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Case Study -Gabriel Hotel
You have been appointed as the Revenue Management consultant to Gabriel Hotel on Forecasting
and Pricing optimization matters.
The following information has been provided to enable you to address all requirements that appear
on the last page of this case study.
OWNERS BRIEF
Welcome to our hotel. We hope that the following information will provide a clear picture of our
current situation and future expectations.
Current Situation
Our competitive set has experienced a steady decline in performance over the last five years. A soft
economy, along with increased competition from other cities, has begun to erode occupancy,
average daily rate, and gross operating profit. Finance and credit have been nearly impossible to
obtain. It was clearly a ‘buyer’s market’, where both Individual and Group clients expect exceptional
value at discounted prices. This year started relatively positive and the analysts hope that this is the
beginning of an economic sector recovery.
In the absence of available financing, and with dramatic decreases in profits from operations during
the last five years, area hotels have been unable to fund refurbishment or capital investment
projects, which would add value required to compete with neighbouring market areas. Considering
that we are a relatively new hotel that might already be, a competitive advantage.
Future outlook
Fortunately, developments in three key areas – the economy, our market area, and our hotel – are all
indicating opportunities for improved business performance this year.
Positive Market Area Developments

Last year’s government tax incentives have successfully attracted twelve companies to move
into the area this year with estimated increase in contract customers of 8,000 per month.

The airport authority has announced increased regional jet services through contracts with
two new discounted airline with estimates of up to 12,000 additional passengers per month

Following last year’s successful funding vote, the new Civic and Conference Center will open
in June with an additional inflow of 15,000 contract customers per month

The Tourism Authority and Hotel Association have joined resources to triple the
international promotional budget for premium travelers that might result to an increase of
10% compared to last year’s numbers.
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PROPERTY DESCRIPTION
Market Profile

Lead line: “…restore yourself at the city center of culture and heritage.”

Market Image: Unpretentious luxury and charm, integrating the best in technology and
comfort.

Newly build (5 years old)

Book value: Building €10M + FFE €6M = €16M or €64K per room

Full service

City Center – waterfront site

4 Star

Servicing business, leisure, tour, contract, large group, and small group segments

Very similar footprint, facilities, and services compared to competitors
FACILITIES

250 guest rooms: 50 premium and 200 standard

Two restaurants – 200 seats in total with adjoining 50-seat bar lounge section

One bay exercise room

Small pool and outdoor recreational area
SERVICES

Car parking (for a fee)

Digital national and international telephone service

Guest laundry and dry cleaning

Guest room digital entertainment

Room Service

Free Wi-Fi
REFURBISHMENT
With the exception of general upkeep and maintenance, the hotel facilities are new and do not need
any major renovations this year.
At the present time, none of the 3-4 star properties in the area have any advantages in facilities or
refurbishment. While there have been some minor refurbishment projects at other hotels in the
competitive set, the quality of all the properties is similar or inferior.
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NET RATES
Improving economic conditions should support higher room rates this year if you deem
necessary.
Last Year Net Rate Summary (rounded)

Gross Price Points and Limits
The following price points and limits are expected as the economy rebounds. The best rate
strategy is the one that produces the highest departmental profit. Generally, higher rates
reduce occupancy but increases profit, but only to a point. When rates approach the price
point limit in the market, occupancy can drop dramatically to the point that profit is severely
affected. There would probably be no occupancy at the price limit.

Room
Type
Price
LIMIT
Premium 400
BAR Standard 320
Packaged 300
Tours/Groups 200
Contract 275
ADR (€) Quarter 1 Quarter 2 Quarter 3 Quarter 4
Premium 290 280 310 320
Bar Standard 180 190 180 200
Package 220 240 270 250
Contract 115 120 125 130
Tour/Groups 80 90 100 90
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AREA OCCUPANCY AND MARKET SEGMENT MIX
Local area occupancies were higher this year than the previous year. However, the market segment
mix and weekday-to-weekend ratios remained similar to previous five years. Our Hotel’s market
share has been estimated to be around 2% of the total rooms available for sale.
Weekends include three nights: Friday, Saturday, and Sunday.
Occupancy
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Weekday Occupancy % 50 60 60 65
Weekend Occupancy % 70 75 70 80
Market Segment Mix Quarter 1 Quarter 2 Quarter 3 Quarter 4
WEEKDAY: %
Premium 25 25 26 24
Bar Standard 13 14 13 10
Packaged 22 22 23 22
Contract 23 22 21 23
Tour 17 17 17 21
TOTAL WEEKDAY % 100 100 100 100
WEEKEND: %
Premium 15 14 15 14
Bar Standard 15 16 16 15
Packaged 30 29 31 32
Contract 20 21 17 20
Tour 20 20 21 19
TOTAL WEEKEND % 100 100 100 100
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PAST DEMAND DATA BY MARKET SEGMENT MIX AND QUARTER 2012 – 2017
The following two tables provide the number of rooms occupied by the various segments. The
information is provided on a quarterly basis. Furthermore the data is broken down into weekday
demand (Monday to Thursday) and weekends (Friday to Sunday).
Weekdays Demand
Premium Bar Standard Packaged Contract Tour
2012
Q1 550 1’028 628 1’499

2’285
Q2 610 1’065 660 1’530

2’600
Q3 600 1’064 659 1’550

2’400
Q4 540 1’020 600 1’530

2’200
2013
Q1 566 1’057 642 1’430

2’299
Q2 626 1’094 675 1’500

2’500
Q3 616 1’093 674 1’560

2’240
Q4 555 1’048 614 1’500

2’027
2014
Q1 581 1’086 657 1’473

2’013
Q2 642 1’124 689 1’545

2’683
Q3 632 1’123 688 1’607

2’387
Q4 524 1’077 628 1’545

2’054
2015
Q1 550 1’115 671 1’517

2’027
Q2 610 1’155 604 1’591

2’578
Q3 600 1’154 603 1’655

2’641
Q4 494 1’107 642 1’591

2’282
2016
Q1 519 1’146 686 1’563

2’041
Q2 577 1’186 619 1’639

2’677
Q3 568 1’185 618 1’705

2’603
Q4 464 1’137 657 1’639

2’110
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2017
Q1 530 1’210 700 1’663

2’141
Q2 600 1’250 630 1’739

2’777
Q3 610 1’320 645 1’805

2’703
Q4 486 1’230 689 1’739

2’210
Weekends Demand
Premium Bar Standard Packaged Contract Tour
2012
Q1 1’200 1’465 1’192 1’338 1’565
Q2 1’100 1’480 1’220 1’340 1’900
Q3 1’120 1’470 1’210 1’300 1’820
Q4 1’050 1’400 1’100 1’310 1’800
2013
Q1 1’236 1’506 1’314 1’554 1’620
Q2 1’133 1’521 1’342 1’555 1’956
Q3 1’154 1’511 1’332 1’515 1’873
Q4 1’082 1’439 1’220 1’525 1’852
2014
Q1 1’273 1’548 1’336 1’671 1’976
Q2 1’167 1’564 1’365 1’671 2’014
Q3 1’188 1’553 1’355 1’630 1’928
Q4 1’114 1’479 1’240 1’640 1’906
2015
Q1 1’311 1’592 1’359 1’688 2’035
Q2 1’202 1’608 1’389 1’587 2’075
Q3 1’224 1’597 1’378 1’545 1’985
Q4 1’147 1’521 1’261 1’556 1’962
2016
Q1 1’351 1’636 1’382 1’705 2’097
Q2 1’238 1’653 1’412 1’603 2’138
Q3 1’261 1’642 1’401 1’561 2’044
Q4 1’182 1’563 1’282 1’571 2’021
Q1 1’460 1’710 1’450 1’807 2’080
2017 Q2 1’340 1’686 1’580 1’705 2’130
Q3 1’358 1’676 1’587 1’663 2’046
Q4 1’212 1’600 1’460 1’670 2’020
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CHANNEL DEMAND AND TRANSACTION COSTS
Demand per channel is expected to follow the same pattern as last year:
Channel Demand (%) Direct GDS OTA Whole Sale
Premium 20 50 30 0
Bar Standard 30 20 50 0
Packaged 40 30 30 0
Contract 50 50 0 0
Tour 0 0 0 100
The estimated marginal costs for this year are:
Transaction Costs:
Other marginal costs per room night:
Week Days Weekends
Segment Room
Amenities
Room
Cleaning
Segment Room
Amenities
Room
Cleaning
Premium 25 12 Premium 30 16
Bar Standard 15 10 Bar
Standard
18 13
Packaged 10 8 Packaged 12 11
Contract 12 8 Contract 14 11
Tour 8 8 Tour 9 11
Direct GDS OTA Whole Sale
Per Room Night 0 € 30.00 € 40.00 € 15.00
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REQUIREMENTS:
The following key performance indicators (KPI) should be covered at various sections of
your report.
1. Critically review relevant literature related to the revenue management concepts of
forecasting and pricing (15%).
2. Calculate the optimal price for each segment for week and weekend days based on the
current hotel’s market segment mix (10%).
3. Compare the optimal price for each segment with the current rates charged by your hotel
and comment on your findings (10%).
4. Use the optimal price findings and estimate expected demand on a yearly base for each
segment (10%).
5. Find the price elasticity of demand for each segment at optimal price and comment on your
findings (10%).
6. Perform time series decomposition and prepare seasonally adjusted data for all market
segments by using the additive model (10%).
7. Forecast anticipated Rooms demand for next year on a quarterly base by testing two noncausal forecasting methods (10%).
8. Provide suggestions for middle (2-3 years) and long-term (5 years) strategies and directions
by using quantitative and qualitative data (15%).
9. Presentation of written work. The final report is well written, reflects accurate proof reading
with no grammatical, syntactic, spelling or typographical errors, style of writing is consistent
throughout and the report represents a coherent, integrated and holistic paper (10%).
Recommended Report structure by section (please see the relevant project outline on moodle for
specific details for each section).
1. Introduction (300 words)
2. Current literature (700 words)
2.1. Pricing
2.2. Forecasting
3. Results Presentation and Analysis (1000)
3.1. Pricing Rooms
3.1.1.Optimal Price estimations
3.1.2.Comparison of Prices
3.1.3.Rooms demand estimation
3.2. Forecasting Rooms Demand
3.2.1.Price elasticity of demand
3.2.2.Time series decomposition
3.2.3.Rooms demand forecast
4. Conclusion and recommendations (500)
4.1. Short-term recommendations
4.2. Middle-term recommendations