Case 3-1 HOTEL CONTINENTAL In July 1989, Mr.

Oscar Mendoza, owner of Triumph Tours read in the newspapers an advertisement for the leasing of Hotel Continental s facilities. During the last six months, Oscar Mendoza has been seriously thinking about operating a hotel to complement his travel agency business. Oscar Mendoza had been experiencing difficulties in getting hotel accommodations for his tour groups since last year during the peak travel months of December, January, July and August. Hotel Continental is a 27 room hotel located in Diliman, Quezon City along Don Mariano Marcos Avenue. It has three function rooms that can seat twelve to forty persons, a coffee shop, a fast food cafeteria, a formal dining room and a swimming pool. During the last two years, the hotel incurred losses of about P2 to 3 million pesos which led management to the decision of leasing out its facilities (See Exhibit A). The room capacity of the hotel is just right for Triumph Tours requirements during the peak months. My travel business can provide annual capacity utilization of the hotel to as much as 40% only, Oscar Mendoza told his Marketing Manager, Ernesto de los Santos. How do we fill up the remaining 60%? Before Cory became President, I read in the daily newspapers that most of these fivestar hotels in Metro Manila were underutilized? What led to this situation? Could you gather some data that will help me in deciding whether or not I should bid for Hotel Continental? The data could also help me in figuring the appropriate bid price. Ernesto de los Santos immediately called his staff after the meeting with Oscar Mendoza. He told his staff to gather raw data related to the hotel industry. Just give me the data. It s up to you how you will divide the work. I ll take care of writing the report for the boss, he informed his staff. Several days later, Oscar Mendoza found on his desk a packet of information jointly submitted by two of the five staff members of the marketing department (See Exhibit B). Ernesto de los Santos immediately read the data to see if he could prepare a preliminary report for Oscar Mendoza.

QUESTIONS: 1. What are the major determinants of success in the hotel business? 2. Who are the competitors of Hotel Continental? 3. What are the three most critical sets of data that you would need to seriously consider pursuing this opportunity?

Exhibit A HOTEL CONTINENTAL INCOME STATEMENT For the Years 1987-1988 1987 Revenues Rooms1 Food Beverage Laundry Telephone Swimming Pool Other income Total Revenue Cost of Sales Food Beverage Telephone Payroll and Related Expenses Bonus Other Expenses Total Cost of Sales 2,123,270.37 123,378.81 328,312.73 2,280,340.43 428,870.60 906,883.33 6,191,056.27 2,441,662.31 190,992.64 229,564.95 2,620,443.06 440,980.43 761,904.65 6,685,548.04 1,969,722.18 4,843,486.42 637,862.39 23,070.24 147,417.16 156,718.28 660,336.83 8,438,613.50 2,515,575.96 5,426,843.98 684,983.02 29,175.00 175,163.14 182,718.45 842,985.15 9,857,444.70 1988

Gross Operating Income

2,247,557.23

3,171,896.66

Administrative and General Marketing and Promotion

1,109,621.53

1,360,885.31

159,036.26 Property Operations, Maintenance and Energy Cost Employees Benefits and Related expenses 3,978,297.27

166,660.36

3,893,292.15

67,006.97

89,748.01

TOTAL OPERATING EXPENSES

5,313,962.03

5,510,585.83

Net loss

(3,066,404.80)

(2,338,689.17)

In 1998, average room rate for tour groups was P464.00; in 1987, P329.

Exhibit B REPORT ON THE HOTEL INDUSTRY Number of Competitors in the Lodging Industry1 Hotels 90 Inns 67 Resorts 60 Apartel 9 Pension 35 Lodges 151 Motel 8 Unclassified 10 Metro Manila Hotels (28) Hotel Continental Century Park Sheraton Holiday Inn Hotel Intercon Manila Hyatt Regency Manila Manila Pavillion Manila Hotel Mandarin Oriental Manila Midtown Hotel Manila Peninsula Philippines Plaza Hotel

Silahis International Admiral Hotel Ambassador Hotel Bayview Prince Plaza Hotel Mirador, Inc. Aloha Hotel Boulevard Mansion Camelot Hotel Hotel Aurelio Hotel Las Palmas Hotel McArthur Manila Manor Hotel Midland Plaza Rothmann Hotel Royal Palm Hotel Solanie Hotel Sulo Hotel New Hotels to be Constructed (6)2 Shangri-la at Makati Shangri-la at Edsa Asia World in Manila Bay Area Regent of Manila New World Ayala Omega in Cubao

Industry Historical Background Spanish period hotels were situated in Manila, mainly served Spanish visitors American regime more hotels were built (e.g. Manila Hotel); In 1934, Pan Am Clipper landed in the Philippines After World War II hotels were reconstructed, Philippine to 1950s Tourism and Travel Association embarked on a program to attract tourists; A total of 742 tourist class rooms were made available by industry. 1960s not too profitable for the industry; low number of tourist arrivals Early 1970s there were about 2185 tourist class rooms but average occupancy rate was only 50% Mid 1970s tourist boom started; occupancy level rose to 95%. By then, there were 4447 tourist class rooms; In 1975, the IMF-World Bank convention was held in Manila attended by 5000 tourists. More hotels were constructed increasing capacity to 12000 tourist class rooms. Late 1970s After the IMF-World Bank Conference, occupancy rate declined to 50% - 60%; low tourist arrivals due to worldwide recession. Early to Mid 1980s same conditions as in 1970s; Peace and order situation in the country discouraged tourists Late 1980s Cory Aquino became President; Philippine economic conditions improved and hotel occupancy rates are expected to increase; at least 1 million tourists are expected to visit the Philippines. In 1988, occupancy rates of five-star hotels averaged 80%.

SUMMARY The environment of a firm is the sum of all the elements and forces in its surroundings which have a potential impact on its ability to achieve its objectives. All firms face an external environment which is continuously changing. And changes in the environment can represent threats to the continuing relevance and viability of the firm and its products or services. Changes in the environment may, on the other hand, represent new opportunities for the firm to change and grow. Since the rate of change in broad technological and social aspects of the environment are not expected to slow down in the future and indeed may accelerate, a high degree of adaptability is required for organizations to continue to survive and prosper in the future. The environment of the firm may be analyzed in terms of its different aspects and also in terms of its different levels, i.e., its more immediate as against its more remote environments. The international or global environment, though representing the most remote environment in most business firms in the Philippines, has increasingly come to exert a significant impact on the Philippine economy, and hence ultimately, on domestic business enterprises. The Philippines as a country environment for business was characterized as one having many structural characteristics common to developing countries. In addition to these, the Philippines has unique characteristics and problems which will exert a major influence on the environment for business in the country for many years to come.