We then subtract the Undistributed Expenses (including Adm. & General, Marketing, Repairs and Maintenance, Energy Costs, etc.) to obtain the Gross Operating Profit of the Hotel and we subtract Fixed Charges (including Equipment and other Rent / lease, Real Estate and other Taxes, Building and other Insurance, etc.) to obtain the Net Operating Income.
United Arab Emirates POR The main size and performance measure in the Hotel industry are identified as the Occupancy Rate, multiple occupancy factor, annual sleepers, GUR (number of sleepers per available bed) ARR (Average Room Rate), Revenues PAR (per available room), Revenues (Per Occupied Room). The main profitability measures of an Hotel are based on Gross Operating Income (GOI-Par and GOI-Por) and to Net Operating Income (NOI-Par and NOI-Por). Hotel valuation multiples are often linked to RevPar, GopPar and NoiPar.
Nice, but it is time to make few changes. Although the Hotel industry is less subject to rough changes, there are two drivers that would suggest to the Hotel Financial Control to make some development to the above reclassification: Internet based booking and the new Real Estate financial structures. Let's see how these drivers may lead to some upgrades in our way to look at the accounts of an Hotel.
Hotel bookings include direct bookings at the Hotel (via telephone or Internet based), "chain" label driven bookings and Internet media bookings (via major Internet bookings media). Each of these channel requires a different organization structure, different contracts and different costs. It is not a simple sales and marketing choice with associated Sales and Marketing costs: the decision to stress the Internet channel changes rather than the traditional channels dramatically change the Hotel operations and the Hotel P&L. We worked as Advisor together with an Hotel manager in a famous location in Italy. We decided that the "chain" label driven booking was too expensive and could be replaced by Internet media bookings. The result was an increase in the overall Hotel occupancy rate with no decrease in the Avg Room Rate. The installation of the new system required an overall three months investment, peanuts in comparison with what the Hotel was paying to have a famous label on the door. But in order to really monitor each cent of cost we needed to chance the Hotel Financial Control system.
The issue is: Is it correct that the Hotel Financial Control considers Sales costs as Undistributed Expenses, as these costs are not evenly insisting on the different revenue stream? In other words: what we noticed is that the Sales channel brings different Sales costs on Room Dept and on F&B Dept. If these is the case, we might therefore decide to include the different impact of Sales channel expenses on the department. P&L with more accuracy.
A different issue on the Hotel Financial Control structure rely upon the new Real Estate ownership. Hotel Real Estate are increasingly owned by financial investors that very little care about the characteristics of the Hotel business and are very demanding: they require a stable financial flow, possibly a higher reward based on the performance of the Hotel and they look at long-term capital appreciation. The structure of the lease / rent contract and its cost is therefore not simply one of the fixed costs of the Hotel but is "the" cost. The Hotel Financial Control cannot simply include this in a row down in the P&L, but a much in depth analysis is needed. We might want to include the contingency share of the lease / rent in operating expenses so that our Dept. profit really reflect the profit to the firm. In addition we might want to define into a proper P&L figure the relevant lease / rent expenses.
Finally a few words on other issues: telephone revenues and SPA revenues.
Everybody attending an hotel owns at least one mobile telephone and pretends full Internet coverage: Hotel telephone revenues are therefore limited. The wellness area, including SPA and fitness revenues instead are increasing: the Hotel Financial Control often replaces the telephone Dept line with the SPA Dept. line.
As Advisor in this industry, we are therefore challenged with the clients' need for further improvements in Hotel Financial Control so that it really supports the management in its decisions.