HA401 : The Class : Finance : Foundation of Financial Analysis

Topic 1: Foundation of Finanacial Analysis

Resort finance is much more complex than that of typical full service hotels. The wide range of recreational activities, the number and extent of specialty restaurants and lounges, larger and more elaborate meetings and banquets, and the impact of seasonally make the financial aspect of resort management very challenging. It will be important to have a solid understanding of the financial aspects of resort operations.

This module is organized into two sections. The first will present information on financial analysis to establish a solid financial foundation and the second will provide instruction in preparing revenue pro formas for a resort. You will need this information to complete your final assignment.

Resorts can have from two to four different seasons that affect their financial performance. Each season brings a different type of customer and therefore different expectations for revenues and profits. The minimum number of seasons are a high and low season. Shoulder seasons can be added between the high and low seasons. A quick definition of each:

High Season— The season that has the strongest demand, best weather and most activities. Traditionally, it is the time between the Christmas and Easter holidays. It commands high rates and produces the highest occupancies resulting in the highest revenues and profits.

Spring Shoulder Season — This is a transition season generally late April and May. The weather is starting to get hot or humid and demand slows. It is an opportunity to gradually reduce your room rates rather than going form the high rates of high season to the low rates of low season.

Low or Off Season — This is generally the lowest demand because of hot weather and few activities. Summer is the typical time period. Resorts struggle to fill rooms but have been successful in increasing occupancies in recent years by significantly lowering room rates and offering resort experiences at lower rates that produce a good value.

Fall Shoulder Season — This season is when demand starts to pick up and the weather becomes more favorable. This traditionally is the time from October to Christmas. Resorts are able to increase their rates and take advantage of better weather.

The best situation for a resort is when demand is high and occupancies are strong. They will try and stretch their high season from mid October to May offering the same high rates. Then they will drop to their low season rates from May to October. The challenge with this is the weather. If it heats up in mid April, guests will not be able to enjoy the same resort activities in April and May and will object to paying the high season rates. Fall is not as big a challenge because from late October to Christmas can offer very delightful weather, every bit as good as the high season from Christmas to Easter. Many groups and pleasure travelers recognize this and travel to resorts in the fall especially if the resort offers shoulder rates.

From a financial perspective, revenues and profits for each season can be defined in simple terms as follows:

High Season = High revenues and high profits.

Shoulder Season = Moderate revenues and some profits or break even.

Low Season = Low revenues and a loss instead of a profit.

It can be very typical of a resort to make all it’s profit during the high season. Then it can scramble the rest of the year to offset any low season losses with the shoulder season profits. An exceptionally well run resort offering good values can break even in the summer and make some profits in the shoulder season to add to the high season profits. This does not happen very often and is the mark of a resort that is not only well run but also well marketed.

A comment on winter weather resorts. Most of the material presented so far has focused on winter resorts that offer warm moderate climates and a relief from cold weather and hostile winters. These resorts have their high season because of moderate climates and the ability to participate in many outdoor activities. It is the same with winter ski resorts. The snow offers skiers the best skiing conditions. So the high season for skiers is the same as high season for moderate climates. High rates and occupancies produce the highest revenue and profits for ski resorts in the winter.

The decade of the 90’s was also a successful time for the ski resorts as they turned their summer low season into a marketing opportunity to feature their cool and clear mountains. They operate ski lifts, provide hiking, mountain biking, picnicking, and other activities at the top of their ski lifts. Guests can get away and enjoy spectacular scenery, get away from the hustle and bustle, or enjoy the dining and shopping that these ski resorts can offer in the summer. Examples of these year round successful ski resorts are Park City, Utah and Aspen and Vail Colorado.

It will be very important as we lay the foundation for financial analysis to remember the importance of seasonally in resort operations and resort finance. It presents one of the major challenges to successful operations of resorts. Different marketing, different market segments, different weather conditions all require an efficient and effective resort management team if the resort is going to have a successful year. Nothing is more disappointing than to have an outstanding high season and then watch it slip away because of difficult low seasons or inefficient resort operations.

To complete this topic successfully, please complete the following activities in the order shown below:

iconONLINE READING 1: Revenues and Sales

iconONLINE READING 2: Profits

iconONLINE READING 3: Percentages

iconONLINE READING 4: Sales Mix Percentages and Profit Percentages

iconONLINE READING 5: Budgets and Forecasting

iconONLINE READING 6: Comparisons

iconONLINE READING 7: Trends

iconONLINE READING 8: Changes

iconONLINE READING 9: Key Financial Statements

iconONLINE READING 10: Summary

Once you have completed this module you should:

Go on to Topic 2: The Profit and Loss Statement
or
Go back to Resort Management

E-mail Lloyd Shelton at Lloyd.Shelton@nau.edu
or call (928) 527-7518

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