Shearton Case

Executive Summary

The Sheraton Montreal is a large a four star hotel located in the downtown area and is the winner of numerous awards. It has over 800 rooms and contents three restaurants, a convention room and boutiques. However, even with the four star rating Le Centre Sheraton, Montreal is experiencing a negative cash flow over 2 million dollars, which is affecting its ability to pay the $50 million dollar long-term mortgage. On March 15, 1994, the hotel was approached by Alitalia requesting a one-year contract for 40 rooms at $42 dollars per night. Nevertheless, they are in competition with 10 other hotel in the downtown area.

This report will determine the additional cost of accommodating the Alitalia flight crew and justify my recommendation of accepting this contract.

Introduction

Le Centre Sheraton is a four star hotel located in downtown Montreal and has won numerous awards such as the Four Diamond Award and the Four Star Award. It has 824 rooms, three restaurants, health facilities, convention room, boutiques, and specialty shops.

This report will cover:

1. Incremental Revenue

2. Incremental Cost

3. Incremental Income.

Each component will help provide insight on the potential gains for Sheraton by accepting this project. In addition, I will discuss some the pros and cons of the Alitalia .Furthermore, I will discuss other important factors that must be taken into consider before making a decision. Finally, I will provide some recommendations.

Alitalia

As an airline company, Alitalia requires a certain amount of room each year for their pilots, flight attendant, and any other members of the flight crew. This company prefer to accommodate their flight crews by placing them in four-star hotels that are located near shopping centres and entertainment facilities. However, only 10 hotels meet this criteria and cause of this Alitalia will being basing their decision on the rate and services offered.

Quantitative Analysis

1. Incremental revenue looks at much can revenue can be gained from accepting Alitalia offer. The total incremental revenue from approving this offer is $683,080 (Exhibit A.) This number is calculated by add the potential revenue from the 40 room rented to Alitalia and the sales of food and beverage.

2. Incremental cost determines the change Sheraton will see in their balance sheet if they accept this contract. However, before this cost is calculated we must include certain additional expenses such as :

a. $82,890 (Exhibit A), for additional wages

b. The additional laundry and lien expense of $7,500 ( Exhibit A)

c. The extra $10,000 (Exhibit A) dollars for utilities

d. $22,500 ( Exhibit A) in additional Amenities

e. The $175,000 (Exhibit A), given to the crew for allowance.

Once all of the additional expenses are added we can see that, the total incremental cost is $297,890 Exhibit A) this indicates that there will be an increase in cost if this offer is accepted.

3. Incremental Income establishes how much income will be added to the company's current operational income by taking on this contract. By subtracting the total incremental revenue from cost, we get an incremental income of $ 385,190 (Exhibit A). This indicates that the hotel will see a positive increase to their operation income if the Alitalia offer is accepted.

Qualitative