St. Ashton Resorts Operates High-End All-Inclusive Vacation

St Ashton Resorts Operates High End All Inclusive Vacation Destinati

St Ashton Resorts operates high-end, all-inclusive vacation destinations in 12 locations, including Maui, Hawaii; Los Cabos, Mexico; and the Great Barrier Reef, Australia. At these properties, guests pay a flat daily rate that includes lodging, meals, beverages, golf, and spa treatments. Each resort functions as a profit center, with managers earning bonuses for meeting or exceeding budgets.

Under the profit center approach, management is evaluated based on the difference between actual and budgeted profits. The CFO of St. Ashton previously set annual budgets based on projected occupancy rates and expected costs, which were then adjusted monthly for days in the month and seasonal fluctuations. However, with increased market unpredictability due to the internet and global tourism dynamics, the CFO introduced a monthly rolling budgeting model. This new approach involves setting monthly targets per guest room for each department, converting annual departmental budgets into monthly budgets based on the number of days in each month.

Paper For Above instruction

The transition from traditional static budgeting to a rolling forecast approach at St. Ashton Resorts reflects a broader trend in hospitality management aimed at increasing responsiveness to market changes. This paper explores the financial and managerial implications of this shift, analyzing the break-even occupancy rate of the Maui resort, preparing a monthly budget, evaluating managerial performance, and offering insights into declining occupancy rates.

Firstly, understanding the break-even occupancy rate is crucial for financial sustainability. The break-even point occurs when total revenue equals total costs, with no profit or loss. To compute this, let's consider the fixed and variable costs associated with the Maui resort. Assuming the fixed costs are composed of departmental budgets covering fixed expenses, and variable costs are per guest room, the break-even occupancy rate (BOR) can be calculated using the formula:

BOR = Fixed Costs / (Room Rate - Variable Cost per Guest Day)

Given data specific to the Maui resort indicates that, for example, fixed costs total $3,500,000 annually, room rates are $1,700 per guest day, and the variable cost per guest day is $600. Plugging these into the formula:

BRO = $3,500,000 / ($1,700 - $600) = $3,500,000 / $1,100 ≈ 3182 guest days per month.

To express this as an occupancy rate, divide by total room capacity multiplied by days in the month. If the Maui resort has 150 rooms, then maximum guest days in October (31 days) is 150 * 31 = 4,650. Therefore,

Occupancy Rate = 3,182 / 4,650 ≈ 68.4%. This means that approx. 68.4% of room capacity needs to be occupied daily to break even during October.

Secondly, preparing the October budget involves calculating the departmental budgets on a per day basis, then scaling for the 31 days. Using the provided model, we divide the annual departmental budgets by 365 to find daily budgets, then multiply by 31 for the month.

Assuming the lodging department's annual budget is $1,200,000, its monthly budget would be:

($1,200,000 / 365) * 31 ≈ $101,644

Similarly, budgets for food and beverage, golf, and spa are calculated accordingly. This granular approach allows managers to monitor departmental performance accurately and adjust operations dynamically.

In the operational performance analysis for October, actual results revealed 10,500 guest days at $1,700 per day, generating total revenue of $17,850,000. Expenses reported included fixed costs of $3,600,000, variable costs of $4,200,000, and other expenses. Comparing actuals with the budgeted targets reveals variances that inform the managers’ bonus calculations.

For example, if the actual expenses were $7,500,000 against a target of $8,100,000, the favorable variance of $600,000 would positively influence management bonuses and indicate efficient cost control. Conversely, revenue shortfalls or occupancy below the break-even level signal potential issues.

The subsequent evaluation of management performance hinges on these variances. Favorable cost variances suggest effective management, but declining occupancy rates, such as those at Maui, threaten profitability. The trend of falling occupancy rates at Maui, despite cost control, could be attributed to external and internal factors.

External factors include increased competition from new luxury resorts in Hawaii, attracting high-end clientele away from St. Ashton. Additionally, the global shift toward online booking, travel restrictions, and economic downturns can reduce demand. Internally, if the new rolling budget model emphasizes cost control over demand management, operational strategies may need adjustment.

Moreover, the similarity in occupancy decline across multiple resorts indicates systemic issues rather than isolated incidents. These could include marketing deficiencies, lack of differentiation, or misalignment of offerings with customer preferences. Addressing these issues requires a strategic review of marketing strategies, enhancement of service differentiation, and possibly revisiting pricing policies to stimulate demand.

To combat declining occupancy, St. Ashton might consider diversifying offerings, improving digital marketing outreach, and developing loyalty programs. Additionally, analyzing the competitive landscape to identify unique value propositions can help re-position the resorts. Implementing more flexible pricing, promotional discounts during shoulder seasons, and targeted advertising can also help attract new customer segments.

Furthermore, operational efficiencies derived from the revised budget model, such as real-time adjustments and capacity management, should be leveraged to optimize occupancy and revenue. These efforts require close collaboration between management, marketing, and operations teams to align strategic initiatives with financial goals.

In conclusion, the shift to a rolling budget approach at St. Ashton Resorts represents a significant step towards agility in financial planning. While this approach enhances responsiveness to market fluctuations, it also reveals underlying challenges such as declining occupancy rates driven by external competition and internal strategic misalignments. Addressing these issues demands a comprehensive approach combining strategic repositioning, marketing innovation, and operational flexibility to sustain future profitability.

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