Hilton Value to the Cost

Topics: Income statement, Revenue, Net income Pages: 2 (493 words) Published: July 22, 2012
Total revenue/night at breakeven
70% x 154,000 rooms x 365 days = 39,347,000 nights
$ 158 x 39,347,000 nights = $ 6,216,826,000
Revenue and nights generated by members
7,015,000 night + (712,000 stay x 2.4 night) – 180,000 claimed nights = 8,543,800 nights $ 1,108,000,000 + $ 327,000,000 = $ 1,435,000,000
Source: pg 562, Table B, Members’ Paid Activity in 1998.
Percentage of nights spent by members over nights at breakeven (8,543,000 nights / 39,347,000 nights) x 100% = 21.71%
Percentage of revenue generated by members over revenue at breakeven ($ 1,435,000,000 / $ 6,216,826,000) x 100% = 23.08%

Hilton is running above breakeven point at 70% occupancy. That shows that they already surpassed the zero-profit/loss point and making profits. HHW program helps Hilton to increase occupancy and at the same time generate revenues from the program and contribute profit to Hilton. Based on the calculations above, we can see that total revenue generated by Hilton is $6,216,826,000 at break-even 70% occupancy with 154,000 rooms in year 1998. Each room is charged at $158 per night per guest. Whereas the revenue generated by members of Hilton HHonors program is $1,435,000,000. At the same time, the total night spent by guest is about 39,347,000 nights and out of that figure, 8,543,800 nights spent by members. By comparing the night spent by members over nights at breakeven, we can see that 21.71% of the occupancy is generated by the program. Which mean if the program did not exist, the number of nights spent by guest will be lowered by 21.71%. On the other hand, the program also generated 23.08% to Hilton’s revenue in 1998. This shows that the program also helped to boost up Hilton’s revenue. Since Hilton is running above breakeven, the revenue generated by the program is considered as profit generating revenue. Therefore, the value of the program is: ($158 – $750/365 days) x 8,543,800 nights = $1,332,364,647 Since HHW runs the program not as a profit center...
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