Feasibility Study For A New Hospitality Business In Western Australia

Business feasibility

This paper is about hotel business. In a study performed by different scholars in Australia shows that the population of tourists visiting the coastline of Western Australia is growing at a very high rate.  Therefore, there is a gap in the market that needs to be filled. This report will mainly focus on the aspect of business feasibility, general market characteristics, site evaluation, supply and demand information, supply and demand analysis and financial analysis, project cash flow. Adventure is part of human life. As people travel trying to learn more about different geographical areas, they need somewhere to sleep and get good meals and breakfast. A hotel building with some history, managed by an owner who has good knowledge of the area as well as the people around makes a good hospitality business idea. Moreover, this could be a more enticing prospect for the visitor as well as a good source of income and revenue for a hospitality entrepreneurs and the Western Australian government respectively.  

Feasibility analysis and study investigate and access the proposed project to see if it is feasible as a sustainable, profit generating business model. This is mainly done through quantitative analysis of its viability relating to the market, location, cost and financing.

population forecast for Australian coastline	population structure
year Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper		0-14 years	15-59 years	60and more
	total	absolute			0-14 years in %	15-59years
2009	1692067	809704	882363	240912	47.9	52.1	14.2
2010	1702835	814774	888061	242110	47.9	52.2	14.2
2011	1711716	819041	892675	243456	47.9	52.2	14.2
2012	1722311	824218	898093	245247	47.9	52.1	14.2
2013	1745548	829848	903935	247634	47.9	52.1	14.3
2014	1757722	849848	909934	250420	47.9	52.1	14.3
2015	1811475	835614	916130	253250	47.8	52.1	14.4
2020	1856467	841959	944201	265968	47.8	52.1	14.7
2025	1898866	887661	968806	277016	47.7	52.1	14.9
2030	1976411	906818	992048	285597	47.7	52.1	15
2035	1976067	924731	1012910	290081	47.7	52.1	15
2040	2014376	942994	1033073	292407	47.7	52.1	14.8

The data above here shows how the population in western coastline region. It shows a forecast of population changes over a period of 40 years. It is clear that the number of people settling in coastline region is increasing rapidly with that of young generations increasing at 0.2 % more than the elder ones. This rapid growth has been accelerated by the increased number of visitors touring the region in recent years.  

In Western Australia among the most important sources of government sources of revenue is the tourism sector. During the evaluation period, demand for hotels in the coast region shows an increasing trend as more visitors are getting attracted to the region. The country’s hotel market particularly in the coastal region is experiencing positive fundamental indicators of success. According to one of the mangers of prominent hotel in the region, hospitality industry saw up to $1.7 billion of hotel transactions. The trend has been characterized by the increased economic growth that Western Australia has been experiencing. Therefore, it is clear from the statistics that developing and opening a Hotel at this site should generate an unleveraged, pre-tax return on total invested capital exceeding 15%, with a return on equity of 25%. The rapid recovery in the current growth has been as a result of the poor performance on the tourism sector in the past years.

General market characteristics

 Primarily the big hotels in the coast region of Western Australia are very expensive and this has been preventing the continued flow of income from tourism sector due to high cost of renting a room. Tourism sector is strong in Western Australia, but the management of the big hotels and the sector itself has been discouraging tourists from visiting and staying in the coast region. This has been causing losses of about $100 million of cash flow. However, these losses accounts for only about 5% of the total sales from Australian industries (Arain, Campbell, Cooper, & Lancaster, 2010).   

Recently, the hotel market has been changed by the increased demand caused by the population increase in the coast region. Because the migrant are not residents they need affordable and better places to rent in their stay. Moreover, they need to be more enticing places for the visitor to encourage and make them comfortable in the region. This means improving and increasing the number of affordable and world class hotels is very argent. Moreover, the other important industries related to hospitality industries such as travel industries across the countries and aviation industries are expanding and are expected to give a boost to the hospitality industry in the next couple of years (Hara, Paden, Silva, Kujak, Lawder, & Pavlicek, 2009).

The key hotel market success factors are characterized by: creation of customer feedback systems for good product and service development and strict adoption of finances to ensure smooth running and provision of quality services to the visitors. Additionally, market analysis is important to execute innovation and retain the service competition in the market internationally.  However, on the other hand hospitality industry is faced by threats of unstable Australian economy, terrorist activities as well as fluctuations in the tourism sector internationally.

For an investor to venture into a good income generating investment one of the key factors to put into consideration is the population to sell your product and services to. One must as himself or herself whether the target population is big enough to buy the services. Moreover is very important to consider the clients geographical are as well as their interest and believes. If the investor considers and gives this factor a priority and make information based decisions over the target population the business or the investment will reach the at the top of the political market within a very short period of time after the establishment (Jagels, 2007).

In order to run a successful investment in a hotel industry, it is important to understand who your guests are and what they want in order to provide relevant offers and experience. Look at what greatly motivates your guest to book the services and also the location of the hotel that many of your guest find compelling. The target market in hospitality industry can be covered in different segments as follows:

• International passengers’ traffic to and from Australia:This single target population has reached record levels in the resent economic years. Over 30 million international traffic passengers to and from Australia has been spending in the region annually. Moreover, annual growth has consisted of over 5% in international airline passenger movement which has been observed to be consistent in resent economic years. Here the previous guests are the best sources of important and qualified information. Gathering this important information will not only help to improve the services to ensure that the guests have a good stay but also help you get insight information about your guest. Knowing the purpose of the guest’s travel, their activities in their travel, why they stopped at Australia and when will be their next travel are some of important information in accessing the target population for the hospitality business. Understanding the nature of the guest’s trips will help the hotel offer tailored deals and have a good experience to the future guest. It is also a great deal rather than giving offers for example to your guest to find out what the guests want.   All this provides a reliable market for the hospitality businesses products and services to the customers who spend (Tavitiyaman, Qiu Zhang, & Qu, 2012).
• Tourists:bearing in mind that tourism sector in Australia is growing rapidly; there is a strong appetite for hotel investment opportunities driven by investors both offshore and onshore. Moreover there is a great call for investment in tourism-generating infrastructures like hotel together with an international convention center.     

Trough the analysis of the population which is the major source of the market for the hotel product and services the entrepreneur will be in a position to have the best location for the investment. The best location is on the coastal region where the guests can dine by the shores of the ocean or in the rooms where high-speed Wi-Fi and a television sets are standard features. The hotel will be an onshore luxury comfort for the customers. Moreover, the management of the hotel will be bestowed to an experienced manager with a good knowledge of the location as well as the people around the site. Therefore, the customers are guaranteed of the best services as per their standards. All the workers in the hotel need to be experienced in hospitality management sector for them to be productive in the investment and offer experienced services to the guests. (Schmidt, Cantallops, & dos Santos, 2008) 

The hotel will located in Carnavon city on the onshore coastline of Western Australia cover a 101 of 460 fetes; this will cover about 50 bedroom suits. The hotel will be a great base for exploring the well-built coast line. The natural landscape, external terraces and the courtyards makes the hotel a unique location to view the coastal line and the Indian Ocean. The promise of quality and comfort in the simplest way will be observed in every Chiefly property and a noise free zone location.    The project quality is set to meet the physical and operating standards of the Australia suits as well as meeting the international standards. Complementary shuttles will be the best mode of transport to take the guest quickly to the local market to taste some local flavors. For expansion purposes as per the growth and need in the future the planners will provide the best plan for this particular purpose. The hotel coverage will provide spacious parking to the visitors as well as spacious rooms (Zylowska, Ackerman, Yang, Futrell, Horton, Hale, & Smalley, 2008).

Assets	cost
Land and building budget	$ 2,850,000
Improvement budget	$16,650,000
Total investment	$19,500,000
Pre-tax project returns	15.1%
Pre-tax returns on equity	25.2%

Supply

The city offers 131 sleeping rooms raging from luxury beds and breakfast suits to several economy motels. Chiefly hotels are located in the city where the beds and the breakfast are located along the downtown city square with the motels being positioned closer to the onshore of the Indian Ocean. Again the competitive lodgings are scattered   throughout the Australian country from cottage and small river sides in the towns. The other closest competitors being located some miles away from the coastal line. The hotels or inns in Western Australia coast line can be defined as either economy class or upscale. These properties are within the surrounding region which is primarily a recreational destination. The hotels and resorts range from seasonal cabins and cottage to the city.

Since the class of the hotels in Western Australia leaning heavily on the independent economy then there is a gap in lodging choices in the hotel market. Visitors to the coastal region will have the choice of either economy level hotel or a world class affordable one. Most of the hotels in the region are indicating poor rating and reflects the physical conditions of the property despite the ranking.  In general the Western Australia coastline is lacking a midscale and higher accommodation beyond the economy class. This tourism investment property may fetch a lot of income from increased number of potential guests who seek accommodation elsewhere in an alternative market.

The demand in hotel rooms can be examined by quantifying the occupancy at the existing hotels or the demand which is turned away at existing hotels because of capacity limits to an extent of visitors seeking accommodation outside the city. Moreover, this demand can as well be quantified by the consistent year-round business travelers to and from Australia as well as tourist attractions and events.

The data presented below provide a fair share percentage of the demand in the 50 room hotel in Western Australia coast line in the five year determined rate of growth.

total competitive rooms	subject property rooms	fair share %	corporate rooms sold	subject hotel share	subject hotel penetration	projected rooms sold	occupancy	project average rates	years
338	50	14.90%	10804	1579	233%	3662	38%	$81.00	1
338	50	14.90%	10912	1625	235%	3801	38%	$84.20	2
338	50	14.90%	11229	167	237%	3944	37%	$85.53	3
338	50	14.90%	11555	1720	239%	4093	37%	$90.99	4
338	50	14.90%	11890	1790	241%	4249	38%	$94.59	5
leisure
338	50	14.90%	23675	3554	100%	3554	37%	$100.00	1
338	50	14.90%	24588	3659	105%	3839	38%	$103.96	2
338	50	14.90%	25279	3763	110%	4139	39%	$108.08	3
338	50	14.90%	26012	3872	110%	459	39%	$112.38	4
338	50	14.90%	26767	3984	110%	4382	39%	$116.80	5
group
338	50	14.90%	17787	2648	100%	2648	8%	$91.00	1
338	50	14.90%	18303	2723	100%	2725	27%	$94.60	2
338	50	14.90%	18834	2804	100%	2804	27%	$98.34	3
338	50	14.90%	19380	2885	100%	2885	27%	$101.24	4
338	50	14.90%	19942	2969	100%	2869	27%	$106.90	5

The total number of rooms consists of the supply of the competitive investments. While the fair share percent is the percentage of the total rooms of the hotel project. The average rate is the rate of the demand market on daily bases as achieved by the proposed hotel project.

Finance analysis

finance scenario
total project
	$19500 000
EQUITY	AMOUNT	MORTGAGE	YEARS	INTEREST
30%	$1,106,500	$3,748,500	0
35%	$1,874,250	$3,480,750	20	5%
40%	$2,142,000	$3,213,000	20	5%
45%	$2,409,250	$2,945,250	20	5%
50%	$2,677,500	$2,677,500	20	5%
					CASHFLOW FOR DISTRIBUTION
			YEAR1	YEAR2	YEAR3	YEAR5
			$14,456	$31,536	$79,658	$164,015
			$7,419	$53,411	$101,532	$185,890
			$29,294	$75,286	$123,407	$207,764
			$51,169	$97,161	$145,282	$229,639
			$291,792	$119,035	$169,157	$251,514
RETURN OF EQUITY INVESTMENT
EQUITY	YEAR1	YEAR2	YEAR3	YEAR4	YEAR5
30%	-0.90%	2.00%	5.00%	7.2	10.20%
35%	0.40%	2.80%	5.40%	7.30%	9.90%
40%	1.40%	3.50%	5.80%	7.40%	9.70%
40%	2.10%	4.00%	6.00%	7.50%	9.50%
50%	2.70%	4.40%	6.20%	7.60%	9.40%

Conclusions

Western Australia coast region has been experiencing increased population which has been characterized by the increased visitation of tourists and business people who stop by for recreational purposes. The region however lacks enough accommodation for the ever increasing population. This is because the region has been dependent on independent economy hotels and resorts. Visitors to the Western Australia coastline have no choices of the resorts for provision of accommodation

Apart from lack of world class or internationally recognizable hospitality market, the region lacks diversity in accommodation provided by the existing brand hotels. Hospitality industry is among the currently fastest growing industries and the most popular segment of the economy.  Apart from the region having increased potential visitors the existing hospitality industries lack enough spaces for accommodating the populations. Furthermore, the industries are poorly managed with unrepaired infrastructures thus discouraging the potential guests to the region. The guests therefore seek accommodation in the alternative markets who are the close potential competitors of the Western Australia coastline region.

Generally, the Western Australian coastline region is lacking midscale as well as well managed upper scale hospitality industries to offer high quality accommodations beyond the economy class. While there are existing properties that can offer accommodation to satisfy the sensitive rate of visitors in the region, it appears that the coastline community as well as the government has ignored this readily available source of income and revenue. This has forced the rapidly increasing number of potential guests to seek accommodations from the alternative and distant market     

This clearly shows that there is a wide gap in the market that needs to be filled by establishing a world class hotel which will offer the services at a subsidized cost and make the visitors more comfortable. In general, visitors to the Western Australia region will have a choice of either economy level hotel or an internationally recognized hotel franchise. The hotel on the other hand will also generate high income for the tourist investors as well as reliable source of government revenue. It will also provide readily available source of employment to the hospitality graduate in the region and have a chance to meet new people and learn new ideas.

References

Arain, M., Campbell, M. J., Cooper, C. L., & Lancaster, G. A. (2010). What is a pilot or feasibility study? A review of current practice and editorial policy. BMC medical research methodology, 10(1), 67.

Hara, A. K., Paden, R. G., Silva, A. C., Kujak, J. L., Lawder, H. J., & Pavlicek, W. (2009). Iterative reconstruction technique for reducing body radiation dose at CT: feasibility study. American Journal of Roentgenology, 193(3), 764-771.

Jagels, M. G. (2007). Hospitality management accounting (9th ed.). New Jersey: John Wiley & Sons, Inc. – essential

Schmidt, S., Cantallops, A. S., & dos Santos, C. P. (2008). The characteristics of hotel websites and their implications for website effectiveness. International Journal of hospitality management, 27(4), 504-516.

Tavitiyaman, P., Qiu Zhang, H., & Qu, H. (2012). The effect of competitive strategies and organizational structure on hotel performance. International Journal of Contemporary Hospitality Management, 24(1), 140-159.

Zylowska, L., Ackerman, D. L., Yang, M. H., Futrell, J. L., Horton, N. L., Hale, T. S., … & Smalley, S. L. (2008). Mindfulness meditation training in adults and adolescents with ADHD: a feasibility study. Journal of Attention Disorders, 11(6), 737-746.