Deck 9: Role of the Room Rate

Question 1

Just as operating costs dictate a minimum room rate that the hotel needs to charge, so competition sets a maximum that can be achieved.

Answer 1

True

Question 2

Increases in lodging taxes impact on the elasticity of room demand just as if the rate, itself, had been increased.

Answer 2

True

Question 3

Per diem room rates are those established by the American Hotel & Lodging Association (AH&LA) for each major U.S. city, but all cities in the nation cannot be covered (generally those with populations under 50,000).

Answer 3

False

Question 4

Published rates (printed in advertising materials) and posted rates (legally required by state laws) must be the same.

Question 5

The double rate has always been twice the single rate; falling occupancies in the late 1990s and early 2000s were bolstered, in-part, by this traditional approach to rate quoting.

Question 6

Elasticity is a change in:

A) Rate resulting from a change in supply
B) Rate resulting from a change in demand
C) Supply resulting from a change in rate
D) Demand resulting from a change in rate
E) None of the above

Question 7

Which of the following is out-of-place with the rest of the set?

A) Part-day rate
B) Shoulder rate
C) Day rate
D) Use rate
E) None of the above; that is they are all synonyms

Question 8

Among the surprising surcharges that some hotels have added to their room rates are:

A) Early departure (before the date specified by the reservation) fees
B) Energy fees
C) Resort fees
D) Complimentary newspaper fees
E) All of the above

Question 9

The Building Cost (Room) Rate:

A) Works out to be $1 per $1,000 in construction costs
B) Includes land improvements (landscaping, for example) as part of building costs
C) Is simply a rule-of-thumb, a frequently quoted yardstick for room rates
D) Translates into rate distinctions for suites, standard rooms, and usually "view" rooms
E) All of the above except D

Question 10

Regarding room rates:

A) Resort hotels have used incentive rates successfully to get leisure guests to check out early
B) Upselling produces its most dramatic effects on sold-out days
C) Conventions are often charged the same for single or double occupancy
D) New York City has the world's highest ADR
E) All of the above

Question 11

Sketch or explain why one guest who stays in the hotel between 5 and 7 hours pays the same room rate as another guest who spends between 15 and 20 hours.

Question 12

Inelastic markets respond to small changes in price (room rates) with large changes in demand, either up or down. In other words, a hotel operating in an inelastic market would see a large increase in occupancy from a relatively small decrease in the average rate.

Question 13

Industry experience has proven that declines both in occupancy and in average room rate can be recovered by aggressive rate-cutting.

Question 14

The rate spread (that is, the amount of difference in rate) between single and double occupancy is greater in European plan hotels than in American plan hotels.

Question 15

The hotel industry uses fewer rate categories today (perhaps three to five rate levels in the average hotel) than was customary a decade ago.

Question 16

If day-rate room counts are included in the occupancy computation, it is possible for a hotel to exceed 100 percent occupancy.

Question 17

Up-selling a guest checking in at the desk means giving him/her a nicer accommodation at no extra charge. This is also known as up-grading the guest.

Question 18

In setting rates, the Hubbart Room Rate Formula focuses on the need to recover costs and return a reasonable profit.

Question 19

In setting rates, the Building Cost Formula rule-of-thumb focuses on cost of construction and land as opposed to the day-to-day costs of labor, food cost, supplies, etc.

Question 20

Establishing what should be the hotel's room rate is decided partly by the prices charged by competing properties, and partly by the hotel's own internal cost structure.

Question 21

Lodging taxes paid by hotel guests often find their way into the community's coffers for use in a myriad of local municipal expenses.

Question 22

Hotel operators sometimes complain that lodging taxes they collect are used by the community for things which are not tourism-related. Such operators might argue that it is fine to use lodging taxes to help pay for a new convention center facility. But argue against using lodging taxes to help pay for a new prison.

Question 23

Mathematically, a 10 percent increase in occupancy will exactly offset a 10% rate discount. A 20 percent increase in occupancy will exactly offset a 20% rate discount.

Question 24

The General Services Administration (GSA) of the U.S. government is responsible for setting annual per diem rates for cities to which government employees travel.

Question 25

Generally, the industry standard dictates that resorts charging anything over $211 per night will not charge guests a "resort fee."

Question 26

By law, any added surcharges or fees (e.g. energy surcharge, resort fee, or other nonroom surcharges) must be disclosed at the time of reservation, or the guest is not required to pay the fee.

Question 27

Front office guest service agents (GSA) should be trained to attempt to up-sell guests at the time of registration by offering a more expensive accommodation and only quoting the supplemental price difference. In other words, rather than saying; "You can stay in our luxury suite for only $345 per night."The well-trained GSA might say; You can stay in one of our luxury suites for only $65 more than the standard rate you are already paying."

Question 28

The most expensive community in the United States with regard to lodging taxes is Albuquerque, New Mexico, with a 23.75% lodging tax rate.

Question 29

Which of the following are common practices with regard to employee rates?

A) Offering complimentary/discounted employee rooms is an inexpensive way for chains to supplement their employee benefits packages
B) Special rates are always provided on a space-available basis
C) Special rates are extended to employees of the chain when they travel to other properties
D) All of the above are correct or common practices
E) Both A and B are true. But C is false because other properties tend to be concerned only about their own employees

Question 30

Using the traditional or building cost rate, how much should a 200 room hotel charge per night if construction costs were $16,400,000 and land acquisition costs were $1,600,000? The hotel should charge:

A) $98 per room night
B) $110 per room night
C) $82 per room night
D) $90 per room night
E) None of the above are correct

Question 31

Which of the following is true? Room rates:

A) Must be reasonable enough to attract customers
B) Are often adjusted higher or lower to reflect seasonal demand
C) Should be high enough to cover variable costs and return a reasonable profit
D) All of the above are true
E) None of the above are true

Question 32

Using the ideal room rate method, if your actual ADR is lower than the ideal room rate, thisindicates:

A) Guests do not see your higher priced rooms as a good value. In other words, they don't believe your premium rooms are worth the incremental rate spread above your standard rooms
B) Your front desk is suffering from poor salesmanship
C) Your front desk is doing an excellent job upselling rooms to guests
D) Both A and B are true. C is false
E) Both A and C are true. B is false

Question 33

A given hotel has 150 rooms. Operating expenses run about $980,750 annually. Depreciation is scheduled at $645,500 per year. Additional costs (taxes, insurance, etc.) are expected to be about $226,750 for the year. The owners require a reasonable return of $647,000 per year for their investment. Net income (repeat… this is net INCOME) from other operated departments (like lounge and restaurant) is projected to be $500,000 annually. Calculate the Hubbart Room Rate required assuming a 75% annual occupancy rate:

A) $26.67
B) $48.71
C) $74.07
D) $73.06
E) None of the above are the correct answer

Question 34

Using the traditional or building cost rate on brand new construction, how much should a 250 room hotel charge per night if construction costs were $21,400,000, land acquisition and improvement was $3,600,000, and FFE cost $5,000,000 (furniture/fixtures/equipment):

A) They should charge $ 105.60 per room night
B) They should charge $ 120.00 per room night
C) They should charge $ 85.60 per room night
D) They should charge $ 100.00 per room night
E) None of the above are the correct answer

Question 35

Based upon the following information, calculate the ideal room rate: The hotel has 150 rooms (75 kings at $90 single and $100 double, 50 deluxe kings at $110 single and $125 double, and 25 mini-suites at $150 single and $170 double). The double occupancy rate is projected at 20%. What is the ideal rate?

A) $21.87
B) $109.00
C) $106.67
D) $164.33
E) None of the above are the correct answer

Question 36

In regards to room rates which of the following IS NOT true. Room rates:

A) Must be reasonable enough to attract customers
B) Must be high enough to cover costs and make profit
C) May be seasonally adjusted for changing demand
D) All of the above are true
E) None of the above are true

Question 37

In using the ideal room rate method, if the ideal rate is higher than your actual ADR, this indicates:

A) You do not have a sharp enough contrast between your low- and high-priced rooms
B) Your front desk is suffering from poor salesmanship
C) Your front desk is doing a good job upselling
D) Both A and B are correct. But C is false
E) Both A and C are correct. But B is false

Question 38

Use the following information to calculate a Hubbart Room Rate Formula: A given hotel has 225 rooms. Operating expenses run about $1,110,000 annually. Depreciation is scheduled at $445,000 per year. Additional costs (taxes, insurance, etc.) are expected to be about $135,000 for the year. The owners require a reasonable return of $850,000 per year for their investment. Net loss from other operated departments is projected to be $400,000 annually. Calculate the rate required assuming a 65% annual occupancy rate:

A) $40.09
B) $53.38
C) $55.08
D) $29.40
E) Either B or D could be correct.

Question 39

Use the following information to calculate an Ideal Average Room Rate Formula: The New York Metropolis Lodge has 350 rooms. There are three categories of rooms; 200 are standard rooms that sell for $80 (and $90 double occupancy); 100 are city deluxe rooms that sell for $110 (and $125 double occupancy); 50 are executive parlors that sell for $145 (and $165 double occupancy). Calculate the rate assuming a 30 percent double occupancy rate:

A) $85.00
B) $105.56
C) $101.71
D) $97.86
E) None of the above.

Question 40

All else being equal, a reservationist should be trained to first offer the caller a:

A) Rack rate
B) Weekend rate
C) Flat rate
D) Convention rate
E) Package rate

Question 41

Suggesting the guest might prefer to pay a little extra for better accommodations than he/she originally reserved is called:

A) Upselling
B) Upclassing
C) Upgrading
D) Upassigning
E) All of the above except D are true

Question 42

The Hubbart Room Rate Formula:

A) Erects the walls (that is, the spread between rates for different room types)
B) Sets the floor on the minimum room rate
C) Sets the ceiling on the maximum room rate
D) Is built around the yield management approach to rates
E) None of the above

Question 43

Use the following data, some of which may be helpful and some of which may be useless, to compute the building cost rule-of-thumb formula:The hotel has 400 rooms. Income from all operating departments is $3,200,000 annually. Cost of land is $4,000,000. Cost of the building is $32,000,000. Cost of bank funds is 12% annually. Occupancy for next year is projected to be 72%.

A) $108.00
B) $29.59
C) $90.00
D) $64.80
E) None of the above are the correct answer for the Building Cost Formula