Rottnest Island Hotel Business Analysis

This assignment requires a comprehensive business analysis of a proposed hotel venture on Rottnest Island. Students must assess the market demand for accommodation, analyze the competitive landscape, develop financial projections, and consider the impact of tourism trends on the viability of the project. The analysis should include supply-demand considerations, revenue management strategies, and explore financing options for the hotel development.

Assessment 3:Individual Feasibility Study Report
(30%)

TABLE OF CONTENTS
1
.INTRODUCTION.............................................................................................................1
2.MAIN BODY..................................................................................................................1
2.1.Highlights of hospitality sector................................................................................1
2.2.Financial management in the hospitality sector......................................................1
2.3.Characteristics of the market..................................................................................3
2.4.Site evaluation........................................................................................................4
2.5.Supply and demand information analysis...............................................................4
2.6.Financial analysis...................................................................................................5
3.CONCLUSION.............................................................................................................. 7
4.RECOMMENDATIONS.................................................................................................8
5.REFERENCES..............................................................................................................9

INTRODUCTION
In the competitive business environment, with the motive to develop strategic position
entrepreneur has taken decision in relation to opening resort on Rottnest Islandnamely
The Wildest. The rationale behind the selection of such kind of business is that every
year several visitors Rottnest Island of Western Australia. In this regard, through
establishing attractive resortby placing emphasis on the aspect of environment
sustainability entrepreneur would become able to offer luxurious accommodation
services to the customers. Now, customers lay more focus onenvironmental protection
while purchasing products or services. Thus, by promoting the resort as environment
friendly which is free from pollution, emission and other aspects sole trader can attract
people as well as maximise revenue.
MAIN BODY
2.1. Highlights of hospitality sector
In order assess or evaluate the feasibility aspect of business concept such as eco-
friendly resort in Rottnest Island of Western Australiasecondary data has been gathered
by the researcher. For this purpose, several books, journals and scholarly articles
related to trend as well as financial management in the hospitality sector has been
evaluated (Tourism & Hospitality Industry in Australia, 2016).This in turn provides high
level of assistance to the entrepreneur in developing competent or strategic policy
framework.
2.2. Financial management in the hospitality sector
As per the views of Dewally, Flaherty & Shao (2017) financial management is highly
concerned with the effectual allocation and management of funds. The main
motivebehind undertaking financial management tools is to attain organisational goals
and objectives within the suitable time frame. Function of financial management is
directly associated with the top management which takes decision in relation to
allocation or employment of funds inseveral activities. Pacheco & Tavares (2017) stated
severalfinancial management tools in their study which in turn helps in making optimum

of finance in the context of hospitality sector. Hence, such toolsinclude financial
planning, fiscal control, decision making& yield management, supply demand
andrevenue optimisation. By using such tools entrepreneur who is working in hospitality
sector can manage funds in a prominent way.
In accordance with the views ofJawabreh&et.al. (2017), financial planning is the most
effective techniquethat assists in avoiding undesirable situations to a great extent.
Moreover, financial planning starts with sales forecast and thereby give input for the
formulation of revenue budget. Hence, by assessing the market trend,economic and
other conditions entrepreneur can identify the level of potential customers. Along with
this, financial planning also lays high level of emphasis on the determination of
employee headcount, occupancy cost and other expenditure. In this way, by making
forecast of revenue and expenses business entity can assess the profit which will be
generated at the end of accounting year.Therefore, by preparing financial plansole
trader can assess the area that requires special attention. However, on the critical note,
Dewally, Flaherty & Shao (2017)stated thatif business entity failed to make appropriate
forecast then it negatively influence the overall budgeting framework. Along with this,
when company uses prior year revenue and expenses as a base for the current year
then there is no possibility budget will reflect appropriate financial plan. Smart & et.al.,
(2017)mentioned in their study that by using either zero base or activity based
budgeting technique business entity can make appropriate estimation of revenue as
well as expenses and would become able tocompetent financial plan.
Schwager&Etzkorn (2017)investigated that through the means of supply, demand and
revenue optimisation business entity can ensure effective financial management.For
instance,when supply is constant and new rooms are expensive as well as taking time
to build then the level of delivery will not be affected in short run. In addition to this,
when demand level increases during holidaysthen owner of the resort or hotel can
maximise revenue by increasing the rates. On the other side, during off season for

enhancing the occupancy costsole trader is required to decrease the price level.
However, sole entity should reduce the price in such a way which in turn does not place
negative impact on profit margin. As a result, manager can use funds in a proper way by
doing such analysis finance.
(Source: Cardenas, Franco &Dyner, 2016)
Watada, Yoshimura & Vasant (2017) argued thatit is not an easy task for the manager
to determine the price that dilutes the profit moderately. Moreover, now customers take
decision regarding stay after making evaluation of price and services offer by
others.Therefore, by using yield management and fiscal control techniques business
entity can make optimum utilisation of finance. On the basis of such aspect, by doing
comparison of actual performance in against to the set standards manager can assess
deviations and thereby would become able to take corrective actions within the
suitable time frame. Hence, by undertaking all the above mentioned techniques
entrepreneur who is planning to open new resort in Rottnest Island of Western
Australiacan manage funds in anoptimal way.
2.3. Characteristics of the market
Demographic characteristics of the target market is from assessment, it has been
identified that younger generation come in Rottnest Island.By considering this,
entrepreneur has taken decision in relation to opening luxurious resort in Rottnest Island

of Western Australia. Such resort will offer wide range of facilities to the customers such
as spa, gym,swimming pool, bar, and yoga.On the basis of such aspect,business entity
will target high income group people who come to island for having great time and
luxurious experience. Along with the overseas people, business entity will also target
the rich or high income group people of Rottnest Island.It has been assessed from the
investigation thatliving standard and income level of individuals living around Rottnest
Island is high.
Income level of people who are living inRottnest Island is within the range of $400 to
$599 per week.Further, statistical aspects present thatout of 100%, only 7% fall into the
category who has no or less income level.However, the major focus area of ABC will
bepeople outside the Rottnest Island and overseas customers. The rationale behind this
Rottnest Island has a population level of 130 only (Rottnest Island, 2017). Further, it has
been identified that only 20 families live in Rottnest Island. Due to such aspect,
business unit will target overseas customers and make efforts in relation to increasing
customer base as well as maximization of productivity andprofitability. Moreover, now
youngsters tend to make focus on visiting Islands for making the holiday experience
memorable. Further, it has been assessed that around 500000 visitors come in Rottnest
Island annually. In this regard, by focusing on such target market and providing them
with high quality as well as innovative services entrepreneur can get the desired level of
outcome or success.
2.4. Site evaluation
From assessment, it has been found that in the Kitson Street of Rottnest Island
entrepreneur will establish the resort. The main reasons behind the establishment of the
resort in such street areat such place several leading hotel units are available. In
addition to this, Kitson Street is near to beach which in turn offers amazing experience
to the people. Along with this, size of the resort will be 18000 square feet which in turn
helps in offering luxurious accommodation to the customers through 30 rooms.Outcome

of evaluation presents that average hotel which has 115 rooms need space of 48000
square feet. By considering this, size ofresort has been decided by the entrepreneurwho
in turn helps in offering services to the customers according to their need.Moreover, in
the situation like lack of having enough space it would not be possible for the entity to
offer all the facilities to the customers with high quality (Importance of Customer Service
in Hospitality & Tourism, 2017). Thus, by considering all such aspects it can be stated
that decision taken by the entrepreneur of ABC pertaining to site is effectual.
2.5. Supply and demand information analysis
From assessment, it has been discovered that in Rottnest Island there areseveralhotels
which offer accommodation services to the customers. In this regard, hotelswhich fall
into the categoryof luxurious service provider are 10. Out of these, Karma Rottnest and
hotel Rottnest are recognized as the main competitors of ABC.By doing investigation, it
has been found that Karma Rottnest offers stylish accommodation, spa treatments and
other facilities to the customers. It is highly versatile and comes under the category of
fine cuisine which fulfills the need of customers to a great extent. Besides this, Hotel
Rottnest is the iconic beachside hotel which offers best and luxurious accommodation
services to the customers (Hotel Rottnest, 2017). By considering this, it can be
presented that as per the demand of customers in relation to luxurious accommodation
there are several hotels in Rottnest Island. In accordance with such aspect, supply level
is good in Rottnest Island.
Further, statistical aspects exhibit thatdemand level of the people foraccommodation in
hotels& resort of Rottnest Island is good. As per the statistical results, 500000 people
visit Rottnest Island annually and 15000 during the peak period. On the basis of such
aspect, it can be estimated that demand for accommodation is high in Rottnest Island.
In this situation, business entity can attract more customers and gain competitive edge
over others only when it offer innovative services to the customers as well as meet
demand of them to a great extent. By taking into account such aspect entrepreneur of
ABChas taken decision in relation to opening eco-friendly resort. Thus, through starting
resort whose room will rotate as per the raises of sun business entity would become

able to grab the attention level of customers and thereby maximizes productivity as well
as profitability.
2.6. Financial analysis
In order to assess the extent to which proposed in relation to the establishment of resort
in Rottnest Island financial analysis is conducted through ratio analysis, income
statement, BEP analysis. All such techniques clearly indicate the viability or
effectiveness of project in financial terms. Moreover, income statement helps in
assessing the profit margin which will be generated by the business entity over
expenditure.On the other side, ratio analysis technique helps in assessingwhether
profitability aspect ofABC is sound or not.In this way, by identifying and evaluating the
profitability aspect business entity of ABC would become able to take strategic action for
improvement.
Sources of finance: For ABC project, business entity will undertake both primary and
secondary sources to meet the financial needs. In accordance with such aspect,
business entity will use personal saving of $80000 to start the venture.Besides
this,entrepreneur will take financial assistance of $120000 from Bankwest Business
Banking Centre. Hence, business entity will repay such amount within the period of
3years in equal annual instalments. The main reason behind using both internal and
external financial sources is to develop suitable debt-equity mix (Sources of Finance: Bank
Loans, 2015). Moreover, bank loan imposes fixed and periodical obligation in front of the
business entity in the form of interest payment. Irrespective of the aspect in relation to
the attainment of profitabilityentrepreneur has to make payment of interest when it
becomes due.On the other side, when sole trader uses own savings then there is no
fixed obligations in relation to making payment of interest. By considering such aspects
entrepreneur will take resort of both the financial sources.
Income statement: By considering the following assumptions income statement of ABC
has been prepared such as:

Assumptions:
 Interest rate on loan 2% per annum.
 Average price which will be charged by the owner of resort will be $150. The
rationale behind the selection of such price level is that Hotel Rottnest charge
$206 for the luxurious services offered by it. Hence, as per the competitive
pricing strategy such price has been selected by the business entity (Hottel
Rottnest, 2017).
 COGS will be 40% of sales revenue
 Other utility expenses will be inclined by 10% during the peak period. From
assessment, it has been identified that several visitors come in Rottnest Island
during peak time (We gripe, but we are going to Rotto in record numbers, 2017).
Hence, number of visitors increased by 5.9% and rate of customer satisfaction accounts
for 97%. Thus, by considering such trend, it is estimated that expenses will increase
significantly.
Income statement
Ja
nu
ary
Feb
rua
ry
Ma
rch
Ap
ril
Ma
y
Ju
ne
Jul
y
Au
gu
st
Sept
emb
er
Oct
ob
er
Nov
emb
er
Dec
emb
er
Sales
revenue
810
00
153
000
15
30
00
15
30
00
15
30
00
15
30
00
15
30
00
81
00
0
8100
0
810
00
810
00
810
00
Cost of
revenue
202
50
382
50
38
25
0
38
25
0
38
25
0
38
25
0
38
25
0
20
25
0
2025
0
202
50
202
50
202
50
Gross profit
607
50
114
750
11
47
50
11
47
50
11
47
50
11
47
50
11
47
50
60
75
0
6075
0
607
50
607
50
607
50
Operating
expenses
Promotional
expenses
243
0
243
0
24
30
24
30
24
30
24
30
24
30
24
30 2430
243
0
243
0
243
0
Salaries of
personnel
300
00
300
00
30
00
30
00
30
00
30
00
30
00
30
00
3000
0
300
00
300
00
300
00

0 0 0 0 0 0
other utility
expenses
648
0
712
8
78
40.
8
86
24.
88
94
87.
37
10
43
6.1
11
47
9.7
64
80 7128
784
0.8
862
4.88
948
7.36
8
depreciation 250 250
25
0
25
0
25
0
25
0
25
0
25
0 250 250 250 250
Rent
150
00
150
00
15
00
0
15
00
0
15
00
0
15
00
0
15
00
0
15
00
0
1500
0
150
00
150
00
150
00
Total
operating
expenses
541
60
548
08
55
52
0.8
56
30
4.9
57
16
7.4
58
11
6.1
59
15
9.7
54
16
0
5480
8
555
20.
8
563
04.8
8
571
67.3
68
Operating
incomes or
EBIT
659
0
599
42
59
22
9.2
58
44
5.1
57
58
2.6
56
63
3.9
55
59
0.3
65
90 5942
522
9.2
444
5.12
358
2.63
2
Less:
Interest
expenses 200 200
20
0
20
0
20
0
20
0
20
0
20
0 200 200 200 200
EBT
639
0
597
42
59
02
9
58
24
5
57
38
3
56
43
4
55
39
0
63
90 5742
502
9
424
5
338
3
Interpretation: The above depicted income statement clearly shows that from the period
of February to July sales revenue of the firm will increase significantly. Moreover, during
this period, large number of visitors comes in Rottnest Island which in turn may result
into high profitability. Further, profitability statement shows that EBT of the firm will
decrease due to the higher level of expenses. Thus, firm should lay emphasis on
budgetary control which in turn helps it in making control over the expenses and
attaining high margin.
Ratio analysis
Particulars Formula Figure
Gross profit 1053000
Operating profit
379802.08
4
Net profit
377402.08
4
sales revenue 1404000
GP ratio
Gross profit / sales revenue
*100 75%

Operating profit ratio
Operating profit / sales revenue
*100 27.1%
Net profit ratio Net profit / sales revenue *100 26.9%
Interpretation:By doing ratio analysis, it has been identified that in theprospective year
GP, OP and NP margin will be 75%, 27.1% &26.9% respectively.
CONCLUSION
From the above plan, it has been concluded that the main motive of ABC is to attract
more customers and thereby gain competitive edge over others.Besides this, it can be
inferred that the unique aspect of the concerned resort will be its eco-friendliness.
Further, it has been articulated thatfinancial management tools are highly effectual
which in turn helps in making optimum use of resources. By using such techniques
owner of ABC would become able to manage yield, cost, revenue etc. in the best
possible way. Further, it can be summarized from the evaluation that business entity will
undertake both internal and external sources of finance for fulfilling the monetary needs
and requirements. This in turn helps ABC in developing optimal capital structure and
thereby makes contribution in the profitability aspect.It can be seen in the report that by
investing money in such idea business entity will get positive and higher margin.
RECOMMENDATIONS
By considering the market trend and overall evaluation, it is recommended to the
business entity of ABC to make focus on promotional campaign or aspects. Moreover,
by placingadvertisement on social networking sites such as Facebook, Twitter business
entity can provide information to the customers at overseas level.In this way, by
promoting services and building distinct image in the mind of customerssole trader can
attain high sales revenue and profit margin.
Besides this, it is recommended to entrepreneurto evolve the system of feedback within
business unit. Through this, firm would become able toassess the needs, wants as well
as expectation level of customers and thereby in position to offer suitable services to
them. Thus, feedback system will assist business entity in resolving the issues of
customers and thereby helps in building as well as maintaining satisfied customer base.

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