conference IR question

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conference IR question

by datonman » Tue Jan 27, 2015 4:02 pm
The question asks:

Assume that host hotels receive a reimbursement from the conference organizers for 25% of the block rate per night for each unoccupied room in the conference block. For each of the following hotels, select 'yes' if, for at least one conference on the weekend listed, the hotel would lose room revenue if a room in the block is vacant because an attendee employed the ROB strategy, otherwise select 'No.'

This one was a doozy to me.
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IMG_0593.JPG
These are the weekend conferences
Last edited by datonman on Tue Jan 27, 2015 8:50 pm, edited 1 time in total.

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by [email protected] » Tue Jan 27, 2015 4:37 pm
Hi, Datonman.

This looks like a classic example of a question that looks more complicated than it is. In essence, we're choosing between two strategies
ROB: avoiding the block price, but staying in the same hotel or
ROHH: changing hotels altogether, which most likely means staying at the hotel with the cheapest Out-of-Block rate in town. ($65 at the Garden Inn)

We're looking for which conference it would make more sense to choose ROB (avoiding the block rate, but staying in the hotel) over ROHH(avoiding the host hotel altogether in favor of a cheaper alternative.) Well, if you're attending the AMG conference, you're already at the cheapest hotel (for out of block rates), so ROHH doesn't make any financial sense - we can't do any better than $65! So here, it makes more sense to opt for ROB and grab that $65 out-of-block rate, rather than switch to another hotel, where we'd have to pay at least $70. The answer, then, is A

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by datonman » Tue Jan 27, 2015 7:24 pm
thank u for the response. But I'm still a little hazy as to the ROHH strategy. I don't understand what it means to reserve rooms 'outside' the hotel. I also feel the same for the ROB strategy. What does it mean 'outside' the block?

By the way I forgot to post the actual questions. Sorry about that.
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by [email protected] » Tue Jan 27, 2015 8:00 pm
Can you repost the question with a fresh image? (Half of the text was cut off in this one.)

In the meantime, here's what the two strategies entail:
ROB: registering outside the block means registering at the same hotel, but at a lower rate than you'd have to pay if you registered 'in block.' Say, for example, that you were attending a conference hosted at the Asiawest center. If you're staying "in block" you're paying 190. If you employ the ROB strategy, you're grabbing a room at the same hotel for the discounted price of 185.

ROHH: Here the strategy is to get a room at another hotel altogether. So even if your conference were being hosted at the Asiawest center, you might stay at, say, the Hilton, and pay only $70.

In sum: ROB: staying in the host hotel, but at a cheaper rate. ROHH: finding a different (and cheaper) hotel altogether.

Make sense?

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by datonman » Tue Jan 27, 2015 8:44 pm
Hello,

thanks for responding. Yes it makes a bit more sense. To answer your question, the question in the image is the same as what I posted in my first post above in italics.

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by [email protected] » Wed Jan 28, 2015 7:12 am
Well, let's evaluate hotel by hotel.

First, we have Asiawest. They seem to be holding three conferences: CDA, QRTA, and RCD. For this hotel, the block rate (190 or 195 is so close to their lowest rate that it's hard to imagine them losing money if the conference is going to be reimbursing them 25% for vacant rooms, but let's do the math anyway, for clarity's sake.)

Per guest, Asiawest stands to get 190 for its block rate for the CDA concert. For two nights, that means 190*2 = 380 per guest. If that guest employs the ROB strategy, he'll pay 185 per night, or 185*2 = 370 for the weekend. So Asiawest is losing $10 (380-370) if the guest employs the ROB strategy. But the conference is giving Asiawest 25% of the original block rate to compensate for this, so they'll get .25*380 = 95 back. Therefore, Asiawest stands to actually make money in this scenario. They lose 10 from the ROB strategy and get back 95 as compensation. (per guest.) (They also host the QRTA and the RCD conferences. Here the Block rate minus in-Block rate is slightly larger, but still not enough to offset that 25% reimbursement.) So here we have a NO.

On to the Bard Inn! Well, the Bard Inn doesn't have any gap at all between their Block rate and their non-Block rate, so we can just eyeball this one and say NO, they won't lose money if anyone opts out of the Block rate. [And why would they? They'd be paying the exact same price!] Again NO.

Last, we have the Hilton. Let's look at the FFNA conference, because that has the largest Block to non-Block gap. If someone stays at the hotel at the block rate, they'll pay 140*2 = 280 for the weekend. If they use the ROB strategy, they'll pay 70*2 = 140, for a net of 280 - 140 - 140. So that's what the hotel loses. If the conference gives them 25% of the block rate, they'll get back .25*280 = 70. So they're forgoing 140 in revenue and getting back a measly $70 from the conference. Clearly, they're losing out here, so the answer is YES.