Case Description

Hotel Le Bonheur
CASE COMPANY DESCRIPTION
BACKGROUND
Hotel le Bonheur has its roots in the beginning of the 20th century when it was a successful boutique
hotel with nearly 100% fill-rates year around. The hotel managed to go through both World Wars and
great depression without too much damage to the business, but it ran into troubles during the liberal 60’s
due to its ultraconservative policies of not allowing couples to dwell in the same room unless they were
married.

Different, some less glorious than other, episodes followed and one particularly worth mentioning took
place in the 70’s and early 80’s. At that time the hotel was called Happiness Hotel and its permanent
(and non-paying) residents included cheerful fellows by the names of Rowlf, Scooter, Rizzo, Pops, Crazy
Harry, Lew Zealand, Swedish Chef, Sam the Eagle, to name a few. During this period Happiness Hotel
was often also frequented by a little green frog called Kermit and a friendly bear called Fozzie. It was
widely agreed there was no merrier place on the face of earth during that time. However, sooner than
later it became obvious that the large proportion of non-paying residents combined with the dominant
principle of paying by sneaking out in the middle of the night did not provide for sustained operations of
the hotel. In addition, however unlikely it seemed at some point, several of the regular residents matured
and entered the life married with children. Even the last resident left the ramshackle Happiness Hotel in
the mid 80’s.

From the mid 80’s the hotel was deserted until it was purchased (virtually it was given away) by Ronald
Charriott and his newly-wed wife in the late 90’s. Ronald had made millions in real estate development
and he wanted to step away from the fast lane and enjoy life with his young wife. Ronald invested
significant sums of money into the restoration of the hotel, changed the name back to its original form,
and it did not take long before the hotel was back to its heydays.

However, Ronald has always been more successful in real-estate than marriage development and the
holy matrimony fell apart. After a series of legal disputes Hotel le Bonheur was ordered for ex. Mrs.
Charriott. She quickly realized that her strengths are not in running hotel operations and she hired you to
take the helm. It is needless to say that going back to the 70’s style does not work. Despite her obvious
lack of operational skills, ex. Mrs. Charriott has strong business sense and she does not accept sloppy
practices. She also expects a solid stream of dividends to support her not-so-modest lifestyle. In
addition, minority of Hotel le Bonheur shares are traded at a small over-the-counter marketplace.

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Hotel Le Bonheur
CASE COMPANY DESCRIPTION

As a word of caution, it has to be mentioned that there has already been one new management team
before you. Their performance was not satisfactory and ex. Mrs. Charriott was seen walking into the
management meeting and bluntly stating: “You’re fired”. Generally speaking, it seems that the
competition will intensify during the coming years. At the same time the new management team is
expected to grow the business so there are plenty of challenges ahead.

Finally, it has to be said that you and your team were not chosen to run Hotel le Bonheur by accident.
The owners feel that their trust in you is well founded and now it is time to show what you can do.

GENERAL BUSINESS SITUATION

Decision-making is done separately for two seasons; summer and winter according to the seasonality in
Hotel le Bonheur’s business. Both seasons are considered to be 6 months long. The hotel has currently
50 rooms and it is predominantly considered to be a resting place for leisure travelers. However, also
business travelers are often seen in the hotel especially during the winter months. Business guests are
more than welcome because the high season for leisure travelers is summer. Most of the year’s profit is
made during the high season and during the low season the main goal has been to avoid losses. To
level off some of the seasonality fluctuations the owners have considered establishing new operations
abroad. To expand or not to expand will be the new management team’s decision.

Typically, a large proportion of the room capacity is sold in advance through different channels. The
management makes the decisions of how much of the capacity is sold year (two periods) in advance,
and half a year (one period) in advance. Operators in the pre-sale market make their business on the
margin between the purchase price (=how much they pay to you) and the sales price (=how much they
can charge from the end customer) so they are very sensitive to the price. Moreover, high price is almost
impossible to compensate by other sales affecting factors such as marketing efforts, quality and payment
terms. The prices and volumes agreed with the channels are mutually binding.

For each decision-making period you decide the walk-in room rate and the amount of rooms sold is
dependent on how your price compares to the competitors. In addition to price, the demand is influenced
by marketing efforts and quality of your operations.

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Hotel Le Bonheur
CASE COMPANY DESCRIPTION

PERSONNEL AND OPERATIONS

The hotel should have a body of permanent employees who are able to perform with high level of
efficiency, as well as enough temporary employees who can provide the flexibility that is needed to
manage the inherent seasonality in this business.

You have the freedom to recruit the needed personnel to meet your operational and financial goals.
Temporary personnel are hired at a prenegotiated salary, but you decide the compensation level for your
permanent employees. Salary decision will influence both recruiting success and retention success. You
should avoid high personnel turnover since that reduces the personnel’s level of competence and
causes higher recruiting costs. You can also use training to increase the motivation and efficiency of the
personnel.

Both operating costs and administrative costs can be influenced by re-engineering efforts, which aim to
better, leaner and more efficient processes.

Investments can be made to additional room capacity as well as to renovating existing rooms. In both
cases it takes one period to have the investment ready and operational. Renovation increases the
overall quality of the hotel.

FINANCING DECISIONS
On financing decisions page you can decide about loans and dividend payments. When you make the
loan decision you need to take into account that the more expensive short-term loans are taken
automatically if the company does not have sufficient funds to run the operations. Furthermore, dividend
payments can only be done if you have the equivalent amount of funds under your retained earnings on
your balance sheet.

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Hotel Le Bonheur
CASE COMPANY DESCRIPTION

EXPANDING OPERATIONS TO A NEW MARKET

You may be offered an option to expand your operations to a more leisure-traveler driven location. If this
option is available, you can see a separate tab both on the Sales page as well as on the Operations
page. In the standard case the markets are called Domestic and International, but your instructor may
have renamed the markets.

If you decide to start operating on the new market area you have two options for establishing your
presence. You can either build your own hotel or lease a hotel. In both cases the land is leased. You
also need to take into account that you have to make investment or leasing decision one period before
the actual operations can start. Channel sales are possible already during the same round when the
investment/leasing decision is done.

Tourist traveling is playing a major role in the new market and the differences in the seasonal demands
can be high.

In the new market the room sales take place predominantly through channels. Walk-in sales are
expected to be a very small proportion of the total sales. Advertising plays quite an important role
because the channels have plenty of hotels to choose from. It is essential to create enough pull with
advertising to make the channels interested.

Salary and other cost levels are significantly lower compared to the home market. Also the recruitment
costs and lay-off costs are less so the personnel management is not quite as crucial as in the home
market. Furthermore, access to formal education that is available at hotel schools is limited in the new
market and the general quality of employees is lower than in the home market. However, by investing in
employee training in the new market the efficiency can be improved considerably. As an exception to the
general price level, the real estate prices are heavily inflated due to speculation and almost as high as in
the home market.

Customers’ quality expectations are not as high as in the home market. This means that some mishaps
in service are more easily forgiven in the new market. Some say that this is also because most of the
time the guests have their spirits lifted with the help of spiked mango juice.