Kamal Diamond is the owner of the Galaxy chain of four-star prestige hotels. These hotels are in Chicago, London, Los Angeles, Montreal, New York, Seattle, Tokyo, and Vancouver. Diamond is currently struggling to set weekend rates for the Vancouver hotel (the Vancouver Galaxy). From Sunday through Thursday, the Galaxy has an average occupancy rate of 90%. On Friday and Saturday nights, however, average occupancy declines to less than 30%. Galaxy’s major customers are business travelers who stay mainly Sunday through Thursday.
The current room rate at the Galaxy is $180 a night for single occupancy and $216 a night for double occupancy. These rates apply seven nights a week. For many years, Diamond has resisted having rates for Friday and Saturday nights that are different from those for the remainder of the week. Diamond has long believed that price reductions convey a “non-prestige” impression to his guests. The Vancouver Galaxy highly values its reputation for treating its guests as “royalty.”
Most room costs at the Galaxy are fixed on a short-stay (per-night) basis. Diamond estimates the variable costs of servicing each room to be $24 a night per single occupancy and $26.40 a night per double occupancy.
Many prestige hotels in Vancouver offer special weekend rate reductions (Friday and/or Saturday) of up to 50% of their Sunday-through-Thursday rates. These weekend rates also include additional items such as a breakfast for two, a bottle of champagne, and discounted theatre tickets.
REQUIRED
1. Would you recommend that Diamond reduce room rates at the Vancouver Galaxy on Friday and Saturday nights? What factors to protect the value proposition should be considered in his decision?
2. In six months’ time, the Grey Cup is to be held in Vancouver. Diamond observes that several four-star prestige hotels have already advertised a Friday-through-Sunday rate for Grey Cup weekend of $360 a night. Should Diamond charge extra for the Grey Cup weekend? Explain.