Filling 30 Rooms in the Ajmer Off-Season
A 30-room budget hotel on the outskirts of Ajmer has 34% occupancy in June, its weakest month. Average room rate is ₹1,600 and variable cost per occupied room (housekeeping, laundry, utilities and breakfast) is ₹400. Monthly fixed costs - lease, permanent staff, minimum utilities and restaurant overheads - are ₹4,80,000. The hotel has 900 room-nights available in June and currently sells about 306. The owner is considering a 30-day online flash sale at ₹1,150 per room, which the revenue manager expects to lift occupancy to 58%. Each discounted guest is expected to spend enough in the restaurant to add ₹150 of contribution per occupied room. The restaurant manager warns that at ₹1,150 the hotel may attract noisy groups, and the front-office team of six is already stretched at weekends. The OTA running the sale charges its normal commission, already included in the ₹1,150 net rate.
1. Calculate current contribution, loss and break-even occupancy. What does the break-even figure reveal about June?
Read the worked answer
Contribution per occupied room = ₹1,600 − ₹400 = ₹1,200.
Current room-nights = 34% × 900 = 306. Total contribution = 306 × ₹1,200 = ₹3,67,200. Loss = ₹4,80,000 − ₹3,67,200 = ₹1,12,800. Break-even room-nights = ₹4,80,000 ÷ ₹1,200 = 400, i.e. 44.4% occupancy.
Interpretation: June is running 94 room-nights below break-even. Because ₹4,80,000 is fixed, every room sold above ₹400 variable cost adds ₹1,200 to contribution; the hotel does not need full occupancy, but it does need 400 room-nights. The 34% figure is therefore not simply a pricing problem - it is a volume and cost-structure problem. Cutting price can raise volume, but only if the extra rooms more than compensate for the lower contribution per room, and only if fixed costs are not left untouched.
2. Evaluate the flash sale. Would you approve it as proposed, and what would you change?
Read the worked answer
Flash sale at ₹1,150: contribution = ₹1,150 − ₹400 = ₹750. Expected room-nights = 58% × 900 = 522. Room contribution = 522 × ₹750 = ₹3,91,500. Ancillary contribution = 522 × ₹150 = ₹78,300. Total = ₹4,69,800; loss = ₹4,80,000 − ₹4,69,800 = ₹10,200. Break-even with ancillary = ₹4,80,000 ÷ ₹900 = 533 room-nights = 59.2%; the forecast of 58% falls just short.
So the sale nearly breaks even but creates no profit on its own, and it gives away ₹450 per room on rooms that might have sold anyway. Approve only as a short tactical campaign, not a whole month: cap it at about 150 room-nights, bundle breakfast and a local sightseeing add-on to lift ancillary contribution above ₹150, and cut fixed cost by at least ₹15,000 (mothball one floor, renegotiate the housekeeping contract) so break-even falls to about 517 room-nights. Protect peak-season ADR: the ₹1,150 rate must not be publicly available in October–March. If the OTA insists on displaying it into peak season, reject the deal.
3. The restaurant manager proposes removing breakfast from the room rate to save ₹120 per occupied room. Evaluate this against the flash-sale plan and suggest two non-price actions.
Read the worked answer
Removing breakfast saves ₹120 of the ₹400 variable cost, i.e. ₹62,640 at 522 room-nights, turning the flash month into a profit of about ₹52,400. But breakfast is a core filter on OTAs and a review driver; removing it may cut conversion and ratings by more than the saving. A middle path is better: keep breakfast but cut its cost to about ₹60 per room using a fixed set menu and pre-plated service, saving ₹31,320 while preserving the inclusion. That still leaves a modest profit and protects the hotel's positioning.
Non-price actions:
- Sign monthly corporate contracts with nearby coaching institutes and government offices at ₹1,350 including breakfast, which fills weekdays rather than weekends.
- Package two nights with Ajmer Sharif darshan and local transport, sold direct at about ₹3,200 per couple, shifting mix away from commission-paying channels.
- Sell day-use rooms (10 a.m. to 4 p.m.) to transit travellers.
Track RevPAR and total revenue per room, not occupancy alone, and review the front-office roster before promising weekend service levels the team cannot deliver.