How To Analysis Travel Agency Contract
How To Analysis Travel Agency Contract ? For a brand like Hotel’s Chain, a hotel contract break-even analysis is the evaluation of the point at which a hotel, under the Chain Umbrella banner, covers all its operational costs through its revenues and henceforth generates a profit.
This analysis is important in helping one to gauge the possibility of the financial plan and make informed decisions on the management and franchise contracts.
How To Analysis Travel Agency Contract
Hotel T/A contract break-even analysis for Chain, or individual Hotel would involve examining the costs and revenues associated with the contract to determine the point at which the hotel’s revenue equals its costs, resulting in neither a profit nor a loss.
The following is a comprehensive way on how one conducts the analysis and examples:
Let’s break down the process step by step:
Identify Contract Terms:
First, you need to understand the terms of the contract between Your Hotel and the travel agency. This includes details such as the commission rate paid to the agency, any fixed fees, and any other costs or benefits associated with the partnership.
Determine Revenue per Booking:
Calculate the revenue generated by each booking made through the travel agency. This includes the room rate paid by the guest, any additional revenue from services or amenities, minus any discounts or commissions paid to the agency.
Calculate Variable Costs:
Identify the variable costs associated with each booking. This includes the cost of cleaning the room, providing amenities, and any other costs directly related to servicing the guest.
Calculate Fixed Costs:
Determine the fixed costs that are incurred regardless of the number of bookings. This includes expenses such as rent, utilities, salaries, and marketing expenses.
Break-Even Point Calculation:
The break-even point is the number of bookings required for the hotel to cover all its costs. It can be calculated using
the following formula:
Break-Even Point (in bookings)=
Total Fixed Costs Revenue per Booking−Variable Costs per Booking Break-Even Point (in bookings)=Revenue per Booking−Variable Costs per BookingTotal Fixed Costs
This formula calculates the number of bookings needed to cover fixed costs, with variable costs subtracted from revenue per booking.
Interpretation:
Once you have calculated the break-even point, you can interpret the results. If the hotel expects to receive more bookings than the break-even point, the contract would be profitable. Conversely, if the expected bookings fall below the break-even point, the hotel would incur losses.
Example:
Let’s consider a simplified example for Marriott:
Fixed Costs per month: $100,000
Revenue per Booking: $200 (after deducting travel agency commission)
Variable Costs per Booking: $50
Using the formula:
Break-Even Point=$100,000($200−$50)=$100,000$150≈667Break-Even Point=($200−$50)$100,000=$150$100,000≈667
In this example, Hotel’ needs to secure approximately 667 bookings per month to break even.
Any bookings beyond this point would result in a profit, while fewer bookings would result in a loss.
This analysis helps Hotel understand the financial implications of its contract with the travel agency and make informed decisions regarding pricing, marketing strategies, and partnership terms to ensure profitability.
Components’ Understanding
Finally, to actually run break-even analysis for a Chain hotel, you would need to include several components.
First are Fixed costs which are costs that do not change with the level of occupancy.
How To Analysis Travel Agency Contract include:
Calculating CPOR
- Franchise fees: payments for the brand and systems.
- Salaries: fixed salaries of managers, maintenance, cleaning, and other essential employees.
- Insurance: regular insurance fees.
- Property taxes: taxes on the real estate.
- Maintenance costs: the approximate costs of weekly and monthly maintenance that scarcely depends on the number of rooms in use.