Despite 5-year plan, for Solberri the strategy means short-term survival and action by summer 2008.
The priority is (1)the need to raise occupancy and earnings generated from additional charges and (2)the marketing campaign to secure it.
The board has set targets for the coming year: 193m revenue, 85% occupancy and an increase in charges for additional services from 15 per cent to 17 per cent on top of all-inclusive room fees.
Calculation in Appendix 1 shows that, providing that Solberri hits its occupancy targets of 85%, room rates stay constant and it manages to add 17 per cent to guests' bills for additional charges, it may hit the target.
So it couldn’t be clearer that the key driver for profitability is the occupancy level achieved, so it should be the focus of concern.
Solberri’s main tools for achieving higher occupancy rates in 2008 are as follows:
* A rolling refurbishment costing 12m to convert two hotels from "superior" to "premier" grade to secure higher room rates and occupancy.
* Higher occupancy resulting from marketing activity costing 22m.
* An increase in the amount gained from "additional charges" for spa treatments and tuition fees for a variety of sports.
Our judgment and advice go as followed:
1 The 8m loan together with earnings from operation should be used to finance the refurbishment because Solberri is relying on this quickest way to boost occupancy although once the planned increases in occupancy rates and additional charges failed, the cash flows may not be enough to sustain the further refurbishment.
2 The marketing activity should also be financed. We have advice for Solberri’s three market routes:
1) P2P. A stronger cooperation relationship with travel agencies with goodwill is essent ...