This case study is set in 1962 in rural Vermont. The Skyview Manor is an old, but well-maintained property that has changed ownership several times over the years. It has no restaurant or bar. It is positioned as a mid-price, good quality “destination” resort hotel.
The Skyview Manor is open only during the skiing season. It opens on December 2 and closes the last day of March. The ski mountain that it serves operates on a permit from the state which allows only 120 days of operation per year. Each of the 50 rooms in the east wing rents for $15 for single occupancy or $20 for double occupancy. The west wing of the hotel has 30 rooms, all of which have spectacular views of the skiing slopes, the mountains, and the village. Rooms in this wing rent for $20 and $25 for single or double occupancy, respectively. The average occupancy rate during the season is about 80% (typically, the Hotel is full on weekends and averages 50 to 60 rooms occupied on week nights). The ratio of single versus double occupancy is 2:8; on average.
Operating results for the last fiscal year are shown in Exhibit 1. Mr. Kachack, the manager of the hotel, is concerned about the off-season months, which show losses each month and reduce the high profits reported during the season. He has suggested to the owners, who acquired this hotel only at the end of the 1961 season that to reduce the off-season losses, they should agree to keep the west wing of the hotel operating year-round. He estimates the average occupancy rate for the off-season to be between 20% and 40% for the next few years. Kacheck estimates that with careful attention to the off-season clientele a 40% occupancy rate for the 30 rooms during the off-season would be much more likely if the owners would commit $4,000 for advertising each year ($500 for each of eight months). There is no evidence to indicate that the 2:8 ratio of singles versus doubles would be different during the...
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