Let us analyze this from the hotel’s perspective. The hotel has been losing business over the last couple of years and has been striving to keep above the deficit line every year. This is now the third year in a row that they have less revenue than the year before, they have a lower vacancy rate than the year before, they have lowered the room rates from the year before and they just cannot seem to take in enough revenue to account for the expenses of the hotel. If this is a chain hotel, like the Hilton, there are a couple of options available for the manager and owners. First is to fire people in order to reduce the amount of people on their payroll. While this is cruel, it is probably the most obvious answer for the hotel chain. The management will take a look at how many dollars above is expenses compared to revenue. If they see they are 10 million dollars above the revenue line, they will look for ways to cut 10 to 15 million dollars out of their budget. They will look for maids they don’t need, cook’s they could still provide room service without, etc. They will be doing a lot of number crunching to see which area is best suited for a cutback.
Another option for the hotel, although less desirable is to cutback on its services or quality of services. For instance, the pool costs 1.2 million dollars a year to maintain and to keep in operational status. However, management figures they will only lose .3 million dollars in revenues if they forgo the pool service. Right there is a save in .9 million dollars a year. They also notice that their limousine service costs 15 million dollars a year to run. They do research and find out that they would lose 11 million dollars in revenues because guests would rather go to hotels with limousine service. They decide to not hire the limousine company the next year and save 4 million dollars. However, if they decide to cut the ice machine services which cost them $ 15,000 a year, and they realize it would cost them $ 500,000 a year in customer revenue, they would never do that.
One last and least desirable option is for the hotel chain to close down and sell the hotel. The chain realizes that the specific hotel in question, like the Hilton in Toronto, is grossing 14 million dollars of deficit for the third year running, therefore costing the chain too much money. The chain figures to do without the deficit and make money by selling the building. This results in hundreds of people losing their jobs in Toronto, the city also garnering less money in Gross Domestic Product, and the city losing money in taxes they could have attributed to the Hilton business in Toronto.