Ques 2.) Can you quantify the value of the HHonors program to Hilton ? How does the value generated by the program compare to the program's cost? Ans.) In mid-1999, the properties branded as Hilton hotels comprised of; 1. 39 owned or partly owned by HHC in the United States, 2. 207 franchised by HHC to third party managers in the United States, 3. 16 managed by HHC in the United States on behalf of third-party owners, 4. 10 managed internationally under HHC's Conrad International brand, 5. 220 managed by HIC in over 50 countries excluding the U.S. Revenues had been in the region of $158 per night per guest, and occupancy had exceeded break-even. Hotels like Hilton's tended to cover fixed costs at about 68% occupancy, and 80% of all revenue at higher occupancy levels flowed to the bottom line. Advertising, selling, and other marketing costs (a component of fixed costs) for this group of hotels was not published, but industry norms ran at about $750 per room per year. The company was already making a profit, it reached break even at 68% of occupancy. L.e. revenue at higher occupancy levels will generate profits for Hilton. HHW program helps Hilton to run at higher occupancy level and hence revenues generated by the program will contribute to make profits for Hilton. The breakeven point is 68% x 154,000room x 365nights = 3,8222,800 nights or 3,8222,800 nights x $158 = $6,039.2 millions. Table B Members' Paid Activity in 1998 Stays for Spending Members which Nights for on which Stays per Nights Reward active in members which they earned active per active nights Members 1998 paid they paid points member member claimed by (010) (000) (000) (000) ($000) in 1998 in 1998 members Diamond 24 20 310 521 $62,030 15.5 26.1 27 000 Gold 220 84 1,110 1,916 6266,000 13.2 22.6 34,200 Silver 694 324 1,023 1,999 6341,000 3.2 6.2 70,200 Blue 1,712 942 1,121 2,579 $439,000 1.1 2.6 48,600 Total 2,650 1,420 3,564 7,015 $1,108,000 2.5 4.9 180,000 From the above table, number of nights actually paid by members is: 7,015,000nights + 712,000 stays x 2.5 nights - 180,000 claimed nights = 8,543,800 nights. Total revenues from members is: $1,108million + $327million = $1,435million. Percentage of nights by members over nights required at breakeven is 8,543,800/3,8222,800 = 0.224 or 22.4%. Percentage of revenues by members over revenues at breakeven is: $1,435/$6,039.2 = 0.2376 or 23.76%. If we compare the revenue generated by the program with revenue at breakeven, we see that the program increases revenue by 23.76%
