DISC230

Forecasting Avari Hotel,

Lahore

Group Members
Syed Shaheryar Raza
Rizvi
Muhammad Zaid
Ashfaq
Izza Adnan
Ahmed Abbas
Ali Danish
Syed Khawaja Anser
Mahmood

Group 5 (1)

Abstract:
The Avari group is basically a family business with its core interests in the hospitality business.
The company is currently operating under Mr. Byram D Avari (chairman) and his sons Dinshaw
and Xerxes. The Avari hotel Lahore has a long and proud history of playing host to a diverse
clientele for almost 36 years. In 1988 the Avari group entered into a franchise agreement with
Ramada Renaissance Hotels international which ended in 1994, our source in the management
regards this period as the peak of employee training on international standards. The hotel was
renamed Avari hotel in 1994, and as of date the name has become a brand of a hospitable hotel
chain with amenities that confine with international standards. At present the hotel faces
competition mainly from Pearl Continent Hotel, which is located in its vicinity and offers almost
the same standards as the Avari.
Overview:
The Director Sales and Marketing, Mr. Syed Kazim Rizvi stressed in our correspondence that
different factions of their clientele require different services and amenities to ensure the
maximum value for their money and preference in Avari hotels. He maintains that the
management has divided the clientele into leisure and corporate categories. The leisure category
includes mainly tourists and walk in visitors while the corporate category hosts corporate guests
visiting the city for meetings, lectures and other business proceedings. To clarify what differing
value chains mean in practical application he asserted that, with corporate clients its all about
timing, they are usually on a tight schedule and we must ensure they are given a wakeup call on
the dot, their clothes are ironed and ready the water is hot and running, their breakfast is crisp
and steaming and their car is waiting and the receptionist and driver welcome them with a
smile .. as for their leisure clients they have time and they want to make the best of it, for
them we have to focus on in house amenities like a gym, a bakery, a pool , shopping stalls tour
guides etc. The management is well aware of the value chain and there is clear integration of
corporate strategy in all the departments. The head of the Accounting department gave figures
that showed a 90% corporate clientele and 10% leisure clientele. This justifies the Marketing
figures of 70% promotion budget spent on attaining and maintaining corporate clients and 30%
on leisure clients. The management is well aware that the value created by human inventory is
immense, hence a very sophisticated computerized system of employee appraisal is maintained
to ensure the customers stay is as comfortable as possible. The appraisal system in play
incorporates customer feedback, manager ratings as well as international standards. Another
major aspect of the value chain is the quality of in house amenities such as room service and
restaurants. To this end the kitchen is open for customers to visit to ensure hygiene and quality.
The department head also does random checks on food being supplied to customers in terms of
presentation, taste as well as the time it takes to reach them.
The nature of the industry is such that even though no visible production is taking place, an
efficient inventory management system needs to be in place for the business to function.
Inventory management is decentralized and divided according to departments and are under the

Group 5 (2)

direct control of the departmental heads that use various techniques they think fit. The restaurant
and the room service department according to company policy need to be well stocked so no
customer has to wait too long or denied a particular dish. The manager of operations, food and
catering, Mr. Hamza Khaan shares that with experience he has come up with a simple formula he
and his teams follow, every customer that complains he had to wait too long and every customer
who is denied a dish because its unavailable is on average ten more customers to our
competitors. He also has a mix of just in time and partial inventory systems as he told us that
basic dietary dishes that we are sure will be ordered are partially prepared to reduce cooking time
when ordered, however, specialties and rare dishes like lobster are prepared from scratch once
ordered. He however stressed that one days partially prepared food stuff even though edible is
disposed at days end because serving customers fresh food is what we promise and we keep our
promises. The managers operations, room cleaning, Mr. Zain Khawaja also has to maintain
inventory of soaps, shampoo, tissues etc. He emphasizes an optimistic approach and maintains
enough inventories to provide for the entire 188 rooms for at-least two weeks. He justifies this by
explaining the cost advantage in bulk buying, the available storage space as well as reduced risk
of customer dissatisfaction. He stated that people come here to get away from the constant
thought of having to clean the house every day and the anguish when someday they realize they
are out of toiletries, we ensure that are cleaning staff is fast, efficient and well equipped with
their mops, brooms, clean sheets and shampoos etc. before they knock ur door.
As mentioned above, for the purposes of marketing, accounting and other amenities the customer
base is divided into leisure and commercial categories. There is also a further subdivision of
these categories. The leisure category consists of L1, L2 and L3. L1 being frequent customers L2
being seasonal customer that for eg come one every winter and L3 which are basically either first
timers or walk ins. The commercial category is sub divided into detailed segments. C1 consists
of renowned companies that have signed contracts with the hotel, they are given amenities like
free airport transport, preference in bookings, dont have to offer a collateral or down payment
for their booking are offered a flat below market rate in return for a promise of at least 700-800
room nights per contractual year.C2 companies consist of companies that use the hotel services
less frequently, avail at last 300 hotel nights , they are however offered a contract with
discounted rates and are given second preference on advance bookings. C3 are a group of
companies which are either alien or very infrequent customers. They are usually not under
contract, are given a third degree preference on bookings and usually have to offer an advance
payment on bookings. It is also interesting to note that LUMS comes under C2 companies and
Avari is set to play host to around 50 foreign and local dignitaries that are scheduled to give
lectures at LUMS.
The cost structure typically consists of a mixture of fixed and variable costs. The major fixed
costs are depreciation, salaries etc. and basically sunk costs of the premises fixtures and fittings
etc. and variable costs include bonuses, maintenance, inventories for the restaurant etc. However
the accounting department at Avari treats all costs fixed as forecasted at 80% hotel occupancy.

Group 5 (3)

The head of the accounting department believes through experience that this number is an overall
average of costs when linked to occupancy. Although the demand and hence costs may be higher
or lower during several months he believes that in a yearly time frame the deviances average out
and hence the budget is prepared using all costs as fixed operating at 80% occupancy.
Demand generation is subject to economic conditions, security concerns as well as seasonal
factors such as the weather, events etc. Economic conditions and security concerns effect the
demand in the long run, the deteriorating state of the local economy and the rising inflation is to
blame for leisure demand to fall from 35 to 10 percent over a period of 10 years compared to the
corporate clientele. The alleviated security risk has led to an overall decrease in demand as
foreign dignitaries and tourist numbers flowing into the country have sharply declined. The hotel
Industry growth rate which was 9.7% in 2005-06 is now below 5% owing to the political and
economic instability. The weather is a major determinant of demand, as the graphs in Exhibit
show they hotel demand has a cyclical trend, with its peak during the spring season. The
management also mentioned that the worst month for business is usually the holy month of
Ramadan as occupant numbers fall, this can be seen in occupancy decline in the month of
August. They however maintain that the budget is not disturbed as during the month income
from Iftaar buffets and outside catering are at the rise. The graph in exhibit A also shows nose
dips in demand during the December-January periods, the management says that this is because
corporate employees usually avail their holidays at this time and as Avari s main clientele is
corporate its demand falls. The trend line in Exhibit is increasing even though the economy and
security conditions are deteriorating. The root cause of the upward trend is not tourism but
increased business opportunities. Following the elections the government has signed numerous
MOUs with friend nations like China, Turkey, Iran and Saudia and the foreign dignitaries visiting
the country have increased. The increased number of foreign businessmen following the new
incentives offered by the government, increased foreign workers from countries like China to
oversee their projects are the main reason for the upward trend for Avaris demand. It is
important to note that the demand trend for the hospitality industry, although increasing is not as
fast as Avaris because even though corporate clients are increasing the leisure demand is falling.
Capturing the Forecasting Procedure of Avari:
Avari has a forecasting mechanism that provides the departments with the expected goals,
demand and budget for the upcoming year. The data for the forecast is gathered from internal
historical data budgeted and actual, competitors demand and forecasts from secret sources and
data from PTDC (Pakistan Tourism Development Corporation) on tourism trends, both foreign
and local. This data is not simply extrapolated to the future; weights are assigned to factors such
as security conditions, visa policy, transport services, event calendars, economic conditions,
corporate contracts, new competition etc. The weights attached are unanimously agreed upon in
an annual meeting of all department heads. The adjustments made to the forecast are unanimous
nonetheless subjective.

Group 5 (4)

The forecasting method used by Avari involves a great degree of subjectivity. Adding to this
point as the group heads unanimously decide what weights to attach to different factors problems
such as group think, dis-agreement etc. might lead to a faulty forecast. The forecasting method
used is also questionable in terms of applicability as the historical data used to generate the
forecast dates back three years and arrives at a corrupt average occupancy rate because it uses
seasonalised data. Hence, we would recommend the moving average technique. As depicted in
Figure 9 the MAD, MSE and MAPE of method used currently by Avari is much higher than the
MAD, MSE and MAPE of the method we recommend. This method would not only resolve the
issue of applicability but also smooth line the data and decrease the seasonal variations and
arrive at an average close to reality.

Group 5 (5)

EXHIBIT A

Business Cycle 2010-11 Rooms

4000
3500
3000
2500
2000
1500
1000
500
0
Jul

Aug Sep

Oct

Nov

Dec

Jan

Feb March Apr

May

Jun

Figure 1 Business Cycle 2010-11 Rooms (Total Rooms Available per

Month)

Business Cycle 2011-12 Rooms

5000
4000
3000
2000
1000
0
Jul

Aug Sep

Oct

Nov

Dec

Jan

Feb March Apr

May

Jun

Figure 2 Business Cycle 2011-12 Rooms (Total Rooms Available per

Month)

Group 5 (6)

Business Cylce 2012-13 Rooms

6000
5000
4000
3000
2000
1000
0
Jul

Aug Sep

Oct

Nov

Dec

Jan

Feb March Apr

May

Jun

Figure 3 Business Cycle 2012-13 Rooms (Total Rooms Available

per Month)

Rooms Occupied Plot By Deseasonalized Data and Line of Best Fit

5000
4500
4000

f(x) = 37.43x + 2969.93

R = 0.58

3500
3000
2500
2000
1500
1000
500
0

Figure 4: Showing the Plot of Deseasonalised Room Demand over the Months along with
the trend-line

Group 5 (7)

Forecasted Demand For Next Years (Seasonally Adjusted)

7000
6000
5000
4000
3000
2000
1000
0

Figure 5: Forecasted Demand of Rooms for the Coming periods (Seasonally

Adjusted)

Group 5 (8)

Average Room Rates 2010-13

12000
10000
8000
6000
4000
2000
0

Figure 6: Average Room Rates form July 2010 to June

2013 in PKR

Group 5 (9)

Revenue 2010-11
Avari Hotel Lahore

Jun; 8%
May; 7%

(Actual Data)

Jul; 9%
Aug; 6%

Apr; 9%

Description
Available
Rooms
2010-11
2012-13
2012-13
Forecasted
2012-13
Actual
2013-14
Forecasted

Jul

Aug

Sep

Oct

Sep ; 7%

Nov

Dec

Jan
Oct; 9% Feb

Marc
h

Apr

March; 10%
Nov; 8%

5828
5828

5828
5828

5640
5640

Feb; 10%5640
5828
5828
Dec; 8%
5828
5640
Jan;
9% 5828

5828
5828

5264
5452

5828
5828

5640
5640

5828

5828

5640

5828

5828

5264

5828

5640

5828

5828

5640

5828
Figure 7:5640
Revenue 5828
Spread over
5828
the Months
5264
in 2010-11
5828

5640

5828

5828

5640

5828

5640

5828

5828

5264

5828

5640

61.26
65.48

37.99
31.73

43.85
58.46

57.36
60.59

54.5
62.38

51.96
53.35

58.77
65.7

68.01
74.61

61.67
71

58.55
72.7

60.05
60.00
343
49.75
978

40.07
39.03
569
54.90
734

68
64.53
901
75.35
461

71.47
66.47
22
78.07
138

70.92
72.65
957
81.56
028

62.03
72.32
327
78.92
931

68.03
63.50
377
72.32
327

77.03
82.42
781
85.48
632

75
82.65
271
84.93
48

74.02
81.50
709
85.10
638

3570
3816

2214
1849

2473
3297

3343
3531

3074
3518

3028
3109

3425
3829

3580
4068

3594
4138

3302
4100

3500

2335

3835

4165

4000

3615

3965

4055

4371

4175

3497

2275

3640

3874

4098

4215

3701

4339

4817

4597

2900

3200

4250

4550

4600

4600

4215

4500

4950

4800

2010-11

30738

19693

22355

29630

28238

27541

30483

32075

33879

31899

2011-12
2012-13

33117

16653

29366

31543 31880 28616

Figure 8: Actual

34386

39804

40500

39199

Occupied %
2010-11
2011-12
2012-13
Forecasted
2012-13
Actual
2013-14
Forecasted
Occupied
Rooms
2010-11
2011-12
2012-13
Forecasted
2012-13
Actual
2013-14
Forecasted

5640

5828

Revenue

Group 5 (10)
MAD
(Avari)
MSE
(Avari)
MAPE
(Avari)

273.1538462
121442.0833
6.618844955 percent

MAD, MSE and MAPE calculated by applying MA3 and MA4 on the
Deseasonalised Data
MAD (By MA3)
MSE (BY MA3)
MAPE (BY MA3)

243.2930354
108954.7168
6.472728604 percent

MAD (By MA4)

MSE (By MA4)
MAPE (By MA4)

246.9806862
109108.3227
6.497692926 percent

Figure 9: MAD, MSE and

Comapritive Forecasted Methods

6000
5000
4000
3000
2000
1000
0

Figure 10: Comparison between Avaris and Our

Forecast Methods