Hotel Performance Essay

MEASURING PERFORMANCE AND PRODUCTIVITY IN HOSPITALITY SECTOR

Introduction

In every economy, there exists different sectors which offer different types of goods and services to the customers. Of them, Service sector is unique as it offers services to the customers instead of tangible products. It is often called as the tertiary sector of the economy. Today, there is a reasonably high degree of probability that a given product, in the market, will become obsolete in near future. However, this is not the case for services as they have gradually turned into necessities and cannot be usually replaced. Service industry is the backbone of social and economic development of a country. It has the capacity to generate employment opportunities in the

This model which implies “maintaining average room rent at 0.1% of capital investment” does not consider asset utilisation. Profitability of any company is usually analysed by using return on investment. These results from two major factors: profit margin and asset utilization which is also called as "turnover." They produce common measures of performance in the hospitality industry:

* Average Daily Revenue per Occupied Room = Total Revenue / Number of Occupied Rooms

* Occupancy Rate = Number of Occupied Rooms / Number of Available Rooms

The average room rate represents incomplete measures of sales performance. A higher level of total revenue from rooms will not necessarily result in increased occupancy level with decrease in room occupancy rate or vice versa. This incompleteness of the indicators can be solved using another indicator – revenue per available room (RevPAR).

The DuPont Model describes the productivity or profitability relation as the interaction of profit margin and asset utilization. Revenue per Available Room (RevPAR) is derived by combining the measures of room revenue and occupancy. Revenue per available room is a measure of yield i.e. the measure of the interaction of the primary factors. RevPAR = Average Daily Revenue per Occupied Room x Occupancy Rate

Income from food, beverage & banqueting saw a healthy growth of 24%. Revenue from other operations saw a marginal increase of 1.5%. Whereas, Non-operating income increase by 643% mainly due to Interest Income, Gain on sale of current investments and Profits on sale of fixed assets.

If we compare the revenue growth of both the companies, we see that Hotel Leela Venture has done much better compared to Taj Group of Hotels. This is mainly due to the better sales of food, beverages and banqueting by Leela in the operational front. The major portion of incremental revenue for Hotel Leela Venture is due to profits on sale of fixed assets. Both the companies suffered decline in room income due to decline in ARR.

The consolidated operating expenses for both the companies are as follows:

Taj Group of Hotels (figures in Rs. Crores)

Particulars Year Ended % Change 31st March, 2014 31st March 2013

Consumption of Raw Materials

Employee Benefits Expense

Licence Fees

Fuel, Power and Light

Depreciation

Other Expenditure