The Arizona Sky Resort

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The Arizona Sky Resort Case Study
Introduction
The Arizona Sky Resort is a 165-room full-service resort located in Flagstaff, Arizona. High Country Management, a hotel/motel management company has presented a capital expenditure plan for 2017. This report will identify items on the list that should be completed immediately and the items that can be deferred while giving a reason for each decision. Further, the report will identify and give a reason why some items should not be classified as capital expenditure (CapEx), or why some of the items should not be completed at all.
Overview of the Situation
The Arizona Sky Resort operates in a business environment where they are three other rival properties whose combined number of rooms is 350. The Arizona Sky Resort indicates a below par performance in occupancy levels, but exhibits an above par performance in ADR and RevPAR. Based on an index value of “100” that indicates equal performance to rival properties, the Arizona Sky Resort indicates index values below 100 in occupancy levels from 2014 through 2016. In contrast, the Arizona Sky Resort exhibits index values above 100 in ADR and RevPAR from 2014 through 2016.
Today, millennials may not be the majority of travelers, but soon they will constitute a majority of the travelers. A majority of the customers in the hospitality industry are expected to be millennials in the next five to ten years. Consequently, hotels are realigning to ensure they meet the needs of this customer segment.

A majority of the facilities in the Arizona Sky Resort are designed to cater to baby boomers clientele. With the shift from baby boomers to millennials as the dominant customer segment of the Arizona Sky Resort, the property needs to incorporate facilities that appeal to the millennials gradually. The millennial generation has been taunted as “authentic,” “tech savvy” and “persons seeking instant gratification.” Thus, these three elements should be the underpinning of any adjustments to facilities in the Arizona Sky Resort.
Recommendations
Items to Complete In 2017
I recommend that the property replaces all lamps with LEDs because first, LEDs exhibit a long operational life. On average, LEDs exhibit an operation life of nearly 100,000 hours. This means that LEDs have a life of 11 years when they are in continuous operation or a life of 22 years when they operate at a 50% rate. Therefore, the immediate installation of LEDs would save the property money spent on replacing lamps now and then. Second, LEDs exhibit a high level of energy efficiency compared to lamps. LEDs operate at 80% energy efficiency while lamps operate at 20% energy efficiency. Therefore, the immediate installation of LEDs would save the property enormous sums of money spent to meet energy costs. Third, LEDs are ecologically friendly compared to lamps. LEDs do not contain harmful elements to the environment such as mercury common in conventional lamps. The immediate installation of LEDs will not only assist the property in reducing its carbon footprint by over 30%, but also is a remarkable shift towards a greener future.
I recommend that the property immediately upgrades the bath in the handicapped guestroom and install pool lifts so that the property is compliant with. Compliance with ADA will benefit the property in several ways. First, the property will expand the customer base. Individuals with disability are approximately 20% of the entire population in the United States. This segment of the population regularly travels thus compliance with ADA would me Americans with Disability Act (ADA) an increased business for the property. Second, the property would boost its revenue. Travelers with disability spend over $4.2 billion annual and it is estimated that this amount would soar to over $27 billion annually if properties met certain needs and wants of travelers with disability. Third, compliance with ADA will enable the property to claim tax breaks. The property can claim tax breaks to offset the cost of providing tailored facilities to persons with disability.
I recommend that the property immediately replaces the lobby entrance door with a revolving glass door, because a revolving door will enhance the customer experience. First, a revolving door will offer increased accessibility to the lobby where they can enter and exit the lobby without the pain of having to deal with a malfunctioning door. Second, a revolving door will offer increased convenience to customers. Revolving doors are easy to use that eliminates the need for clients to rely on concierge to enter and exit the lobby.
I recommend that the property immediately replaces the existing guest room phones with new phones for several reasons. First, the target customer base of the property is baby boomers and millennials. These are people who are tech savvy and are increasingly on phone making calls and sending messages. Thus, the property cannot afford to have malfunctioning phones with the increased demand among patrons to text and call management and concierges while at the property. Second, the intended customer segment appreciates speed. A working and up-to-date phone system is a great way to relay information to and from customers and management. Third, the customer segment appreciates convenience. For instance, the customers would prefer to check out using a phone as opposed to queuing at the reception area of the property.
Items to Defer
I suggest that the property carries forward the installation of a new roof on both old and new buildings to 2018, because of several reasons. First, the cost to replace the worn out roof on the property is significant when the amount of money available in the reserve in considered. The installation of a new roof on the property is not affordable concurrently with the fore mentioned immediate capital expenditure. Second, the condition of the roof system is not severe thus can wait. Although the report from the valuation consultant highlight that the roof system indicates evidence of aging, the roof system is not reported to leak thus replacement can be undertaken in 2018. Third, replacement of the roof system requires extensive planning since the roof system cannot be replaced with travelers in the property. Therefore, it is prudent to undertake the project in 2018 after restricting visits from travelers to the property.
I suggest that the property carries forward the renovation of the fitness center to 2018, because of several reasons. Firstly, the research, acquisition, and installation of competitive fitness equipment will take approximately two years. Second, the expansion to two bays in size without an increase in occupancy levels will lead to tying up capital in a project that does not add immediate value to the property. Thus, the occupancy levels in the property need to soar prior to expanding the fitness center.
Item That Should Not Be Categorized As CapexElevator contract maintenance change should not be categorized as a CAPEX. It entails costs to run a segment of the property as opposed to the acquisition of physical goods to generate extra revenue. Thus, elevator maintenance is not a CAPEX but rather an operating expenditure (OPEX).
Arizona Sky Resort Capital Expenditure Plan for 2017 and 2018
Item/Project 2017 2018
LEDs $15,000 Bath changes $20,000 Pool lifts $24,000 Lobby door replacement $46,000 New roof installation: Asphalt $35,000
Renovate fitness center $71,000
Totals $90,000 $106,000

Additional/Miscellaneous Recommendations
Chad should undertake some steps to ensure that he owns the property. First, Chad should liaise with the office of the land registrar to ensure that the executor has applied for property transfer. Then, Chad should seek a mutation to ensure his name is inscribed on the title document of the property. Both Chad and the government should have a copy of the updated title document indicating property transfer to Chad. Chad through the executor should inform the management firm, High Country Management, that the property has been transferred from Uncle Roger to Chad and that he wishes to continue with the contract. To ensure a good working relationship between Chad and the management firm, defining roles and trust should be the key underpinnings of the contract. The roles of the management firm entail marketing the property, collecting rent from guests, maintenance of the property and payment of taxes. The management firm should involve Chad when setting out the budget plan and making major expenses. Trust can be fostered via regular communication, monthly or quarterly reports, between Chad and the management firm.
Summary and Closing
It is evident that proper facility management is requisite to facilitate increased occupancy and profit. A management firm comes in handy to provide management services on behalf of an individual who is not conversant with the running of a property. Expenses are an integral part of business, and an expenditure plan should be laid out and properly executed to ensure that the property is within its budget. Chad has a unique opportunity to grow the property if he establishes a relationship with the management firm based on a clear definition of roles and trust.