BCG Strategy Cup 2009

CARLYLE METROPOLIS TURNAROUND

Michiel Celis
Christophe Charpentier
Camille De Bruyn
Joris De Ranter
Executive summary: Regaining focus and reboosting occupancy 
• Focus on business clientele 
– Unique positioning in Metropolis Harbour area
– Importance of weekday revenue in total revenue (78%) indicates urgence of improving customer 
satisfaction for business clients
– By emphasizing on convenience and comfort over entertainment and design
• Focus on Transient and Group client segments
– Transient and Group segments prove to be the most profitable ~ 40% GOP margin
– By implementing new loyalty programs and special offers targeted at these segments
• Figures indicate occupancy decline as main cause of profitability problem
– Solution: improve customer experience by focusing on main complaints
• Priority goes to adding staff and renovating guest rooms
– Weaker position in weekend market (7,44% vs. 10% for weekday market) shows room for 
improvement 
• Initiate joint venture for wellness project under Carlyle brand on top floor
– Will improve long‐term profitability because of franchise fees, occupancy synergy effects and 
absence of additional operating costs
– Additional advantages: 
• No capital investment needs to be carried by Carlyle Metropolis itself
• Unique offering in Metropolis Harbour area
• Cross‐selling client offerings as a tool for both targeted marketing and flexible occupancy boosting
Average length of stay at 1,588 days
representative day  Cumulative guest inflow‐outflow
Average occupied rooms 277 representative week
1400
Average # check‐outs 175
1200
Average room nights/check‐in 1,588
1000

Average occupied rooms 800

= Average length of stay * average  600 Average 

Length of Stay 
# check‐outs1 400
= 1,588 days
200
0
Calculations based on weekly data, 
Sun Mon Tue Wed Thu Fri Sat
representative for the whole
period as of circular repetition Cumulative Check‐ins Cumulative Check‐outs

circular repetition of representative 
Sun Mon Tue Wed Thu Fri Sat
week 2
Est. room occupancy 43% 70% 74% 77% 73% 53% 51%
Est. rooms occupied 189 308 326 339 321 233 224
Est. Check‐ins/day 125 295 174 188 179 160 101
Est. Check‐outs 3 160 176 156 175 197 248 110

Alternative: Average check‐ins per day 175

On average, overlaps in room nights Number of days in 2008 366
across year ends cancel out; “steady Occupied room nights in 2008 101455
state” condition Room nights/check‐in 1,588

1. Based on theoretical insight from throughput analysis, called Little’s Law

2. Assumed that occupancy is measured at the end of the day, after all check‐ins and check‐outs
3. Est. check‐outs today = Est. rooms occupied yesterday ‐ (Est. rooms occupied today ‐ Est. check‐ins today)
 Weak market share evolution in total market, especially weak
position in weekend market
Relative Revenue breakup

Weekday Market
200

Millions
150
Carlyle Metropolis Competitive set
88% 90% weekdays weekend weekdays weekend
180 100
Millions

160 50
12% 10% 2005
TOTAL MARKET

140 0 23% 27%

120 2005 2008
89% 91%
100 77% 73%
80

Weekend Market
60
40 60

Millions
20 11% 9% 2008
0
40
90% 93% 22% 28%
2005 2008 20
10% 7% 78% 72%
Carlyle Metropolis Competitive set 0
2005 2008

Weekend Market shares 2005 2008 Weekday revenue more important 

Competitive set 90,28% 92,56%
Carlyle Metropolis 9,72% 7,44%
to Carlyle than to Competitive set 

• Weekend market position weaker than weekday market position

Æ indicates stronger dependence on business client segment
• Decline in weekday market share more crucial to Carlyle because of bigger 
importance of weekday revenue in total revenue
Decline in profitability for all client segments in 2005‐2008 
Transient and Group clientele prove to be most profitable segments
30000
Income statement
Transient Group Contract Total 25000

Revenues in thousands $
2008
20000 Contract
Revenue 8475,00 12579,56 2178,98 23234
15000 Group
Distributed Costs 3366,65 4524,69 1346,66 9238
10000 Transient
Profits 5108,36 8054,87 832,32 13996 5000
Undistributed Costs 1696,98 2930,38 657,63 5285 0
GOP 3411,37 5124,49 174,69 8711 2005 2006 2007 2008
GOP margin 40% 41% 8% 37% 12000
10000

GOP in thousands $
8000
• Transient and group segment are the most profitable segments Contract
6000
• Contract segment far less profitable and comprises a very low  Group
4000
share of total revenues Transient
2000
0
• Revenues and costs allocated based on share of occupancy, except: 2005 2006 2007 2008
– Room revenues: allocated by using ADR and occupancy rate (combined 50%
RevPAR, to account for price differences among client groups)
– Banquet/Catering F&B: only allocated to Group clients 40%
– Restaurant: allocated for 95% to Transient and Contract cliens, for 5% to  30%

GOP margins
Transient
Group clients 20% Group
– Credit card commissions allocated based on revenues generated by 10% Contract
three client segments
0%
• No clear evidence of different consuming behaviour of non‐room 
2005 2006 2007 2008
services among three client segments, nor price differentiation
Decline in profitability mainly driven by room revenue 
decrease

PROFIT REVENUE
GOP ‐6% CAGR ‐4% CAGR

‐8% CAGR Revenue 
CAGR Importance
Breakdown
DISTRIBUTED COSTS Room revenue ‐4,93% 69%
UNDISTRIBUTED  Banquets 0,51% 7%
‐1% CAGR
Restaurant ‐4,19% 10%
COSTS
Room service 1,25% 2%
‐3% CAGR Distributed Costs  Telecom ‐23,41% 1%
CAGR Importance
Breakdown Garage 0,19% 8%
Undistributed  Room revenue ‐0,01% 50%
Other ‐1,88% 3%
CAGR Importance Banquets 0,00% 12%
Costs Breakdown TOTAL ‐4,29% 100%
Credit Card ‐3,37% 8% Restaurant ‐3,89% 23%
Room service 1,87% 4%
Admin 0,51% 26% • Further analysis of room 
Telecom ‐8,80% 2%
Sales ‐0,47% 36% revenue dynamics needed
Garage ‐0,64% 7%
Repairs ‐15,45% 15% • No significant dynamics to be
Other ‐1,54% 2%
Energy 3,27% 15% analyzed for costs, because of  
TOTAL ‐1,21% 100%
TOTAL ‐2,96% 100% their (semi‐)fixed nature
All (semi‐)fixed, except for credit card  In US hotel sector, labour costs (semi‐fixed) 
commissions alone can comprise 45% of all operating costs
Moreover, decreasing size of staff is not  
desired because of  staff underperformance
Occupancy rate is causing the decline in room revenue and 
can therefore be identified as main profitability problem
CAGR 2005‐2008 Transient Group Contract Total
Occupancy ‐7,17% ‐5,14% 25,99% ‐3,45%
ADR ‐0,36% ‐0,41% ‐0,75% ‐1,62%
Room Rev ‐8,59% ‐6,59% 24,07% ‐4,93%
• Room revenue is determined by ADR and Occupancy

• ADR did not cause decline
1. Both in 2005 and 2008, prices are slightly under competitive set average
2. Price movement similar to industry (0,479% decline)

• Hence, occupancy rate is the main problem 
1. Transient and Group (most profitable) client segments  show decline in occupancy
2. Especially during weekends1
3. Several drivers for occupancy decline
ƒ Staff: insufficient during the week and unfriendly2 
ƒ Room conditions2 
ƒ Lack of clear focus on target groups 
ƒ Inefficient marketing spending

1. Based on comparison of occupancy rates  with competitive set average
2. Indicated in Carlyle GSI Dashboard
Priority goes to staff improvement and room 
renovation

1. Based on priorities indicated by Carlyle GSI Dashboard and Customer feedback
2. New corporations will be attracted to the area, because of tax incentives of the City Government
3. Expected profit per additional client = ADR x average length of stay x Gross Operating margin
Solving the main profitability problem because of synergy with 
joint venture wellness center project on top floor
Anti‐stress wellness center on top floor
Joint venture with experienced player in wellness sector under Carlyle brand
Enables Carlyle to cross‐sell room nights with wellness packages

GOAL: 
• Creating a flexible tool to improve occupancy by providing a draw for leisure clients and at the same time 
satisfying business clients’ desire for stress‐relieving activities

ADVANTAGES:
• No capital investment needed, because of capital investment by partner
• Unique offering in Metropolis Harbour area
• Cross‐selling client offerings as a tool for both targeted marketing and flexible occupancy boosting

LONG‐TERM P&L:
• Synergy effect on room occupancy: SOLVING THE MAIN PROFITABILITY PROBLEM
Æ Target weekend occupancy of 71%1, increasing room revenues with $ 4 512 494,8
• No additional costs to be carried by Carlyle
• Franchise fees (to be negotiated)

1. Competitive set average weekend occupancy