Question

Motley Motel’s potential average room rate is calculated to be $62. Assume that this motel had three market segments. Vacation travelers use 75 percent of the room nights and are charged 100 percent of the rack rate. Business travelers use 15 percent of the room nights and are charged 90 percent of the rack rate. Sports teams account for 10 percent of the room nights and are charged 80 percent of the rack rate. Calculate the room rate by market segment.

a. Prove that your calculations are correct, assuming that total annual room nights are 7,300

Answer 1

Given in the question,

Average room rate = 62

Total annual room nights = 7,300

Room nights used by Vacation travelers = 75% of 7,300 = 5475

Room nights used by Business travelers= 15% of 7,300 = 1095

Room nights used by Sports teams = 10% of 7,300 = 730

Total revenue = Total annual room nights X Average room rate (Substituting the value form above)

                           = 7300 X 62 = 452600

Let the rack rate be x,

Revenue from Vacation travelers + Revenue from Business travelers + Revenue from Sports teams = Total revenue

5475 X 100% of x + 1095 X 90% of x + 730 X 80% of x = 452600

5475x + 986x + 584x = 452600

7045x = 452600

x = 64

Room rate for Vacation travelers = 100% of 64 = $64

Room rate for Business travelers = 90% of 64 = $57.6

Room rate for Sports teams = 80% of 64 = $51.2