CHAPTER I

INTRODUCTION

1.1 BACKGROUND

Unlike other classes of real estate, hotels typically contain hundreds (in some cases over one thousand) of employees. Properties are reliant on the quality of management, the brand, the employees and other factors. The success of a hotel investment is heavily influenced by multiple parties, each of which may have competing and/or complimentary interests in the underlying property. In addition to the traditional interests of owner/sponsors, third party equity investors, and lenders, additional complexity is derived from the interests of the property manager and/or brand. These complexities can result in competing economic and operating influences that may not be common to other forms of real estate investment. 1.1.1 HOTEL SUPPLY ANALYSIS

A. Huge Area Market Analysis:

Economic and Demographic Analysis: Population Retail Sales Work Force Characteristics

Major Businesses and Industry Office Space Highway Traffic Airport StatisticsSize and Neighborhood Analysis:

Size, Terrain and Physical Suitability Zoning and other applicable regulations Utilities and other services availability Access Visibility Proximity to demand generators Excess LandSubject Hotel Improvement Analysis:

Number of Rooms Food and Beverage Facilities Meeting Facilities Recreational and Retail Amenities Physical Condition Effective Age

FunctionalityB. Lodging Supply AnalysisLodging Classifications

Hotel Type Categories: Commercial Convention Resort Suite Extended Stay Conference Center Casino Bed & Breakfast Hotel Location Categories Airport Highway Downtown Suburban Convention Center Resort Hotel Chain Scale Categories

Luxury: Ritz Carlton, Four Seasons, Mandarin Oriental, St. Regis, Grand Hyatt Upscale:Hilton Garden Inn, Courtyard Marriott, Crown Plaza, Four Points, Holiday Inn, Quality Inn, Ramada, Best Western, Red Lion Midscale without Food & Beverage: Country Inn & Suites, Hampton Inn, Holiday Inn Express, Comfort Inn, La Quinta, Wingate Economy: Days Inn, Extended Stay America, Microtel, Red Roof, Super 8, Value Place, Rodeway InnLodging Classifications Hotels.com Star System Five Star - (Deluxe): These are hotels that offer only the highest level of accommodations and services. The hotels are most often located near other hotels of the same caliber and are usually found near shopping, dining and other major attractions. Typical National Chains: Hyatt, Marriott. Three Star - (First Class): Typically these hotels offer more spacious accommodations that include well appointed rooms and decorated lobbies. They are often located near major expressways or business areas, convenient to shopping and moderate to high priced attractions. Typical National Chains: Holiday Inn, Hilton.

Two Star - (Moderate): Typically smaller hotels managed by the proprietor. The hotel is often 2 - 4 stories high and usually has a more personal atmosphere. Typical National Chains: Days Inn, LaQuinta Inn.

One Star - (Moderate): Usually denotes independent and name brand hotel chains with a reputation for offering consistent quality amenities. The hotel is usually small to medium-sized and conveniently located to moderately priced attractions. Typical National Chains: Econolodge, Motel 6. Evaluation of Competition Primary: same transient visitors as subject property Secondary: same transient visitors as subject property, but under special circumstances1.1.2. HOTEL DEMAND ANALYSIS

A. Characteristics of Travel Demand

Commercial/Corporate Individual

Meeting and Convention

Leisure

Government

Contract Crew

B. Demand Generator Build Up Approach

Definition of Market Area

Potential Demand Generators

Demand Interviews and Surveys

C. Lodging Demand Generators: Airports

Amusement parks

Association headquarters

Casinos

Colleges and universities Companies and businesses Convenient highway stopping points Convention centers

County seats and state capitals Court houses

Festival sites

Historical attractions

Hospitals

Military installations

Museums

Offices and industrial parks

National or state parks and scenic areas Racetracks

Regional shopping centers

Resort areas

Sports stadiums

Theaters

Tourist attractions

World and state fairs

Lodging Activity Build Up Approach

Current Accommodated Room Night Demand

Current and Forecasted Latent Demand:

Unaccommodated Demand Nature of Demand

Area Occupancy Level

Number of Fill Nights

Alternative Accommodations

Induced Demand

Accomodatable Latent Demand

Usable Latent Demand Forecasted Accommodated Room Night Demand

Total Available Room Nights

Overall Market wide Occupancy1.1.3 ANALYSIS OF MARKET SHARE, OCCUPANCY RATE

A. Average Room Rates

Market Penetration Analysis Fair Share Market Share Penetration Index

Project Occupancy Up To stabilization

Forecasted Monthly Occupancy Analysis Peak Season Low Season Shoulder SeasonB. Average Room Rate Analysis Competitive Positioning Method Bottom Up Method Rule of Thumb Method Market Segmentation Method

1.1.4 THE PLAZA HOTEL GLODOKPlaza Hotel Glodok is located on the 3rd floor, in Glodok Plaza shopping center building and has a capacity of 91 rooms. It is located right in the heart of Glodok. Glodok are the part of Jakartas past. The area is known as the biggest Chinatown since the era of Dutch rule in Indonesia. Nowadays, Glodok areas are known as the center of Jakartas largest electronics. Surrounded by a large center such as Lindeteves (LTC), Pasar Pagi, Glodok Jaya, Orion Plaza, which is as large and famous as Gajah Mada Plaza and Mangga Dua along the Mangga Besar and Hayam Wuruk street.

Glodok Plaza building is surrounded by several museums and historic buildings as well as Kota train station, which can be reached within minutes from the hotel and Soekarno-Hatta International Airport which can be reached in less than 45 minutes from the hotel. The Plaza Hotel Glodok offers simple but clean and comfortable with a warm and friendly as well as economical pricesA. ROOM

There are 3 types of room in The Plaza Hotel Glodok:

a. Deluxe Room

Room size: 23 m

Spacious room with KingKoil Duvet bed

Air Conditioner

Sofa and Coffee table

City View

32 LCD TV with International channels

Wi-Fi (in-room Internet Access)

In-room Safe

Walk-in shower (with Normal and Hot temperature)

b. Superior Room

Room size: 20 m

Spacious room with KingKoil Duvet bed

Air Conditioner

32 LCD TV with International channels

Wi-Fi (in-room Internet Access)

In-room Safe

Walk-in Shower (with normal and hot temperature)

c. Twin Superior Room

Room size: 20 m

Spacious room with 2 twin KingKoil Duvet beds

Air Conditioner

32 LCD TV with International channels

Wi-Fi (in-room Internet Access)

In-room Safe

Walk-in Shower (with normal and hot temperature)B. HOTEL FACILITIESThe Plaza Hotel Glodok offers competitive room rate, managed by professional staffs with facilities, such as:

24-hour front desk service

Wi-Fi (internet access inside and outside the room)

The Plaza Kitchen Restaurant

Spacious rooms with King Koil Duvet bed

32" LCD TV with international channels

Safety deposit box

Walk-in Shower1.2 RESEARCH PROBLEMS

1.3 RESEARCH PURPOSE

This research study purpose is to find out what is the main factor that can be the biggest influence of The Plaza Hotel Glodoks profit.

1.4 SIGNIFICANCES OF STUDY

By looking from the demand and supply of The Plaza Hotel Glodoks data.

1.5 LIMITATIONS

Analysis of demand and supply based on the data of room available and room sold.CHAPTER II

LITERATURE REVIEW

2.1 Demand

On the demand side of a market, consumers buy products from firms. The main question concerning the demand side of the market is: How much of a particular product are consumers willing to buy during a particular period? A consumer who is willing to buy a particular product is willing to sacrifice enough money to purchase it. The consumer doesnt merely have a desire to buy the good, but is willing and able to sacrifice something to get it. Notice that demand is defined for a particular period, for example, a day, a month, or a year.

Here is a list of the variables that affect an individual consumers decision, which called as determinants of demand: The price of the product The consumers income

The price of related goods

The size and composition of the population The consumers preferences or tastes and advertising that may influence preferences

The consumers expectations about future prices

Together, these variables determine how much of a particular product an individual consumer is willing and able to buy, the quantity demanded. The relationship between the price and quantity demanded is represented graphically by the demand curve below.

Figure 2.1 Market Demand Curve

Notice that demand curve is negatively sloped, reflecting the law of demand. This law applies to all consumers.

Market Effects of Changes in Demand:

a. Change in Quantity Demanded

Changes in the price of a good lead to a change in the quantity demanded of that good. This corresponds to a movement along a given demand curve.

Figure 2.2 Changes in Quantity Demanded

b. Change in Demand

Changes in variables other than the price of a good; such as consumer income, price of related good, advertising and consumer taste, population and consumer expectation (demand shifter); lead to a change in demand. This corresponds to a shift of the entire demand curve.

Figure 2.3 Changes in Demand

Demand Function:

An equation representing the demand curve:Qxd = f(Px , PY , M, H,)

Where:

Qxd = quantity demand of good X. Px = price of good X.PY = price of a related good Y.M = income.H = any other variable affecting demandDemand is linear if Qxd is a linear function of prices, income, and other variables that influence demand, the following is a linear demand function:

Qxd = 0 + xPx + yPy + MM + HH

The s are fixed numbers that the firms research department or an economic consultant typically provides to the manager.2.2. Supply

On the supply side of a market, firms sell their products to consumers. Suppose you ask the manager of a firm, How much of your product are you willing to produce and sell? The answer is likely to be it depends. The managers decision about how much to produce depends on many variables, including the following:

The input prices The technology or Government Regulation Number of firms Substitutes in production Producers expectations about future prices

Taxes paid to the government or subsidies (payments from the government to firms to produce a product)

Together, these variables determine how much of a product firms are willing to produce and sell, the quantity supplied. The relationship between the price of a good and the quantity of that good supplied is represented graphically by the supply curve below.

Figure 2.4 Market Supply Curve

The supply curve is positively sloped, reflecting the law of supply, a pattern of behavior that we observe in producers.Market Effects of Changes in Supply:

a. Change in Quantity Supplied

Changes in the price of a good lead to a change in the quantity supplied oh that good. This corresponds to a movement along a given supply.

Figure 2.5 Changes in Quantity Supplied

b. Change in Supply

Changes in variables other than price of a good; such as input price, technology or government regulation, number of firms, substitutes in production, taxes and producer expectation (supply shifter); lead to a change in supply. This corresponds to a shift of the entire supply curve.

Figure 2.6 Changes in Supply

Demand Function:

An equation representing the supply curve:QxS = f(Px , PR ,W, H,)

Where:

QxS = quantity supplied of good X. Px = price of good X.PR = price of a related good W = price of inputs (e.g., wages)H = other variable affecting supply

Supply is linear if Qxs is a linear function of the variables that influence supply, the following is a linear supply function:

Qxs = 0 + xPx + RPR + WW + HH

The s are fixed numbers that the firms research department or an economic consultant typically provides to the manager.

2.3. Market Equilibrium

A market is an arrangement that brings buyers and sellers together. We bring the two sides of the market together to show how prices and quantities are determined. When the quantity of a product demanded equals the quantity supplied at the prevailing market price, this is called market equilibrium. When a market reaches equilibrium, there is no pressure to change the price. In Figure 2.7, the equilibrium price is shown by the intersection of the demand and supply curves. At a certain price, the supply curve shows that firms will produce number of products, which is exactly the quantity that consumers are willing to buy at that price.

Figure 2.7 Market EquilibriumExcess Demand Causes the Price to Rise

If the price is below the equilibrium price, there will be excess demand for the product. Excess demand (called a shortage) occurs when, at the prevailing market price, the quantity demanded exceeds the quantity supplied, meaning that consumers are willing to buy more than producers are willing to sell. In Figure 2.8, at a price of $5, there is an excess demand equal to 6 goods: Consumers are willing to buy 12 goods (point c), but producers are willing to sell only 6 goods (point b). This mismatch between demand and supply will cause the price of good to rise. Firms will increase the price they charge for their limited supply of goods, and anxious consumers will pay the higher price to get one of the few goods that are available. An increase in price eliminates excess demand by changing both the quantity demanded and quantity supplied. As the price increases, the excess demand shrinks for two reasons:

The market moves upward along the demand curve (from point c toward point a), decreasing the quantity demanded.

The market moves upward along the supply curve (from point b toward point a), increasing the quantity supplied.

Because the quantity demanded decreases while the quantity supplied increases, the gap between the quantity demanded and the quantity supplied narrows. The price will continue to rise until excess demand is eliminated. In Figure 2.8, at a price of $7 the quantity supplied equals the quantity demanded, as shown by point a. In some cases, government creates an excess demand for a good by setting a maximum legal price that can be charged, called price ceiling. If the government sets a maximum price that is less than the equilibrium price, the result is a permanent excess demand for the good.

Figure 2.8 Shortage ConditionExcess Supply Causes the Price to Drop

What happens if the price is above the equilibrium price? Excess supply (called a surplus) occurs when the quantity supplied exceeds the quantity demanded, meaning that producers are willing to sell more than consumers are willing to buy. This is shown by points d and e in Figure 2.9. At a price of $9, the excess supply is 8 goods: Producers are willing to sell 14 goods (point e), but consumers are willing to buy only 6 goods (point d). This mismatch will cause the price of goods to fall as firms cut the price to sell them. As the price drops, the excess supply will shrink for two reasons:

The market moves downward along the demand curve from point d toward point a, increasing the quantity demanded.

The market moves downward along the supply curve from point e toward point a, decreasing the quantity supplied.

Because the quantity demanded increases while the quantity supplied decreases, the gap between the quantity supplied and the quantity demanded narrows. The price will continue to drop until excess supply is eliminated. In Figure 2.9, at a price of $7, the quantity supplied equals the quantity demanded, as shown by point a. The government sometimes creates an excess supply of a good by setting a minimum legal price that can be charged, called price floor. If the government sets a minimum price that is greater than the equilibrium price, the result is a permanent excess supply.

Figure 2.9 Surplus ConditionNow we know that equilibrium is determined in a competitive market and also government policies such as price ceiling and price floor affect the market. Next, we can use supply and demand to analyze the impact of changes in market condition on the competitive equilibrium price and quantity. The study of the movement from one equilibrium to another is known as comparative static analysis. Throughout this analysis, no legal restraints, such as price ceiling and price floor, are in affect and that the price system is free to allocate goods among consumers.Figure 2.10 shows the change in demand, demand increase, shifting demand curve to D1 and intersect with supply curve at a new point (red point). In this instance, the market price rises from P0 to P1 and the equilibrium quantity increases from Q0 to Q1.

Figure 2.10 Effect of change in demand

Figure 2.11 shows the change in supply, supply increase, shifting supply curve to S1 and intersect with demand curve at a new point (red point). In this instance, the market price decreases from P0 to P1 and the equilibrium quantity increases from Q0 to Q1.

Figure 2.11 Effect of change in supply

2.4. Elasticity

The quantity demanded of a good is affected mainly by:

changes in the price of a good,

changes in price of other goods,

changes in income and,

changes in other relevant factors.

Elasticity is a measure of just how much the quantity demanded will be affected by a change in price or income or change in price of related goods. Different elasticities of demand measures the responsiveness of quantity demanded to changes in variables which affect demand so:

1. Price elasticity of demand- measures the responsiveness of quantity demanded by changes in the price of the good

2. Income elasticity of demand measures the responsiveness of quantity demanded by changes in consumer incomes.

3. Cross elasticity of demand measures the responsiveness of quantity demanded by changes in price of another goodPrice elasticity of demand Assume that the price of coke increases by 1 %. If the quantity demanded consequently falls by 20%, then there is very large drop in quantity demanded in comparison to the change in price. The price elasticity of coke would be said to be very high. If quantity demanded fall by 0.01%, then the change in quantity demanded is relatively insignificant compared to the large change in price and the price elasticity of coke would be said to be low.

Economists choose to measure responsiveness in term of percentage changes. So price elasticity of demand which is the degree of responsiveness in changes in quantity demanded to changes in price is calculated by using the formula:

% Change In Quantity Demanded

% Change In Price

Graphical presentation for price elasticity shown by picture below:

Figure 2.12 Price elasticity

Perfectly inelastic : Quantity demanded does not change at all as P changes, E = 0.Inelastic : Quantity demanded changes by a smaller percentage than does price , |E| 1

Perfectly elastic : Buyers are prepared to purchase all they can obtain at some given price but none at all at a higher price , E = infinity

Income elasticity of demand The demand for a good will change if there is a change in consumers` income. Income elasticity of demand is a measure of how much the quantity demanded of a good responds to a change in consumers income. Formula for measuring income elasticity of demand is

Inferior goods are goods for which an increase in income leads to a decrease in the demand for that good, or vice versa. It is any goods whose income elasticity of demand is lower than zero (|Ey| < 0). Normal goods are any goods whose income elasticity of demand is greater than zero (|Ey| > 0). Normal good are goods for which an increase (decrease) in income leads to an increase (decrease) in the demand for that good. Examples of items with a high income elasticity of demand are holidays and recreational activities, whereas washing up liquids tends to have a low income elasticity of demand.

Figure 2.12 Income elasticity

Positive Income Elasticity can be divided into 3 categories:

1. Income inelastic:|Ey| < 1 (Dd rises by a smaller proportion as Y)

2. Unit income elasticity: |Ey| = 1 (Dd rises by exactly the same proportion as Y)

3. Income elastic:|Ey| > 1 (Dd rises by a greater proportion than Y)

Cross elasticity of demand The quantity demanded of a particular good varies according to the price of other goods. A rise in price of a good such as beef would increase the quantity demanded of a substitute such as chicken; On the other hand a rise in price of a good such as tennis racket would lead to a fall in quantity demanded of a complement such as tennis ball. Cross elasticity of demand is a measure of how much the quantity demanded of one good responds to a change in the price of another good. The formula for calculating the cross elasticity of demand for good is X:

Two goods, which are substitutes, will have a positive cross elasticity. Substitutes are goods for which an increase (decrease) in the price of one good leads to an increase (decrease) in the demand for the other good. It is any goods whose cross elasticity of demand is greater than zero (|Ex| > 0).Two goods, which are complements, will have a negative cross elasticity. Compliments are goods for which an increase (decrease) in the price of one good leads to an decrease (increase) in the demand for the other good. It is any goods whose cross elasticity of demand is greater than zero (|Ex| < 0).The cross elasticity of two goods which have little relationship to each other would be zero e.g. a rise in the price of cars of 10% is likely to have no effect (0%) change on the demand for tipp-ex.

2.5 PAST RESEARCHES

Jack Corgel and Jamie Lane on their research about Hotel Industry Demand Curves extend previous work on understanding hotel demand by focusing on the demand curve. Specifically, attention is directed toward the slope of the curve indicating the relationship between average daily rate and the number of rooms sold - the price elasticity. Price and income elasticity are considerably larger for higher quality hotels, as indicated by the chain scale in which they operate. Elasticity tends to increase with data disaggregation. Higher elasticity is generally found for individual chain scales and cities compared to the nation. The expected direction of the relationship between hotel demand and each economic variable. For example, as ADRs increase, consumers purchase fewer hotel rooms, hence the negative sign. As income and employment increase, consumers have greater abilities to purchase hotel rooms, hence the positive direction of these relationships.

Aki Hiro Sato (2013) on his research Detecting Demand Supply: Situations of Hotel Opportunities: An Empirical Analysis of Japanese Room Opportunities Data analyzes the availability of room opportunity types collected from a Japanese hotel booking site, he characterize demand supply situations of room process at each region with both room availability and average room rate. The average room rate decreases in terms of the room rate increase with respect to the room availability in some districts. This is evidence that the theory of demand and supply is not always satisfied in Japanese hotel industry.