Explain how a luxury hotel in Salt Lake City might achieve a ...

[erika]

Question 1

Name at least two ways of measuring the direct spending impact and explain how each works.
 
  What will be an ideal response?

Question 2

Explain how a luxury hotel in Salt Lake City might achieve a lower ADR than a midscale property in San Francisco and still be profitable.
 
  What will be an ideal response?

[Yixagurpuldink]

Answer 1

One method is called the raising ratio technique. Here spending measurements are taken on a small sample of visitors and an estimate is made as to the proportion that this group represents of all visitors. If that number is 2 and their spending amounts to 50,000, then dividing 50,000 by .02 will yield an estimate of total spending of  2.5 million. This assumes that the non-sampled visitors maintain the same average level of spending as those in the measured sample. Another approach is known as the residual receipts model. This model depends on determining the level of spending in an area accounted for solely by local residents. Thus, total spending in the area less that spent by locals would measure the residual or amount spent by visitors. If total spending amounts to 5 million and local spending accounts for 4 million, then visitors must have brought in 1 million. A related method, known as the seasonal difference model, follows a similar approach. Here, local spending is estimated for a non-tourism season (winter for a warm weather destination), and that spending level is assumed to represent the local amounts throughout the year. Then that amount spent by the local residents is subtracted from an estimate of total spending and the difference is attributed to spending by visitors.

Answer 2

Location will define the cost structure and cost of living within an area and local lodging rates will reflect these levels. Even though ADR may be lower than in another area, when that happens, chances are that operating costs will be correspondingly lower.

[erika]

Thank you!

[Yixagurpuldink]

Always glad to help...