SWOT Analysis of Luzern Townhouse Hotel

Strengths
Luzern Townhouse Hotel is strategically located in the proximity of a theater and the railway station in Hirshchengraben. The strategic location makes it easily accessible to a large number of customers from the surrounding locations including nearby business centers, shopping malls, and government offices.
The hotel is financially stable regarding capital structure. The newly acquired property is funded 50% by equity and 50% of the debt. The property is expected to result in rapid growth of the hotel’s sales revenue and profitability.
The property has the potential to grow into a four-star hotel within a very short time. The rooms are furnished with necessary amenities to meet the needs of customers, both local and international.
The hotel’s operating profit for the rooms is 78.23%. This ratio is healthy and shows that the rooms business is not vulnerable to adverse market changes. The high rate also implies that the hotel has enough resources to fund substantial growth in the long-term.
The hotel has an excellent service mix to keep its customers entertained and safe during their stay. This factor will lead to the hotel’s rapid growth in the short-term.

Weaknesses
The hotel’s quick ratio indicates that it has a liquidity of less than 1. Although this rate is projected to increase in 2017, it is clear that the hotel is not doing well regarding liquidity. The low ratio indicates that the hotel is heavily reliant on inventory to sustain its business operations. In effect, the hotel is weak financially in the sense that it is not able to repay most short-term debts due to the low quick ratio.

The hotel’s return on capital invested is negative (-0.54%), an indication that the vast majority of the hotel’s assets are intangibles. The negative return on capital is bad because it means that the hotel’s current liabilities are greater than total assets. In that situation, the hotel is in a severe liquidity crisis and lacks the ability to meet short-term debt obligations.
The hotel’s return on capital employed is zero, meaning that the company is not using its money more efficiently to bring more returns. The hotel should liquidate additional assets to boost its cash flow. For example, the hotel can sell furniture and other unnecessary tangible properties.
The hotel has a negative loan interest cover, meaning that the ability to pay interest obligations is tiny. At -0.4, the hotel has a higher debt burden, and thus, the possibility of bankruptcy is very high. As a means to Improve interest cover; the hotel should set short-terms for accounts receivable where necessary. Besides, the hotel should limit pre-paying expenses to keep funds in its accounts for as long as possible.
The operating profit for the food and beverages is -47.39%. These means that this section is not doing well financially. Since the foods and beverages department constitutes a significant business segment for the hotel, there is a need for management to reconsider their financial management strategies to turn around the poor performance.
Opportunities
High economic growth in Switzerland especially in the tourism and hospitality industry. It is projected that the tourism and hospitality industry will expand in the short-term (2016-2020). Luzern Townhouse Hotel can take advantage of this opportunity to increase the range of product offerings and improve its financial performance. For example, the hotel can increase its conferencing and banqueting facilities to cater for more guests. The hotel can also commit more resources to marketing to create more awareness about its products and services.
The Swiss government has set up new regulations encouraging investments in the hospitality industry. The new rules have made it easier for investors to raise capital and start business operations. Luzern Townhouse Hotel can raise more money to finance its activities with the aim of maximizing sales revenue and profits.
The hotel has opportunities to expand to other cities based on its successful business model. Also, the hotel should focus on promoting historical sites in Switzerland. These will create more opportunities for the hotel to attract foreign guests.
There are possibilities for the hotel to acquire modern technologies to help management and staff to perform their duties more efficiently and effectively.
Threats
The greatest danger faced by the hotel’s new acquisition is increasing competition from rival establishments. Within the city of Luzern, there are tens of four-star and five-star hotels with more enhanced capacity. Being a three-star hotel, Luzern Townhouse Hotel lacks the necessary capacity to compete effectively against the larger hotels. The stiff competition may hamper the hotel’s financial performance.
Also, some newcomers and budget hotels are far ahead than Luzern Townhouse Hotel regarding adopting e-commerce and online booking systems. Ideally, guests are attracted to hotels based on the type of information available in online forums. Therefore, the hotel should review its online presence to attract more customers and enhance its financial performance.