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Summary Slide

Summary Slide. Room Rate Structure Hubbart Formula Hubbart Formula – Schedule I Diagram – Hubbart Formula – Schedule I Hubbart Formula – Schedule II Diagram – Hubbart Formula – Schedule II Hubbart Formula – Schedule III Diagram – Hubbart Formula – Schedule III

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Summary Slide

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  1. Summary Slide • Room Rate Structure • Hubbart Formula • Hubbart Formula–Schedule I • Diagram–Hubbart Formula–Schedule I • Hubbart Formula–Schedule II • Diagram–Hubbart Formula–Schedule II • Hubbart Formula–Schedule III • Diagram–Hubbart Formula–Schedule III • Other Rate Calculation Methods • Room Rate Designations • Room Rate Designations • Diagram–Weekday vs. Weekend • Rate Averages • Exercise Figure 7-1

  2. Room Rate Structure • The combination of all the rates offered at a hotel is called the rate structure. • Hotel room rates are both quantifiable and qualifiable. • Average Daily Rate (ADR) is aterm used in different ways. In this analysis, it is used to determine a starting point in establishing a hotel’s rate structure. Figure 7-2

  3. The Hubbart Formula • Roy Hubbart developed a method to calculate a hotel room rate based on the costs incurred in operating the hotel and a reasonable return on investment for the investors • The Hubbart Formula incorporates three schedules. I looks at specific financial calculations, II looks at the rates per occupied room, and III incorporates square footage into the analysis. Figure 7-3

  4. Hubbart Formula– Schedule I • Traditional room cost is considered • In addition, Return on Investment is factored in to give owners/investors a fair rate of return. • What hotel trend precipitated the need to incorporate ROI? That is, what changed in the industry and what other industries became involved? Figure 7-4

  5. Figure 7-5

  6. Hubbart Formula– Schedule II • The figure reached at the end of Schedule I is used to determine the average daily rate the hotel would need to charge to meet its obligations (operating costs and owner ROI). • Schedule II incorporates opportunity cost. • Schedule II also assumes an average occupancy percentage. • How can using the 70% occupancy figure sometimes cause problems? Figure 7-6

  7. Figure 7-7

  8. Hubbart Formula– Schedule III • Schedule III makes an assumption that larger rooms are more expensive to maintain. • A square footage calculation is made of the area of all the guestrooms in a hotel. • What are some of the drawbacks of using a strict square footage calculation? Figure 7-8

  9. Figure 7-9

  10. Other Rate Calculation Methods • Cost Rate Formula • Market Tolerance • Shop Around • What ways could a hotel determine its rate structure? • Why are anti-trust concerns so important? Figure 7-10

  11. Room Rate Designations • Term used to specify the rate threshold within the overall structure. It simply “ranks” all the rates within the rate structure. • Rack Rate • Corporate Rate • Volume Account Rate • What is a target rate? Figure 7-11

  12. Room Rate Designations • Additional rate designations include: • Government Rate • Seasonal Rate • Weekday/weekend Rate • Membership Rate • Industry Rate • Walk-in Rate • Premium Rate • Advance Purchase Rate • Package Rate • Per person and Group rates Figure 7-12

  13. Weekday vs. Weekend Figure 7-13

  14. Rate Averages • Used to determine the average revenue figure of specific rates.The most commonly used figure is ADR. Others include: • Gross Average Rate • Net Average Rate • Group Average Rate • Transient Average Rate • Market Segment Averages • Room Specific Averages Figure 7-14

  15. Rate Structure Internet Exercise • Using the Web sites and hotels you identified in the Internet exercise of Chapter 3, compare the different rates available for a given day. • Why would a hotel identify several rates within its rate structure this way? • Do the needs of guests differ greatly? • What are the benefits/drawbacks of offering only one rate per day? Figure 7-15

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