 percent decrease in ADR require more than a 10 percent increase in occupancy percentage to equalize room revenue?

 

5.  What additional factors would you suggest Bill and Rebecca might mention to this owner as they discuss the advisability of his proposed pricing strategy?