W5_APE_Low Cost Hotel Accommodation-LCHA


  1. Problem Definition

Honestly, I had inspired by “container hotel” article as written in Star Newspaper in Malaysia and visited by myself to see it by eyes. The owner said that there are three reason built this hotel in Kuala Lumpur[1]:

  • Land price is very expensive in Malaysia.
  • There are many scrap containers available in Malaysian Ports [environmental reason].
  • They claim that their rented price is only 30% for family package compare to “common hotel”.

With the same spirit and compare it with Bandung as one travel destination, probably this could be good option for business, but I have to perform an exercise a little bit for this assumption. So if Air Asia claim themselves as “Low Cost Carrier Transport/LCCT” then I will claim myself as “Low Cost Hotel Accommodation/LCHA”.  

 

Figure 1

Figure 1 KL Container Hotel

 

  1. Identify the Feasible Alternative

I am aware that in Bandung many hotels are available with their classes and prices (five stars down to motels). So I have to be very clever to offer my hotel in low price because guests (even the rich people) nowadays sometimes doesn’t pay attention to hotel since what they want nothing else is only have a nice sleep in clean hotel. Based on my examination then I will establish my price per night hotel tariff which is 150 k-IDR per night based on reason that with this price even students college can pay this price. What I want to use for my simulations is the number of occupancy as follow:

 Figure 2

Figure 2 Bed Occupancy Options

  1. Development of the Outcome for Alternative

The constraints in these simulations are:

  • According to the container fabricator, for ex container at least 15 years is the time to get maximum 10% salvage value based on their experience.
  • According to my friend, for the competition of hotel room tariff per night in Bandung is quite tight. He suggested me to have bottom platform for worst case scenario first, in order to get attractive of my hotel offer compare with others. Then I have the price of 150 k-IDR from him.

 The assumptions for these simulations are:

  • I assumed my MARR same with current micro credit from Bank Jabar for 17%[3]. The MARR will same as the IRR and my WACC with the assumption of 100% debt (I don’t have any equity portion).
  • I picked the location in East Bandung[2] because this area will be growth due to the new toll road and mall investments.

 The result of my simulations is present hereinafter:

Figure 3

 

Figure 3 Final Result of Simulations

 Figure 4a

 Figure 4b

Figure 4c

Figure 4 Example of Simulations

  1. Selection Criteria

As previously mentioned, I want to see which occupancy beds is suitable with all the constraints (150 k-IDR hotel tariff, 17% bank credit rate, 10% salvage value with 15 years operation time).  

  1. Analysis and Comparison of the Alternative

Figure 5 below is resuming my simulations:      

 Figure 5

Figure 5 Different Value of IRR for NPV or PW Value Close to “0”

Option 1 with IRR = 12% gives negative value (less than WACC). Option 2 with IRR = 16% already in positive value for 17% WACC but still not enough for me (I just consider it as break even condition). Then finally IRR = 19% which is more than 17% WACC gives more result than IRR = 16% and acceptable for me. 

  1. Selection of the Preferred Alternative

I have my conclusion that option 3 for 73% beds occupancy per year will give me a positive result and could treat it as baseline reference to monitor. Relevant with it, then IRR = 19% should be selected as my MARR for container hotel.    

  1. Performance Monitoring and the Post Evaluation of Result

I should be careful in monitoring the beds performance every day since 73% is quite high in term of occupancy and my cost compare to revenue is quite close. There is also a possibility to increase the hotel tariff more than 150 k-IDR but I will do it later after I have my data in one or two years.

References

[1]thestar.com. (2013). Welcome to Container Hotel, New Accommodation in KL. Retrieved from http://www.thestar.com.my/News/Nation/2013/08/03/Welcome-to-Container-Hotel-New-accommodation-in-KL-offers-luxury-in-unique-settings.aspx

 [2]bandunghome.wordpress.com. (2009). Info Harga Tanah di Bandung. Retrieved from  http://bandunghome.wordpress.com/2009/02/18/info-harga-tanah-di-bandung/

 [3]bisnis-jabar.com. (2013). Data Bisnis: Suku Bunga Dasar Kredit Bank BJB Per 30 Juni 2013. Retrieved from http://www.bisnis-jabar.com/index.php/berita/data-bisnis-suku-bunga-dasar-kredit-bank-bjb-per-30-juni-2013

 [4]Sullivan, William G., Wicks, Elin M., & C.Patrick, Koelling. (2012), Engineering Economy 15th Edition (pp. 180-185). New Jersey, United States: Prentice Hall.

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3 Comments

Filed under Arif P, Week 05

3 responses to “W5_APE_Low Cost Hotel Accommodation-LCHA

  1. I LOVED your case study and you did a great job following our step by step process and your citations were spot on……

    BUT

    Your word count was ~675 which is almost double what I would like to see….

    For future postings, I want to see you getting the word count down to 250 to 500 words MAXIMUM….. Use fewer words and make every word COUNT……

    BR,
    Dr. PDG, Sinagpore

  2. PS Before you do any more postings on this subject, Google on “Man Camp Sales/Rentals”

    http://roughriderhousing.com/

    http://www.atcosl.com/en-ca/Products-and-Services/Workforce-Housing/

    http://www.reuseconex.org/lodging

    Great topic for a paper!!!

    BR,
    Dr. PDG, SIngapore

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