1) Please describe the components of the system of tourism.

What is the impact of

the environment especially the economic and legal environment on management of
the hotel and travel sectors?
Analyse the factors influencing the Hungarian tourism development. What are the
national organisations directing tourism and list different associations or firms
involved in tourism.

Definition of tourism: the activities of persons travelling to and staying in places outside
their usual environment for not more than one consecutive year for leisure, business, and
other purposes is called tourism.

…part of the national economy which caters to the traveller who is visiting places outside the
locality where she/he resides or works…
…the composite of organisations both public and private that are involved in the development
production, and marketing of products and services to serve the needs of travellers…
Private sector is likely to limit its activities to goods and services that can realize profits
Public sector is represented by the governments must look beyond profit motives to those
which will benefit the society as a whole

What is tourism?
The most common approaches:
 Temporary travel for pleasure
 World’s largest and most diverse industry
 Involves nearly everyone as either “host” or “guest”
 Involves movement across space and is concerned with place
 Tourism presupposes its opposite: work

Tourism and people’s identity:

 Tourism develops our worldview
 We may make judgments based on a single experience of a place
 Travel experiences may develop our own identity (we do it this way) and the identity of
others (they do it that way)

TOURISM is...
 EVERYBODY’S BUSINESS – we are all part of the tourism experience
 the host population has an impact on the tourists, either make the stay enjoyable or a
nightmare
 both the tourists and the locals are part of the tourist experience (others on the same
flight, visitors drive at least 10% slower than locals)
 buildings and gardens should be looked after, unless tourists feel uncomfortable
 in Hungary the overall industry’s 10% is tourism, this is the biggest single industry in
our economy
 A MEGA-INDUSTRY & JOB CREATOR
 directly or indirectly more and more people work in tourism: for every 1 person
working in tourism there are 4 more depending on him, working indirectly in tourism
 tourism is a contact business, you cannot do it without people
TRAVEL & TOURISM
 THE WORLD’S LARGEST INDUSTRY: 10.2% OF GLOBAL GDP
 C & E EUROPE: 2.0% DIRECT GDP, 7.7% INDIRECT GDP
 indirect GDP would not be realized if tourism did not exist

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 THE WORLD’S LARGEST EMPLOYER: 194 MILLION GLOBAL JOBS
 C & E EUROPE: 2.3 MILLION DIRECT JOBS, 8.9 MILL. INDIRECT JOBS
 1$ investment in tourism generates 45$ tourism revenue
 tourism is not a concentrated industry: SMEs, fragmented
 the turnover is quick, so terrorism can turn a country’s economy down very quickly

TOURISM IS A PRODUCT COMPETING FOR THE SAME DISPOSABLE INCOME

 Inseparability: the customer is part of the product
 Intangibility: need to make the product ‘real’
 Perishability: the need to manage the yield
TOURISM MEANS COOPERATION WITH PUBLIC & PRIVATE SECTORS WORKING
TOGETHER

THE SYSTEM OF TOURISM:

The system of tourism:

Intermediaries
-New product
creation
Place of Place of
-Marketing
origin destination
-Delivering
-Selling Suppliers
Consumers

Tourism consists of demand and supply:

Supply: the products and services offered
Demand: the consumers/groups of consumers with different needs

Demand for services and products

The products offered must satisfy the needs of the consumers (The supply should meet the
demand). The needs are different, as people are different. Tourists have become more
knowledgeable and sophisticated, so special services and products have been developed

Demand is determined by the needs and motivation

Special characteristics of demand to travel:

 Sensitive (can be influenced easily: political, economic, social factors)
 Mobile (it can be replaced easily)
 Complex (the demand includes a wide variety of products – hotel rooms, transportation)
 Changing (based on fashion and trends)
 Seasonal (daytime, weekdays, seasons)
 Concentrated/de-concentrated (in territorial aspects – Budapest, Lake Balaton)

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 Segmented (differentiated by demands)
 Heterogeneous (the market segments cannot be strictly differentiated)
 The consumer travels to the product

The demand on the travel market is influenced by different factors:

Factors promoting/encouraging tourism in a country:
 proximity of large populations with high disposal income
 low travel costs
 favourable exchange rates
 attractive destinations
 strong cultural tradition for travel

Resistances to travel (factors discouraging travel to a country):

 poor accessibility
 high cost
 poor image of destination
 political instability
 concerns about safety or sanitation

Forecasting tourism demand is necessary to develop and maintain the industry. To make the
right decision on promotional and strategic marketing programs, on distribution and on
allocation of resources requires predictions.

How tourism demand can be forecasted

 Measuring actual demand like:
 Number of visitors
 Visitor-days/visitor-nights
 Per capita spending
 Measuring potential demand like
 Possible future visitations

Methods of forecasting tourism demand:

Quantitative methods rely on past statistical information that can be counted and measured.
Casual methods attempt to explain changes in tourism demand in relation to one or more
explanatory variables in order to forecast future demand
Multivariate regression analysis: examine the influence of selected factors (levels of tourist
income, travel cost to destination, relative price levels, ROE)
Gravity and trip generation model: examine the effects of propensities (population and tourist
income) vs resistances (distance and cost) on tourism demand
Non-casual models rely on past trends of single variable (visitor arrivals, spending) in order to
estimate future trends
Time-series models use historical data collected over time and project these trends toward the
future
 border statistics
 accommodation statistics

Qualitative methods depend on human judgements or opinions. These methods seek

subjective inputs through perceptions, accumulated experiences from experts if past data are
insufficient or inapplicable.

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Market surveys
Delphi model (questioning experts)
Judgment-Aided Model (JAM) (seminar of experts)

Supply of products and services:

Products and services:

Product in general is developed, manufactured, grown or extracted for being consumed or
used by the buyer. Product is tangible in the classic physical meaning. Service in general is an
activity or a deed that benefits someone. Service is intangible.
In case of tangible products the service is addition to the product. But service is not addition,
but a necessity in case of intangible products.
Most industries produces either products, either services. Travel industry simultaneously
produces both products and services. The products in the travel industry are Mixed products.
Tangible products mixed and converted into program/mixture of products and mixing the
products needs knowledge, what is the service actually.

Characteristics of travel products

Intangibility: travel industry sells more than product, the sell „anticipation”. The travel
product is mixture of products and services but at the moment of purchase the product is
always intangible
Perish ability: we will never get an opportunity to sell an unsold “product” again.
Complementarity: purchasing one product sets up a chain reaction of travel purchases. What
effects one product, affects the another (positive-negative)
Seasonality: daytime, weekdays, seasons
Simultaneous production and consumption: the products of tourism are produced and
consumed simultaneously. It does not happen before the traveller takes the product in its
tangible state.
Parity (egyenértékűség, megfelelés): competing companies offer the same base product
(Italian beaches, Eiffel tower, Prado, Great Lakes, Balaton). These are comparable. Each of
them has its value for the consumers and the value is the same or similar for the consumers
with same or similar needs.
Uniqueness
The product can not be brought to the consumer

Special segments/forms of leisure travel

Ecotourism:
The physical environment is in the focus of the touristy activity. Provides first-hand active
experience of a place and provides an educational experience which develops visitor’s
understanding and appreciation of the place visited and promotes both appropriate behaviours
and a conservation ethic. It is environmentally responsible and uses various strategies to
minimize negative impacts maximizes local economic returns (Bottril&Pearce 1993)
Cultural tourism:
Places special emphasis on cultural attractions. Attractions are varied: performances,
museums, displays, handicrafts, traditional religious practices,….Closely related to colourist

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Rural tourism:
Offers alternatives to tourists who would like to escape from their modern urban and suburban
environments and visit simpler, less developed area. Examples: farm-tourism, agric-tourism.
The environmental qualities of the destination are particularly important
Adventure tourism:
Relies on natural, environmental features such as mountains, rivers, forests…The tourists
want to test their physical skills in new, unusual ways and have the desire to participate in
activities that provide them with a challenge, trill or intense experience
Health tourism:
Travel to facilities and destination for obtaining health care services or health-related benefits
Forms: Medical care, fitness and wellness, rehabilitation and recuperation
New age tourism:
Participating people share a belief in the importance of learning from ancient cultures,
metaphysics, yoga, meditation, natural healing…Programs focus on metaphysics and are
spiritually designed for people who would like to escape from the excessive materialism of
the world
Educational tourism:
Travel in which the learning occurs within structured or formal program (study abroad)

Special segments/forms of business travel

MICE (meetings, incentive, conventions and expositions) is a special segment within business
travel based on face-to-face interaction and often incorporate elements of leisure travel:

Meetings:
Events designed to bring people together for the purpose of exchanging information. Can be
held on-premises atone of the companies/organisations or off-premises at other sites. Differ in
size, subject matter, and agenda. Can be
 forum (larger, led by a pane)
 seminar (smaller and more focused on subject matter)
 symposium (subject is more academic or technical)
 workshop (skill building or training)

Incentive travel:
Incentive or reward for achievement. Can be:
 company-paid vacation
 reward for top-performing salespersons
 promotion for a future performance
 loyalty building
Usually include
 Motivational seminars,
 Introduction of new products
 Promotional campaign

Expositions/Exhibitions:
Large events at which vendors can display and market their products or services to a
contingent of potential clients and buyers

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Conventions:
are events combining both meeting and expositions. Generates high expenditures on per
visitor basis and create substantial economic impacts for the host economy
Can be
Sponsored by professional and trade associations
Sponsored by corporations

THE IMPACT OF THE ENVIRONMENT ON TOURISM

Factors influencing tourism:

Socio-cultural
Legal
Economic environment
Political
Technical

Slept looks at the external factors influencing tourism, you cannot control them, but you have
to take them into account. You have to do a SLETP analysis on your target market.
Economic environment of tourism:

Basics of Economic Importance of Tourism

Many nations rely on this dynamic industry as primary source of generating:

 revenues
 employment
 infrastructure development
 private sector growth
Tourism development is encouraged when other forms of economic development are not
commercially viable

Figures demonstrating the importance:

WTO’s Tourism Satellite Account highlights for 2005:

US$ 6,201.49 billion of economic activity
10,6% of total GDP
221,568,000 job = 8,3 % of total employment (1 in every 12 job)
12 % of total exports
10,4 % of total consumption
9,4 % of total investment (US$ 918,0 billion)

Economic impacts of Tourism

Tourism is the world’s largest industry

 number one generator of jobs
 one of the world’s biggest exports,
 major stimulus for investment and growth.

The multiplier (multiplikátor) measures the effect of expenditure introduced into an economy.
It shows how the expenditures are multiplied in different

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Tourism Multipliers are used to determine changes due to a change in the level of tourism
expenditures in a given area in
 the output,
 the income,
 the employment,
 the business and government receipt
 the balance of payments
Multiplier effect is the net effect of the successive rounds of spending and leakage of the
added tourism expenditure

Some commonly used multipliers:

Tourism Income Multiplier (TIM)
Tourism Employment Multiplier
Government Multiplier

Leakage: (elfolyó/elszivárgó jövedelem) refers to the process through which tourism receipt
leave the destination’s economy. These are:
 payments for import
 repatriation of profits to foreign corporations,
 salaries paid to non-resident managers,
 payment for imported goods
 payment for promotion and advertising by companies based outside of the county
 money saved without re-investments

Multiplier = 1/(1 – C + M)

C - marginal propensity to consume

(proportion of any increase in income spent on
consumption of goods and services
M – marginal propensity to import
(proportion of any increase in income spent on
consumption of import goods and services

Multipliers can be calculated:

 For a country
 For a region
 For a community

Definitions
WTTC:
T&T Industry Employment
includes those jobs with face-to-face contact with visitors (airlines, hotels, car
rental, restaurant, retail, entertainment, etc).
73,692,500 jobs in 2004 – 2,8% (exp)
87,450,300 jobs in 2014 – 2,9% (exp)

T&T Economy Employment

T&T Industry Employment plus those faceless jobs associated with:
Industry suppliers (airline caterers, laundry services, food suppliers,

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 wholesalers, accounting firms, etc).
Government agencies, manufacturing and construction of capital goods
and exported goods used in T & T.
Supplied commodities (steel producers, oil production, etc).
204,697,000 jobs in 2004 – 8,1% of total (expected) 1 in every 12,3 jobs
259,350,300 jobs in 2014 – 8,6 % (expected) 1 in every 11,6 jobs

WTO:
Direct Employment
Indirect Employment

Tourism is one of the world’s biggest exports

Export in tourism: Payments of the visitors to the visited country is export on visited country.
Import in tourism: Payments of the visitors to the visited country is import on sender country
Export (T&T Economy):
US$ 1,289.8 bn in 2004 – 12.2 % of total
US$ 2,655.3 bn in 2014 – 11.5 % of total
Tourism generates high contribution to the GDP
T&T Industry contribution:
US$1,542.1 bn in 2004 - 3.8 % of total
US$2,425.8 bn in 2014 - 3.8 % of total
T&T Economy contribution
US$4,217.7 bn in 2004 - 10.4 % of total
US$6,927.2 bn in 2014 - 10.9 % of total

Balance of payment
Travel surplus: when foreign visitors’ spending in a particular country is larger than the
total spending of the country’s own nationals abroad.

Travel deficit: when total expenditures spent in foreign countries from a given country is
larger than the total tourism receipts earned by foreign inbound tourists

Balance of payments on the tourism= total value of receipt – total payments made

Legal environment of tourism

 EU regulations
 Directive 90/314/EEC – 13 June 1990 – Packages, Travel contract
 Decree 213/1996
 Decree 214/1996

FACTORS INFLUENCING HUNGARIAN TOURISM DEVELOPMENT

Definition of development: strategy for 5 years (national, regional, local level), action plans
on a yearly basis. Government bodies only co-ordinate, collect, divide and channel the
incentives/resources while enable, facilitate the existence and work of the tourist industry.

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Hungarian situation:
 change of economic, political system, GDP, HUF Rate of exchange,
 government support,
 development of tourist sites,
 Hungary as a tourist destination.

Inbound Tourism
Hungary (data from Turizmus Bulletin, 2005/4, HNTO)
 inbound tourism: generally increase
▫ increase out of high season in March, September, October, November; stagnation in
April-May
▫ main tourist senders: Germany, UK, Austria, Italy (KSH, 2006 first quarter)
▫ motivation: in %, KSH
leisure business
One day 15,2 1,7
Longer stay 64 9,8

 most visited tourist regions: Bp-Central-Danube Region (52%), Lake Balaton (24%),
Western Transdanubia (9%)
▫ domestic tourism: generally increase
▫ most visited tourist regions: Lake Balaton (22%), Bp-Central-Danube Region
(15%), Northern Hungary (14%)
▫ most popular accommodation (capacity utilization): 5star hotels (60,5%), 4star
(58,2), spa hotels (60,2), wellness hotels (50,1)

Tourism in the balance of payment 1995-2003

Income
Expenditures
Balance

Income and expenditures in tourism in Hungary

Period Renevue Expenditure Balance

(Spendings of the (Spendings of the
foreigners in
Hungary) Hungarians abroad)

2003. (bill HUF) 772 455 317

822 578 243
2004.(bill HUF)
2003.(mill EUR) 3029 1788 1241
2004.(mill EUR) 3265 2302 963 9
Inbound tourism in Hungary in 2004:

36,6 million foreign people visited Hungary (crossed the boarders) – incl drivers
12,7 million foreign tourists (36 %) in Hungary with business and leisure motivation
6 million spent more than 3 nights in Hungary
21,7 million same day visitor
100 million guest nights spent (2,9 average pp)

Sender countries (tourism generators):

Tourists: Germany, Romania Austria
Same day visitors: Romania, Slovakia, Austria, Ukraine
45 % of them were transit
32 % came to do shopping

Income/receipt:
493 billion HUF (60 %) from leisure travel
105 billion HUF (13 %) from business travel
(136 billion HUF (17 %) shoppers)
8400 HUF per person per day

Outbound tourism from Hungary in 2004

16,9 million visits to foreign countries

56 % same day visits
62 million days spent abroad
15 % one day
Average: 3,7 days
1st quarter: 4,1
2nd quarter: 3,3
3rd quarter: 4.5
4th quarter: 2,6

Expenditures of the outbound visitors: 578 billion HUF, 9.400 HUF per person per day

NATIONAL ORGANISATIONS DIRECTING TOURISM

Government (operative power via ministries) - Parliament

- legislative body of prime importance in terms of tourism development and operation
- legislates the acts that proved the operational framework (economic foundations of tourism,
tourism tax, support allocated in the central budget)
- operation of holiday voucher system is also determined under law

Parliamentary Committee on Tourism

- body responsible for initiating, proposing, expressing an opinion about legislation and for
controlling the actions of the government
- task: initiate and monitor legislation and proposed resolutions, assert the interests of tourism
in the legislative process
- supervises the lawful operation of the industry
- monitors the development in the various branches of tourism
- enforces tourism-related acts if necessary

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Minister without Portfolio in Charge of Regional Development and Convergence
- responsible for the government’s tasks associated with urban and regional dev., tourism etc.
- benefit: efficient application of regionalism in the field of tourism
- coordinates the implementation of tourism-related tasks due to Hungary’s EU membership
- exercises the owner’s rights of the HNTO

National Tourism Board (OIB)

- represents major trade organizations of the sector and Regional Tourist Committees
- acts as a consulting body of the Minister since Jan 12, 2005
- participates in preparing the decisions on the principles of tourism development strategy
- submits proposals, expresses opinion about directions and principles of tourism, marketing
strategy of the HNTO, tourist research and training of tourism professionals etc.
- delegates members to boards upon request
- monitors and evaluates the development of domestic and international tourism, trends etc.

Ministry of Development
1. Office of Country Development
2. Office of Apartment Building
3. Office of Tourism – Tourism Authority

Hungarian Tourist Authority (HTA)

- highest state level authority assigned to manage tourism on behalf of any governments
- administrative body, independent legal entity
- consists of several departments:
1. Department of Law
2. Department of Domestic Network (9 touristic regions: 7 Regional Marketing Directorates +
2 Regional Tourism Committees – Lake Balaton and Lake Tisza)
3. Department of International Relations
4. Department of Marketing
5. Department of Economics

Definition of promotion: there are above the line (mass media) and below the line
(alternative channels and methods like conferences, direct emails) techniques to promote
tourism products (4A’s or 7P’s)

Hungarian National Tourist Office (HNTO)

- national marketing organization of tourism, promoting the tourism products of Hungary on
both the domestic and foreign markets
- state-owned shareholder company (owner’s right: PM office)
- objectives:
 raise international awareness of Hungary
 improve the country’s image abroad and in Hungary
 market the country’s tourist services
 support the development of distribution channels
 provide market information for the trade to identify potential paths of product dev.
 promotion and PR campaigns here and abroad
 marketing activities: publications, advertisements, exhibitions, trade fairs, study tours,
conferences, internet (website), promotional material etc.
 perform research activity and publish it in the Turizmus Bulletin

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Domestic Network:
- 7 Regional Marketing Directorates (regions)
- 2 Regional Tourism Project Offices (Lake Balaton + Lake Tisza)
- task: promotion of domestic tourism, strengthen regional identities and help provinces catch
up with Bp, to encourage service providers in the regions to create and offer high-standard
tourist products to grant them fair and equal opportunities for market entry and presence.
HNTO coordinates them, strengthens their co-operation, and provides some financial help.

Tourinform Network (152 offices):

The main pillars of tourist information in Hungary, where visitors can have access to up-to-
minute information about holiday offers, sights, events, service providers and transport.
HNTO supervises the national network of Tourinform offices and directly operates the
company’s main tourinform office in Budapest.

International Network:
HNTO carries out its international marketing operation mainly through its global network,
which consists of 22 national tourist representations and information offices in 20 countries
providing professional service to the public, awareness, image-building. Offices are located in
the primary (G, UK, A, I, USA, NL) and emerging source markets (F, S, J, R, CZ, P, IS, R).
They provide comprehensive information to the general public wishing to travel to Hungary
and to tour operators programming trips to Hungary besides maintaining close relations with
the local media and tourism professionals, organise study tours and press conferences.

Marketing Plan for 2006:

 domestic market: health tourism + event tourism
 foreign markets: Budapest, Lake Balaton, health tourism and professional tourism

ASSOCIATIONS OF TOURISM

Association of Hungarian Travel Agencies

Hungarian Hotel Association
Association of Hungarian Restaurants
Association of Hungarian Tour Guides
Association of Hungarian Tourism Experts
Association of Hungarian Rural Tourism

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2) Please describe the legal forms of tourism organisations. Explain the different
ownership, operational, affiliation and contract forms in the hotel industry. What
are the characteristics of the proprietor and the management decisions?

LEGAL FRAMES OF RELATIONSHIPS IN TOUR OPERATION AND TRAVEL

RETAILING

Travel agency and suppliers

Agency (general legal category)
relationship between two companies/persons where one, the seller – known as the
AGENT – is authorised by the other, the supplier – known as the PRINCIPAL – to deal
with third persons.
In the travel industry the agency
 represents more than one principal
 is able to act for more than one principals
 is able to act in the place of the principals in the sale of the product

The acts of the agencies bind the principal as if the principal had participated directly in the
act itself. The contract developed between the agent for the client binds only the principal and
the client if the client is aware of the identity of the principal and if the client is aware of the
fact, that the agency is acting as an agent

Relationship can be: written, oral and implied by the conduct

Travel agency may be liable to third party for damages if she/he knowingly misrepresents the
suppliers/products and/or for providing inaccurate statement made regarding the quality of
product

The principal is liable if she/he provides false information and/or she/he does nothing to stop
giving false information to the client (if she/he is aware of it)

Termination of contract between principal and agent:

 at the end of validity (on the expiration date)
 if no expiration date: anytime after a reasonable period:
▫ if principal revokes the authority: he must notify all third parties
▫ if agent renounces the agreement: he must notify all third parties
 upon the death of one party
 bankruptcy

The DISCLOSURE establishes legal defence: the agency discloses the principals and with
this act the agency avoids the liability. The timing of disclosure is critical point

Travel agency and clients

Always must be written:
in the travel industry there is no document called ”contract” is required.
Contract established by the advance payment, when the agent issues the invoice and
documents including all the details required by the law. (214/1996.Korm. and 90/314/EEC)
Should be signed by both party.

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No contractual liability if the agency acts fully within the scope of his/her authority, discloses
the fact of being an agent and identifies the principal
Tourism organisations can be divided into profit oriented and non-profit organisations.
Private sector is likely to limit its activities to goods and services that can realize profits.
Public sector is represented by the governments must look beyond profit motives to those
which will benefit the society as a whole.

LEGAL POINT OF VIEW:

Act CXLIV. of 1997 on Business Association
Types: 5, no other: Kft, Rt, Bt, Kkt, KV (in Hungary)

Unlimited Partnership – KKt

 Relation: cooperation of people

 Members: min. 2
 Business: small
 Asset: contribution (hozzájárulás)  depends on the needs of the company
 Establishment: articles of association (társasági szerződés) – charter
 Supreme body: meeting of members (tagok gyűlése)
 Top board of the company
 Informal type of meeting
 Management: all members, but only members
 Day to day business
 Any member can make any decision individually, sign legally, but not if the charter
stated only together
 Not natural persons can also be managers in the case of juristic person membership
 Liability:
 There is a strict order: liability of the company, then the members Unlimited
(korlátlan)
 Joint (egyetemleges)
 All the separate members are responsible for the whole amount, not just the
proportion that she/he gave  100% of the money to the creditor
 Several (mögöttes)
 First see whether the company has the money to pay the creditor, and only iff not,
then the members. You cannot get the Ferrari of the member if the company has
the money to pay the creditor (you).

Limited partnership – Bt.

 Relation: cooperation of people

 Members: min. 2
 Business: small
 Asset: contribution (hozzájárulás)  depends on the needs of the company
 Establishment: articles of association
 Business: small
 Liability:
 General partner (beltag): unlimited, joint, several
 Limited partner(kültag): with the contribution only at least one each
 Supreme body: meeting of members
 Management: all general members

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Joint enterprise – KV

 Business: all types (small-big)

 Establishment: articles of association
 Liability: company, then the members are guarantors (kezes)
 According to the proportion of money that they gave at the beginning
 Supreme body: council of directors (igazgató tanács)
 Management: director

Limited Liability Company

 Establishment: articles of association

 Asset: initial capital – törzstőke (subscribed capital – jegyzett tőke)
 Minimum amount of money required by law for the starting of a company
 Liability: contribution only

Contribution
 In kind:
 subject to trade, value, transferable
 executable (végrehajtható) – eg. a 3rd party’s approval is needed in case of 50-50
ownership of eg. a house
 object (tárgy), know-how
 company gets ownership over this
 all transferred by the time of registration, not later
 In cash:
 Total: min. 3 million HUF
 Cash: min 30%, but min 1 million HUF (if the 30% is less)
 At registration 50% of cash, but min. 1 million HUF
 Rest : in one year (cash)
 Contribution of members : min 100.000 HUF – cannot be reclaimed

Obligations
 Pay in contribution – during existence you cannot get back your money, just sell your
business part
 Perform ancillary services (mellékszoltáltatások) – those services that are obligatory by
the charter
 Pay additional payments – extra money to the company (pótbefizetés) given back to
you if the company has that money

Rights
 Business share (üzletrész) – membership part
 Each member has one
 Transferable with pre-emption of the members (elővásárlási jog)
 If the members don’t want to buy, the company itself can own the share for a
period of time
 If no, other members decide sho to work with  sell
 But it can be written in the charter that A member can sell to an outsider

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Members Meeting – Supreme Body
 Can be held only in the registered office of the company
 Minimum 1/year
 Quorum: ½ of the initial capital present  who has more money, is risking more, so
he/she should be there
 Decision: ½ or ¾ (in case of important questions, eg. ending the company, managers…) or
unanimous (egyhangú)
 Invitation to everybody
 Task of the management
 It should reach the members 15 days before the meeting
 Minutes of meeting (jegyzőkönyv): every case
 Register of resolution (határozatok könyve)  collected to one book, led by the
management

Managing Director(s)
 Day to day operation
 Administration, representation
 Not necessarily a member, can be an employee

Single –Man Co.

 Possibility to do a LLC. alone – one member only
 The member is not necessarily a natural person
 It XY is the managing director in the Rózsa company, he cannot be the managing
director of the Tulipán Company, if the Rózsa company (not natural person) is the
member of the of the Tulipán company.
 charter: deed of foundation
 cash also paid at full – at the time of registration

Company limited by shares – Rt.

Asset
 share capital – min. 20 million HUF
 in cash – min. 30%, but min. 10 M - rest in one year
 in kind – same as Ltd.
 Auditor (könyvvizsgáló) – says the real value of the kind

Liability: limited to the face value of the shares

Operation
 Close (Clc) – eg. 10 members with name
 Establishment: deed of foundation (alapító okirat)
 Shares in private
 Open (Plc) – anybody in the member list
 Establishment: statues (alapszabály)
 Shares are issued publicly

16
Shares
 Security (ép) – paper, that is worth value
 If you possess it, you will have rights in the company
 Categories:
 Ordinary share (törzsrv.)
 Preference shares (elsőbbségi rv.) – have some more preferences than others
 Employees shares
 Interest-bearing share (kamatozó rv.)

Relationship
 Obligation:
 Pay the face (névérték – written on the paper) or issue value (can only be more eg. in
case of good reputation than the face value) + date of issue, sinature
 Rights:
 Dividends (osztalék) – part of the profit
 Participate

Organisations

 General Meeting (közgyűlés)

 Supreme body
 Min 1/year, but in extra circumstances there can be more
 Invitation or announcement – all members
 Quorum: ½ of votes

 Board of Directors (igazgtóság)

 Management organisation
 3-11 natural persons
 or general director

Single-Man Co.
 Only in close type
 Establishment: deed of foundation
 Cash: paid in full
 Only one member

OWNERSHIP, OPERATIONAL, AFFILIATION AND CONTRACT FORMS IN THE

HOTEL INDUSTRY

The ownership and the operation of the hotel can be separated.

One corporation can own several hotels:
 Parent company with individual subsidiary owning each hotel
 Lease agreement between Parent company and subsidiaries
 Straight leases
 Profit sharing leases
▫ Sale and lease back agreement
▫ Franchise agreement
▫ Management contracts

17
Ownership

Forms of operating hotels:

 Owner operates and manages
 Owner sells and then leases back to operate
 Owner hires professional management
 Owner purchases franchise and operates
 Owner purchases franchise and hire franchise company to operate
 Owner leases property to an operating company
 Owner employs a management company

Hotel Franchise Relationship

 Franchise: An arrangement whereby one party (the brand) allows another (the hotel
owners) to use its logo, name, systems, and resources in exchange for a fee.
 Franchise Agreement: The legal contract between the hotel's owners (the franchisee) and
the brand managers (the franchisor), which describes the duties and responsibilities of
each in the franchise relationship. It is important to note that, unlike some other franchise
industries, the majority of hotel brand managers (franchisors) do not operate hotels. They
operate franchise companies. Hotel owners (the franchisees) and their GMs are the
operating entities in nearly all hotel franchise relationships.
 Franchising is a business strategy that allows one business entity to use the logo,
trademarks and operating systems of another business entity for the benefit of both. As a
result, franchising is a network of interdependent business relationships that allows a
number of people to share a brand identification, a successful method of doing business,
and, hopefully, a strong marketing and distribution system.
 For the franchisee, franchising helps reduce risk. Proven operational methods, developed
by the franchisor, are used to manage the business. The franchisee gives up the freedom of
being completely independent to become part of a group committed to building a brand
and increasing their group's market share. A franchise system can (but may not) also
provide group-buying power to reduce the franchisee's operating expenses. The trade-offs
for the franchisee are the fees paid to the franchisor for the operating license and the
restrictions that are imposed by the franchisor. For the franchisor, franchisees and their
financial capital expand the brand faster than it would ever be possible for the franchisor
to do so alone.
 Types:
▫ Retail franchise – walk-in retail premises
▫ Investment franchise – management team to operate on his behalf
▫ Management franchise
▫ Single operator franchise – job franchise (cleaning, repair/security)
▫ Executive franchise – communication at board level, cost mngt., accountancy
▫ Sales and distribution franchise
▫ Master franchise licensee - region

Franchising is a business entity to use the logo, trademarks and operating systems of another
business entity for the benefit of both. As a result, these firms can share brand identification,
and a strong marketing and distribution system.
A hotel franchise relationship exists when the owners of the hotel choose a flag and enter into
a franchise agreement with that specific brand.

18
 Flag: A term, used to refer to the specific brand with which a hotel may affiliate.
 Conversion=Reflagging: The process of changing a hotel’s flag from one franchisor to
another
 Franchise agreement: The legal contract bw. The hotel’s owners (franchisee) and the
brand managers (franchisor) which describes the duties and responsibilities of each.

Advantages of franchisee:
 A brand name with recognition
 Connect the hotel to GDS
 Increase in sales,
 Secure financing – banks consider these relationships when giving a loan
 On-site training, purchase of furniture, equipment in bulk

Advantages of franchisor:
 Increase in fee payments, the value of the brand name is growing with every joining
organization

Management contracts
Def: An agreement between a hotel’s owners and a hotel management company, under which,
for a fee, the management company operates the hotel. It is also called management
agreement.
A management company is an organization formed for the purpose of managing one or more
hotels.

Hotel Management Company Structures:

 The Management Company is neither a partner, nor an owner of the hotel(the hotel hires
it)
 The M.C. is a partner in the ownership of the hotel
 The M.C. only manages the hotel it owns (they are both investors and managers)
 The M.C. owns some hotels to manage and manage others where there is no partnership
(a variety of ownership participation)

Advantages of hotel owner:

 Improved management quality
 Targeted expertise can be obtained to solve a certain problem
 Documented managerial effectiveness – adding credibility to hotel for banks
 Payment of services upon performance – revenue-based fee
 Partnership opportunities – many hotel owners are involved in more properties as well

Disadvantages of hotel owner:

 Owner cannot control who is the GM
 Talented managers leave frequently
 Interest of owners and management sometimes can conflict
 Errors made by the M.C. effect the owners
 Transfer of ownership may be complicated

Buyout: An arrangement in which both parties of a contract agree to end the contract early as
a result of one party paying the other an agreed financial compensation.

19
CHARACTERISTICS OF THE PROPRIETOR AND THE MANAGEMENT
DECISIONS

Decisions of management refer to economic activities, costs, cash flow, depreciation,

purchasing and marketing.

Decisions of the owners: legal founding of the company, profit distribution, paying dividends
and other issues reserved for the proprietor.

3) Please discuss the issues of managing labour force including manpower costs in
the hotel and travel business. Explain the importance of Productivity, Efficiency and
Effectiveness n hospitality operations.

The manpower need is the biggest in the travel sector. In the hotel industry the material costs
and the labour costs are 50-50%. Manpower demand depends on the size and the category of
hotels.
Calculation of staff needs number of staff and number of rooms: average: 0.6-0.7 people/room
Due to the fluctuating demand, it is difficult to forecast staffing needs. A new strategic
management tool is OUTSOURCING and labour borrowing in order to reach savings and to
create flexibility.
Continuous improvement of productivity, efficiency and effectiveness is vital for creating
competitiveness and increasing profit.
Productivity means: “doing more with less”: P=Output/Input
Efficiency means that minimum required resources are used for a particular activity and the
management acts “business like”. Efficiency should never be improved at the expense of
quality and relations. E=Output/Labour costs
Efficiency is reached by cost reduction and the financial results will improve.
Increasing effectiveness ensures that resources are used in an optimal way, it enables the
service firm to become more competitive.
Profitability – money has one function, to produce profit. If a company doesn’t produce
profit, it will parish, but all of us should have other aims and goals – we have to create values,
these should be more than just producing profit (e.g.: love)

The role of the HRM:

 to implement personnel policies throughout all departments of the hotel,
 to provide specialist knowledge and services to line managers, and
 to support them in the performance of their work.

The duties of the HR Department:

 recruiting
 interview applicants
 verify and check references
 refer applicants to the proper department head
 process successful applicants for employment, explain company policies
 setup training, safety programs
 administer benefit programs
 negotiate with union heads, officials
 interpret labour laws

20
Staffing a hotel: 2 parts → initial staffing, replacement of employees
 Initial staffing: the guidelines for the hotel's labour policies must be
laid down by the top management. The salaries, numbers, and duties of the general staff are
usually set up by the management team. In effect, this means that the personnel manager has
to be the first department head to be hired, since he must recruit the other department heads.
 Replacements: In many hotels the employee turnover rate is extremely high. The high
turnover rate makes recruiting employees a critical part of the work done by the HR
department.

Employee turnover rate = Number of employees left

Number of employees in the hotel

Companies usually try to look for potential workforce to an empty job within the hotel itself.
They usually reallocate employees from other departments. Cross training is continuously
done to teach employees to do other job as well.

The Recruitment Process:

 Recruitment – depend on the budget
TV, newspaper ads, posters, leaflet distributions, word of mouth, notice boards, job centres,
internet
 Processing applications – good administration is needed, applicants should be sent
response letters.
 Selection – the process of evaluating job applicants to determine those more qualified (or
potentially qualified) for vacant positions.
 Interviewing of applicants – qualities of the applicants can be identified. Manner,
behaviour, intelligence, etc.
 Verification of references – check the references of the applicant
 Referral to department heads – the department head makes the final interview and
decides if the applicant is accepted or not.
 Procession of successful applicants – a lot of paperwork for the HR department
 Employment agreement – a contract signed by both the employee and personnel manager
outlining the terms of employment and other rules of the hotel.

Main HR activities:
 Planning
 Employee safety and health
 Benefit programs
 Labour laws and regulations
 Workforce and work quality improvement, etc...

Benefit programs:
In this area, personnel need the cooperation and close collaboration of the accounting
department. For hospitalization, major medical, group insurance, and savings or pension
plans, lists of employees with the required supporting data must be initially submitted and
frequently updated, usually monthly. If employee's contributions are required, then schedules
of these amounts are also needed.
Employees who are eligible for retirement must be informed of their rights and options, if
any, and in many cases assisted in making decisions about them. Also retirees may be given
benefits other than pensions, such as prepaid life insurance or major medical, which require
contact with the employer and continued updating of the former employee's file.

21
Definition of HRM: it is a total system of functions, which contributes to the efficient use of
human resources for reaching the goals of a company. It is defined as the effective utilisation
of employees in order to achieve the goals and strategies of the organisation.

Tasks/aim of HRM: creating conditions for competitiveness through optimal organisational

effectiveness for long-run development and survival.

Key words:
 High productivity, performance
 Quality products or services
 Experienced, professional, competent employees
 Suitable working conditions
 Controlled labour costs
 Low fluctuation, absenteeism
 Acting in conformity with law

The role of HRM:

Human resource is one of the most important strategic issues especially in the hotel and
service business and it should be approached accordingly. As HRM is a strategic issue it has
to be handled in a long -term premeditated way. Naturally the management of the labour force
can not be withdrawn from the general rules of management. Consequently HRM is not a
goal, but a tool where the decisions usually have longer-term impact, the pace of changes is
slower and the consequences of the decisions are not identical to the outcome of decisions
regarding tangible asset.

Purpose of HRM:
 Promote fair and equitable treatment of employees
 Improve employees' satisfaction, motivation & productivity
 Assist employees' growth on the job through improving their competency and productivity
 Reflect employees' influence in the management decisions
 Contribute to accomplishment of corporate strategy and goals
 Meet various challenges imposed by changes in environment

HRM in the service industry:

The human resource policies have direct relations with outcomes experienced by customers
and have direct effect on the working climate of an organisation. The HRM practices and
corporate culture of the service companies are visible to the customers. The managerial
behaviour, work facilities, supervision, career possibilities, new employee socialisation, have
great role in determining customer's perception of quality and morale. The service providers
are the human faces of the companies, but since the frontline jobs are poorly paid there is an
extremely high level of staff turnover. This result in high manpower costs as the expenses of
getting employees on and off is 1.5 times more than the salary of the employee. In several
companies the salaries are still considered as costs and the old manufacturing models of cost
minimization is followed. New ways and methods should be adapted to attract and retrain
people in the service industry.

The two most important assets of a company are:

1. Satisfied customers
2. Satisfied employees

22
HRM primary functions:
The primary functions are directly involved with obtaining, maintaining and developing
employees.
 Planning the organisation and human resources
 Recruiting - selection
 Human resource development
 Motivation and compensation
 Performance management - appraisal
 Labour and employee relations

HRM secondary functions:

The secondary functions provide support for the general management’s activities or are
involved in determining, changing the structure of the organisation.
 organisation
 job design
 research
 information

"People make the difference."

As the competing firms have more or less the same resources, the only winning factor is the
working force. That company will win on the marketplace, which has better people than the
competitors in respect of competence, enthusiasm, flexibility, and commitment.

The two most important assets of a company are:

 Satisfied customers
 Satisfied employees

4 key HRM areas:

Right people > good attitude > key to have repeat business
Guests focus more on attitude, than the product itself
Find the right people, keep them, train them…

 Human resource flow,

 Work systems,
 Reward systems,
 Employee influence

Human resource flow: recruitment, training, development, promotion.

 How do we find people, how do we maintain them?
 Training delivers two benefits: skills and the message that the company cares
about its employees

Recruitment:
 Eligibity: the candidate has the right CV, right diploma, right papers
 Suitability: right type of person, right attitude, good team player
You should focus on suitability and provide the skills, train the employee!!
 What recruiters look for?
▫ Personal factors (appearance, first impression, candidate’s strengths,
weaknesses)

23
 ▫ Preparation (candidates should know the business the company operates
in, market position)
▫ Questions on the interview (job background, education, physical factors,
personal traits, personal data)

 Attitude:
▫ Behaviourally (positive, outgoing, confident, well-groomed, experienced,
standard respecting, encouraging)
▫ Operationally (good knowledge of market, adhering company policy)

Recruiting:
 Internal: inside the company, currently employed staff members for job vacancies
 External: attract persons, who are not current employees for vacant positions

Forms of recruitment: television ads, posters, leaflets, word of mouth, notice boards
inside and outside the company, job centres, head hunters, newspaper, magazines.

To choose the right people is crucial, because the frequent employee turnover or the
dissatisfied employees are not only ad for the morale, but are costly in time and money
spent in training for new employees.

Work systems: arranging people with information, facility and support systems
 You don’t design a job for people, they have to fit into an existing company
culture and work system
 Team work
 Don’t expect the best results at the beginning; the new employees need to settle
down!

Information flow: information = security

 Collect, process, distribute
 Make sure people have enough info! > if not, people become aggressive
 Only tell people what they need to know

Reward systems:
 Do not have tombstones, but milestones! – rewards during work and not after they
have left the company, recognise their achievements, provide encouragement
along the way
 Non-fiscal motivators:
▫ job enrichment: allow people to go deeper with sg., to be an expert (more
knowledge specification)
▫ job enlargement: instead of going deep, go broad – allow people to enlarge
their territory – involve people in other areas

Employee influence: employee inputs on goals, conditions, design and implementation

of work tasks
 it is essential that people should feel involved
 they can tell the problems to managers
 use employees as part of your information system
 people feel powerless if they are not involved!

24
The cycle of failure:
Low wages → poor quality staff → no training → poor delivery of services → low
return → reduced profit levels → lower wages /managers/

The cycle of success:

Incentives → high quality staff → regular training → good delivery of services →
high return → high profit levels → skilled managers

Labour is the most perishable product in the hospitality and food service operation.
Labour is also one of the hardest costs to control. If you overstaff a dining room, the
extra labour hours are lost. Managers frequently schedule people based on feeling or
intuitions, which can lead to extra labour costs.

Labour costs should be analysed in five steps:

1. Define historical pattern of cost - Look at job Categories in relation to sales
2. Review all contributing factors that influence labour Cost: facilities, policies,
service level, existing personnel, etc.
3. Modify operating guidelines and standards to allow adjustments to budget
4. Develop an implementation plan - Changes should not be drastic and should take
place in reasonable succession
5. Revise sales projections and budgets when preparing the staff schedule

25
4) Please explain what the main management functions are within the travel and
hotel enterprises. Discuss what the management’s tasks are in defining the
company’s aims, business philosophies, strategies, planning. Analyse the role and the
impact of natural environment on tourism.

What is management?
“Management is the process of using:
- what you have: resources
- what you have to do
- what you want to do.”

There are 7 basic resource categories:

- people
- money
- time
- work procedures and methods
- energy
- materials (food, beverages, other products)
- equipment

All resources are in limited supply; therefore one of the main jobs of the manager is
determining the best way to use the limited resources.

Management functions

PLANNING
- setting objectives
- defining how
- setting standards

ORGANISING (implementation)
CONTROL - efforts of other people
- supervising MANAGEMENT - delegation/empowerment
- correcting FUNCTIONS (managers need power)
- monitoring - resource allocation
(budgeting)
- coordinating

LEADING
- guiding
- motivating supporting leadership - as
- integrating a leader, you have to
- directing realise that your success
relies on the employees’
success → you have to get
the best out of people

26
The management process

PLAN

ACT DO

CHECK

Plan: identify problem, find causes, analyse causes, plan actions

Do: implement actions
Check: measure and follow up, analyse deviations, correct actions
Act: standardise, reflect – evaluate, finish

All the management functions and concepts should be involved in creating and delivering
services.
CONTROL
EVALUATING
OFFICE

FINANCE HUMAN OPERATION MARKETING

RESOURCES
MANAGEMENT - especially in the - gives instructions
service operation to the operation
- to get the best out of - its aim is to
people for the company differentiate
from the labour market
(selecting)

One of the most important tasks of the management is to create a good organisational culture.
Organisations are subject of larger socio-political culture.
Organisational culture is a set of values, beliefs, norms, artefacts and patterns of behaviour
that are used as a frame of reference for the way we look, work, communicate within an
organisation.
- artefacts are material and non-material objects, patterns that communicate information
about beliefs, assumptions and ways of doing things.
Culture can be defined as a set of shared values, beliefs, norms, artefacts, that are used to
interpret the environment and as a guide for all hinds of behaviour.

Organisations are part of our society. Within the organisations people are carrying out their
activities, to reach the aims of the organisations. The goals and the objectives determine the
nature of the structure of the organisation and the activities are defined by the aims of the
organisation.

27
The characteristics of the goals/objectives (financial; non-financial):

Specific – defined
Measurable – figures
Attainable – high aims but attainable aims – you should not make goals, which are not
reasonable (but you shouldn’t have too low aims)
Reasonable – you have to understand the aims and agree with them
Time based

Aims and mission:

Definition of mission: coordinating resources to meet the expectations of all stakeholders
(owners, employees, government, municipality, etc.) Producing maximum profit on capital to
increase company’s assets. From the tourists’ point of perspective, produce value by realising
optimal “price-service level”.

Mission statement: expresses the underlying philosophy that gives meaning and direction to
the hotel’s actions and addresses the interests of guests, management and employees.

Business philosophies: concepts about importance of quality in reaching customer

satisfaction. Concept governing human relations, attitude. Concepts on how to handle
changes.

Defining strategic plans, decisions to secure long-term competitiveness and maximize profit.
Components of strategic planning:
 Market strategy: which segment, target groups to be served – “How will we sell
our product?”
 Product strategy: what to produce and offer
 Environmental, financial strategy
Short-term, operation, tactical activities.

THE ROLE AND IMPACT OF THE NATURAL ENVIRONMENT ON TOURISM

Natural environment is the “raw material of tourism”.

There is interdependence between the natural environments on tourism:

 The landscape, tourist attractions are one of the main motivational factors for tourism and
play an important role in creating a tourism product, offering a destination.
 Tourism has positive and negative impacts on the environment.
 Main challenge: secure sustainable tourism: actions in order to realise this.

Role of the physical environment in tourism is different, based on the human-environment

interaction. Bases on the type of the interaction we can talk about three types of
environmental roles. In the first case the environment serves merely as a setting for an
activity, but is not directly relevant to the activity. It is not in the central focus of the activity,
but influences the activity and the tourists also exert an influence on it.
In the second case the qualities of the environment exert a general effect on the activity. The
quality of the environment of the destination is critical to the success.

28
In the third case the physical environment is in the focus of the activity. These are mainly: the
natural environment, the heritage areas.

Negative impacts of tourism on the physical environment

Environmental damages are associated with loss of and damage to the physical environments.
For example the demand for tourist resorts and hotels resulted in clearing of mangroves for
building materials in Kenya. Or many places which become sites for tourist buildings are the
homes of species, and their life is damaged or ruined totally by tourism

Pollution is another negative impact of tourism, and it is associated with water, air and
landscape. Pollution is caused mainly by transportation, human consumption, and activities.

Some of the environmental impacts are related to the destination vulnerability. These impacts
are for example the air pollution and noise. (Transportation is the major source). The water is
polluted by sewage and the use of chemicals (pesticides, herbicides, fertilizers) in resort
landscaping. The tourists’ waste overloads the disposal systems, and these systems pollute the
environment.

Other environmental impacts are related to tourist density. Water consumption of visitors at
the destination, watering hotel gardens, golf courses, swimming pools. Demand for special
local tradition food (lobster, marine animal) threatens the animal life. Extensive tree felling
for heating threatens the forests, souvenir collection causes serious damages in the
environment (see coral islands’ damages)

There are many other environmental impacts having serious effects. Just some of them:
Overcrowding causes environmental stress. Just because some areas are overcrowded the
animals show changes in behaviour.
Over development of touristic places is also dangerous, as leads to develop rural slumps and
Excessive manmade structures. Some recreational activities (powerboats, fishing, foot safaris)
disturb wildlife. Vehicles (speed, off-road driving) increase wildlife mortality, cause soil and
vegetation damage
(Others: souvenir collection, firewood, roads and excavations, artificial water holes and salt
provision, introduction of exotic plants and animals)

But we must not forget that tourism may have positive impacts on physical environment.
Thanks to tourism tourist attractions and infrastructure are developed.

Tourism can provide the incentives and the income for conservation, restoration and
protection the environment. Introducing non-consumptive use of wildlife is positive too (view
and watch animal can lessen the desire for fur coats, for food). The force for the development
of better infrastructure improves the quality of the environment. Tourism also needs
construction of waste and water treatment plans:

There are factors, which can influence tourism impacts on the physical environment. The
amount and volume and the concentration of tourism, the type of use and the activities take
place at a destination and the type of environment being impacted (differences in sensitivity
and fragility) will determine the level of the influence. And the most important one is the
professional management and planning of tourism

29
5) How would you define the Travel Distribution System? Describe the Hungarian
travel market with the attention to Tour Operators and Travel Agencies. What are
the operational conditions for travel agencies?
Compare the similarities and differences between the hotel and travel sectors. Give
short description of the international and the Hungarian hotel markets.

TRAVEL SALES DISTRIBUTION SYSTEM

Travel Sales Distribution is the process of producing, marketing, selling and delivering travel
related services from travel suppliers to consumers.

Travel business consists of producing, selling domestic, outbound, inbound travel and
accessories. Players are: suppliers, intermediaries and customers.
The Travel Distribution System involves marketing, selling and delivering travel related
services from supplier to customers. Selling can be done directly or indirectly.

Supplier
 Travel product sellers who own or operate the travel product they are selling (hotels,
carriers, catering companies, coach companies, others like theatres, convention
centers)
 Aim: to distribute their product as widely as possible – sell products to customers:
directly / through intermediaries / combination
 Product line: transportation (air, water, land) + accommodation (hotel, motel, camp) +
vehicle rentals + miscellaneous services (theatre tickets, sightseeing tours)
 Types:
o primary suppliers: provide services directly to the traveler and are paid by the
traveler or intermediaries
o secondary supplier: provide services to the traveler through one of the primary
suppliers, are not paid by the traveler or by the intermediary directly and are
selected by the primary suppliers
 Accommodation service providers
 Food and beverage service providers
 Transportation service providers
 Program/event providers
 Attractions

Intermediaries
 sellers who act as a link between the suppliers and the consumers: tour
operators/wholesalers, travel retailers and other special intermediaries: GSAs,
Consolidators, conference organizers…

Customer
 individuals or groups buying and /or consuming the product

Visitor: any person travelling to a place other than of his/her usual environment for less than
12 consecutive months and whose main purpose of travel is not work for pay in the place
visited (WTO)

Tourist (overnight visitor): visitor staying at least one night in a collective or private

30
accommodation in place visited (WTO)
Excursionist (Same Day Visitor): visitor who does not spend the night in a collective or
private accommodation in the place visited (WTO)

By motivation all can be:

 Leisure travellers
 Business travellers
 Travellers travelling by other motivation

One stage distribution

SUPPLIERS

Accommodation Two stages distribution

service
providers
Travel agency
Transportation
service
providers

Food and Tour Operator CONSUMERS

Beverage
service Groups
providers
Three stages distribution Individuals
Event
organisers Outbound Travel Agency
Tour Operator
Sightseeing
companies
Inbound Tour Outbound
Operator Tour Operator
Other local
service
providers Four stages distribution

Inbound Tour Outbound Travel

Operator Tour Operator Agency

The need for distribution in the travel industry:

The distribution can be traditional or alternative/electronic. The travel sales distribution

system is determined by the type and nature of the product distributed (the nature of the travel
product can be described by the characteristics of it). The travel product is special product,
that is why there is special need of distribution in the travel industry. The geographic and time
distance between the product and consumer must be overcome, while the demand and the
supply must be balanced. This forces the players to establish efficient
way of distribution.

Types of distribution models/channels: direct and indirect

Both have advantages and disadvantages for consumers, for the suppliers and for the
intermediaries too. One can be beneficial for one of the players while means disadvantage for
the others.
Because of this and because of their aim, the suppliers combine the traditional and online
distribution both in direct and in indirect ways.
The intermediaries’ aim is to satisfy the needs of the consumers as well as possible and
achieve as much revenue/commission as possible. The intermediaries also select of 3-4-5…
stages distribution systems

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What determines the distribution system?
 what is being sold
 the nature of the product
o intangibility/tangibility: sales person in Travel industry sells more than a
product – dreams, we are buying benefits
o perishability – will never have the opportunity to sell the unsold product again
o seasonality
o parity
o uniqueness
o complementarity
o simultaneous consumption and production

The nature of the product may change while distributing.

Direct distribution system:

 sales are realized through direct contact between suppliers and consumers/customers
without any intermediaries – eg. Selling on internet, buying directly from a hotel
 one-stage distribution
 Advantages
o Time savings: avoids the intervention of third party, direct communication
between parties + easy to change the reservations (no cross-check
communication is needed)
o Increased profits: no commission is paid to intermediaries + direct payments,
sometimes in cash
o Flexibility: no fix itinerary, changes are easy
o Additional sales opportunities: direct communication with consumers –
upgrade, additional services
o Personal control over the sale: handling personally each step + management of
Key Account (80-20: 80% of the revenue from 20% of the customers)
 Disadvantages
o High sales costs – pay for sales staff who handle sale + marketing + initital
high cost of investment of internet sales
o Disappointment of intermediaries
o If using exclusively – risk of loosing travelers preferring intermediaries

Indirect distribution system

 Involves one or more intermediaries to reach the customer
 Supplier does not sell directly to the customer
 Advantages
o Professional Assistance/Consultation: the traveler receives personalized,
specialized assistance + the customer gets opinion about comparative
advantages + free of charge assistance
o Great variety – multiple options: offers a traveler the opportunity to choose
o Price advantages: lower price available – using cumulative buying power – TA
shares discount with customers
o Single payment: TA collects payment from customers - supplier in one
invoice

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 o No sales cost for suppliers: intermediaries employ sales staff + sales force
without overheads + Joined marketing
o Payment is collected by intermediaries: credit and billing assistance to
suppliers – TA pays in advance, insurance for suppliers + payment conditions
o Suppliers has the opportunity to get additional business – off season promotion
 Disadvantages
o Can be complicated – changes going through many channels
o Suppliers dos not have the control on sales
o Suppliers pay commission
o Suppliers depend on intermediaries
o Late payments – problem for suppliers

Impact of technology on travel distribution system

 IT diffuses into travel industry very rapidly
o Due to the changes of customers – more educated, independent, decision on
their own, travel alone, last minute
o Due to the increasing demand for individual travel
o Due to the nature of the ravel product
o Best way to sell product
o Change in distribution channels – on-line distribution
 Channel shift in the travel distribution
o GDS – Global Distribution System – used to be CRS, used by TO, TA
 Consists of central database, provides up-to-date info, permits users to
book, change and cancel and to issue ticket, stores and retrieves info on
customers and on suppliers
o Ticketing automation – most efficient, fast, paper-less ticket (only reservation
nr. – E-ticket is chaper
o Internet, E-Commerce
 Technology impacts on tourism:
o Increased efficiency – it takes just minutes to book a ticket to Vienna
o Improved quality – communication info fast
o New services – GDS, satellite ticket printers
o New industry “best practice”
o Change in distribution system and the industry system
 Uses of info technology in tourism:
o In product creation – suppliers has inventory in computer, making prices,
giving info to customers
o In management – MIS – management info system
o In marketing
o In service delivery
 Quality info: relevant, current, adequate, timely, reliable, cost-effective

THE HUNGARIAN TRAVEL MARKET

 Approximately 1100 travel agencies are registered

 Great fluctuation
 Yearly bankruptcies
 Fierce price competition

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  Illegal activities

THE OPERATIONAL CONDITIONS FOR TRAVEL AGENCIES

The operational conditions are regulated by the Government Decree 213/1996 and its
amendments, April 2001 and rules regarding the exchange of foreign currency. The changes
secure strict control and travellers’ protection. (Bigger financial deposits)

Act 213/1996 Tour organizer and intermediary

Definitions:

 Sells tours directly or indirectly: inbound, outbound or domestic, has travel contracts
 Has an office which has the necessary equipment for example: phone and fax and a
separate room for clients (like travel agency). If there are more offices then all they
have to have the necessary equipment. He/she does not have to have an office if he/she
sell indirectly.
 Travel package: accommodation, transportation and supplementary services like
cultural program, meal. Has to contain minimum two of these, selling tickets is not
considered to be part of tour organizing.
 Has to be registered in the Hungarian Trade Licensing Office (Magyar Kereskedelmi
Engedélyezési Hivatal) – it is the competent authority that can issue a license for a
travel company in Hungary
 Has to be registered in the Hungarian Company Registry (Magyar Cégjegyzék)
 Has to have clean record
 Staff has to have exam, qualification, practical experience – at least one professional
tour operator
 Money assurance
 Office

Duties:
 Has to declare how much income is planned
 Has to declare the activity the company is doing
 Has to get the needed papers (original or copy)

Registration of Authority (Hatósági nyilvántartás) should contain:

 Name of company, base, number, phone and fax number, email address of the
company
 Name of the leader(s) of company, and their function
 Name of insurance company, bank and amount of money
 If data changes, has to announce it in 15 days
 Money assurance: bank guaranty, insurance company.

THE SIMILARITIES AND DIFFERENCES BETWEEN THE HOTEL AND TRAVEL

SECTORS

Similarities:

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  Both hotel and travel business are strongly influenced by the Socio-cultural, Legal,
Economic, Political and Technical factors (SLEPT)
 Seasonality and competition
 Same market potential and segments
 Same selling policy
Differences:
 Less capital investment is needed in travel agencies
 Less business culture in travel agencies
 Smaller and medium sized enterprises in the travel trade

The present international and national hotel market is characterised by:

 Stagnation and decline due to terrorism, economic recession
 Competition is strong: 4-5 star hotels are sold at 3-star hotel prices
 All segments are showing less revenue except for the spa and health tourism
 Strong Forint Rate of Exchange resulted less income
 Investment in Hotel construction still going on resulting in overcapacity
 New management techniques are introduced like “outsourcing”

6) Please highlight the role and main features of the small and medium sized
companies in Hungarian Tourism. What are the main steps for setting up a travel
agency?

Categories of SMEs:
 Private enterprise – there is no employee
 Micro enterprise – maximum 10 employees
 Small enterprise – maximum 50 employees
 Medium enterprise – maximum 250 employees

An SME provides all the necessary required services that you need day by day. Large
companies do not care about the individual needs, they produce in mass. The appearance of
SMEs raise the living standard of the population. They have to concentrate on the customers’
needs.
During the Socialism there were no SMEs, only on the black market. Today more than 90%
of the companies are SMEs. After the Socialist era many companies were brought into
bankrupt. Great companies disappeared quickly and a big number of companies went into
bankrupt as well. A great number of former employees of state owned companies were fired,
since the number of state-owned companies was decreasing. There were no new workplaces.
Only one solution existed: to start their own enterprise => Forced entrepreneurship (it was
typical in Central and Eastern Europe)
The small and medium size enterprises are dominant in tourism: they contribute to solve the
problem of unemployment. Their advantages are that they are flexible and can build easier
personal relations with customers. Their handicap is that they have small capital, but they
enjoy certain state and bank support.

ESTABLISHMENT OF A KIND OF TRAVEL OPERATION

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The requirements of licenses and certifications differ from country to country. In Hungary the
Hungarian Trade Licensing Office (Magyar Kereskedelmi Engedélyezési Hivatal) is the
competent authority that can issue a tour operation license for a company if, among others:
 the company is registered in the ‘Hungarian Company Registry’ (Magyar Cégjegyzék)
 management of the company have a clean record (büntetlen előéletű)
 there are professional tour operators within the company responsible for expertise
 sufficient amount of financial reserves and an office for operation is available
The activities of tour operation are strictly regulated in the European countries, however,
licensing requirements are not as strict as in other professions. Directive 90/314/EEC issued
on 13 June 1990 regulated tour operation the first. The purpose of the directive is to
approximate the laws, regulations and administrative provisions of the Member States relating
to packages sold or offered for sale in the territory of the Community.
The structure of the Directive:
 List and definition of the phenomena used
 Requirements of brochures
 Lists the written information must be provided:
 Before the contract is signed
 Before the journey
 List of contract requirements
 Options to revise the package price
 Options to cancel and the consequences
 Failures
 Complaints

It is easy to establish:
 No product/raw material inventory is required (we do not stock raw materials or products)
 Offices can be leased (we do not have to invest in buying expensive offices)
 Office equipment can be leased
 Lower break-even point (no high investment, item price is very high)
 Licensing requirements are not as strict as in other professions, but become always stricter
(we do not always need a diploma, except for issuing air tickets, experience is needed)
 Benefits of working in the travel industry (discounts when travelling)

Business plan:
 planning is a major key to success
 business plan is essential for several reasons:
▫ bankers, investors require (to accept the risk and to accept the applicant’s
success and reliability assessment)
▫ forces the entrepreneur to analyse the opportunity from a business
perspective and possibility
▫ to be aware of the problems and risks

Components of the business plan:

1. Name of the company/agency – easy to understand, remember, pronounce, must send
a message, must be good in an international environment)
2. Ownership – what kind of ownership, who are the owners
3. Location/building – size, rooms, facilities of the office, layout of the office
4. Philosophy/mission statement – a statement of how the business will be operated, how
the objectives will be achieved

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 5. Organizational chart – responsibilities, authorities, titles
6. Industry and market analysis
 competition:
▫ analyzing the pattern on the market
▫ how many enterprises do the owners have
▫ major partners of my competitors (balance sheet, talking to industry
partners)
▫ what are the major markets, what is their pricing policy
▫ getting information from publications and statistics about the competitors
 strengths and weaknesses:
▫ about the political, economic situations
▫ about the competitors
▫ weaknesses of the market (low disposable income)
▫ strengths of the market
 market segment they serve:
▫ we segment the market
▫ we try to find out how the competitors segment the market
 strategy:
▫ of the competitors and suppliers
 plans:
▫ of the competitors and suppliers
 financial position:
▫ of the competitors and suppliers
 market trends
 market segments:
▫ average income, demand, destination, habits, attitude
 barriers to entry:
7. Strategic plan – objectives, assumptions, tools
▫ How can I achieve my objectives using my tools
▫ Long-term strategy – 3 years
▫ Short-term strategy – 1 year
▫ Operative/action plan – seasons-1 year
 product-market matrix:
▫ combination of different elements (at least 2) who belong together
 which product and to whom will be sold
 environmental forecast:
▫ growth directions – of the country of the destination
▫ market expansion – new markets that you would like to introduce
▫ product expansion – detailed description of new products that you would
like to introduce
▫ vertical integration
 sales forecast:
▫ includes estimated monthly sales figures
▫ includes the revenues from all possible sources
8. Licenses and certifications:
 the requirements are different country by country
9. Appointments:
 Memberships you applied for (e.g. IATA, UFTAA appointments)

Travel agencies can be categorized:

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By size:
 Multinationals: have representations/offices/subsidiaries worldwide
CWT, Amex
 National multiples: have more offices in the country
Vista, Tensi Tours
 Regional multiples: have more offices in a few country, in a region
Neckermann
 Independents – single shop agencies
By the type of business:
 Full service travel agency -mixed travel agency: Provide services for leisure and business
travellers as well.
▫ Advantages:
• Able to meet „all” customers’ need
• More knowledgeable staff
• Highly appreciated by the industry
▫ Disadvantages:
• Problem of handling low revenue products
• Staff is unable to specialize

 Leisure travel agency (small independents usually)

▫ Advantages:
• High level of revenue per sale
• High commission in short time
• Well known local staff
• Lower overhead costs – minimal staff, lower salaries
▫ Disadvantages:
• Does not meet all needs
• Is not highly respected
• Suffers from recession and seasonality
 Business travel agency:
▫ Advantages
• No peaks (relative)
• Dependency on recession is relative
• High item prices - high cost product, higher commission or service charges
• Relatively easier revenue planning
• Is highly regarded by the industry
▫ Disadvantages
• Competitive market
• Credit and discounts are needed
• Higher rental fee (relative), high staff cost
• High investment in technology

By appointment:
 IATA approved travel agency (IATA agent)
Can issue and sell flight tickets under its own name – based on the appointment of
International Air Transport Association

38
 Agencies without IATA approval (non-IATA agent)

39
7) Please expand the composition of the resources in hotels and travel enterprises.
Discuss the tasks of resource (property) management. Analyse the balance sheet.
Compare the similarities and differences between hotels and travel companies

The resources can be divided into material/financial and human resources. The share of the
two resources is different in the sub sectors of tourism. In the travel business the manpower
(labour) need is bigger than in the hotel and catering industry.

Assets, financial resources management

Human resources management
Security profitability by improving efficiency and productivity
Cash management to secure sufficient cash flow
The results depend on proportion of costs and revenues. Return on investment.

THE COMPOSITION OF THE RESOURCES IN HOTELS AND TRAVEL

ENTERPRISES

One of the most important assets in hotel and travel businesses are PEOPLE.
Why?
As the competing firms have more or less the same resources, the only winning factor is the
working force, which can make the difference.

Important factors to be considered when talking about the quality of workforce:

 Competence
 Enthusiasm
 Flexibility
 Commitment

The “people” are selling services: which is a feeling that a service recipient has when he/she
is with the service provider. Good service not only meets, also exceeds the expectations,
people’s needs.

The travel industry:

Def.: a collection of businesses all selling travel related services. It is a composite of
organisations both public and private that are involved in the development, production, and
marketing of products and services to serve the needs of the travellers.

Other resources in hotel and travel business include:

ASSETS – can be tangible or intangible.

Tangible assets include:

 physical location
 Accessibility
 Size of facilities
 Product line
 Staff
 Product line
 Sales materials
 Real estate (if any)
 State of technology / equipment

40
Intangible assets comprise:
 The image of the company
 Reputation
 Atmosphere crated by the facilities / staff

In travel agencies: state of the art technology is a must.

Tourism industry is an:
- information intensive activity
- is dependent upon reservations and descriptions in printed and additional forms
- information holds together the different producers within the industry

Technology impacts the hotel and travel business in the following ways:
-increases efficiency
-improved quality: fast, reliable info., immediate reservation, location (being able to
sell products all over the world)

New services: satellite ticket printer (STP), automated ticket machines, teleconferencing,
image communications, direct sales via e-commerce, time share, card link...

Use of CRS’s; GDS’s is essential. E.g. Galileo, Amadeus, Sabre, Worldspan,

GDS’s include:
IATA approved TA’s
Non-IATA TA’s

THE BALANCE SHEET:

The balance sheet gives a picture of the financial condition of a business at a particular point
in time. On the left hand side it lists the assets or resources a company has. On the right hand
side are the liabilities (debts) of the company and the stockholders’ equity. On the balance
sheet total assets always equal total liabilities plus equity. The asset side of a balance sheet is
normally broken down into three sections: current assets, fixed (or long term) assets, and
other assets.

ASSETS
Current Assets are cash or items that can or will be converted into cash within a short period
of time, usually within one year.
-Cash in Bank is cash kept in the bank should normally be sufficient to take care of current
debts as they become due.
-Account Receivable represents rooms, food and beverage business charged to individuals or
companies for payment has not yet been received.
-Inventories. This category includes inventories of food, beverages and supplies.

Fixed assets are those of a more permanent nature, not intended to be sold, which are used in
operating the business.
-Land, Building, Furniture and Equipments are the major and common fixed assets used in
the hospitality industry.
-Accumulated Depreciation reflects the decline in value of the related asset due to wear and
tear, the passage of time, changed economic conditions or other factors.

41
Other assets
-Deposit. If the deposit is refundable at some future time it can be considered an asset.
-Investments. Long-term investments are not connected with the day to day running of the
business and are shown as a separate category of asset.

Total assets
Various assets added together will give the total assets of the company or the total resources
available to it.

LIABILITIES
Liabilities are further broken down into short-term and long-term.

Short-term or Current liabilities are those debts that must be paid or are expected to be paid
within a year.
-Account payable (Trade) included the amounts owing to suppliers of food, beverages and
other suppliers and services purchased on account or contracted for in normal day to day
operation of a hospitality business.
-Accrued Expenses includes unpaid wages or salaries, payroll tax and related deductions.
-Income tax Payable. This is income tax owed to the government.

Long-term liabilities are those due beyond one year after the balance sheet date. Included in
this category would be mortgages, bonds and long-term loans from stockholders.

STOCKHOLDERS’ EQUITY
Stockholders’ equity section of the balance sheet can be stated to be the difference between
total assets and total liabilities. It represents the equity or the interest of the owners in the
enterprise. It comprises two main items, capital stock and retained earnings.
-Capital Stock. Any company is limited by law to a maximum number of shares it can issue.
This limit is known as the authorized number of shares. Shares generally have par or value
and this par value, multiplied by the number of shares actually issued up to the authorized
quantity, gives the total value of capital stock. Most companies issue shares in form of
common stock.
-Retained Earnings are accumulated profits, less any losses, sustained by the business since
it began, less any dividends paid out to stockholders

The total of all the liabilities and stockholders’ equity, should agree with the total asset.

The importance of the balance sheet:

The balance sheet is important because it can provide information about such matters as

 A business’s liquidity or ability to pay its depts when they have to be paid.
 How much of the operation’s profits have been retained in the business to help it
expand and/or reduce the amount of outside money (dept) that has to be borrowed.
 The breakdown of assets into current, fixed and other, with details about the amount of
assets within each of these broad categories.
 The business’s dept (liabilities) relative to owners’ equity. In general, the greater the
amount of dept relative to equity, the higher is the operation’s financial risk.

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Balance sheet limitation:
 The balance sheet normally does not show the market value of the assets. Suppose a
hotel owned the land on which the building sits and the land had been purchased
several years ago. Because of inflation and demand for limited land, it is likely that the
land is today worth far more than was paid for it.
 The investment in the employees is also not shown on the balance sheet. This
investment takes the form of time and money spent on recruiting, training, evaluating,
promoting and motivating individuals. It is difficult to assign a value to these human
resources, but they are an asset to any hospitality business.
 The balance sheet is constantly changing, however, it reflects the financial position of a
company at one moment in time. The changes will not be shown until another balance
sheet is produced. If a balance sheet shows a healthy cash situation at one moment and
the week later most of the cash was spent, this will only be shown at the next balance
sheet in the month.

8) Highlight the basic principles of Human Resource Management in tourism

organisations. What are the main functions of Human Resource Management and
which one is the most important according to your opinion? Please mention some
similarities and differences between the hotel industry and travel trade.

In the service business, the most important asset is the committed, competent staff. “People
make the difference”. Satisfied employees will create satisfied customers.
The main task of Human Resource Management is to attract the best people to the company
and keep them by motivating them, personal development and recognition.
Main functions:
 Organisation planning: structure, job analysis, job description
 Recruiting, selection, labour contract
 Orientation, personal development, training
 Motivation, material, financial and non-financial
 Performance evaluation, career planning
 Labour relations: collective contract

The duties of the HR Department:

 recruiting
 interview applicants
 verify and check references
 refer applicants to the proper department head
 process successful applicants for employment,explain company policies
 setup training, safety programs
 administer benefit programs
 negotiate with union heads, officials
 interpret labour laws

43
Job descriptions:
 A list of task that an employee working in a specific position must be able to
effectively perform.
 Explains the total requirements of the job, exatly what its purpose,
duties, activities and responsibilities and position within the formal structure of the
organization.
 Title - position title – reportin to – summary of main tasks – detailed
duties and responsibilities – competence – prerequisiters

Job specification:
 A list of personal qualities judged necessary for successful performance of the tasks
required by the job description
 List those qualities and skills a person needs to perform the tasks outlined in the job
description. These are the expectations toward a new employee.
 Qualifications – appropriate knowledge to the job – specific skills, abilities and
attitudes – experience required – personal attributes – physical factors
 Job specificationas are usually a base of any job advertisements.

The Recruitment Process:

 Recruitment – depend on the budget
Tv, newspaper ads, posters, leaflet distributions, word of mouth, notice boards, job centers,
internet
 Processing applications – good administration is needed, applicants should be sent
response letters.
 Selection – the process of evaluating job applicants to determine those more qualified (or
potientially qualified) for vacant positions.
 Interviewing of applicants – qualities of the applican can be identified. Manner, behaviour,
intelligence,etc..
 Verification of references – check the references of the applicant
 Referral to department heads – the department head makes the final interview and
decides if the applicant is accepted or not.
 Procession of successful applicants – a lot of paperwork for the HR department
 Employment agreement – a contract signed by both the employee and personnel manager
outlining the terms of employment and other rules of the hotel.

See Question 3

SIMILARITIES AND DIFFERENCES BETWEEN THE HOTEL INDUSTRY AND

TRAVEL TRADE

Similarities:
 The salaries are low in both sectors
 The basic principles are valid in both sectors
 In high season the staff has to work overtime
 In low season there is no work
 The fringe benefits: study tours, accommodations, etc.

Differences:
 Tips increase the low salary in the hotels and restaurants

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9) Please explain the main characteristics of travel and tourism marketing and the
means and tools of realising marketing concepts.

TOURISM is...
 EVERYBODY’S BUSINESS
 the host population has an impact on the tourists, either make the stay enjoyable or a
nightmare
 both the tourists and the locals are part of the tourist experience (others on the same
flight, visitors drive at least 10% slower than locals)
 buildings and gardens should be looked after, unless tourists feel uncomfortable
 in Hungary the overall industry’s 10% is tourism, this is the biggest single industry in
our economy
 A MEGA-INDUSTRY & JOB CREATOR
 directly or indirectly more and more people work in tourism: for every 1 person
working in tourism there are 4 more depending on him, working indirectly in tourism
TRAVEL & TOURISM
 The world’s largest industry: 10.2% of global gdp
 C & e europe: 2.0% direct gdp, 7.7% indirect gdp
 Indirect GDP would not be realized if tourism did not exist
 The world’s largest employer: 194 million global jobs
 C & e europe: 2.3 million direct jobs, 8.9 mill. Indirect jobs
 1$ investment in tourism generates 45$ tourism revenue
 tourism is not a concentrated industry: SMEs, fragmented
 the turnover is quick, so terrorism can turn a country’s economy down very quickly
Tourism
“any activity concerned with the temporary, short-term movement of people away from where
they normally live & work, & includes their activities during their stay at these destinations”

TOURISM IS A PRODUCT COMPETING FOR THE SAME DISPOSABLE INCOME

The special features of tourism service have direct impact on tourism marketing. Tourism is
consumed where the product is produced. The population has an important role in reaching
satisfaction with the tourist. All components of the services are linked in the service chain.

Characteristics of travel products

Intangibility:
Travel industry sells more than product, the sell „anticipation”. The travel product is
mixture of products and services but at the moment of purchase the product is always
intangible
Perish ability:
Will never get an opportunity to sell an unsold “product” again.
Complementarily:
Purchasing one product sets up a chain reaction of travel purchases. What effects one
product, effects the another (positive-negative)
Seasonality:
Daytime, weekdays, seasons
Simultaneous production and consumption:
The products of tourism are produced and consumed simultaneously. It does not happen
before the traveller takes the product in its tangible state.

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Parity (egyenértékűség, megfelelés):
Competing companies offer the same base product (Italian beaches, Eiffel tower, Prado,
Great Lakes, Balaton). These are comparable. Each of them has its value for the
consumers and the value is the same or similar for the consumers with same or similar
needs.
Uniqueness
The product can not be brought to the consumer

Tourism means cooperation with public & private sectors working together

Tourism product consists of attractions, accommodations, access (travel) and attitude of the
host population.
THE 4 A’s
 ATTRACTION
 Natural assets
 Towns & cities
 Conferences
 Culture
 Family & friends
 ACCESS
 the ways tourist can get to a destination:
– Road
– Rail
– Air
– Water
 what to see, where to spend money (tourists want to spend money) at the
destination
– Information
– Signposts
– Brochures
 ACCOMMODATION
 Hospitality
 Catering
 Shopping
 ATTITUDE
 GOVERNMENT: it is difficult getting to those countries which would really need
the tourism revenue
 TRADERS: high bills and bad news travel faster and stick
 HOST POPULATION

Marketing is the management process for identifying, anticipating and satisfying customer
needs profitably.

In order to realise successful marketing, the following should be done:

 Prepare a marketing plan by using SLEPT, SWOT and the 3Cs models for analysis
 Knowledge of target markets, potential customers, segment by doing market research
 Establish objectives and ways to reach them (strategies)
 Promotional activities:
▫ Preparing information material, brochures
▫ Working out loyalty programs

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 ▫ Preparing advertisement plan – international and domestic
▫ Deciding about brand – brand policy
▫ Direct marketing activities and customer relation management
▫ Organising study tours
▫ Creating data base
▫ Participating tourism fairs and exhibitions
▫ Using Internet
▫ Film presentation, promotional gifts
▫ Continuous public relations
▫ Press conferences, Press releases

PR is the management activity to shape the attitudes and opinions of clients and other
stakeholders.
All activities should be coordinated and integrated.

THE MARKETING PLAN

Leads the ‘functional’ plans - production, finance, human resources
 do not start with production & then force the customers to buy your product
 do not start with the financial part either, do not set the financial target first & then try
to force the market to produce those figures
 it leads to the realization of having low influence on the customers  lower price 
lower services  market will not accept them
 HR is not a matter of number of people, but quality of staff
 Ózd: relied on industry  1980’s huge unemployment rate  mayor wanted to halt
unemployment with tourism  miners & industrial workers cannot be employed by
tourism
 keep up with the changes: what worked last year may not work this year in tourism
Define the followings
 demand
 either in customers’ needs, revenue, type of customers
 communication
 how to reach the demand
 target market
 position on he market
 standards of service
 SWOT is NOT a part of the marketing plan
 7P’s: first focus on all the 7P’s & then eliminate those you don’t need

LIKE A JOURNEY...
WHERE ARE WE NOW?
 define the position, the starting point & then the direction you have to take
 relative position: where are the others?
 in the case of customers
 in the case of revenue / profitability
WHERE DO WE WANT TO BE?
 destination within a time scale
WHICH WAY IS BEST?
 strategical decision about costs, time, comfort
 evaluate all possibilities
 the environment also changes (budget a/l’s, InterCity)

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 HOW DO WE GET THERE?
 tactical decision on the itinerary, the possible routes

GETTING THERE!
 to avoid ending up somewhere else
 heading in the right direction: what do I have to see / experience on the way?  check
these signposts  do not wait until the end to find out that you were going in the wrong
direction  the earlier the correction, the less trouble, cost
 reallocate budget elements as you get to see if the projections in the various areas were
better or worse than the actual outcomes

ENSURING ARRIVAL
 signs & indicators kick in  you know you are there
 inform people around you if something goes wrong

With business terms:

AUDITING - (WHERE ARE WE NOW?

SWOT
Strengths, weaknesses, opportunities, threats

SLEPT
Socio-cultural, legal, economic, political, technical

3C’s
CUSTOMERS COMPETITORS CASH
 who doesn’t buy your product?
 how competitors react onto your actions?
 look at possible future competition, too!!!

OBJECTIVES - WHERE DO WE WANT TO BE?

 Product life-cycle: how useful is this?
 does your product have a value & if so, how high?
 less than 10% of the “new” products on the market are really new (they are either
repackaged, repriced or reinvented)
 reinvent or find new market for the product

BRANDING - POSITIONING
The voice of the product
A brand is an aura of beliefs & expectations about a product which make it relevant &
distinctive. Branding gives a product a ‘voice’ enabling it to be heard above the ‘noise’
 brand ≠ product
 beliefs, expectations, prejudgments: presentation gives a set of expectations
 presentation should fit the quality of the product
 presentation has to be relevant: look at the target market, their needs, middle of the
road is the worst
 interesting things capture our attention
Customer benefits of branding
 Easier identification: identical image
 Features & benefits: buy diesel to protect the environment, not ‘cuz you want diesel

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  Risk reduction: brand identified with quality (sugar or koronás)
 Interest creation: nesquick bunny in the zoo  more pictures taken with quicky than the
real animals
Producer benefits of branding
 Creates loyalty: brand ( loyalty ( repurchase
 Competitive defence: do not compete only on price (that’s the end of the road)
 Allows premium pricing
 Aids targeting
 After eight chocolate ( after nine condom: after eight sued after nine to protect
their brand
“Imagination is more important than knowledge” Albert Einstein
 Imagination > knowledge  brand > product  we buy brands, not products
“brands belong to the people who use them – not the manufacturers!” Leo burnett
Brand personality
 Build up a personality according to nationality, age, clothing, etc.
 Budapest is not well defined ( tourists don’t know what to expect
 Balaton could be the family lake of europe, but has no exact image
What’s in a brand?
Graphics, logo, fonts, colours, music, events, personalities, buildings, ecology, fauna, flora etc
 Images do not have to show the product itself, but its personality
 Disney: font, shape of towers in france, in usa, at the beginning of movies
 Font style is more important than name
 Different colours mean different things
 Music style, events the company sponsors, faces of the product
 Ecology: plants and animals are associated with attributes (owl: smart, lion: insurance,
teddy bear: loveable)
Single form brands
Company image & product are synonymous
 Nikon = camera
 Canon produces a lot of things
 Maldives = product
Multi-form brands
Brands not related to the parent company
 Unilever produces eternity perfume
 Romania has a negative image  do not use it, compose different brands of different
attractions in Romania
Balanced form
Each brand related to the corporate body
 When a new product is introduced it wears the company’s name, but later it’s lost and
only the product’s name remain
Variety-form brands

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10) Please analyse the contents of marketing mix elements in tourism with special
attention to marketing communication

THE MARKETING MIX

1. PRODUCT
▪ DESIGN THE PRODUCT TO SUIT THE CUSTOMER (they have to be able to buy
my product)
▪ We have to develop the product
▪ the conversation with people is very important => it is easier to make the product on
somebody’s needs and wishes than to fix it later to his/her needs
▪ change the product according to major trends, how the needs change  make sure the
product is kept alive
▪ market: fix the product cheaper
▪ customer: tailor-made product

2. PROMOTION
▪ REACHING THE TARGET MARKET WITH A CONSISTENT MESSAGE
▪ Who is the target market?
▪ first communicate internally (within the company, with colleagues, staff, destination)
and then communicate externally (to the market)

3. PRICE
▪ SUPPORT THE IMAGE
▪ HELP WITH SEASONALITY
▪ EXTERNAL FACTORS
▪ what the customers are willing to pay
▪ people tend to think that what is more expensive is of higher quality: in the UK the
government put tax onto foreign luxury products  people bought them, even though
they were more expensive than domestic products, because they thought the British
ones were of poor quality
▪ it is not true that what more expensive is, is better quality => too cheap products
cannot be sold either
▪ quality products sell  do not cut prices (do not sell the product on a lower price)
▪ be careful with currency  exchanging currency may wipe away profit

4. PHYSICAL EVIDENCE
▪ HOW DO OUR CUSTOMERS SEE US?
▪ logo, cars, tangible things surrounding the product, kitchen – restaurant
▪ the image of the company has to fit the image of the product

5. PLACE
▪ Where the customer comes into contact with the product
▪ APPROPRIATE CHANNELS: place represents the quality of the product => all parts
of the value chain have to be the same quality
 INTERMEDIARIES must be properly trained (JVS camera story, they are not
employed by you, but they are in direct contact with the customers)
 DIRECT SELLING means leaving out intermediaries, but people need a higher
level of care and with the internet customers are surprised it worked, that the
booking was done, also may have problems with credit cards

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6. PROCESS
▪ HOW EASY ARE WE TO DEAL WITH?
▪ mirror – mirror exercise: the image of the company reflects in the customers’ opinion
▪ the staff of a 5 star hotel may have never been to a 5 star hotel as guests  they don’t
know how it feels like, what the guests think & experience  put them into the guests’
place
▪ booking system, payment system (online)
▪ payment: how to make people pay?
 disposable income: material or mortgage, cash or credit card
 Pay a portion and then a monthly portion by credit card?

7. PEOPLE
▪ TRAVEL & TOURISM’S MOST IMPORTANT ASSETS
▪ focus on people who serve you and not on marketing
▪ 85% of the complaints are about the service / people and not the product
eligible suitable

right qualification right type of personality

With the best CV why are you In a chain another department won’t employ an
looking for a job? employee of another  they need fresh brains they
can train to become their men

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11. Please discuss the issues of cost management with the travel enterprises. How are the
expenditures classified? Analyze the impact of the different cost categories on the
financial results of the travel company.

In the typical hospitality industry operation, as much as ninety cents of each sales dollar
is used to pay for costs. It is obvious that cost management must be an extremely important
part of the successful management of an establishment.
In accounting terminology, a cost is defined as an asset. This asset could be one with a
very long life, such as a hotel building, or one with a relatively short life, such as food
inventory. Theoretically, as these assets or costs are used up, they became expenses and are so
recorded on income statements. However, some items are paid for and are never considered to
be assets. They are classified directly as expenses such as wages paid, supplies purchased, and
energy consumed, among many others. It is confusing since we usually say "wage cost,"
"supplies cost," and "energy cost." Therefore, it is obvious that the words cost and expense are
commonly interchangeable despite the theory.
One of the ways to better manage expenses or costs is to understand that there are many
types of cost, and, if one can recognize the type of cost that is being considered, better
decisions can be made about it. Some of the most common types of cost are defined here.

The meaning of cost: Cost, considered as an expense, is the reduction of an asset, generally
for the purpose of increasing revenues. Cost can be classified in a range of methods
depending on the use of the information.

Types of costs:
- Basic cost elements: materials, labour, expenses
- Direct, Indirect costs, Overheads
- Fixed, Variable, Semi-variable/Semi-fixed costs
- Actual cost, Budgeted/Standard cost
- Controllable cost, Uncontrollable cost
- Joint cost, Discretionary cost
- Total cost, Average cost, Marginal cost
- Differential cost, Relevant cost, Sunk cost, Opportunity cost

Basic cost elements:

This approach represents a simple way of classifying costs using the resources required to
produce the product or service. It forms the basis of the profit and loss account.
- Materials: represents the costs of the components that make up the product (ingredients).
- Labour: includes all the costs associated with rewarding personnel for their efforts.
- Expenses: includes all other arising costs.

Direct and Indirect costs:

Divides costs into those which can be associated with products, services, departments or
particular activities, ie. direct costs, and those which cannot be assigned, ie. indirect or
overhead costs.
- Direct costs: associated with products, services (materials – cost of sales, labour –
restaurant manager’s salary, expenses – laundry of table linen)
- Indirect costs: can be clearly identified with a specific department or with a product or
service, like metered power costs, wages of supervisors (allocated to the departments).
- Overheads: centralized or remote costs, like insurance or energy costs. They are
apportioned to the departments on an appropriate basis.

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Direct cost. Direct cost is a cost that is the responsibility of a particular department or
department manager. Most direct costs will go up or down, to a greater or lesser degree, as
revenue goes up and down. Because of this, they are considered to be controllable by, and
thus the responsibility of, the department to which they are charged. Examples of this type of
cost would be food, beverages, wages, operating supplies and services, and linen and laundry.

Indirect cost. An indirect cost is commonly referred to as an undistributed cost or one that
cannot easily be identified with a particular department or area, and thus cannot be charged to
any specific department. For example, property operation, maintenance, and energy costs
could only be charged to various departments (such as rooms or food and beverage) with
difficulty. Even if this difficulty could be overcome, it must still be recognized that indirect
costs cannot normally be made the responsibility of an operating department manager.
Indirect costs are also sometimes referred to as overhead costs.

Fixed and Variable costs:

This category illustrates how the costs behave under different conditions of volume or
activity.
- Fixed costs: these are the costs that remain unaffected by the level of activity for the
short-term (for example: rent, interest).
- Variable costs: these costs change in proportion to the level of activity of the business
(for example: food cost).
- Semi-variable costs: contain an element of both fixed and variable costs (for example:
energy cost, telephone cost).

Fixed cost
Fixed costs are those that, over the short run (a year or less), do not change or vary with
volume. Examples of fixed cost would be salaries of management people, fire-insurance
expense, rent paid on a square-foot basis, and the committed cost of an advertising campaign.
Over the long run, of course, all these costs can change. But, in the short run, they would
normally change only, if at all, by a specific top-management decision.

Variable cost
A variable cost is one that varies on a linear basis with revenue. Very few costs are strictly
linear, but two that are (with only a minor possibility that they do not always fit this strict
definition) are the costs of food and beverages. The more food and beverages sold, the more
that have to be purchased. If revenue is zero, then the cost should also be zero.

Semi-fixed or semi-variable cost

Most costs do not fit neatly into the fixed or the variable category. Most have an element of
fixed expense and an element of variable, and then not always variable with revenue on a
linear basis. Such costs would include items like maintenance, energy, and many of the direct
costs. To make useful decisions, it is generally advantageous to break down these semi-fixed
or semi-variable costs into their two elements: fixed or variable.

Cost estimation methods: separating costs into fixed or variable:

- High/Low method: maximum/minimum calculation. TC= FC + VC
- Multipoint graph – scatter graph.
- Regression analysis: formula representing the graphical equation (y=a+bx)

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Actual and Budgeted cost:
- Actual: the actual cost is what a cost or expense actually was. For example, the payroll
records and checks made out to employees will indicate the actual labour cost for that
payroll period.
- Budgeted: a budgeted cost is what a cost is expected to be for a period of time. For
example, for an anticipated level of sales for a month, we might budget or forecast what
the labour cost should be for that period. Later, that budgeted cost would be compared
with the actual labour cost in order to determine the causes of any differences.

Standard Cost:
A standard cost is what the cost should be (predetermined) for a given volume or level of
revenue. For example, a standard cost can be developed by casting the recipe for a given
menu item. If ten of these menu items are sold, the total standard cost should be ten times the
individual recipe cost. Standard costs should be developed individually by each establishment,
since many factors influencing standard costs differ from one establishment to another. Use
for standard costs: budgeting, forecasting, pricing decisions, expansion planning, staff
scheduling, and internal control. (eg. comparison of actual costs with standard costs.)

Controllable and Uncontrollable cost:

- Controllable: those costs which management has the capacity to restrain (casual labour
and food), can be influenced by the management to some extent.
- Uncontrollable: those costs which cannot be restrained by the management such as rates
and insurance
The mistake is often made of calling direct costs controllable costs, and indirect costs non-
controllable ones. It is true that direct costs are generally more easily controllable than
indirect costs, but all costs, in the long run, are controllable by someone.

Joint cost: it is shared by one or more departments or areas, mostly indirect costs, also known
as common cost which is not traceable to particular units or departments. eg. the cost of a
dining room waiter who serves both food and beverage. His labour is a joint cost, and should
be charged to the food department and to the beverage department (in proportion to revenue
or by some other appropriate method).

Discretionary cost: it depends on the decision of a particular person, incurred at the sole
discretion of usually the general manager (GM) eg. refurbishment of a room, painting etc.

Total cost: is the aggregated fixed, variable and semi-variable costs in a specified budgetary
period ( TC= FC + VC )

Average cost: total cost divided by number of units sold (room, guest night, covers). It is also
known as unit cost or average total cost.

Marginal cost: is the increase in total cost caused by one more unit of output eg.
accommodating one more guest.

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Costs in decision-making situations:
- Differential costs: costs which differ between the two alternatives. Costs which remain
the same with or without the new decision are non-differential costs, they should not be
considered in the decision-making process.
- Relevant costs: are those which must be considered in a decision-making situation as
they are pertinent to a given decision. A cost has to be differential, future and
quantifiable in order to be relevant.
- Sunk cost: is a past cost relating to a past decision, it has already been incurred and
cannot be recovered. It should be left out from the decision-making situation since it
cannot affect any future decisions.
- Opportunity cost: the cost of the best forgone opportunity in a decision-making
situation. These costs are among the relevant cost considerations.

Labour Cost:
The % of Revenue to Wages shows what is the percentage of revenue was spent on labour.
The cost of labour generally accounts for considerable amount of money. As a percentage of
sales, labour cost typically ranges from 15% to 35%. There are many factors can be
considered which can affect the labour costs, such as sales volume, location, equipment,
training, and management. Labour turnover rate, a ratio relating the number of departing
employees to the total number of employees and usually expressed as a percentage, which
tend to range between 10 and 20%.

Dealing with 3 main areas:

1. Allocating indirect costs to revenue areas (apportionment of overheads).
2. Which piece of equipment to buy?
3. Can we sell below cost? Is it worth? We can sell below the total costs, but above the
variable. (Contribution margin = Revenue – Variable costs)

Can We Sell Below Cost?

The apparent answer to the question, "Can we sell below cost?" would be, "Not unless you
want to go broke." But, before we can intelligently answer that question, we should first ask,
"Which cost?" If the answer is "below total cost but above variable cost, " then yes, indeed,
we can sell below total cost under certain circumstances.

In the short run, as long as revenue is greater than variable cost, it pays to accept business
because the excess of revenue over variable cost will contribute to, or help pay for, the fixed
costs.

Should We Close During the Off-Season?

The same reasoning as in the previous case can be applied to a seasonal operation to answer
the question of staying open or closing down during the off-season. It is usually worth staying
open based on simple calculations. Moreover, there could be considerable additional
closedown and start-up costs that would have to be included in the calculation of the cost of
closing. Also, would key employees return after an extended vacation? Is there a large enough
pool of skilled labour available and willing to work on a seasonal basis only? Would there be
recurring training time (and costs) at the start of each new season?

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Operational financial expenses

INCOME STATEMENT
The Income Statement shows the operating results of a business over a period of time. Most
hospitality operations are departmentalized and the income statement needs to show the
operating results department by department as well as for the operation as a whole.

REVENUE (Rooms, Restaurant, Bar)

Revenue is defined as the cash inflow received in exchange for the sale of goods and services.
In a hotel revenue is derived from renting guest rooms, selling food and beverage in the
restaurant. But revenue can be derived from other resources such as catering, entertainment,
retail shops, and commissions.

EXPENSES (Staff cost, operating cost, fixed cost)

Expenses are defined as goods or services used in the business’s normal operations in order to
earn revenue. Expenses can be indirect and direct:

- Indirect expenses are those that are not directly related to revenue-producing activities of
the operation. Indirect expenses are broken down into two separate categories: the
undistributed operation expenses and the fixed charges. Undistributed operating expenses
include costs such as administrative, general, marketing, property operation and maintenance.
Other expenses might be included in this category are management fees, franchise fees and
guest entertainment. All this undistributed operating expenses are considered controllable but
not by the operating department heads but the general manager. Fixed charges are related to
property taxes, insurance, interest and depreciation.

- Direct expenses are those that are directly related to revenue-producing activities of the
operation. These are food, beverage and laundry.

To get the final net income, the total cost has to be deducted from the total revenue.

Statement of Cash-Flow
It shows the effects on cash of the business’s operating, investing and financing activities for
the accounting period and explains the change in cash for the accounting period.

Cash problems at tour operator companies, and travel agencies

The main problem is that Tour Operation is a capital and cash intensive business. The
Revenues and Costs functions are moving reverse to each other, since when the revenues
increasing, costs are decreasing and vice versa. The two functions usually meet in April and
again in September, and between the two months the Tour Operators have a significant
amount of profit. Now since the revenues are way below the expenses from September till
April the companies have to budget carefully the revenues collected during the summer
months. These summer profits are usually getting invested into bonds and other type of bank
deposits with reasonable interest on them.

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Balance Sheet and Income Statement
The Balance Sheet shows the position and financial condition of the business at a particular
point in time. It is similar to a still photograph. On the contrary, the Income Statement shows
how the business performed over a period of time. It is similar to a movie or a video.
On the left hand side it lists the assets or resources a company has. On the right hand side are
the liabilities (debts) of the company and the stockholders’ equity. On the balance sheet total
assets always equal total liabilities plus equity. The asset side of a balance sheet is normally
broken down into three sections: current assets, fixed (or long term) assets, and other assets.

Break-even Analysis (Cost-Volume-Profit Analysis)

The break even point (BEP) is that level of revenue at which there will be neither net income
nor loss. This is a technique used in advance planning of the business’ operations. It is a
means of estimating the amount of sales needed in order to cover expenses and make a given
amount of profit. The first step is to find out the amount of sales required to cover expenses
only or “break even”. It is obvious that in such a break-even situation, total sales must be
equal to total costs. However, there are two sorts of costs. Fixed, which must be paid
regardless our revenue and variable which are costs of the products.

Limitation of the break-even analysis:

It is difficult to allocate fixed and variable costs.
It assumes that variable cost vary directly with the sales volume.
It assumes that fixed cost will remain fixed during the period.
It is limited to individual situations or departments.
It is only a guide to decision making to show from which point the operation should not
continue.

Tour Operator’s Pricing

The travel industry is highly competitive industry with limited flexibility to set prices.
Uniqueness enables producers to establish higher prices and more flexibility to determine
their prices. Uniqueness stems from product attributes like right and efficient combination of
product elements, introduction of new products, quality of product and personal relationships
developed with customers

Tour Operators can keep their prices low by restraining profit or/and by cutting
costs. They can cut the cost of the product element with buying in bulk and also
can cut their operating cost by finding the most efficient way of product
creation and sales

Basics of pricing.

Facts determining the prices:

1. Demand – is different
• Product’s life cycle
2. Production costs (Unit costs include fixed and variable costs)
• Fixed costs:
(rent, insurance, managerial costs - must be paid to be in business, expenses
incurred before any sales made)
– Per unit fixed cost burden declines as output increases

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 • Variable costs:
(actual expenses of package components – direct costs, and other costs
incurred with the sale of each package)
– Total variable costs increase as output increases
(but often are not the same across all levels of output)
– Per unit variable costs are high at low level of output, and decline as
output level expands

 Profit margin = sold quantity x selling price of the package/package tour – cost of the
elements of the tour

Tour operators can establish the minimum price required to earn profit with good
projection of fixed and variable costs. This price is called break-even price: This is the
price per unit for a given volume of output at which total revenue is exactly equal to total
costs.

Break-even point calculation:

P x Q = F + (V x Q)
P = unit price
Q = quantity of product produced and sold
F = total fixed cost
V = variable cost per unit

From this formula can the break-even price be calculated:

P = (F + V x Q) / Q

• Example #1: We would like to know the selling price:

• F= HUF 800000
• V= HUF 58500
• Q= 125 seats
– P= (F+VxQ)/Q
– P= (800000+58500x125)/125= 64900
• If Q = 150
– P= (800000+58500x150)/150= 63833

• Example #2: We would like to know how much can we spend on product
elements:
• F= HUF 800000
• Q= 125 seats (capacity of the charter flight)
• P= HUF 62000 (competitor’s price)
– P= (F+VxQ)/Q, V=P-F/Q
– V= (62000-800000/125)= 55600
• If P = 61900
– V= (61900-800000/125)= 55500

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 • Example #3: We would like to know how many consumers do we need for
given fix cost and variable cost, on market price:
• F= HUF 800000
• P= HUF 62000 (competitor’s price)
• V= HUF 58500
– P= (F+VxQ)/Q, Q=F/(P-V)
– Q= 800000/(62000-58500)=229
• If P = 61900
– Q= 800000/(61900-58500)=236

3. Competitors’ prices
• What other products in your market compete most directly with your
offering(s)

4.Your other products (the product line of the company)

• Objective: to maximise profit across your entire product line
Tools of being profitable as a travel agency
• Keep costs under control
- overhead costs
- costs of sales

Cost of the brochure represents significant proportion of the marketing budget:

Too many brochures are waste of money
Poorly distributed brochures will never reach the right people

Pricing a Package Tour

Key requirement for success: to get the price right!!!
 Must be right for the market
 Right compared with the price of competitors’ package tours
 Right by comparison with the price of other tours offered by the company.
Requirements:
 Price of tours must cover: price + VAT, variable cost, VAT on profit margin,
commissions to the agents + VAT, fixed and overhead costs (rent, insurance etc.)
 Small contribution should be made to the marketing administration by per capita
contribution + yield management, loss leader policy
 Should achieve profit
 Price must be right (right time, place, people…)
 Extra profit achieved by tour operators: advanced payment from customers, sales of
ancillary services, cancellation conditions, direct selling

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12. Pricing and pricing policy play an important role in securing profitability, which are
the main factors influencing the prices in the tourism companies. Expand on the pricing
policy of the hotels and travel companies. List the different discounted prices.

Historically, price has been the major factor affecting buyer choice. This is still true in
poorer nations, among poorer groups, and with commodity products. However, non-price
factors have become more important in buyer-choice behaviour in recent decades.
Price is the only element in the marketing mix that produces revenue; all other elements
represent costs. Price is also one of the most flexible elements of the marketing mix. Unlike
product features and channel commitments, price can be changed quickly. At the same time,
pricing and price competition is the number one problem facing many marketing executives.
Yet, many companies do not handle pricing well. The most common mistakes are: pricing that
is too cost oriented; prices that are not revised often enough to reflect market changes; pricing
that does not take the rest of the marketing mix into account; and prices that are not varied
enough for different products, market segments, and purchase occasions.

Price is the amount of money charged for a product or service. More broadly, price is the sum
of the values and all sacrifices that consumers exchange for the benefits of having or using the
product or service.

Barter: the exchange of one good or service for another good or service; tax doesn’t have to
be paid in this case.
Value: the power of a product to attract something else in an exchange (basis for price).

Room rates in hotels:

Each room in a hotel usually has more than one room rate. The rack rate is the standard price
determined by the front office management and accepted by the GM.
Today’s often applied rack rates:
 Premium Rates
 High Season Rates
 Shoulder (or Mid) Season Rates
 Off or Low Season Rates

Special room rate categories:

 Corporate or commercial rate offered to companies that provide frequent business
 Group rate offered to groups, meetings, conventions etc.
 Promotional rate used among others during low occupancy period
 Incentive rate offered for agencies, airlines, tour operators, meeting planners, wholesalers
 Family rate spec for families (family plan)
 Package rate (full board, half board or no meal)
 Complimentary rate
 Standard, minimum, maximum price

Discounted prices:
 group prices
 prices for retired persons
 youth/child prices
 weekend price
 family price

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  frequent guest price
 incentive price
 convention price
 rates based on size

Fair Rating
A sound room rate structure is fundamental to a sound hotel operation. The proper room
charge is a matter of exceeding complexity: room rates reflect markets and costs; investments
and rates of return, supply and demand; accommodations and competition; and not least of all,
the quality of management. Divided into its two major components, room rates must be large
enough to cover costs and a fair return on invested capital, and reasonable enough to attract
and retain the clientele to whom the operation is being marketed.

Double Occupancy
It refers to the use of the room by a second guest. Traditional rate making increases the single-
occupancy rate by a factor (normally not twice) whenever the room is double occupied.

Factors influencing pricing decision-making:

- pricing objectives, corporate mission & objectives, marketing goals & objectives,
- company’s non-price competitive strategies,
- industry structure & rival behaviour,
- changing costs,
- legal & ethical constraints

1. Controllable factors - over which the marketers has a large amount of control
 Costs, marketing-pricing objectives, product offering, company resources
2. Uncontrollable factors - over which there is little control, but which still influence
the pricing decision.
 Demand, competition (monopolistic, oligopoly), type and structure of the industry

Factors to consider when setting prices: A company's pricing decisions are affected
both by internal company factors and external environmental factors.
Internal factors:
1. marketing objectives:
- survival, current profit maximization, market-share maximisation, product-quality
leadership and other objectives
2. marketing-mix strategy
- product design, distribution, promotion.. → consistent + effective marketing program
3. costs
- set the floor (lower limit) for the price that both covers all costs for producing, dis-
tributing, and selling the product and delivers a fair rate of return for its effort and risk
(lower costs – lower prices – greater sales – greater profits)
4. organisation
- who should set prices within the organisation (top management vs. marketing or
sales departments, divisional or product line managers, pricing department?)
- sales managers, production managers, finance managers and accountants have an
influence on pricing

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External factors:
1. the nature of the market and demand
- set the upper limit of prices, balance the price against the benefits of the product
- different types of markets, each representing a different pricing challenge: pure
competition, monopolistic competition etc.
2. competition
- competitors’ costs, prices and offers – starting point for our own pricing policy
3. other environmental elements
- economic conditions such as inflation, boom or recession, interest rates etc.
- government (legal frames, taxation, regulations)
- social concerns such as the company’s short-term sales, market share, profit goals…
- PEST, SLEPT analysis are highly recommended

Setting prices:
1. Determine pricing objectives
2. Know importance of price to target market (sensitiveness) + competitors’ prices
3. Know demand (elasticity)
4. Understand costs
5. Determine pricing strategy
6. Setting price

New Product Pricing Policies:

Companies bringing out an innovative patent-protected product can choose between two
strategies:
1) Market-penetration pricing: introducing product at low price to penetrate the market
quickly and deeply clients familiarise, more buyers increase production and prices, larger
market share. In this case supply & demand has to be elastic.

2) Market-skimming pricing: first set high price (monopoly)  competitors enter  price
goes down & reaches market level. In this case the product shouldn’t be imitated easily (brand
name, legal & market protection).

General pricing approaches

The price the company charges will be somewhere between one that is too low to produce a
profit and one that is too high to produce any demand. Product costs set a floor to the price;
consumer perceptions of the product's value set the ceiling. The company must consider
competitors' prices and other external and internal factors to find the best price between these
two extremes. Companies set prices by selecting a general pricing approach that includes one
or more of these sets of factors.

Pricing Strategies:

1. Cost oriented: prices set according to costs, begin with costs (add up all the costs) and
work towards selling price
 Cost-plus pricing: catering operations - percentage standard mark-up or a set amount
is added to the cost: Price = Costs + f (% mark-up)
 Factor pricing - food costs are multiplied by a standard factor to produce a retail price
 Break-even method /target profit pricing (TC=FC+VC)

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2. Profit oriented
 Target rate of return or the Hubbart formula approach (“Bottom-up”) - starts with the
level of return required: taking an estimate of the total investment cost and stating the
target rate of return, the required gross operating income can be calculated → focus on
profit but requires forecasts of future costs, occupancy rates etc.
 The Scholarly method - Step 1.Estimated operating expenses + return desired = total
estimated expenses and fair return desired Step 2. minus credits from non-room
sources equals the mount to be realized from guestroom sales to cover costs and
desired reasonable return Step 3. divided by no. of rooms to be occupied at estimated
average occupancy equals minimum daily room rate to cover cost and desired
reasonable return on present fair value
 Rule of thumb or pro mille approach - sets the rate from each invested USD 1000 less
USD 1 proportionally for the room rate Assuming that the construction costs of the
100 room hotel amounted USD 8.000.000 so the average per room cost should be
USD 80.000;Thus the minimum room rate is USD 80 at a 70% occupancy rate.
3. Sales oriented
 Marketing oriented pricing (MOP) - considering of costs, competition, the nature of
demand, company objectives and the form of distribution channel through which a
product passes before reaching the consumer, suitable for pricing decisions on new
products or new hotels
 Prestige pricing - taking advantage of the way in which price and quality are
perceived by consumers to be interrelated
 Leader pricing (bait-pricing) - mix of products: one in particular acts as an attraction
and creates sales for the other, less attractive items
 Psychological pricing – when products are intangible or difficult to evaluate. Some
consumers buy only between maximum and minimum prices, which they find
economically and psychologically comfortable.

4. Competitor oriented: compare selling price with competitors (calculate selling price
according to quality differences & following competitors)
 Price follower-ship/Going-Rate pricing - the lower priced hotel following any price
changes instituted by the price leader. Companies change their prices when the market
leader's prices change, rather than when their own demand or costs change.

5. Demand/Buyer based: depends on the buyers’ perceived value of the product, non-price
variables are used in the marketing mix to build up perceived value in buyers' minds. Price is
then set to match the perceived value. It begins with the selling price & work towards costs.

6. Miscellaneous:
 Mixed pricing - combination of cost oriented and competition oriented versions.
Advantage: always monitoring the cost structure and competition.
 Rate upon room-size

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Discount Pricing and Allowances
Most companies adjust their basic price to reward customers for certain responses, such as
early payment of bills, volume purchases, and off-season buying. These price adjustments are
called discounts and allowances.

Cash Discounts
A cash discount is a price reduction to buyers who pay their bills promptly. A typical example
is "2/10, net 30," which means that although payment is due within 30 days, the buyer can
deduct 2 percent if the bill is paid within 10 days.

Quantity Discounts: A quantity discount is a price reduction to buyers who buy large
volumes. A typical example might be "$10 per unit for less than 100 units, $9 per unit for 100
or more units." Such discounts provide an incentive to the customer to buy more from one
given seller, rather than from many different sources.

Functional Discounts: A functional discount (also called a trade discount) is offered by the
seller to trade channel members who perform certain functions, such as selling, storing, and
record keeping.

Seasonal Discounts: A seasonal discount is a price reduction to buyers who buy merchandise
or services out of season. Hotels, motels, and airlines offer seasonal discounts in their slower
selling periods to keep production steady during an entire year.

Allowances
Allowances are another type of reductions from the list price. For example, trade in
allowances are price reductions given for turning in an old item when buying a new one.
Promotional allowances are payments or price reductions to reward dealers for participating
in advertising and sales-support programs.

Discriminatory Pricing
Companies often will adjust their basic prices to allow for differences in customers, products,
and locations. In discriminatory pricing, the company sells a product or service at two or more
prices, even though the difference in prices is not based on differences in costs.
Discriminatory pricing takes several forms:
Customer-segment pricing. Different customers pay different prices for the same product or
service. eg. museums charge a lower admission for students and senior citizens.
Product-form pricing. Different versions of the product are priced differently, but not
according to differences in their costs. For instance, Black & Decker prices its most expensive
iron at $54.98, which is $12 more than the price of its next most expensive iron. The top
model has a self-cleaning feature, yet this extra feature costs only a few more dollars to make.
Time pricing. Prices vary by the season, the month, the day, and even the hour. Public utilities
vary their prices to commercial users by time of day and weekend versus weekday. The
telephone company offers lower "off-peak" charges, and resorts give seasonal discounts.
For discriminatory pricing to be an effective strategy, certain conditions must exist. The
market must be segmentable, and the segments must show different degrees of demand.
Members of the segment paying the lower price should not be able to turn around and resell
the product to the segment paying the higher price. Competitors should not be able to
undersell in the segment being charged the higher price. Nor should the costs of segmenting
and watching the market exceed the extra revenue obtained from the price difference.

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13. Please expand on the different hotel functions (accommodation, F&B, other services)
and the management tasks securing smooth operations and financial results.

Public/commercial accommodation: all establishments entitled by operation license, built or

refurbished and used for such purpose (hotels, boarding houses, youth hostels, tourist hostels,
bungalows, camping sites) that are operated in professional way, throughout the year or
periodically, that provide accommodation services without intervals by continuous daily
operation. (minimum number of rooms: 10)

Hotel Divisions:
 Rooms Division (60% of revenue)
→ FO, HK, reservation, call centre-switchboard, concierge, uniformed service:
porters, bell staff, doorman etc.)
 F&B Division (30% of revenue)
→ Restaurants, coffee shops, bars, clubs, room service, catering, banquets, kitchen
 Sales and Marketing Division
→ Sales, convention services, marketing, advertising, PR, guest relations
 Accounting Division
→ monitoring the financial activities, managing accounting activities: paying invoices,
collecting payments, payroll, accumulating operating data, financial statements,
controlling, taxes etc.
 Engineering and Maintenance Division
→ appearance, functioning (interior, exterior), equipment, sanitation etc.
 Security Division
→ safety and security for hotel guests, visitors and employees, loss prevention etc.
 HR/Personnel Division
→ employment, recruiting, training, compensation benefits, employee policies, labour
relations, personnel safety, administration etc.
 Other Divisions
→ laundry (HK), recreation (wellness, golf, tennis, bowling, tours etc.), casino, retail
outlets, animation

A hotel's departments can be classified in many ways depending on the type of the hotel. Our
method classifies as revenue and support centers.
 Revenue centers: generate revenue by selling goods and services to guests (front
office, F&B outlets, room service, telephone or shops and retail stores)
 Support or Cost centers: do not generate revenue but providing important support
for the revenue centers (housekeeping, accounting, engineering & maintenance, and
human resources)
Another way of classification:
 Front of the House departments: front desk, restaurant, lounges, banqueting, shops.
 Back of the House departments: reservation, housekeeping, maintenance,
engineering, accounting, and human resources.

Hotel operations can be divided into core and supplementary services. The three core
functions are providing accommodation, provision (food and beverages) and other services.
The supplementary activities are: administration, technical assistance, production units.

Accommodation function includes receiving the guest (FO), providing rooms etc.

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F&B function includes restaurant, room services, bar, function rooms, minibar, shops etc.
Other services may include laundry, business centre, recreation possibilities etc.

The management of the hospitality operation is a complex task because of a composition

product incorporating tangible and intangible demands. Operation means transforming input
(land, buildings, machinery, materials, labour) through prices of operation into output:
occupied rooms, meals, bar services, satisfied customers and all should be done profitably.

Planning an organisation
An organization requires a formal structure to carry out its mission and goals. A common
way to represent it is with an organization chart, which is a schematic representation of the
relationships between positions within an organization. It shows where each position fits in
the overall organization, as well as where the divisions of responsibility and lines of authority
lie. Organizational possibilities: full-service property, property with separately owned F&B
operations and a rooms-only hotel.

a) Full-service property: offers lodging and F&B service. All but two of the lines on the
chart are solid, indicating reporting relationships. The dotted lines connecting the sales
director to the catering director and the reservations manager represent the close working
relationship needed among these positions.
b) Some hotels may lease F&B outlets to another company. Separate ownership which
creates a possibility for conflict. Informal consulting relationships exist between
managers and owners of the two businesses.
c) Without restaurant.

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67
Management Functions:
The process of front office management can be divided into specific functions.

Planning:
The most important management function. Without the direction and focus planning
provides, the front office manager may become overly involved with tasks that are unrelated
to or inconsistent with accomplishing the departments goals. Front office manager should use
these general goals as a guide to planning more specific, measurable objectives. Planning
also includes determining the strategies that will be used to attain the objectives

Organizing:
Using the planned goals as a guide, a front office manager organizes the department by
dividing the work among front office staff. Work should be distributed so that everyone gets
a fair assignment and work can be completed in a timely manner. Also determining the order
in which tasks are to be performed and establishing completion deadlines for each group of
tasks.

Coordinating:
Involves bringing together and using the available resources to attain planned goals. Front
office manager must coordinate the efforts of many individuals to ensure that the work is
performed efficiently, effectively and on time.

Staffing:
Recruiting applicants and selecting those best qualified for positions. Front office manager
develop staffing guidelines which are usually based on formulas for calculating the number of
employees required to meet guest and operational needs.

Leading/Directing:
For a front office manager leading involves overseeing, motivating, training, disciplining and
setting example for the front office staff.

Controlling:
Every front office has a system of internal controls for protecting the assets of the hotel. The
control process ensures that the actual results of the operations closely match planned results.

Evaluating:
Determines the extent to which planned goals are in fact attained. It also involves reviewing
and when necessary revising or helping to revise front office goals.
Three important front office planning functions are:
 Establishing room rates
 Forecasting room availability
 Budgeting for operations

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Management measures for Hotels
Hotel rates
Rack rates – officially assigned rate for each type of room
Average daily rate (ADR) – measurement criteria
= Room total revenue / number of rooms occupied
Yield management – this is used in room rate allocation to attempt to maximize the
revenue per room
(a/l: passenger revenue per seat mile)
Occupancy rate:
Occupancy ratio = number of occupied rooms /number of rooms available
Guests per room
Other revenue and cost concerns
Rooms revenue – more than 50 % of the total revenue
Food and beverage – 30 %
AP – American Plan – HB
EP – European Plan – no meals
MAP – Modified American Plan – HB

Functions and activities

-mainly affected by the hotel's location, served market, available resources, ownership and
management style, market trend etc. (give example)
- management: board of directors, general manager, executives, department heads

Roles and responsibilities of different management positions:

 General Manager – the one person responsible for the overall

operation of the hotel
Main responsibilities:
o Participation in the formulation of hotel policies and strategies
o Implements hotel policies and strategies established by the top management
o Responsible for the overall operation/performance of the hotel
o Accountable to corporate management and ultimately to the board of directors
o Coordinates the work of all departments
o Assistance by the Executive Operating Committee (EOC) composed of senior
department heads.

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 Executive Assistant Manager or Resident Manager – responsibilities
o Responsible for the day to day management of hotel activities
o Deals with emergencies, complaints or special events
o Responsible for the welfare and safety of staff, guests and property
 Executives – the persons reporting directly to senior management and
are responsible for the short and long term planning of finance, marketing and staff
development in their particular areas of specialization.
 Heads of Department - Effective hotel management needs a clear
definition of responsibility and authority, especially in the cases of heads of department.
The roles of the heads of department are usually described by their titles, which also
indicate their main areas of responsibility.

Hotel department managers may be categorized into two main groups:

Line managers. Line managers are heads of operating departments. These heads have direct
lines of responsibility both up to their own superiors and down to their staff. Our example is
the front office manager, who reports up to the room division manager and down to the
supervisors of the various sections of the front office.
Service specialists. Service specialists are heads of service support departments who give
advice and service to the line managers. However, despite giving this help and advice, they
have no authority over employees in departments other than their own. An example is the
hotel controller, who assists line managers with their budgets, control systems and staffing
costs but has no direct authority in the operation of that operating department.

Noémi’s version:

In order to carry out the mission of an organization a formal structure (organizational chart) is
needed. This chart represents the relationships between different positions within the
organization. The departments of a hotel can be classified as revenue and support centres.

Classifying functional areas:

Revenue centre sells goods or services to guests, thereby generating revenue (front office,
F&B outlets, room service, telephone).
Support centres (cost centres) include HK, accounting, engineering, maintenance, HR
divisions. They do not generate direct revenue, but provide important support for the hotels
revenue centres.
Departments and divisions can also be classified through front of the house and back of the
house.
Front of the house areas where guests interact with employees (front office, restaurants,
lounges)
In back of the house areas interaction between guests and employees is less common (HK,
engineering, maintenance, accounting, HR) they serve the guests indirectly.
Departments-back and front of the house by visibility by the guests (Kramer anyaga)

Room division (70% of net profit selling rooms)

 reservation,
 telephone switchboard,
 uniform service bell boys, chauffeurs,
 housekeeping,
 Front Office

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 concierge
Marketing and sales (generate revenue from hotel products)
 Sales
 Convention services
 Marketing – advertising
 PR, guest relations

F & B (23% of net profit)

 bars, room service, coffee shop, banquet
 restaurants
 kitchen

Accounting (monitoring the financial activities of the property)

 Activities: paying invoices, collecting payments, payroll.....

Engineering and maintenance

 gardeners as well
 interior, exterior, equipment, landscaping (especially in resort hotels)

Security Division
 Safety and security for hotel guests, visitors and for employees
 Patrolling the property, monitoring

Human resources/ personnel Division

 Employment, recruiting, training, compensation benefits, employee policies, labour
relations, personnel safety, administration

Other Divisions
 Retail outlets(drug store), recreation, casinos
 Wellness, animation

Hotel operations can be divided into core and supplementary services. The 3 core functions
are:
 Providing accommodation,
 Provision (food and beverage)
 Other services

The supplementary services are:

 Administration
 Technical assistance

The accommodation functions include:

 Receiving the guests
 Providing rooms

Food and beverage include:

 Restaurant
 Room service
 Bar
 Function rooms

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 Shops, Coffee shop
Other services may include different services like:
 Laundry
 Business centre
 Recreational possibilities

The management of the hospitality operations is a complex task because of a composition

product, incorporating tangible and intangible demands.
Operation means transforming input (land, buildings, machinery and labour) through prices of
operation into output: occupied rooms, meals, bar services, satisfied customers and all should
be done profitably.

14) what are the main issues of cost management in the hotel industry? How can
expenditures theoretically be divided into cost groups? Analyse the main type of
hotelcosts.

 Definition of cost and cost management, cost accounting.

 The dynamic costs concept in relation to revenues: FC and VC + operations costs +
fiancial costs + expenditures.
 Grouping costs, general costs: administration
 Fix costs: depreciation, insurance costs, rental fees, leasing fee, management and
franchise fee.
 Direct and indirect costs.
 Overhead costs
 Sales costs
 Interest costs
 Type of costs material costs including raw material costs, purchase price of goods sold
(ELÁBÉ), value fo services used, other services costs.
 Payroll and payroll related costs (salaries and other personal costs, maintenance costs,
POMEC, energy costs)
 Possibilities of improving cost efficiency
 Distribution costs by departments: administration, overhead 10-15%, marketing 3-4%,
maintenance 4-5%, energy 4-5%.

See Q 11.

15) Please describe the Balance sheet, the Income statement and analyse the issues
pertinent to profitability in the hotel industry. Discuss the contribution ratio by
major activities (departments) to income and the responsibilities.

BALANCE SHEET: see Question 7

It provides a point-in time statement of the overall financial position of the hotel. It lists first
the hotel’s assets, liabilities, and the owner’s equity.

Publishing Profit and Loss statement is compulsory. The aim of the Profit and Loss Statement
is to give a report about the results and performance of the hotel.

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The statement gives information regarding:
 Income from rooms sold
 Income from sales of food and beverages
 Other and extraordinary revenues
 Purchase price of goods sold
 Other costs, depreciation, payroll costs, etc.
 Operating profit or loss, extraordinary income or loss
 Profit before tax, after tax, net profit

INCOME STATEMENT = PROFIT AND LOSS STATEMENT

The income statement shows the operating results of a business over a period of time.
Most hospitality operations are departmentalised and the income statement needs to show the
operating results department by department as well as for the operation as a whole.

P&L: profit and loss statement. It records hotel revenues and expenses for a specific time
period. It lists the hotel’s revenues, expenses, GOP, and fixed charges for a certain time.

REVENUE
Revenue is defined as the cash inflow received in exchange for the sale of goods and services.
In a hotel revenue is derived from renting guest rooms, selling food and beverage in the
restaurant. But revenue can be derived from other resources such as catering, entertainment,
retail shops, and commissions.

EXPENSES
Expenses are defined as goods or services used in the business’s normal operations in order to
earn revenue.
Expenses can be indirect and direct.
-Indirect expenses are those that are not directly related to revenue-producing activities of
the operation. Indirect expenses are broken down into two separate categories: the
undistributed operation expenses and the fixed charges. Undistributed operating expenses
include costs such as administrative, general, marketing, property operation and maintenance.
Other expenses might be included in this category are management fees, franchise fees and
guest entertainment. All this undistributed operating expenses are considered controllable but
not by the operating department heads but the general manager. Fixed charges are related to
property taxes, insurance, interest and depreciation.
-Direct expenses are those that are directly related to revenue-producing activities of the
operation. These are food, beverage and laundry.
To get the final net income, the total cost has to be deducted from the total revenue.
Income Statement Information
Revenues
Less Direct operating expense
Equals Departmental operating income
Less Overhead (undistributed) expense
Equals Net Income (GOP)
Less Fixed expense
Equals Income before taxes

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Accommodation Pricing
• Managing the room resource in hotel operations requires achieving a careful balance
between monitoring room rate and achieving maximum occupancy.
• Hotel pricing strategies can take advantage of the different market characteristics of
the leisure and business travellers.
• Leisure travellers:
– Advance bookings
– Quality required varies
– Destination flexible
– Highly price sensitive
– Stays longer
• Business travellers:
– Short booking lead times
– Tend to require high quality
– Destination predetermined
– Relatively less price sensitive
– Short term stay avoiding weekends

Statement of cash flow

It shows the effects on cash of the hotel’s operating , investing and financing activities. It
responds to the following questions.
 How much cash was provided by the operation of the hotel?
 What was the hotel’s capital expenditure?
 How much long-term debt did the hotel commit to?
 Will cash be sufficient for the next few weeks?

Contribution of activities to income:

 Room sales: 70-80%
 Food and beverage: 30-35%

SALES – VARIABLE COSTS = CONTRIBUTION

GOP: =Gross Operating Profit: It refers to hotel revenue less expenses controlled at the
property level. It is expressed in both dollar figure and a % of total revenue.

GOP margin - ??

RevPar – Revenue per Available Room

Occupancy % x Average Daily Rate = RevPar
To improve RevPar, the goal must be to either increase the occupancy percent and/or the
ADR. It is the job of the FOM to achieve one or both of these goals. To do so, the FOM must
implement a three-step process designed to:
 Estimate (forecast) guest demand for rooms
 Practice yield management
 Control occupancy

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16) Please discuss the investment possibilities in the hotel industry, with the attention
to new investment projects, reconstruction and service improvement. Explain the
main elements of feasibility study for building of new hotel and fax reconstruction.

Investment for hotel development is a complex process.

Hotels and motels are almost always available for purchase. Buyers want the minimum price
possible; sellers the maximum price. The hotel buyer usually uses leveraged money, and the
sophisticated lender wants to be sure that the money being loaned will be repaid. Both buyer
and seller are almost certain to be biased. To help eliminate bias and arrive at a value that the
lender will accept, a market and feasibility study can be called for whenever a hotel or motel
is bought.
Consultants and accounting firms are employed to conduct market and feasibility studies to
forecast occupancy average daily rate, and net income.
Market analysis goes hand in hand with a feasibility study. Feasibility presumes markets, but
they must be identified.
Market Analysis
Market analysis includes the following:
 Identification of a potential market: the type of people who can be expected to
patronize the proposed hotel or resort.
 Quantification of the market: how many people can be expected to patronize the
hotel or resort.
 The kind of facility that will appeal to the market.
 Estimation of the size of the facility needed for the market.
 Estimation of the cost of the facility that will serve the market.
 Competition: Existing or planned hotels in the same area that cater to the same
market.
 Cost of travel to the hotel-rising or falling.
 Number of airlines serving the area.
 Whether the area is growing as a destination.
 Whether the area around the hotel is becoming more popular, more prestigious, and
more appealing, and whether the hotel compatible with the neighborhood.

One of the most famous statements made about hotels was Ellsworth Statler's comment that
the three most important factors in the success of a hotel were first, location; second,
location; and third, location. The problem remains as to what is a good location because the
definition changes with conditions and involves a number of physical and economic factors.

To determine the feasibility of a hotel 3 major areas must be covered:

1. Prepare a feasibility study
2. Estimate the costs of all the elements of the project
3. Sources of financing
(The sources of financing are principally the following:
1., Long-term mortgage financing provided by banks and insurance companies
2., Loans provided by such organizations as the World Bank or The Export-Import Bank
for hotel and tourism development in various areas
3., Loans provided by governmental or tourism bodies in an effort to promote tourism in a
specific country)

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The feasibility study itself can be broken down into several segments, each of which has an
impact of the potential success of the project:

Site considerations:

a) The settlement (city)

 Extension (spreading out) of the settlement
 Attractions of the settlement
 Population of the settlement
 Trend in individual incomes
 Growth rate of the population
 Employment statistics
 Social and political situation
 Industry and trade, Trading capacity
 Climate of the settlement
 Future market information: flourishing or declining
 Accessibility of the settlement: highway, airport, railway station, port
 Connection to other towns and attractions
 Will there be new hotels planned?

b) Location
 Nature and quality of surrounding
In the neighbourhood: barracks, lunatic asylum or
madhouse, piggery, chicken farm, chemical works,
 Accessibility of the site
 Traffic channel, main road, one way,
 Road development plans
 Regulations for sign-guides
 Height control
 Supply with public utilities
 Water, sewage or drainage, gas, electricity
 The size of the site not the most important factor
 The shape of the ground
 The surface relief of the ground
 The visibility of the ground
 The size of the neighbouring grounds
 The quality and utilization of neighbouring grounds
 Meteorological data
 Conditions of the soil
 Property nexus or ownership
 Price

The market:
We should be ascertained that there is demand for a hotel in the area where the site is located.
The location of a hotel in relation to the city can be a positive or negative factor in creating
demand.
Supply of rooms:
by listing the existing hotels and their capacity then forming an opinion as to whether the
overall location is good or bad.

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Labour situation:
in many areas the rapid development of the hotel industry has resulted in a labour demand
exceeding the supply. Even if there is an adequate source of labour available, it may very well
be that wages and benefit costs, because of conditions either in the industry or in the country,
will result in abnormally high payroll. Such a high cost may render the project infeasible.
Wage trends must also be examined. Even if current wage levels are acceptable, the recent
rate of increase may indicate a trend that would cause excessively high wage levels within a
short period of time..
Finally, the quality of labour should also be considered, not only because poor quality may
have an adverse effect on business, but also because unexpected costs may be incurred to
properly train the staff..

Room demand:
based on the analysis made of statistics on arrivals and room nights, a projection should be
made of future demand for accommodations. It should be measured in numbers of future
room nights, which can be set down and matched against the combination of currently
available rooms and future rooms to be constructed. The comparison will indicate the number
of rooms for which there will probably be the future market.

Facilities:
Concurrently, the analysis of the market should provide information as to the type of guest
that may be anticipated ethnic background, cultural preferences, income level, and, of course,
country of origin. It will also include information as to whether the guests will be principally
business travellers, tourists, or a mixture of both. Such data must be fully analysed and
considered when deciding the type of facilities to be constructed.

Financial projections:
The future room demand
determined through the market analysis should be related to the number of rooms decided
upon when planning the facilities, and this interrelationship should be used to obtain
estimated occupancies for the hotel for several years.
The comparison of rates
charged by existing competition, together with the quality of facilities to be provided, permits
the determination of room rates that in anticipation will be acceptable to the future guests.
The combination of the occupancy figures
and the average rates permits a calculation of future rooms sales. Proper consideration must
be given to increased demand and inflation in estimating the sales after the first year.
Similarly, the analysis of the market and the competition can be used to estimate average
checks and volumes for each of the planned food and beverage facilities, and ultimately for
the total food and beverage sales. Once the projected sales have been determined, estimates
must be made of cost of sales, payroll and related expenses, and other applicable expenses, in
order to arrive at an estimated operating profit.
The first step in estimating the payroll
is to prepare an expected staffing analysis for the hotel by job category. By multiplying the
staffing analysis by the expected workweek, weekly totals of hours in each job classification
can be projected. Current wage rates can be obtained from either the records of existing hotels
or existing union contracts. An inflation factor must be applied to these rates to cover the
increase between today's rates and those that will be in force when the hotel opens.
Related expenses, including employee benefits, are projected as a percentage of cash payrolls.

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Cost elements of the project:

Land:
Land is not necessarily an element of cost in a hotel project, in as much as many hotels are
constructed on land that is leased from the owner. However, where the land is actually
purchased or owned, it becomes the most variable cost of all. In some instances, the developer
may have owned the land for many years, in which case the historical cost may be relatively
low, on the other hand, the developer may very well be acquiring a land site as Budapest,
London, and Paris.

Construction:
the cost of construction is the biggest element in any hotel project. Therefore, it is important
to evaluate the various types and quality of construction techniques and materials available in
order to keep the construction costs within practical figures. Cost of construction is most
easily controlled if a fixed-price contract can be obtained from a contractor, but because of the
inflation prevalent both in labour and in construction materials, this is not often feasible. So
most hotels are built under a cost-plus contract. However, most of the advantages of a fixed-
price contract can be obtained if a maximum ceiling on cost can be written into the contract.

Interest during construction:

when the hotel is under construction, this construction is financed with borrowed money. The
compulsory interest to be paid on such a loan must be considered part of the cost of the
project.

Furniture, Fixtures, and Equipment:

The above can be subdivided into what is visible to the guest and back of the house
equipment. The first category would be guest room furniture, lobby furniture, and furniture
and equipment in the restaurants and bars. The second category includes those items not
visible to the guest, such as kitchen and laundry equipment. Building equipment such as air
conditioning or heating is considered to be part of the construction cost.
A suitable figure for the above could be USD 6.000 per room.

Operating equipment:
in a hotel is a term used to cover linen, silver, china, glassware, and in some instances,
uniforms. In addition to the operating equipment that is immediately put into service in a
hotel, a certain amount of backup inventories, known as reserve stocks, must be acquired.
An amount of USD 4.000 per room seems to be acceptable.

Inventories:
In order to open a hotel, various operating inventories must be acquired in addition to the
reserve stocks mentioned above. These inventories can be broken down into the following
categories:
1. Food
2. Beverages
3. Cleaning supplies
4. Paper supplies
5. Guest supplies
6. Stationery
7. Engineering supplies
A cost per room of USD 3.000 per room can be considered as satisfactory.

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Pre-opening expenses:
Prior to opening of a hotel, expenses are incurred for such things as pre-opening payroll,
training costs, advertising, and sales expenses and travel. The amount that should be allocated
for pre-opening expenses must be determined at the time the overall budget is produced, but it
would depend on the pre-opening philosophies of the operator. These will dictate at what
point in advance of opening personnel will be hired, to what degree personnel will be trained
before the hotel opens, and the extent of pre-opening advertising and sales.
Pre-opening expenses should be at least USD 1.000 per room.

Working capital:
in addition to having adequate inventories on hand, it is obviously necessary to have a certain
amount of money in the bank when a hotel is opened. Such funds must be sufficient to meet
the early payrolls and to finance the operation before a normal level of cash flow is reached. It
should be anticipated that in the early days of operation, accounts receivable will accumulate
without any material amounts of cash income being collected. It is to cover this period that
adequate working capital must be provided. It should amount to at least USD 500 per room.

When is a hotel feasible?

 If IRR (internal rate of return) is big enough
 If the economic value upon opening is bigger than the total development costs
 If developer’s profit is 10-15%
If the land component costs less than 20% of the total project cost.

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17) Please discuss the importance of conference and meeting tourism and its role in
the Hungarian Tourism. Prepare a 4 day program in connection with an
international congress.

The importance of MICE (Meeting, Incentive, Conference, Exhibition) tourism is

growing. It is a more stable market than the other forms of tourism. The revenue per
guest is higher.

Conference tourism in Hungary

 Conference tourism has a significant role in the Hungarian tourism

industry
 Hungary’s geographical location has a strong influence on its market
situation
 Hungary plays a leading role in MICE tourism in Europe
 The great majority of the locations are in Budapest
 Main competitors: Austria /Vienna/, Czech Republic /Prague/

According to the latest announcements of ICCA (International Congress & Convention

Association), Budapest climbed up to place number 8 on the world ranking list in 2005! With
this achievement Budapest overtakes cities like London, Prague or Brussels. On the country
ranking list, Hungary is positioned at place number 20, climbing up 3 places and leaving
behind countries like Belgium the Czech Republic. From the list of events provided by the
Hungarian National Tourist Office, ICCA valuated 77 international meetings in Budapest as
eligible to the criteria, while Hungary reached its great position with 97 meetings. As in 2003,
Vienna tops the charts as the most popular city in 2005. Singapore remains 2nd and
Barcelona, last year’s number 1, maintains its position in the top 3. The top 3 countries are
exactly the same as in 2004. With 376 meetings, the USA stays at the top, after Germany with
320 meetings and Spain with 275 meetings. In 2005 ICCA identified 5315 events meeting its
criteria, which means a rise of 511 compared to 2004. Source: www.hcb.hu

Business travel
Motivation is business related
Business traveller: any traveller who must travel in order to conduct business

Special segments of business travel: MICE (meetings, incentive, conventions and

expositions): a special segment within business travel based on face-to-face interaction and
often incorporate elements of leisure travel, a very special area of travel business: special
professional organisations deal with this sector

Meetings:
Events designed to bring people together for the purpose of exchanging information
Can be held on-premises at one of the companies/organisations or off-premises at other sites.
Differ in size, subject matter and agenda
Can be
 forum (larger, led by a pane)
 seminar (smaller and more focused on subject matter)
 symposium (subject is more academic or technical)

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 workshop (skill building or training)

Incentive travel:
Incentive or reward for achievement
Can be:
 company-paid vacation
 reward for top-performing salespersons
 promotion for a future performance
 loyalty building
Usually include
 motivational seminars,
 Introduction of new products
 Promotional campaign

Expositions/Exhibitions:
 Large events at which vendors can display and market their products or services to a
contingent of potential clients and buyers

Conventions:
 an event combining both meeting and expositions
Can be
 Sponsored by professional and trade associations
 Sponsored by corporations
Generates high expenditures on per visitor basis and create substantial economic
impacts for the host economy

Business travel comparisons

 Business traveller (the person) has little discretion in the choice of destination or the
timing of their trip;
 Business trips frequently have to be arranged at short notice and for specific and brief
periods of time;
 Business travellers need the convenience of frequent/regular transport, efficient service
and good facilities;
 Business traveller - the individual - is less concerned about the costs of travelling -
RELATIVELY PRICE INELASTIC

Product creation:
 Upon the request of the customer
 On short notice
 Regular changes
 Special knowledge is required:
▫ Product
▫ Consumer
▫ Technology

Segmentation of MICE Market: ?

 Target market for MICE: big national and international companies, having
branches here

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 Get in touch with special associations related to Congress – ICCA (International
Congress and Convention Association), IAPCO (International Association of Professional
Congress Organizers)

Organizing art festivals, gastronomic festivals

Organizing meeting and conferences includes:
Marketing and selling, concluding contracts, preparing program during the event, calculation.
The contract contains all the detailed conditions (human and material) contributing to the
successful organization of a conference: hotel accommodation, board, function rooms,
audiovisual equipments, communication equipments, transportation entertainment,
supplementary services, prices, billing arrangements, form of payment.
Hungary’s position among the conference, meeting, incentive market is strong…..8 th in the
world ranking and competes with Barcelona…
A new congress centre is needed. (At the moment only the Budapest Congress Centre on
Hungexpo is available for bigger events)
Promoting the Hungarian Conference business is coordinated by the HNTO.

Time frame of organising:

40 % 2-3 years prior to the date
35 % 1-2 years
15 % 4 years prior

Why conference tourism?

Large number of guests => large number of guest nights; high spending power; extra time for
relaxation or shopping /conference attendees spend much more money for shopping and
entertainment as ordinary tourists/; can be combined with other tourism products like spa or
wellness tourism; length of stay is relatively long; no seasonality, etc.

SWOT analysis of the Hungarian conference tourism

Strengths
 Good reputation
 Active scientific background
 Central geographic location
 Favourable price/value ratio
 Safety
 General tourist attractions
 Professional organizers
 Culture
Weaknesses
 Lack of complex congress centres
 Infrastructure
 Financial difficulties
 Accessibility /air, highway/
Opportunities
 Strengthening the relationship with international associations
 European Union membership
 Conference Ambassadors Programme /www.hungary.com/
Threats

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 General economic recession
 International conflicts
 Development of neighbouring countries

For success it is necessary to increase capacity, accommodation, technical facilities and the
construction of new convention centres, improve marketing activities and to create a better image.

Hungarian Congress Bureau (www.hcb.hu):

Since 1st of January 2000 – HCB is a division of the Hungarian National Tourist Office.
Its purpose is to help foreign meeting planners to bring events to Hungary, and to provide free
information on Hungary as a meeting and convention destination, on convention facilities,
services, accommodation, attractions, programs, prices, etc.

Hungarian Conference Bureau:

 main task: to bring as many conferences to Hungary as they can
 neutral body – they have all info about congress bureaus and conference rooms
 never gives info about prices, only the programmes
▫ Conference - Great for off season – spring and autumn – lengthening the season
▫ Incentive Travel – SITE (Society of Incentive Travel Executives)
▫ Success factors of a convention destination: accessibility, active city marketing,
restaurants, hotels, conference centres, professional meetings, value of local currency,
cultural attractions

Main tasks and responsibilities:

 apply for international tenders
 welcome the site inspector groups, organises their rips
 informs the trade and the press
 control the members’ business offers for a conference
 builds a good image through presentations and seminars
 builds an up-to-date database on all conference venues i.e. hotels, universities, congress
centres and others
 provides information for members and business partners by issuing information booklets
 makes statistical surveys on the conferences organised, evaluates them and sets up
marketing and operational goals according to the findings
 keeps the trade informed on new legal issues
 helps as an advisor when new conference centres are to be built
 advertises the offers of its members
 helps in education

Incentive houses: Hungary is well-known among incentive houses

 Write letters to them about new ideas
 They do not care abut the cheapest price
 They are looking for good management, manage every kind of wishes
 Everything without mistakes

Hungary is strong in organising meetings (company staff meetings, board meetings, board of
directors meetings). In 2005 Hungary was on the 9th place in Europe regarding conference
tourism. Hungary is good up to 1000-1200 participants, but we are the best between 100-500
participants. For these meetings the hotels, universities and palaces are the best places. The
hotel should have at least one big conference room, 2-3 smaller rooms and one technical room
including all technical supply (Internet, telephone, projector, flip chart, computer, all other

83
technical equipment needed for a conference). Good coffee breaks and lunches have to be
organised in the hotel.

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4-day program:
Must be planned ahead, facilities like overhead projector, flip chart, etc, must be provided.
Parameters: 400 people from the European countries, medical conference, accommodation in
hotels in Budapest.

Day 1 – Day of arrival, registration day

Arrival in the morning hours – the participants arrive in different times: help desk on the
airport, bus transfer from the airport to the hotels, check-in desk and help desk in the hotels
17.00 – Opening ceremony of the medical conference
19.00 – Welcome dinner in a restaurant in Budapest (Ladik Csárda)

Day 2
9.00 – conference starts
10.30 – 11.00 – coffee break
12.45 -14.15 – Lunch
14.30 – conference continues
15.30 – 16.00 – coffee break
17.30 – conference ends
Ladies’ program in the morning: 3-hour sightseeing tour by bus
Ladies’ program in the afternoon: free time (recommendation: shopping: Váci Street, visit the
Main Market Hall)
20.00 – optional program: sightseeing tour by night by boat

Day 3
9.00 – conference starts
10.30 – 11.00 – coffee break
12.45 -14.15 – Lunch
14.30 – conference continues
15.30 – 16.00 – coffee break
17.30 – conference ends
Ladies’ program in the morning: optional tour by boat to Szentendre
Ladies’ program in the afternoon: Visit the Museum of Temporary Arts – Palace of Arts
19.00 – Optional program: performance in the Hungarian State Opera House or in the Operett
Theatre

Day 4
9.00 – conference starts
11.00 – conference ends
Ladies program in the morning: free time, optional program: visit the National Gallery
Program for the whole group: trip to the Puszta region by bus (40 buses for 400 people)
Traditional Hungarian lunch in a csárda in Lajosmizse (e.g.Új Tanyacsárda or Varga Tanya),
Horse show

There must be an opportunity provided to stay longer in Hungary in the hotel!!!

Recommendations about programmes should be given!

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18) Please discuss the issues and forms of profitability analysis with the travel
agencies with the attention to the different branch of business activities.

Definition of result: difference between income and expenditures in a given period.

Profit and Loss Statement:

Production result, Results of financial operations, Extraordinary results, Profit before tax,
Profit after tax, Net profit according to balance sheet (Profit after tax minus dividend)
A financial statement that summarizes the revenues, costs and expenses incurred during a
specific period of time - usually a fiscal quarter or year. These records provide information
that shows the ability of a company to generate profit by increasing revenue and reducing
costs. The P&L statement is also known as a "statement of profit and loss", an "income
statement" or an "income and expense statement".
The statement of profit and loss follows a general format that begins with an entry for revenue
and subtracts from revenue the costs of running the business, including cost of goods sold,
operating expenses, tax expense and interest expense. The bottom line (literally and
figuratively) is net income (profit).
The balance sheet, income statement and statement of cash flows are the most important
financial statements produced by a company. While each is important in its own right, they
are meant to be analyzed together.
Profit maximization is one of the main goals of an organization. This means making the most
amount money in the shortest possible time.
All of the various readers of financial statements (managers, owners, investors, and creditors)
have an interest in analyzing and interpreting the financial statements. Managers are very
concerned about the internal operating efficiency of the organization and will look for
indications that things are running smoothly, that operating goals are being met and the
various departments are being managed as profitable as possible.

Stockholders, on the other hand, are more interested in the net income and about future
dividend prospects and in many cases would not be concerned about the internal departmental
results.

Investors may be interested in the net income, but they are even more interested in the dept-
paying ability of the company. A company may have good earnings, but because of a shortage
of cash, may not be able to meet its dept obligations.

Comparative analysis involves putting two balance sheets or income statements side by side,
showing the differences between each pair of comparable figures in both currency and as a
percentage change.
Comparative, common size statements apply the same technique of putting two sets of
balance sheet or income statement figures side by side, but in this case one figure is given the
value of 100 percent (total assets and total liabilities plus stockholders’ equity on the balance
sheet; total revenue on the income statement), and all other figures are expressed as a
proportion of that 100 percent amount.
Branches of business operation: organising outgoing, incoming tourism, conference, selling
tickets.

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Types of travel agencies

By size:
 Multinationals: have representations/offices/subsidiaries
worldwide
▫ CWT, Amex
 National multiples: have more offices in the country
▫ Vista, Tensi Tours
 Regional multiples: have more offices in a few country, in a
region
▫ Neckermann
 Independents – single shop agencies

By the type of business:

 Full service travel agency -mixed travel agency: Provide
services for leisure and business travellers as well
▫ Advantages:
• Able to meet „all” customers’ need
• More knowledgeable staff
• Highly appreciated by the industry
▫ Disadvantages:
• Problem of handling low revenue products
• Staff is unable to specialize
 Leisure travel agency (small independents usually)
▫ Advantages:
• High level of revenue per sale
• High commission in short time
• Well known local staff
• Lower overhead costs – minimal staff, lower salaries
▫ Disadvantages:
• Does not meet all needs
• Is not highly respected
• Suffers from recession and seasonality
 Business travel agency:
▫ Advantages:
• No peaks (relative)
• Dependency on recession is relative
• High item prices - high cost product, higher commission or service charges
• Relatively easier revenue planning
• Is highly regarded by the industry
▫ Disadvantages
• Competitive market
• Credit and discounts are needed
• Higher rental fee (relative), high staff cost
• High investment in technology

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By appointment:
 IATA approved travel agency (IATA agent)
Can issue and sell flight tickets under its own name – based on the appointment of
International Air Transport Association
 Agencies without IATA approval (non-IATA agent)

In order to design the operation the service concept must be defined first

Service concept of a travel agency

 How to serve the consumers
 What to offer to the consumers
 How to be different (and better) then the other travel agencies
 How to add value added services (suppliers!)

There are factors which are in strong relationship with the service concept so these items must
be taken into consideration:
 Tangible features of the agency
▫ Physical location, accessibility
▫ Size of the facilities
▫ State of technology (equipment)
▫ Hours of operation
▫ Staff (size, experiences, qualification)
▫ Product line
▫ Information, sales material (sources, availability)
 Intangible features of the agency:
▫ Image
▫ Atmosphere created by the facilities
▫ Atmosphere created by the staff
▫ Reputation
 Range of services:
▫ Travel counselling
▫ Itinerary development
▫ Reservation capability
▫ Mailing, delivering process
▫ Billing and analysis of travel costs
▫ Special travel related services (ticket delivery, giveaways, books, complimentary
services)
▫ Post sale services, follow-ups (travel club, questionnaires, brochures, frequent flyer
programs)

Agency appointment policy:

Exclusive appointment:
 suppliers agrees to sell only through one travel agent -
typical at cruises 
Selective appointment:
 the supplier appoints only those agencies who meet certain
criteria - IATA agencies, TUI agents  
Intensive appointment:
 Suppliers use all known agency outlets - no formal

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 application or appointment system

Travel agency services:

Basic services:
 Selling tours and packages – outbound, domestic
 Booking accommodation,
 Booking and issuing transportation tickets
 Foreign currency exchange
 Selling insurance policies

Additional services:
 Selling theatre tickets
 Organising events
 Selling programs

The aim of a Travel Agency is to get profit in order to:

 Increase profitability
 Retain profitability
 Temporary survival

Profit = Revenue – Expenses/costs

Revenue:
 Commission
 Service charges
 Selling ancillary products and services

Expenses/Costs:
 Labour costs
 Communication costs
 Maintenance fees/charges
 Taxes/fees

Being profitable in a travel agency means:

 To get more revenue with selling
▫ the right product
▫ to the right people
▫ in the right time
▫ on the right price
 Keep the costs under control

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19) Please discuss the characteristics of managing of resort or conference hotels.
Prepare a product (Package) and explain. Plan the use of distribution channels and
the promotion activities.

Based on the SWOT analysis, goals and market research decision should be taken in order to
identify market segments and target groups, prices, quality operations should be considered as
well.

Conference is for MICE tourism- suitable for during the week packages, both domestic and
international clients.

Convention hotel
 all range of services
 exceptionally high quality
 state, regional, national international associations
 booking years before
 convention centre in the near, in the city

Managing
 -reservation-planning for log term, usually 1 year
- cancellation deadline (months before)
 -season: spring and autumn
 -special staff- know the business area, keep the contact with them, relations, language and
communication skills, ability to organise
 -nowadays: price competitiveness
 -know target market :business people-set time frame, relatively not sensible to price

Resort
 vacation purpose
 recreational facilities
 ability to make special activities (near to sea, mountain, exotic location etc.)

Managing
 season: dependent on location (usually summer or winter)
 fast response to market changes
 target market: more flexibility in time, longer stays, price sensitive, needs
recreational facilities, needs guest relations, animation

Use of Marketing Channels:

Direct marketing and personal selling (characteristics of these activities)
Home page on Internet

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Functions of IT in the travel industry:
 Improve quality of services
 Provide new services and new products
 Enhance efficiency for communication
 Enhance efficiency for management
 Create electronic marketplace for distribution
 Improve and widen partnership
 Improve business practice

Customer’s buying decision process is described with the AIDA model:

Awareness – I won’t buy sg. I am not aware – you have to create curiosity
Interest – create interest – there are many things that you are aware, but not interested
Desire
Action

Web site
 Pulls people in with the promise of content if it is well designed
 Most powerful tool at this stage – it is actually a branch of the company, a
storefront
 The design, the content (the quality) reflects on the quality of the business (or
hides it)…
What is needed?
 Good name
 Web Site Construction Plan (WCP)
 Registration with a popular web search engine (or with more ones) (good Meta
tag)
 To make a Web portal – offers a wide range of services, resources and links (is a
gateway or an entrance to a street of the same or complementary businesses).

 Segmentation – targeting – positioning

 Think with the customers’ mind (What would they look for on your site?)
 The website should provide opportunity for on-line reservation
 Prepare the site in more languages, at least Hungarian, German and English

Always prepare “for” somebody and never “about” something!

 The tone of voice might be different, that is why you have to know your target
market
 No German/French/English market!!

Contracts with tour operators depending on target groups

Participation on travel exhibition
Public relation activities: inviting journalists and tour operators for study tours

Should mass advertising be carried out or not?

Direct mail/letters, TV interview, Press Release, Guest confidentiality (name-day, birthday)

Preparing press kit

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20) What are the regulations and guidelines in setting up and operating a travel
enterprise? Explain the feasibility study elements of a travel company.

The rules and regulations are laid down in the Act 213/1996
 Tour organizer and intermediary sell tours directly on indirectly (inbound, outbound or
domestic and has a travel contract)
 The act regulates the personal, material and financial conditions of operating a travel firm
 The company has to be registered in the Trade Directory. The registration should contain:
name of the company, office address, phone/fax, name of the managers and function,
name of the insurance company, bank guarantee and financial assurance.
 The employees should have certain qualifications and experience.
 Declaration of planned income and activities
 Preparing a business and activity plan

The feasibility study contains all the possible aspects: location, size, cost elements, sources of
financing, planned income, profit, market possibilities, target groups.

Operating the travel company includes purchasing, operations, marketing and selling,
financing, controlling. Standardization of operational procedures and delivery process.

See Questions 5, 6, 32

21) Please discuss the purchasing and selling activity of the travel company and the
contents of the Travel contract. Highlight the importance of consumer protection
and travel insurance.

 The tour operator is mainly selling travel packages including accommodation, and
other supplementary services (cultural programs, meals, etc).
 The greatest part of the package elements is purchased from suppliers. Therefore
purchasing policy and management play an important role and contribute to the bottom
line.
 Purchasing should be planned, the offer of the supplier should be analysed and then
the optimal solution should be used.
 The purchasing contract should specify all details securing quality, delivery, prices,
and financial conditions.
 The travel contract and the travel intermediary contract is regulated by the 214/1996
Governmental act. It regulates the contents of the travel brochures, the contents of the
travel contract (name address of the passengers, service, date, place of journey, fee and
extra charges, conditions of payment, deposit, the obligations and the rights of the partners
etc, the travel contracts have been harmonized to the EU.
 Travel insurance covers:
▫ Baggage
▫ Accident/ Medical sickness insurance

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 ▫ Trip cancellation/Interruption insurance

Travel contract: see Question 46

Bottom line: see Question 53
Packaging:
Planning the tours:
 Right place
 At the right time
 For the right people
 At the right price

Tours: scheduled / ad hoc or specially designed

Involved in planning: TO + TA

Steps before starting the activity:

Searching look backwards
What success this firm had in the past with this tour: problems occurred, and profit
analysis
Sources: in-house files, in-house report, conversations with colleagues
Wide look around
Experiences of other TOs
Sources: publications of trade journals, government sources, conversations with
agents, “chets”
Deep look inside
Within the planned program
Live the tour day by day
Looking objectively the scheduling, the events, etc.
Thoughtful look ahead
How will this tour impact on the goals of the TO/TA?
How will it affect other plans?
Is there potential for long range negative results?
Client preferences: customs, habits, lifestyle
Weather: of the home country and the destination
Special events: to avoid and to take part
Cost: tour price, price level at the destination, customs
The agency’s own operation: length, variety of products

Organizing the itinerary

 Concept of the itinerary: a day-by-day schedule of travel plans and arrangements on a
specific tour
 Types:
o Proposed of preliminary itinerary: may be rather vague or very specific, could
be prepared for internal use, for the brochure
o Final itinerary: spells out all details (flights number, departure/arrival time,
accommodation, activities, etc.), could be prepared for the client, for the tour
leader, for the brochure.
 Problems to be taken into consideration while making the itinerary:

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 o Geography: distances, avoid feeling hurried, stops, departure/arrival times, htl
check-in and check-out (luggage), balance (no longer and sorter touring days),
comfortability
o Balance: special events-free time – right combination of group session with
free time options (suggestions for individual entertainment), free time on the
right places
o Shopping: right place, right time (certain area a must for shopping), length of
the tour
o Location of accommodation: the earlier you book, the better selection you have
 Categories are different in foreign countries
 Same htl. on the route or changes
 Private facilities
 Entertainment – distances
 Advantages/disadvantages staying outside the country
o Rest and luncheon stops: difficult to programise (you need help), size of the
group has impact
o Tour members (targeted): age, interest, habits, attitudes

Air vendor selection

 Charter flights features: prices, size and type of the aircraft, contract conditions,
operating time details, company details
 Scheduled flights features
o Conveniences - schedule conveniences: non-stop flights, departure time,
arrival time
o Airport location convenience: change a/p?, change a/l?, change flights?,
minimum connection time (mct)
o Costs: published fares, negotiated fares, market fares, IT fares, a/l commission
o In flight consideration
o Ground consideration

Hotel vendor selection

 Purpose of travel: business, leisure
 Type of tour: beach vacation, city tour, round trip
 Major factors of decision:
o Quality
o Location: city hotel, beach hotel
o Facilities: city htl, beach htl
o Costs
o Payment and cancellation conditions

Ground operator selection

 Major factors:
o Variety of services offered: better to order everything together, full service
from transfer to transfer
o Quality of services offered
o Prices, commissions
o Payment and cancellation conditions
 Sources of information:

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o Confidential tariffs
o Tailor made, customized offers

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Pricing highlights
 Sign all the contracts before calculate
 Fix the pricing strategy of the company
▫ ROE
▫ Mark up/profit ratio (haszonkulcs)
▫ Insurance policy – to calculate in or not to calculate in
▫ Commission to be paid to the agents
▫ Type of prices (Net or gross)
▫ The planned minimum number of applicants
 The prices should
▫ cover prices of purchased package elements
▫ cover the commission paid to the agents
▫ include contribution to the company’s overhead
▫ result profit
 Prices should also
▫ be right for the market
▫ be competitive
▫ fit into company’s strategy (other products)
 travel companies pay VAT in advance when the product is sold
 Pre-calculation is not obligation
▫ The only obligation is: paying VAT
 Post tour calculation is obligation
The reason: VAT payable is calculated on the real profit margin/price margin (árrés). The
VAT paid in advance is compared with the real payable at the end of the year.
▫ Profit margin = sold quantity x selling price of the package/package tour – cost of the
elements of the tour
 The price of the package /package tour is calculated per person
 Must include all the services published as a part of the package

Types of prices of the package elements:

 Prices given per person:

▫ Accommodation
▫ Meal services
▫ Transfer (not always)
▫ Excursions (not always)
▫ Flight ticket, train ticket
▫ Entrance tickets
▫ Insurance

 Prices given for group (pro-rated prices)

▫ Coach
▫ Charter flight
▫ Tour leader’s costs

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Travel insurance:
Insurance protection provides a backup when something goes wrong despite precautions.

Baggage insurance
Compensates the monetary losses incurred in loosing luggage
Limitations:
 On the maximum of amounts that will be paid for the baggage that is stolen, lost or
damaged (the greater the coverage, the greater the cost)
 Collecting insurance on lost, stolen, damaged luggage is time consuming and does nothing
for the immediate problem of having no packed clothing when arriving
 There are some emergency purchase allowances, but they do not go into effect
immediately, there is a waiting period.

Exceptions:
The conditions under which payments will not be made
 Loss/damage from not normal wear or tear
 Loss/damage during war or warlike situation
 Loss/damage to property covered by other insurance

Time limitations:
 May start automatically on the first day of the trip
 Effectiveness date and time must be specified before the journey (e.g. it can be one or two
days longer than the actual trip – e.g. if somebody lives in further located towns and has to
come to Budapest to the airport one day before the journey)
 The insurance can be calculated into the package price

Items that might be stolen or lost, for which no limited coverage will be extended:
 Items totally excluded:
▫ Household goods
▫ Vehicles (excluding bicycles)
▫ Money and money substitutions
▫ Pets
▫ Body replacement parts
 Items with strict limitations:
▫ Jewels (value limit)
▫ Furs (with some limits) – e.g. two fur coats during summer??
▫ Cameras, computers – some insurance companies exclude these
▫ Digital cameras
▫ Video cameras

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Accident/Medical sickness insurance
Limitations:
 Cost scale
 Term or number of day scale
 Type of problem

Exceptions
 Suicide
 Participation in military
 Participation in some sports
 Illegal activities
 Taking drugs

Time limitations:
 Effectiveness must be specified before the journey

Trip cancellation/Interruption insurance

The policy pays non-refundable pre-paid fees for missed travel arrangements in the event of
trip cancellation or interruption.

Limitations and conditions:

Does not cover voluntary cancellation or interruption
 Situations related to the traveller’s or the traveller’s companion’s
▫ Sickness
▫ Injury
▫ Death
 Or related to other people like:
▫ Traveller’s family members
▫ Traveller’s business partner
▫ Traveller’s travelling companion’s family members
 Specific situations related to the traveller or the traveller’s companion:
▫ Must serve on jury
▫ Is quarantined
▫ Is subpoenaed as a witness
▫ The home or main residence burns down
▫ Miss their transportation connections because of accident while on route
▫ Bankruptcy of airline, TO, cruise line

Exceptions:
 Precautions
 Voluntary cancellations
 Try to cancel the tour

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22) Please discuss the importance of conference and meeting tourism and its role in
the Hungarian Tourism. Prepare a 4 day program in connection with an
international congress.

See Question 17

23) The major challenge to the lodging industry during our age is the security of
guests. In the past, lodging establishments were easily secured. Today modern
criminals carry weapons, knifes and guns, and do not hesitate to use them. Describe
the terms of security and safety, the nature emergencies, the four types of fire. Bomb
threats, natural disasters, evacuation process, riots and civil disturbances. Describe
the different key systems preventing theft. Explain the guidelines in connection with
accident in hotel with or without hospitalisation.

A major challenge to the lodging industry during our age is the security of guests. In the past,
lodging establishments were usually easily secured.

Safety: when discussing disasters, fire prevention and protection; protection

devices; and conditions that provide for freedom from injury and damage to property.

Security: refers to the freedom of fear, anxiety, and doubt involving ourselves,
as well as to the protection and against the loss or theft of guest, patient, employee, and
company property. Property owners and managers are responsible for both safety and security
of guests, patients, employees, property and company assets.

Four types of emergencies:

1. fire
2. bomb threats and bombings
3. natural disasters
4. riots and civil disturbances

Categories of fires:
A – common combustibles: paper, clothes, woods and most plastics
B – flammable liquids: grease, paint, oil, gasoline
C – electrical: wiring, motors, electrical equipments
D – combustible metals: magnesium, titanium, sodium,etc...

Fire safety skills needed for a hotel employee:

 describe fire precautions rules, fire-fighting procedures
 know the exit routes and doors
 identify the fires by type, identify the fire fighting equipments
 informs guests and fire department – special attention to handicapped people
 assist in the evacuation and assist the fire brigade

Bomb threats:
A hotel should be evacuated in case of any bomb threats. It is usually announced by phone, so
the telephone operator needs to have the knowledge of how to handle a call like this.

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Natural disasters:
Floods, hurricanes, earthquakes, and sometimes freezing temperatures and snowstorms are
natural disasters. Each has its own set of rules.

Riots and Civil Disturbances:

Of primary concern is for employees to treat guests properly and avoid injuries to guests. The
hotel is liable for any injury that might beset a guest because of a short-tempered employee.
This is another reason for close observation of the temperament of employees during
probationary periods

Evacuation Procedures:
 Staff must show the evacuation routes at the staircases to the guests
 Elevators cannot be used
 The GM must inform the guests on a calm voice
 Do not mention the reason of evacuation
 In case of fire – close all the doors and windows
 In case of bomb – open all doors and windows
 Shut down air conditioning and ventillation
 Turn off all gas and fuel lines

Security
Guestroom security
Depositing guests’ valuables into safe deposit boxes, guestroom keys must be handled well.
Conventional key system. Traditional/electronic key system
Hotel should issue 1 key/room, guest keys should be returned at check-out, etc...
Prevention of theft in HK and guestroom area:
 Ensure professional hiring techniques
 Ccconduct theft orientation and attitude training
 Supervisors must monitor thoroughly
 Regular locker inspections
 Inventory control programs
 Keep records of missing items
 Consider trash handling as an important factor
 When problems are suspected, bring an expert

Who is the thief?

 Dissatisfied with the hotel or work
 Doesn’t identify with the hotel
 No respect for people and for the property
 Has financial difficulties

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Types of dangers:
 Potential danger: a person is smoking, but there is no actual danger unless the smoker
goes near something inflammable such as petrol or throws the cigarette away without
putting it out.
 Actual danger arises when the smoker goes into an area where there is a risk of explosion
or throws away a lit cigarette
 Dangerous occurrence is when there is an explosion or the fire starts

Emergency Guidelines:
 Planning for emergencies-points to consider: areas of emergency, who is responible, what
procedure to be followed, how and when.
 FOM must ensure that FO staff can respond to an emergency situation immediately
 FO personnel should react quickly, remain calm, avoid panic, follow procedures
 Training of FO personnel is essential in the field of: first aid, fire drills,
police/fire/ambulance procedures, phone handling, security, documentation of emergency,
treating guests in case of emergency

The Safety of our Workplace & Safety Programs:

We all want to work in a place, which is healthy, safe and secure. If our workplace is
unhealthy, unsafe and not secure, we are at risk. Employer is responsible for providing a safe,
secure and healthy environment in which to work. As an employee we also have
responsibilities. These are:
 to make sure that we do nothing which will make our work place more hazardous for us
and for other people
 to recognize and report anything which is hazardous
 to know what to do if an emergency happens

After having made security and safety trainings we should be able to:
 recognize hazardous situations
 know whether a hazard is one which we can deal with or whether we should report it
 prevent certain hazardous situations arising
 know why and when you should use protective clothing and equipment
 know what to do if using hazardous machines or substances
 know how to handle and lift anything heavy

Very many accidents happen because very simple rules of good order and tidiness are not
followed.

Electrical dangers:
Major source of hazard at work is electrical equipment. As we know electricity can give a
dangerous shock. It can also cause fires if an electrical circuit is overloaded. This arises when
too many items are attached to a plug or circuit. Electrical fires can also be started by a short
circuit. This can arise if wires are broken or uncovered or come loose in a plug. If we touch
broken or loose wires we can get an electric shock.
Electricity can be dangerous if it is misused.
Insulation and grounding

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Common hazards:
Even everyday items can cause injury if used wrongly or left lying about. Examples of these
are sharp knives or scissors or even kettles or cups with boiling water in them. Then there are
the hazards caused by dirt and dust, which can cause illness.
The next two hazards apply particularly to the workplace.

The first is dangerous equipment. The rule at work is that you must only use equipment if:
o you have been taught how to use it
o you know how to use
o you have been told to use it
o you obey all the instructions that you have been given.
You, or everyone could be in danger if these rules are not followed.

The second of these hazards is where a substance gives off toxic fumes. These are fumes,
which can poison you. Sometimes they will make sick or feel ill, very occasionally they can
kill you. These substances are usually gases or liquids. There may also be flammable
substances used in your workplace. Hazardous substances will always be labeled. If you do
not know what is in the container, the rule is that you must always read all the labels before
you open it or even move it. Some substances, which you use, can be dangerous if you are in
continual contact with them.
An example of this is oil. Some people can suffer if they are in continual contact with oil.
You must follow any rule laid down.

Remember! - no work place can be completely safe. You must always follow the rules. You
must always think, ”Is this safe?” Could this be dangerous to me or someone else?
If you are working with dirty or hazardous equipment or substances your employer should
provide you with protection. If this is provided, you must always wear it, when told so. It does
not matter that it makes you look funny or that it is hot or uncomfortable. It is there for your
good.

List of protective items: Hats, Overalls, Breathing Masks, Ear Muffs, Metal Mesh Gloves,
Fume Boxes, Boots and Hard Hats, Goggles

Lifting and Handling

The most common type of injury is caused by lifting or handling loads incorrectly. Over a
third of all accidents results from bad handling or lifting loads that are too heavy. The injuries
are often to the back, but hands and arms, legs and feet can also be hurt.
The following table shows the weights that a man should be able to lift safely if he follows the
rules above.

The next most common cause is tripping and falling. These account for over a quarter of
all accidents. They can be result of a wide range of causes, for example:
o a ladder or steps are not properly erected
o stairs not properly lit
o a hole in the floor
o a chair left in the gangway
o water left on the floor

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There are two things to remember:
o Never try to repair anything unless you have been shown how to do so
o Always keep your eyes open for a dangerous situation, whether it is electrical, holes in
the floor or something put in the wrong place. It is your duty to report any dangers
whether listed here or not.
The most common rule is to report the problem to your supervisor (or safety or Maintenance
Supervisor) immediately.

24. Critically evaluate the key impacts privatization of the hotel industry in Hungary
based on the business operation and on the work force.
What are the main characteristics of the strategic human resource management
compared with the previous personnel management? Describe the job profile and role of
the human resource manager.

Privatisation: dismantling state (or municipal) property and transfering it to private

ownership

In general about the Hungarian Privatisation:

Nowhere was hotel or restaurant ever owned by the state, except in the Soviet Union and here.
This fact that the natural situation was put back is a key factor. The other is that the country
needed currency desperately. We run terribly in debt because of the bad economics and the
non market ways and methods in foreground. Money could be won fast only out of things
which were easy to sell. The hotel and catering industry’s privatisation was „fast money”.
This is a very important thing, not to talk about, as it was later realised, that after the hotel and
catering industry was privatised much more tax income was brought to the country. Only
because after the privatisation the economics, efficiency and profitability worked much better.
This proves that the private economy generates more, it is more productive then the state
economy. And this was not only in Hungary like this. The whole privatisation was necessary.
Everything used to be state property. The state did not practice the control directly, instead of
doing this it formed state corporations, like Hungar Hotels what was the biggest and so to say
the most qualitative hotel and restaurant corporation. There was also the Pannonia Hotel
which was a bit lower quality. Later Pannonia received intangible properties from the state.
With this an apparent competition was established. Real competition can only exist if it is
developed through real competitors. This was not the case in Hungary. All the three
hotels( Danubius- established when parts were taken away from Hungar Hotels) were in
manufactured competition against each other in non market economy and that is why this
situation did not work and could have never worked if it had stayed like this. The question is
then why was the establishment of three hotels necessary? One big reason for developing
these three big hotels was that so the friends and acquaintances of the main people could get a
good job. The first step of the privatisation in Hungary was that the corporations were
transferred into joint- stock companies.

At that time in Hungary there was 30%inflation with 6-7% dividends, what means 23-24%
loss each year.
The change in the ownership according to the above mentioned things(state ownership) was
that foreign shareholders came who are considered as real owners. They brought money into
the country and it started to function very well. Much more tax payments were made from
both the employer’s side and the employee’s side.

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It brought also organisational changes. Those jobs which were not acknowledged by the
international practice were quit. The structure of these hotels were changed, they developed
their own preferred economic ways and used them. The operational practice was changed as
well. They have forced a positive change in the Hungarian catering industry, they have
eliminated, what was characteristic for the Hungarian hotel business, cheating and stealing.
Through this cheating damage was caused, what applies to the owner of the business and to
the guest as well.

In Hungary the demand for hotel rooms was much more then the supply. Generally if the
situation between supply and demand is constantly like this than the possibility of the creation
of black market is very high. This was what happened in Hungary too. Black market emerged
because of the following: partly there was real shortage of supply because there was no
market economy, so we can only talk about distribution. The distribution of the things, of
which there was shortage, causes the black market. The wrong price-conditions resulted in
damage of not only the guest but also of the owner.

What had changed?

These investors are interested in the profit and this makes it too be a business. For them it is
important how you perform, how well and how much you can work, whether you can talk to
the foreign clients and guests. The performance is based under real measurement in market
economic circumstances. All the foreign investors introduced the precise method of
evaluation. What they do is that they sit down with the employee every period (6month-1year)
and talk honestly about the possible problems and expectations. This is the structure of the
personal evaluation which was already common abroad while it was not in Hungary. Now the
people are not kicked out without reason from their job, this had changes too. So the Human
Resource Policy became similar to that what was already common in the civilised western
European countries.

What effects have the changes on the Hungarian lodging industry?

1. One big change was the growth in expenses.

2. And the high inflation rate.(Year Book of statistics the data of Hungary was owed to
be unreliable. This means that in Hungary was not enough done to have the right data
provided and out of false information can only be false information drawn)
3. The Hungarian lodging industry doesn’t mean that it is in Hungarian ownership, but it
means that it is on Hungarian territory. Basically not the owner decides whether the
hotel is Hungarian or not. This decision is based on where the hotel physically is. If it
is on Hungarian territory than it is considered to be Hungarian.
4. Significant staff changes were made, numbers of employees were decreased. 50-60%
of the employees of the lodging and catering industry were unemployed. All my other
interviewees said the same.
5. The effectiveness and profitability changed very positively. There was a serious
modernisation made. Investments were made which were really necessary but pushed
ahead. The structure has changed by the share-holders and the new management, it
turned into the kind of structure which was already used in the western European
countries. Some positions were cancelled and others came in their places. The
requirements were changed according to this. Nobody is interested anymore how
many diplomas you have if you can’t deal with the customers. Employees are chosen

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 based on ability, attitude, willingness and effort. How well he/she can take the job,
how many working hours she can do and how many overtimes! The values and
standards have changed. Earlier: The career opportunities especially for the ladies
were limited. Just like in Spain, Mexico or Italy the man had privileges. But by now
the women have the same chances as man, the opportunities are equal. Besides this
there is the opportunity if you sign a contract with a hotel for let’s say 10 years and
take the prescribed courses than you can get in a higher position every 2-3 years and at
the end be a general manager if you want to. There is the chance to get these career
passes in each of the big international hotels, like Marriott, Hyatt International and
Intercontinental.
6. In the Hungarian lodging industry there was no joint venture. There was no common
enterprise, where the investment costs and the profit would have been shared between
the foreign owner and the Hungarian. There was only one exception, Hélia at the end
of the 80’s. At that time there were only franchise agreements, such were Hyatt,
Hilton, Forum. As a result the foreigner realised that in a non market economic
situation franchise is not working because the workers took advantages of it. The guest
complains, the rules were not taken into consideration. The only reason to stay for the
franchise providers was that they did not want to give up their presence. It is about
their position. They figured that the franchise is only functioning with the management
agreement.

The situation before the privatisation:

 30 years of doing bad business had created a chaotic and impossible situation in Hungary.
 Everything was determined by the politics, like the decision of building a new hotel or the
place where the hotel should be built. The companies were state-owned and they had no
flexibility.
 Huge amounts were stolen by the staff mainly in kind. Barter commerce was widely in
practice. This lead to loss in revenue. One reason for that is the lack of professionalism
and lack of control.
 Despite the hotels created loss, they still did not stop the operation of the hotels, because
the state always backed the hotel industry.
 It was very difficult to get the needed material, for example special food or silver wear.
 Big companies were using a franchise model instead of management agreement, but it did
not work well in Hungary, compared to the west. Example: like in the case of Both in the
Budapest Hilton and the Duna Inter-continental there were several guests complaints,
mainly because the quality of the service was bad, and the franchiser companies were
close to put an end to the franchise agreement.
 Positions depended on the relationships.
 The previous leader behaviour was not showing sample instead showed that everybody
could rob the state. Of course there were some exceptions, but unfortunately the majority
did not do the work well! In the end of the 1980s which is known to be already better than
the previous two decades the leaders of the hotels were members of the Ministry of
Commerce, or Ministry of the Interior Affaires. This also shows how corrupt the whole
situation was.
 Before privatisation there were too many people working in the same hotel so they had not
enough duty to do. We can say that there had been unemployment within the hotel.

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The situation after the privatization
 The most important difference between the non-market economy and the market economy
is that in the latter those, who cheat the customers or operate inefficiently will not
succeed. However, those who are satisfying the guests, and provide a constant quality will
be profitable and successful.
 Privatisation has put the Hungarian hotels into the market economy, made them to close
up to the international trends.
 The foreign investor who comes to the Hungarian market risks the money of his own, not
like before, when the state was risking the money of the taxpayers.
 Privatisation created a competition that lead to the increases in quality.

Changes in connection to the management:

 he new owners came they put their own management in the top positions and the old ones
were sent away because they saw the corruption that had been occurring for so long.
 The managers are purposely moved to other departments or even to other countries in
every two to five years. It is a good reference in their career later, and the circumstances
of living are very good for them.
 The new management concentrates on the productivity and profitability. They realised
that there was a huge overstaffing compared to the hotel size and there were no defined
responsibilities. Today we work with job descriptions exact for every position. Nowadays
the description becomes more and more detailed. The staff works completely according to
checklists, in which tasks are described step by step.
 The franchise contracts were slowly replaced by management agreements. The first is
purchasing a property or a small or bigger chain, try to reduce the costs as much it is
possible, and win out as much money as he can during the shortest period. The other tries
to decrease the costs, increase the revenue and on that way increase the profit.
 The owner, the operator and the franchiser are completely separated from each other.
 Position number one is the general manager. The local relation system with the travel
agencies, tour operators, local land arrangement organizers, conference organizers, etc. is
very important, so practically due to my experiences it does not work with foreigners, so
there has to be a Hungarian somewhere very high.
 In most cases the General Manager, maybe the Chief Accountant, or the person who is
responsible for the finances come from abroad, since the accounting has to be converted to
the needs of the company centre. Foreign people can be employed in the Sales &
Marketing Department, in the Food & Beverage Department, in the Human Resources
Department for training, and maybe the banqueting tasks are carried out by them.
Staffing concerns:
 Efficiency increased and the number of employees decreased by more than half.
Since the labour costs are a part of the price they create a much larger profit.
 Challenges are different.
 Foreign people working in the hotel industry like to employ beginners and train
them according to their system.
 Trainings play an important role in the hotel industry. Companies have continuous
trainings to help employees to perform better. Professional training is very
important, employees learn corporate behaviour there. The collective training,
specification gained importance.
 It is a major guideline in the selection that people have to speak foreign languages.
 There is the chance of

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Change in financial concepts and problems
 Yield management was introduced
 There is a very strong control system.
 Big hotels owned by foreigners that have to make reports of all of the incomes as
provided by the law. They have to know everything about the last HUF or EURO
income.
Changes in the operation
 They pulled and separated territories together to update the operation. If there are two
activities in a hotel, like Rooms Division and F&B, they are called profit centres, and
all the revenues are shared by the controlling on the department one and department
two, and all the costs all also shared and orientated of these two.
 Earlier there was Front Office Manager and House Keeper. Today there is a head of
the accommodation, with a title of Rooms Division manager and operates both
territories together.
 There are standards, which are kept within a hotel chain, and this provides a standard
because a known name stands behind it.

Personal mgmt and strategic HRM:

Strategic HRM has two main assets: satisfied employees and satisfied customers.
HRM is very important in the service industry as the product is similar and people
make the difference to it, hence they are part of the product, and because of human
labour is perishable we need to have the right people on the right place. HRM is a
strategic function and its sub functional strategies are: organisation structure,
recruiting, training, motivation, performance evaluation and labour relations.
Main purposes of HRM are: the equitable treatment of employees and reflection of
their influence, improvement of their satisfaction through motivating them and by this
reaching higher productivity and effectiveness that on the other hand results in higher
customer satisfaction.
HRM’s role is more important in the co. than the personal mgmt’s role used to be
before as the success or failure of an enterprise depends basically on HRM. The
investment into people has become so important that the job cannot be left only
on the personal manager. Mgmt is responsible for HRM matters at all levels and the
personal mgmt plays the role of the advisor. Pm provides the employees as cost
(minimising) while the HR emphasizes on maximising the revenue through having
satisfied employees- this way they can get out better performance. HRM treats
employees as individuals and wants to provide them with all the necessary support to
make them satisfied at their work place and keep them motivated. We cannot see the
same in Pr as labour for them is just a cost. Pm is emphasizing on short term
only, not concentrating on keeping employees for long term by making them satisfied,
just focusing on cost minimisation. HRM’s task on the contrary is maximisation
through optimal use of human resources and is based for long term.

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Role of human resource manager:
 Recruitment (interviews, check references, etc) and training
 performance monitoring and evaluation (appraisal, behaviour modification),
 constant motivation of employees (benefit programs, carrier possibilities)
 make communication easier,
 listen to employees (surveys) and take corrective actions if needed
 team building and improving the quality of teamwork
 workforce planning (staffing guide, a tool of schedule and control)
 designing hr strategies to align with business strategies
 setting up of safety programmes
 interpretation of labour laws and ensure keeping to it

Job profile:

Is a powerful new way to understand the nature of jobs. It is a tool that defines the style
of the job and provides useful guidelines for putting the right person in place. It may be
completed by the supervisor, an employee currently holding the position, or someone who has
filled the position in the past, depending on the depth and quantity of information needed. The
more people who complete the profile for a given position, the better the information one will
receive. It is not a psychological analysis. It does not influence the selection process in a
negative way. The profile doesn’t declare anyone unfit and doesn’t exclude anyone. The job
profile offers effective methods of helping anyone fit better into their job by defining
what needs to be done to perform it well. An important goal of the profile is for both the
supervisor and the employee to come to an understanding and agreement of realistic job
expectations.

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25.How do you define service?
Definition by Garán Éva: service is an activity or a deed that benefits someone. (not a tangible
product.
Travel industry simultaneously produces both products and services.
Products are the packages, flight tickets, etc.
Service is what employees do in a T.A. (comparing products, giving advices,etc.)
At the time of sale the product is only information in this industry so there’s need for the
service to help customers in decision making.

Relationship of services and products

1. tangible products – service is addition to the product
2. intangible products – service is not an addition but a necessity
3. mixed products – mixing the products needs knowledge = service

Excellent customer service (is) the ability of an organization to constantly and consistently
exceed the customer's expectations.

Quality service = consistency ( “Something you feel if it is there, and u‘ll realize if it is not
there!”)
Key to consistency = standards:
1.World-Class Service - Hayman Island Resort...
Executive Floors, outstanding, excellent. Leading Hotels of the World top list.
2.Mid-Range Service - The largest segment
Modest but sufficient, comfort without luxury
3.Economy/ Limited Service - clean, comfortable, inexpensive, without extras.
Growing segment
What do we mean by lodging and hospitality industry?
Lodging industry includes companies that develop, own, manage, and/or operate lodging
facilities, including a wide range of accomodations from motels to full-service hotels. Also
called hospitality industry.
All type of accomodations and catering belong to this industry which is a “sub-industry” of
the travel industry.
The classification and grading of these accomodations are different in different countries.
There are many types of accomodations that can be distinguishes upon 3 phenomena:
1. categorization – separation of accomodation types (hotel, motel, camp site,etc)
2. classification – distinguishes accomodations on the basis of physical features(bathroom,
no.ofrooms,-youth hostel/business hotel)
3. grading – distinguishes accomodations upon the services available in them - stars

What roles do hotels play in the community?

Hotels play rather an important role in the community as they are the places where tourists
stay during their travel. In the proximity of hotels the environment is nice, and a hotel lobby
can be a good meeting point for local people too. Also, hotel restaurants, health and fitness
clubs are used by local people, as well as business facilities and meeting rooms.
Hotels usually offer high quality services and mostly business people, prominent guests or
club members use their services. Local and international company meetings are also usually
held in hotels.
Near hotels, many shops and resturants, cafes can be found who try to make business from the
tourists staying at the hotel.

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A hotel can serve as a central gathering place for the entire community.

What is the relation between the environment and the hotels?

Tourism has very strong effect on the environment. So do hotels. Hotels providing high
quality services use a lot more resources than other establishments. In order to have luxurious
and elegant outlook, they use a lot of electricity for lighting, they assure controllable heating
in each room, they don’t economize with water and they have a lot of garbage. Operating a
hotel with more hundred rooms needs a lot of rescources used. Nowadays, when sustainability
in tourism is more and more important, hotels also try to find the way to economize with the
resources and be sustainable. They are eager to institute programs that save water, save
energy and reduce solid waste--while saving money--to help protect the resources of the Earth
for future generations.
Environmentally conscious guests are satisfied to see that the hotels make these efforts and
they usually cooperate. Guests participate in the program and doesn’t matter if their beds are
not changed daily or if they use a towel more times.
Examples!

What are the attractions of the hotel industry?

The attractions of a hotel can be the local attractions of the environment (the city, culture,
nature...) or it can be the hotel itself. Today, there are many properties that are called resorts.
These are the collection of different buildings and tourists can find all services they need
within these complexes.
Also, a hotel can be an attraction itself if it provides exceptional service. In this, employees
play a very important role. A hotel in the city centre may have the same products to sell as its
neighbour hotel, but if the service is better, this hotel can be more successful. Employees must
be trained and monitored in order to provide perfect service.
A hotel with conference facilities and new technologies, well trained banqueting staff can be
an attraction for business people and companies who organize conferences.
A hotel can be an attraction for a frequent traveller or even a returning Foreign Independent
Treveller(FIT) if once he had a good experience. He is assured that the same level of service
is provided to him any time he stays at the hotel so he is not looking for other accomodation.
In Hungary, the most hotels are in Budapest, as it is the major tourist attraction of our country.
There are many hotels on the countryside as well, but tourism mainly concentrates on Bp.
Most groups visit the capital and make excursions to other towns. This is why there is
continuous development today in the travel industry in Bp. New hotels are opened providing
more and more luxurious accomodations. ( Royal, Four Seasons,, Boscolo)

What do we call the ‘spirit of hospitality’ and give some examples from your own
experience?
The spirit of hospitality is very important in the travel industry. This means that employees
and even local people have to look at tourists as income generators and development
facilitators and because of this they must treat these people the best way they can. Tourists
should feel that the locals like to help them they are nice and friendly. Guests of a hotel chose
that hotel because they want to have a good experience, a high quality service and valuable
programs during their stay. So hotel employees have to do their best to satisfy or even exceed
the needs of the customers.
Employees are “at home” while visitors and tourists come from different cultures, they speak
other languages and they are usually frustrated in the new, unknown environment. This is
what employees of a hotel should decrease and help these guests to look at the hotel as their
second home for that period.

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How do you understand and apply the rule ‘the guest is always right’?
The guest in the hotel is our customer, he pays,and the hotel must ensure exeptional services
to him. There are many types of people, those who like complaining, those who are really nice
or even those who find everything terrible.
Employees of a hotel must have the knowledge of how to handle situations with guests. The
guest is always right rule is about that we always have to make the impression that he is right,
in order to calm him down. Even if it is sometimes difficult to deal with people’s behaviour
we must ensure that our business won’t be damaged.
A complaining guest is doing us a big favour. If there’s a real problem and we get to know
this through a guest complaint, we can have the possibility to solve the problem.
We should never let a guest compalining in the lobby area or other parts of the hotel, where
other guests can hear him. We have to ensure him that the problem will ben solved and he will
get some compensation for the inconvenience. The main aim must be to stop him
complaining.

26. A,Critically evaluate to what extent cultural issues can affect service delivery and
pricing policies in hospitality operation.

Culture has several meanings. It is a collective programming of the mind, which distinguishes
people from each other. People can be different at national, ethnic, religious levels, and also
their language, generation. And social class levels can also differ.
Culture has a very important role in the hospitality industry. Travel is all about going to other
countries, that have different culture, language and resources. Culture must be respected on
both sides:
- tourists have to respect the culture and life of the host population
- hotels who provide quality services must take into consideration the possible cultural
differences of their guests
As many big hotel chains have international workforce, employees of a hotel can come from
different cultures as well. In this case, the hotels must have some standards, that respect the
lifestyle of employees of different cultures.
People are different, everybody has different needs and wants. During managing tourism
related services, we must try to find a balance between the needs of tourists, host population
and the service providers.
Customers from different nations have different purchasing habits, so in the TO, TA field of
tourism we have to know which market segment we want to serve. Customers from different
nations book their holidays in different times before the holiday. Also there is difference in
the type of booking: through intermediaries, through internet....

Culture and Pricing policies:

Festivals,national holidays at the destination can have effect on the prices of services offered.
Tour Operators, Travel Agencies must be aware of all the national holidays, and events of the
destination countries.

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B, Exemplify a few cultural consideration that you might have to evaluate and use in
order to accommodate needs of staff and guests from different cultures in Hungary.

All people are different. If there are employees of more nations within a hotel, their habits,
religion and lifestyle must be considered by the management.
People can differ in many things according to their country culture and habits like: able to
work hard / works slowly, risk taking / not taking any responsibility, idividualist / able to
work in groups. They should be evaluated with knowing these features. Employees in hotels
can better understand these differences if they manage to get international experience.
In Hungary – and all over the world – foreign languages must be spoken by travel industry
workers. This is the basic and most important cultural difference between nations. Without
this knowledge, perfect satisfaction of guest needs is impossible.
In Hungary we have to analyse the main nations arriving to the country. There are many
Japanese and Jewish people, as well as tourists from other European countries arriving to the
country.
Jewish people have specific needs (special meals, cannot use technology on different days,
etc...) that are connected to their religion. Hotels restaurant and their employees must take into
consideration these needs.
Japanese are also different, they want to gather as much information as possible, they differ in
physical things as well (short, little pple). They usually don’t speak foreign languages.

C, Debate the context in which cross-cultural issues might affect the day-to-day business
of hospitality operations. How can this impact be minimized?

Pepole are different, they are coming from different cultures, speak many languages, have
other habits than us. In the travel industry we must consider these issues as travel is about
going to see other places,get to know other people,etc... So employees in hotels must respect
the habits and lifestyle of guests. There are guests who are very religious, who eat special
food, who have different beliefs than us. Spirit of hospitality, the guest is always right
25.tételből

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27.“Tourism has been profoundly affected by ideological shifts in the wider political
arena”(Richards, 1995)
Examine the view in relation to the development in world tourism and with respect to
Hungary, particular in the context of current Hungarian government’s tourism policy.
What are the most dangerous events for the development of tourism???

The restrictions on outbound and inbound tourism is over. Improvements were made in the
field of tourism, and Hungary is still doing a good job in improving the tourist offer:
Attractions (new trends in tourism), infrastructure (Reconstructions, renovations of buildings
and baths of Budapest), accommodation (building new hotels), Public safety (???).
The interest and demand have increased as the numbers show.

Years International Hungarians Tourists Tourism Tourism

arrivals travelling arrivals nights receipts and
(thousands) abroad (thousands) (thousands) expenditures
(thousands) (million eur)
1998 33 624 12 317 5 440 16 916 1 934
1999 28 803 10 622 5 552 17 327 1 909
2000 31 141 11 065 5 941 18 369 2 245
2001 30 679 11 167 6 073 18 648 2 596
2002 31 739 12 966 6 173 18 450 1 629
2003 31 412 14 283 6 315 18 611 1 241
2004 36 635 17 558 6 616 18 899 962
2005 38 555 18 622 6 933 19 335 1 085

The government-(operative power via ministries) has deep impact on tourism, it is the
legislative body of prime importance in terms of tourism development and operation
 Regulations regarding taxation
 Education
 Immigration, customs, transport, marketing (HNTO)
 Environment
 Financial assistance,
 Cooperation with associations in tourism
 operation of holiday voucher system is also determined under law

Development programs
I. Hungarian National Development Plan (2004-2006)
 Improving the quality of life (long-term objective)
 Reducing the lag in the per capita income
 Specific objectives: more competitive economy, promotion of a better quality
environment and regional development, improved use of HR
 Five operational programs: OPRD – ROP 1.1, ROP 1.2 (tourism-related)

II. National Development Plan (2007-2013)

→ National Tourism Development Strategy (NTDS)

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Situation analysis: per capita spending is low/average, strong territorial concentration (Bp +
Balaton > 50%), strong seasonality
Tourism supply: health, water/aquatic, ecotourism, bike, gold, rural, cultural, equestrian,
religious, wine culture and gastronomy, MICE.
Strategic direction objectives:
1) people-oriented and long-term profitable development
2) development of attractions (product development: 1. health, 2. heritage, 3. congress; tourist
information system, development of priority destinations (Budapest, Balaton)
3) improvement of tourist reception conditions (accessibility of tourist attractions, market-
conform accommodations and catering, comfort feeling of visitors)
4) development of human resources (transformation of the educational system, stable
environment for employment, changing attitudes)
5) creating an efficient operational system
6) horizontal objectives (experience chain, sustainable development, equal opportunities,
cross-border tourism relations and market segments – youth tourism)

Product priorities:
1) health tourism (medicinal + wellness tourism)
2) heritage tourism (ecotourism – world heritage sites + natural heritage preservation (national
parks), equestrian, rural, gastronomy, special events – traditions, folklore, artistic values etc.)
3) congress tourism (better facilities, improved competitiveness, lobby for international
conferences)

Planned development:
 Destination Management Companies (DMC) – non-profit organisations to prepare
plans and promotion of a certain destination
 Further priority tourism target areas: Budapest + 4 priority resort areas (Lake Balaton,
Lake Velence, Lake Tisza and the Danube bend); natural and cultural heritage sites;
health and holiday resorts, rural tourism, cross-border tourism development.

The multiplier effect of tourism: sales/ output/ income/ employment

Dangerous events in the tourism industry:

- Unstable political or economical conditions scare away FDI flow and investments in
tourism and its development. Not to mention the fact that lack of security and unstable
political conditions will keep away people from travelling to that country
- Political conflicts with some of those resulting in wars seriously hinder tourism. Such
events result in less mood to travel and can decrease world tourism eg. in 1999 Hungary’s
tourism incomes dropped because of the war in Kosovo and Balkan conflicts and now the Iraq
war in 2003 resulted in a drawback in world tourism.
- Terrorism, which is a question of religion but also politics eg. 11th September 2001 and
recent bombings in Madrid 2004 may
- Restrictions of the government ( e.g American visa and in Hungary before the 90’s or
today again upon entering the EU restrictions on the eastern borders results in less visitors)
- Governments not recognising the importance of tourism on the economy
- SAARs and health fears
- Environmental catastrophes (floods and earthquakes)
Terrorism and health fears resulted in world tourism suffering its biggest annual fall in visitor
numbers. International tourism arrivals fell 1.2 per cent to 694 million in 2003, according to
World Tourism Organisation

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Hungarian tourism in the framework of world and local politics in the past few years:

At the beginning of the 90’s the tourism in Hungary actually consisted of 3 main parts
sections. One of them was the tourism that was happening on the real international market,
which was mainly embodied by the 4 and 5 star hotels found in the capital city and in smaller
parts those by the Balaton. The other segment was, that we can call national or domestic
tourism, which took form in the organised holidays by the trade unions. The third segment
was the turnover given by guests coming from the Warsaw Treaty inside the KGST
which was based on bilateral agreements with circumstances, prices, dictated by the
State and government. It was told how much a country can spend in another, how many
people can travel from one country to the other. This part provided very big numbers in
statistics but at the same time it ruined the Hungarian hotel capacity and quality. So this
was the segment that private industry had to take over in 1990-91.

After the privatisation the restrictions came to an end and inbound and outbound
tourism were given a free way. Hungary came into the centre of attention and was a target
for mass tourism, tourist numbers were continuously growing (with 17 million in 1998 and
than respectively grew to 24,37,40 million) At that time Hungary was not ready for receiving
such mass tourism and to exploit this possibility as our basic and tourism infrastructure was
completely missing. In 1999 the conflict at the Balkan and the following war in Kosovo
were negative outside factors for the Hungarian tourism. However, the travel
accommodation market saw a steady increase since 1999 in current value terms, with 2000
and 2001 experiencing never before seen high tourism figures. The industry again was hit
by the world recession and the terrorist attacks on the US. As a result, tourism revenues
fell by 15-20% in 2002, amounting to HUF841 billion. The industry did not recover from the
recession and was hit again in 2003 by the war on Iraq and the outbreak of the SARS
virus. Apart from that, the strengthening Forint also made the operation environment very
difficult for this market. In spite of the problems the market players had to face, serious
investments were made during the past few years, with the aim of establishing high-end
accommodation facilities. At present, Hungary is working hard to improve quality of its
tourism offer to be able to attract tourists with high volume spending and not necessarily high
visitor numbers.

In the past years it was recognised by the government that tourism is a major contributor
to the Hungarian economy and today the government is highly supporting it. The State’s
role increased in the financial aspects, in 1996, only 500 million support was provided for
the development of tourism, in 2000 this amount grew to 6000 million HUF. Today also local
governments start to realise that they can benefit from tourism. The institutional system
of tourism was changed too. The Hungarian Tourist Service Rt was set up in 1994 as the
national tourist marketing organisation (since 1996 called HNTO), the Parliament’s Tourism
Committee exists since 1998, The National Tourist Committee was set up in 1996, and as a
lobbying group, is winning on importance. The deputy secretary of State for tourism at the
ministry of Economy and Transport was reorganised and its employee numbers increased.
Regional Tourism Committees are also winning on importance because in the EU the focus
will be on the regions not the countries and the regions get more and more support from
government. Tourinform network for public information and service is constantly growing.
The restructuring of foreign visitors, the growing domestic tourism and the increasing demand

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for quality tourism can create a good environment for FDI. Between 2004-2006 in the
framework of the National Development Plan’s regional operative programs, 130-150
milliard HUF from the European Regional Development Fund is provided for Hungary.
The programme’s aim is to develop tourist attractions, through creating internationally
significant attractions based on cultural and natural heritage of Hungary, and improving
tourism capacity potentials of the country.

3.Hungarian government’s current tourism policy:

Institutions:
The Hungarian government goes back to the system with National Tourist Committee and
besides it invites the professional organizations into the regional and local leading areas. The
Committee aims to produce a mid-run National Tourist Development Strategy for the
following years.
The Deputy under Secretary of State for Tourism is continuously operating a competition
system in order to provide more development possibilities. It also controls the domestic and
international tourist economic processes every two week.

Financial support: (???? én erről semmit nem tudok????jó ez így?)

- The Hungarian government follows those countries economic regulations, which have a
developed tourism.
- it reduces the financial burden of the tourism enterprises
- it stops excess taxation
- it helps the developments of small and medium tourist enterprises with tax, investment and
loan discounts
- the central budget is mainly used for the development of tourist infrastructure and to
increase the attractiveness of the tourist attractions
- the government puts emphasis on involving the countryside in the tourism by exploiting
the possibilities of rural tourism
- the government supports holiday cheque system through increasing the quantity and the
number of places where they are accepted

Education:
In the training of tourism professionals, the government introduces mass education forms
offering catering basic skills.

Marketing:
The Hungarian National Tourist Office is responsible of creating a unified national (within
it regional cooperation) marketing policy through its domestic representation network-
Tourinform offices etc..

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The organisational structure of tourism in Hungary today and how they are involved in
the development of tourism

Government (operative power via ministries) - Parliament

- legislative body of prime importance in terms of tourism development and operation
- legislates the acts that proved the operational framework (economic foundations of tourism,
tourism tax, support allocated in the central budget)
- operation of holiday voucher system is also determined under law

Parliamentary Committee on Tourism

- body responsible for initiating, proposing, expressing an opinion about legislation and for
controlling the actions of the government
- task: initiate and monitor legislation and proposed resolutions, assert the interests of tourism
in the legislative process
- supervises the lawful operation of the industry
- monitors the development in the various branches of tourism
- enforces tourism-related acts if necessary

Minister without Portfolio in Charge of Regional Development and Convergence

- responsible for the government’s tasks associated with urban and regional dev., tourism etc.
- benefit: efficient application of regionalism in the field of tourism
- coordinates the implementation of tourism-related tasks due to Hungary’s EU membership
- exercises the owner’s rights of the HNTO

National Tourism Board (OIB)

- represents major trade organizations of the sector and Regional Tourist Committees
- acts as a consulting body of the Minister since Jan 12, 2005
- participates in preparing the decisions on the principles of tourism development strategy
- submits proposals, expresses opinion about directions and principles of tourism, marketing
strategy of the HNTO, tourist research and training of tourism professionals etc.
- delegates members to boards upon request
- monitors and evaluates the development of domestic and international tourism, trends etc.

Ministry of Development
1. Office of Country Development
2. Office of Apartment Building
3. Office of Tourism – Tourism Authority

Hungarian Tourist Authority (HTA)

- highest state level authority assigned to manage tourism on behalf of any governments
- administrative body, independent legal entity
- consists of several departments:
1. Department of Law
2. Department of Domestic Network (9 touristic regions: 7 Regional Marketing Directorates +
2 Regional Tourism Committees – Lake Balaton and Lake Tisza)
3. Department of International Relations
4. Department of Marketing
5. Department of Economics

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Hungarian National Tourist Office (HNTO)
- national marketing organization of tourism, promoting the tourism products of Hungary on
both the domestic and foreign markets

Reasons for governmental involvement

 Promoting economic development
 Facilitating and supporting industries
 Raising revenues (taxation, registration fees, licenses)
 Creating a stable business environment
 Pursuing other policy goals

Domestic network – Regional Marketing Directorates and Regional Tourism Project Offices

Their role is to strengthen regional identities and help provinces catch up with Bp, to
encourage service providers in the regions to create and offer high-standard tourist products to
grant them fair and equal opportunities for market entry and presence. HNTO coordinates
them and strengthens their co-operation (common presence on fairs and road shows). HNTO
grants the regional directorates a pivotal role in the promotion of domestic tourism.

Tourinform network

The main pillar of tourist information in Hungary, where visitors can have access to up-to-
minute information about holiday offers, sights, events, service providers and transport. Also
a tourinform call centre is operating for providing information.
HNTO supervises the national network of tourinform offices and directly operates the
company’s main tourinform office in Budapest. In 2002 twelve new tourinform offices were
added to the network raising the total number to 130.

Foreign representations

HNTO carries out its international marketing operation mainly through its global network,
which consisted of 19 national tourist representations and 2 information offices in 2002.
Negotiations were launched concerning the opening of new offices in Dublin and
Copenhagen, because increased attention seemed to require the company’s direct presence on
these markets. HNTO continued co-operation with ITDH (Hungary’s investment and trade
development agency) under which local ITDH offices perform tourism related marketing
activities in countries where HNTO is not present.

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28. Examine critically the future of Budapest as an international conference and
exhibition Centre.

Budapest has a very good palce in Europe. It is a developing country where prices are
acceptable but all the basic facilities to organize a conference are given. Of course there must
be many changes and developments made to be successful. Today a great advantage of
Hungary is that most of the neighbouring countries are less developed and they cannot
provide the same level of services and expert help.
BUT!With the development of the neighbouring countries Hungary must find new ideas to be
able to compete with those countries. Otherwise we can lose significant business.
Hungary is continuously developnig today in the field of congress and conference tourism.
New conference centers are needed with sufficient number of beds in the capital. The
infrastructure must be well organized and the city should prepare for the accomodation of
many business people. These people need high quality services with many special programs
and activities.
Budapest is favourable for companies who organize incentive tours as besides the cultural and
historical heritage, they can have many optional programs in the capital.
So actually Budapest has all the basic things that are needed for conference organizing but
there must be huge developments made in the future to position itself in the row of the biggest
conference cities of Europe.( capacity, tecchnical facilities, new convention centers, more
hotels, better marketing activities, employee training should be needed)

What do you believe are the key contributors to success in this context?

 Good geographical location

 Cultural, historical sites for optional programs and free time
 Price level
 Quality services
 Good marketing and promotion
 Infrastructure development
 Government contribution and help

BY using SWOT make your conclusions and give proposals to the competent
authorities?

Strengths
- Good reputation
- Active scientific background
- Central geographic location
- Favourable price/value ratio
- Safety
- General tourist attractions
- Professional organizers
- Culture

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Weaknesses
- Lack of complex congress centres
- Infrastructure
- Financial difficulties
- Accessibility /air, highway/

Opportunities
- Strengthening the relationship with international associations
- European Union membership

Threats
- General economic recession
- International conflicts
- Development of neighbouring countries

For success it is necessary to increase capacity, accommodation, technical facilities, construction of

new convention centres, improve marketing activities and to create a better image.

From the perspective of the delegates, what do you consider to be the key elements of a
successful conference package?
 Detailed, well organized program
 Totally organized tour with flight tickets, transfers,etc
 Well organized, consistent meetings and conferences
 Welcome dinner with introduction,good catering
 Optional program possibilities
 Good quality of hotel, services
 Proximity to city center, sites

Which are these ‘competent authorities’ and what are their roles?
 Hungarian Congress Bureau – helps to make the connection bw. foreign congress organizers
and locals
 Conference center – provide place for conferences
 Airline - air transportation
 Hotel – accomodation, catering, banqueting
 Sight seeing tour companies – for optional programs

Hungarian Congress Bureau /www.hcb.hu / :

Since 1st of January 2000 – HCB is a division of the Hungarian National Tourist Office.

Its purpose is to help foreign meeting planners to bring events to Hungary, and to provide free
information on Hungary as a meeting and convention destination, on convention facilities,
services, accommodation, attractions, programs, prices, etc.

Aims:
 Hungary is playing an even more important role on the MICE market
 Hungary is becoming a popular destination, where the meeting planner can always
expect professionally adequate organisation, combined with unusual programs, ideas.

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Main tasks and responsibilities:
 apply for international tenders
 welcome the site inspector groups, organises their rips
 informs the trade and the press
 control the members’ business offers for a conference
 builds a good image through presentations and seminars
 builds an up-to-date database on all conference venues i.e. hotels, universities,
congress centres and others
 provides information for members and business partners by issuing information
booklets
 makes statistical surveys on the conferences organised, evaluates them and sets up
marketing and operational goals according to the findings
 keeps the trade informed on new legal issues
 helps as an advisor when new conference centres are to be built
 advertises the offers of its members
 helps in education

Summary

Both Budapest and Hungary are lacking with respect to the standard of flights, airport and roads,
and in parking opportunities and convention facilities. An even greater problem, however, is that
domestic convention organisers can only offer the Budapest Convention Centre as the largest
venue for those interested in the Hungarian capital. Most hotels can accommodate only a few
hundred participants. The opening of the fully renovated Grand Hotel Royal in Budapest in 2002
resulted in a slight improvement, as a convention centre was created with 30 conference rooms on
an area of 2,600 square metres suitable to accommodate 1,000 convention delegates. Over the last
three years, the Hungarian offer has been expanded with quite a few new convention halls suited to
seat several hundred people. All of the recently renovated four and five-start hotels have been made
suitable for staging conventions.

Figures of the Hungarian Convention Office also indicate that, lacking appropriate infrastructure,
Hungary will miss out on staging some dozen large – 4,000 to 10,000 delegate – conventions in
2004, which will instead be held in Vienna or Prague.

The major investments planned for the capital could, in part, make up for these shortcomings.
These include a convention palace accommodating 5,000 people planned to be built in the
Millennium City Centre on the Pest side of the Danube river. A new, multi-function, 10,000
square-metre conference hall in the Budapest Fair City, on the grounds of Hungexpo, will
accommodate 10,000 delegates. Several investor groups are also considering building convention
centres seating more than 2,000 people in Budapest. The date of their opening is still uncertain.

For success it is necessary to increase capacity, accommodation, technical facilities,

construction of new convention centres, improve marketing activities to create a better image.
Competition- Hungary competes also with Barcelona and is ranked as 8th in the world.
Improving the Human side is necessary.

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29. What is management?

Management is the process of using what you have (resources), what you have to do, and
what you want to do. The Management has to work for the success of the employees.
Manager’s responsibilities are to optimize all resources: people (manpower), money (capital),
material, time, machinery, equipment, energy, work procedures and methods, know-how,
organization. Manager’s tasks are planning, goal setting, organizing, leading/executing,
controlling, evaluating.

Difference bw managers and leaders

Managers: are commanders, responsible for smooth running of the organization, and do
things right.
Leaders: do the right things, more spiritual personality, concerned with long-term
running/development of the organization, visionary power, they do not issue commands, they
persuade and communicate (leave people convinced), people left enthusiastic about goal.
Traits of Hotel Manager: dominance, reasonable, cleverness, social and human relations,
openness, striving for perfection.

Management Tasks:
1) Aim – what they want to reach, mission statement. Coordinating resources to meet
the expectations of all stakeholders (owners, employees, government,
municipalities, etc). Producing maximum profit on capital to increase company’s
assets. From tourists’ perspective, to produce value by realizing optimal price-
service level.
2) Business Philosophies – concepts about importance of quality in reaching
customer satisfaction. Concept governing human relations and attitude. Concepts
on how to handle changes.
3) Strategies: including (a) long-term strategy, (b) tactical activities – how to achieve
it, (c) action plans – step by step plan, timelines, responsibilities, (d) short-term,
operation. Decisions to secure long-term competitiveness and maximum profit.
4) Components of Strategic Planning: market strategy – which segment, target group
to be saved, how will we sell the product; product strategy – what to produce and
offer; environmental and financial strategy.

Explore the different approaches associated with directive and participative /supportive
management.

!!!!!!!!!!!!!!!!!!!!!!!!!!!EZEKRŐL NEM TALÁLTAM MEG AZ ANYAGOT!!!!!!!!!!!!!!!

Classical Approach: focuses on productivity, on formal structure, technical requirements.
(a) Scientific Management/Taylorism – believed in scientific analysis of work, economic
rationality in work behaviour;
(b) Bureaucracy – Weber identified the main characteristics of the bureaucracy theory
where rules, procedures, standards, specialization and hierarchies should be elaborated
and kept; administration and discipline is required; employment is based on technical
qualification and constitutes life long career. Stewart had 4 main features of
bureaucracy, which were specialization – focus on job and not on the person;
hierarchy of authority; system of rules; and impersonality;

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 (c) Structure and Design/Fayol – major organizational activities are finance, production,
commerce, security and management; management functions are planning,
organization, coordination, control, command.
Human Relations Approaches (Herzberg, McGregor)
The System Theories: integration of Classical and Human Relations approaches; interaction
between social and technical factors at work.
Contingency Theory: “If…, then…” – flexibility.
Decision Making Theory: J.P. Sartre – if you do not choose, you choose! Existialism.
Social Action Theory: Silverman, Bowey. Concentrates on the individual.

Examine the effects that each approach might have on the success of a business
operation.
The classical approach is totally about the work itself, it does not focus on employees and
only technical qualification is important. The bureaucratic form within the organization is
typical, employees can make a life-long career. The employees are working under a manager
who controls their work.
Supporting management/leadership is about managers working for and together with
employees to reach the common goal of the organization. This is a new concept and rare but
developing in Hungary today.

Based on your experience and readings please discuss the main characteristics of
Hungarian hospitality managers. What type of manager would you choose to be and
why?

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30. Close to your four star hotel, a new four star hotel has been built and further high
quality four/five hotels will be opening in the city within one year. The profitability of
your hotel has been stagnating.
Taking onto account of all the relevant external and internal business factors,
influencing your decisions, describe the most important management tasks, outline your
short and long term business plan, strategies to improve your position and increase your
profit in spite of the strong competition.

Consider what is expected of the guests and our possibilities to satisfy their needs. Prepare a
SWOT analysis to see where we are.
Reorganize the operation, reduce costs, refurbish, renovate if it is necessary.
Improve your service quality, because the two most important assets of a hotel are the
customers and the employees. Train them and distinguish the hotel in the quality and the
treatment of the guest. The products of the hotels are usually the same but the way they serve
customer can differ to a large extent. This depends on the training provided to employees and
their attitude towards the guests. We can only have satisfied guests if our employees are
satisfied. So first of all we have to be sure that our employees like their work and try to do
everything to satisfy our customers.
Focus also on effective sales with right pricing – use yield management to optimise room
revenue.
Keep up with the new trends: conference facilities, wellness. Focus on banqueting, catering.
Try to get new clients and keep the old ones.
Loyalty program,
New contracts with agents, distribution channels Direct, indirect)
Right and effective marketing. Be clear who your customers are.
Catching up to the competitors.

Short term:
 Do not reduce prices, try to reduce operational costs
 Offer exceptional service and free upgrades/welcome gifts/newspapers – something
that is more than the offer of our competitors
 More effective marketing is needed – eg.invite famous people(free oppotunity to be in
the newspaper, or advertise on the internet)
 Use yield management to optimize revenue
 Organize special events in the hotel restaurant – new year’s eve, national days,etc
 Employee training

Long term business plan:

 Refurbrishment, renovation
 New services (spa, wellness, conference facilities)
 Hire more professional employees or train the present ones
 Cooperation with different companies like sightseeing tour companies, taxi
companies, theatres to be able to offer a wider range of services
 Consider the new trends and try to keep up with them
 Making contracts with local firms to ensure long term business with them
 Cost saving on departmental and hotel level as well

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31. Expand on the importance of the proper handling of the guest cycle's phases within
the framework of front office operation paying particular attention to the registration
process, i.e pre-arrival activity, types of reservation, reservation maintenance, room
allocation, room status definitions, discrepancies, rates, tariffs, methods of payment.
How can the effective application of information technology improve the procedures in
the hospitality industry?

The guest cycle: a division of the flow of business through a hotel that identifies the physical
contacts and financial exchanges between guests and hotel employees.
 Pre arrival- reservation
 Check in/arrival- registration
 Services during the stay- occupancy services/ charges
 Departure - check out and follow up

1) Pre arrival – reservation

 Matching room requests with room availability
 Activities with reservation process:
▫ Reservation inquiry
 Can be received in person, phone, fax, mail, CRS, intersell agency
 Consists of date of arrival, departure, type and nr of rooms required, nr of pax,
room rate code, package
 Made for individuals, groups, tours, conventions
 Sources of reservation: CRS, affiliate/non-affiliate reservation network,
intersell agencies, property direct, group reservation – TA, TO, convention
Bureau, block booked
▫ Determination of availability
 Accepted as requested
 Suggesting alternatives
 FS- free sale, all types of reservations to be made without waiting for
confirmation
 RQ-request, no booking until having the hotel's confirmation
 UC- unable to confirm
 Overbooking policy, reservation related reports, revenue forecast, waiting list
▫ Creation of reservation – reservation record
 Identify guest: name/group name, address, tel., co address, tel
 who made reservation, number of pax, arrival time, reservation type, length of
stay, type of room (double, single, joining, connecting…)
 Special needs (handicapped room, smoking, dog) + additional info – ocean
view, transportation
 Reservation confirmation nr
 billing information - method of payment (credit card info – type, nr, expiration,
name), prepayment info or TA account info, quoting the rate, supplementary
charges, minimum stay requirements and special promotions, exchange rate,
taxes, conditions
 guest history: personal and financial info (guest recognition, always to be
updated!)
 reservation prints registration card-guest just checks it during check in
▫ Confirmation
 Date and time of arrival, room type and rate, length of stay, pax, reservation
type, confirmation nr, modifications

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 ▫ Maintenance reservation records
 Modifying non guaranteed reservation → new confirmation nr
 Reservation cancellation – easy and efficient, cancellation nr, file the
cancellation, money back in case of deposit, check right to cancel
▫ Production of reservation reports
 Reservation transactions report, commission agent report, turnaway – refusal
report, revenue forecast, expected arrival and departure list, reservation
histories
 Types of reservation:
▫ Guaranteed:
 payment guarantee for the room even if it is not used, for one night only
 assures that the room will be held until the check out time of the following day
of the arrival
 the hotel has the financial guarantee
 guest guarantees payment even in case of no show
 prepayment (payment in full before arrival): credit card, advance
deposit (partial payment)
 no show guest of TA- TA is charged
 corporate - takes financial responsibility of no show business traveller
▫ non guaranteed reservation - hold room until a stated cancellation hour (usually 6
o'clock)

2) Check in - registration
 Pre registration activities
▫ All info provided by guest, quick check in → only verify info at check in
▫ Guest folio – guest history
▫ VIP- registration form ready
▫ walk-in
 Creating registration record
 Assigning the room and rate
▫ depends on current availability status, accurate and timely room status info, latest
from HK – vacant, ready, inspected, occupancy report – HK status report
▫ out of order, lock out, on change, vacant-ready-inspected, occupied,
complimentary, stay-over, overstay, do not disturb, sleep-out, sleeper, did not
check out, skipper (left without paying), due out, check out, late check out
▫ room manager software- shows current info on room status
▫ Room status discrepancy- HK and FO info on room s. is different
▫ room rates: rack rate (price lsit), day rate, commercial or corporate rate,
complimentary, group rates, family rate, package-plan rate, seasonal rate
▫ american plan: room + 3 meals, modified American: room + 2 meals, European:
room price only
▫ must be aware of the room characteristics, layout, floor plan
 Establish the method of payment
▫ Cash, pia = paid in advance – credit card imprint, traveller’s cheque, personal
cheque – no obligation to accept, credit card (expirtion date, on-line verification,
cancellation bulletins) – invalid card, denial, if accepted imprinting credit card
voucher, floor limits – the max amount in credit, reserving credit, direct billing –
credit agreement with co when they are paying the bill
▫ Bill has to be signed

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 ▫ Special programs: special incentive awards, mileage, bonuses, a/l promotions,
summer sales, gold passport, diamond level…
 Issue the key – end of registration process
▫ Bell staff show the guest to the room, explain, sell, promote
 Fulfil specific requirements

3) Occupancy
 FO work/ services
▫ log book: journal to record important info and events for staff of different FO
shifts
▫ information directory: to give info to the guests (maps, theatre, bus schedules etc.)
▫ time stamp on mails, messages, massage light on phones, waking up
▫ handling special requests, transport arrangements, tickets,
▫ handling complaints: mechanical, attitude, service related, unusual (little or no
control over it)
▫ changing room status in computer, record maintenance events
▫ voucher- supporting document of transactions
▫ key rack-storing the keys
 Financial activities
▫ no post status-not authorised to have purchases charged to their guest account
▫ house limit-credit limit established by the hotel
▫ floor limit- credit limit to hotels by banks to maximise the amount of credit the
hotel is permitted to accept from the credit card holder without special
authorisation
▫ accounting posting machine- to post, monitor, balance charges
▫ posting- process of recording transactions on a guest folio
▫ auditing- process of verifying FO accounting records as to accuracy and
completeness
▫ cash register- to record cash transactions and maintain cash balances

4) Departure/ check out

 Check all types of messages
 Check room and safe deposit key, securing the key
 Posting outstanding charges
 Verifying account info
 Inquiring about additional recent charges
 Presenting the guest folio
 Verifying the method of payment
 Processing the method of payment
 Updating the room status
 Express check out-a pre departure activity that involves the production and early
morning distribution of guest folios for guest expected to check out that morning
 Self checkout- computerised system
 Financial procedures
▫ zero out: to settle the balance as guest checks out – clear folio
▫ zero balance – stay paid, no extra
▫ unpaid account: guest has left, but still charges on the account
▫ late charge: too late to be charged
 Follow up: thank u letter, business for the future, etc.

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 Mistakes - related at every guest cycle: wrong data entry (misspelled name, wrong
gender, room type, date), missing data (paying method), not qualified staff (language,
IT, attitude), first impression, realising mistakes in the reservation, but not changing it
during check in

 IT- related at every guest cycle

▫ reservation networks: global, galileo, amadeus, sabre
▫ www, email - bigger efficiency
▫ telephone, electronic messages, responses
▫ credit card transactions
▫ self check in /out
▫ Keys (electronic locking system)

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32. As a project leader you are requested to prepare a feasibility study for building a
new hotel close to the airport and motorway. The necessary financial resources will be
available. Analyse the environment by SWOT, and describe the possible nature of the
product including operational conditions.
What recommendations would you make for the developers and operators to secure
profitable operation?

Feasibility study

Determining the feasibility of a hotel:

1. The preparation of a feasibility study
2. The estimation of costs for all elements of the project
3. Sources of financing
4. Type of operation

Market analysis includes:

 Identification of a potential market - type of people to be expected as guests
 Quantificaton of the market – number of people to be expected
 Kind of facility that will appeal to the market
 Estimation of the size of facility
 Estimation of the cost of facility
 Existing or planned hotels in the area
 Number of airlines and transportation facilities in the area
 Analysis of the competitor hotels in the area

Parts of a feasibility study:

1. The SITE – the location is very important
 The settlement ( city )
Extension (size), attractions, population, trends in incomes, growth rate of
population, employment, social + political situation, industry + trade, climate,
future market info, accessibility (transportation), future possible competitors
 The location ( of hotel)
Nature, neighbourhood, accessibility, road development trends, supply with
public utilities, water, sewage, gas, electricity, shape+surface of ground,
meteorological data, conditions of the soil, price
2. The MARKET
 Supply of rooms: listing existing hotels with their capacity + all future
hotels with number of rooms and facilities.
 Labour situation: today, labour demand exceeds the supply. The source of
supply of staff must be determined. Wage trends and the quality of
available labour is important.

Estimation of costs:
 Land – not always an element of cost ( it is usually leased )
o The hotel development process starts with the land acquisition. Generally, the
land component cost represents between 10% to 15 % of the total project cost.
 Construction – biggest element in any hotel project
 Interst during construction – most construction is financed from borowed money

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  Furninutre, fixtures, equipment
– items visible to guests – lobby furniture, guest rooms, equipment in restaurant
– items not visible to guests – kitchen, laundry, cleaning
 Operating equipment – linen,silver, glassware, uniforms
 Inventories - F&B, cleaning supplies, paper supplies, guest supplies, stationery,
engineering
 Preopening expenses – training costs, preopening payroll, advertising, sales expenses
 Working capital – amount of money in the bank

Sources & Methods of financing - Ratio of own capital to loans can be 1:2 to 1:8.
Types: Long-term mortgage financing provided by banks, insurance companies, Loans
provided by e.g. World Bank for hotel and tourism development, Loans provided by
governmental or tourism bodies to promote tourism

When is a hotel feasible?

 If IRR ( internal rate of return) is big enough
 If the economic value upon opening is bigger than the total development costs
 If developer’s profit is 10-15%
 If the land component costs less than 20% of the total project cost.

SWOT
 Strengths
▫ new, modern building
▫ accessibility - easy to reach, no travel time, no traffic
▫ corporate customer clientele – depending on airline
 Weaknesses
▫ far from city centre, business centre, corporate offices
▫ no other business opportunities, leisure facilities nearby
▫ noise
 Opportunities
▫ Ideal for short stays, crew members
▫ Ideal for conference and group business
 Threats
▫ strong dependence on corporate travellers (11/09 recession in business travellers as
well), no or few leisure guests
▫ restaurant and catering opportunities might be unused

To secure profitable operation

 offer exceptional circumstances for conference (quality, IT -conference, express check
in and out etc.)
 high level and additional services (free transfer to city centre/ airport, guest
recognition program)
 effective and objective positioning (by attribute, features, benefits, price)
 analyse the market by size, location, trends, completion
 continual analysis, involve local environment
 good information inflow and outflow
 operational conditions: well equipped meeting facilities, quality catering, soundproof
facilities

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33. What does service mean to you? How would you define “Quality of Services? How
do customers perceive quality in a hotel or in a travel agency? What are the elements of
expectations? What could be the discrepancies between expectations and experience
perceptions? Is service level measurable? If yes how would you measure?
Compare service level in a world class international and a 3 star local hotel? What do we
understand by operational standards and what is their role in securing constant quality?

Service in tourism is experience of feeling.

Quality is something is that you feel the presence of and you definitely feel when it is
missing. Nowadays it is not good enough to fulfil customer expectations but we have to
exceed these expectations.
Quality is one of the main success factors, it is closely linked to expectations, good quality is
if the product or service meet or exceeds client expectations. Poor quality is the opposite. We
have experienced many examples of poor quality, like spelling mistakes, computer errors, late
delivery and sloppy work.
Quality is no longer simply the lack of defects in a product, but involves providing goods and
services that meet customer expectations.
Quality creates confidence in people.

TQM – Total Quality Management – Deming, Duran

Basic principles:
 quality through people – quality defined by customer
 quality is measured to requirements
 clear quality values
 everyone’s involvement
 PDCA cycle – plan, do, check, act
 beating the competition
 getting to market faster
 doing it right by the first time
 continuous improvement
 overcoming resistance to change
 global competition in a global environment
 labour with a new face
Benefits of TQM
 improved employee relations
 improved quality an lower costs
 greater customer satisfaction
 improved market share and profitability

Value through quality is the key element of business strategy everywhere. Build products and
give services that people want and follow up after the sale.

Value for money, customers will compare based on their international experience. Not what
we believe, not what the management believes, but only the customers’ judgement.

Important: communication!!
Guest questionnaires, constant consumer feedback, talk to the guest and find out their opinion,
encourage staff to inform management about guest comments.

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Measuring service level – see Q36.
Standards are uniform levels of performance that you can coach people toward. Having clear
standards means, that someone can be performing below the target and still be productive
members of the team as long as they are making progress towards meeting the standards.
Standards help your staff know what you expect and help them measure how they are doing.
Benchmarking is the process of determining who is the very best, who sets the standard, and
what that standard is. If you don't know what the standard is you cannot compare yourself
against it.
Benchmarking (also "best practice benchmarking" or "process benchmarking") is a process
used in management and particularly strategic management, in which companies evaluate
various aspects of their business processes in relation to best practice, usually within their
own industry. This then allows companies to develop plans on how to adopt such best
practice. Benchmarking may be a one-off event, but is often treated as a continuous process in
which companies continually seek to challenge their practices.

Avoid discrepancies between customers expectations and experience by:

Built quality, consistency, improve constantly, training, create teamwork, develop employees,
involvement, supervise skilfully, facilitate workers, eliminate fear, philosophy of excellence.

Hotels comparison:
Some basics should be the same – clean hygienic facilities, friendly service, efficiency,
3* hotel requirements:
 Room size: 14sqm sgl, 18sqm dbl
 Min. 75% of rooms with own bath
 Lift if more than 3 floors, telephone in each room + in lobby, 2 catering units, day-
time room service
 Fax, safe, sewing-kit, suite possibilities, min. 1 person at reception always who speaks
languages
 Special staff entry
 Linen change 2/week and before arrival
5* hotel requirements:
 Room size: 18 sqm sgl, 26sqm dbl, 34-40 sqm suite
 Bathroom, phone, radio, fridge, TV, air-conditioning, safe /room
 Linen change: every 2nd day
 1 Suite/ 30 rooms
 2 restaurants, 3 other catering units, 24-h room service
 conference rooms, elevators (separate for luggage)
 fax, bell service 24-h, car park/garage
 min 3 foreign languages spoken at reception

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34. Compare the advantages/ benefits and weaknesses of the international hotel chains
or multinational travel companies with the independent hotels and travel agencies in
respect of the organisational, financial and marketing approaches.

Multinationals

 Advantages
▫ marketing: well known name on the market (branding), better positioning
opportunity, centralised marketing/ reservation, multiplied buying power
▫ finance: easier access to financial resources, higher capital, lower taxes or
advantages, cost savings on eg.: advertising, marketing, reservation system
▫ organisational: new corporate culture is introduced, global presence, corporate
standards (Q), respected by the industry (?),
▫ technological developments: because of the need of cross communication
▫ support for training and travel of employee from the mother company-centralised:
equal chances + travel opportunities for employees
▫ quality is kept on high level, many times controlled and checked

 Disadvantages
▫ marketing: dealing with cultural differences, missing opportunities by not
recognising the market differences
▫ Organisational: too complex structure, difficult to control, long and complicated
decision process, conflicts in interest
▫ financial: high transportation, communication(internal), management and staff
cost, difficult cost allocation, difficult in harmonising the accounting system
▫ highly qualified manager / staff is needed
▫ chain reaction: one bad decision effects many
▫ cross cultural differences, language barriers, communication gaps
▫ missing info on local market – sometimes missing

Independents

 Advantages
▫ organisational: independence, flexibility, faster and better reaction to changes,
smaller organisations
▫ finance: no overloaded costs, costs are better seen and followed, simple accounting
▫ marketing: segments local market knowledge, word of mouth promotion, unique
face, positioning, can target niche markets

 Disadvantages
▫ Finance: small capital, more bankruptcy danger
▫ organisational: less experienced staff, no chance for foreign works
▫ marketing: no brand, less money for it (usually) (eg.: researches)
▫ less availability of high IT

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SAME COUNTRY MULTI-OPERATION – VERTICAL INTEGRATION

Advantages: (some) Disadvantages/difficulties: (some)

Lower management and overhead cost Conflict in interest
One accounting, finance, marketing and Human conflicts
other administrative department
Multiplied buying power Cost allocation problems
Lower distribution costs High communication cost
Less cash flow problem if…. More cash flow problem if…

MULTI-OPERATION IN DIFFERENT COUNTRIES – VERTICAL INTEGRATION

Advantages: (some) Disadvantages/difficulties: (some)

Multiplied buying power Difficult and expensive to manage
Local information - easy market research Cultural differences
Local knowledge, specialisation High management costs
Global presence - corporate standards Difficult cost allocation
Global sales deals Conflicts in interest
Respected by the industry Difficult to synchronize the accounting
system – duplications
Benefits from complementary relationships Expensive internal communication
Long, complicated decision process.

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35. Please define wha tis Operations and Operations Management. What are the main
elements of Operations MAangement? Why is the productivity and quality so important
in Operations? Explain the interdependence of Operations and Marketing.
Explain the main components of purchasing. Describe the responsibility of a purchasing
manager in a large chain hotel and give examples how purchasing contributes to the
bottom line? Why is value more important today than before? Analyse the relationship
between the value elements?

Operations is a series of activities, manufacturing, supply, transport, service, process of

transforming inputs into useful outputs.
Operation managment is concerned effective and efficient management of operation.
Challanges: productivity (doing more with less)/quality/profitability
Operation is the heart of the service business, therefore a very close cooperation should be
established between Operations and Marketing (Hostility problems)

Purchasing: establish process, determining required product, deciding about quality,

selecting suppliers, negotiating, arranging payment, maintaining proper relations
Responsibility: specify goals, check systems, assess performance, ethical approach
Goals: right product/right time/right quality/best supplier/right price

Value is a result of quality, service, price, cost.

Question: make or buy? Oursourcing or not?

Operations management consists of those activities which are concerned with the acquisition
of raw materials, their conversion into finished product, the supply of the product to the
customer. Operations Management is concerned with design, opertional conctrol of the
system that matches the organisation’s resources to customer service needs, inputs
(resources), transformation (value added), outputs (service).
Operations management must link: staff, equipment, materials, info about marekting and
technology, the actual pattern of customer.

Effect on profit:
 by improving on effectiveness (optimal use of resources) the operations aim is: to
make the co more competitive to meet the customers needs + increasing effectiveness
ensures that resources are used in optimal way and are not wasted in appropriate
activities.
 By improving efficiency (minimum amount of resources used) by cost reductions the
financial results will improve. Increasing efficiency ensures that hte min required
resources are used for a particular activity.
 Succces factors – see whichever other question

Functions of an organisation:
Managing director + fiannce + personal or HR, Operations/production, marketing and sales,
research and development, purchasing → there could be a wide variation in the disposition of
responsibilities and authorities. The operations function is the heart of the orgnaisation.
Interaction with other functions:
 Personal/HR and purchasing is directly serving the operation
 Finance both provides service and is monitoring, controlling
 While operations serves the marketing goal, it gives inputs as well –
marketing handles demand, the market, it links product and customer.

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36. Effective customer care policies require commitment and competence on the part of
all employees. How do you define “commitment and competence”?
With reference to a number of examples from the hospitality and travel industry,
comment on how can treatment of employees encourage or discourage the delivery of
effective customer care resulting in customer satisfaction.
How would you measure employee and customer satisfaction?

 In the hospitality industry, service is a commodity. It is a basis of competition. Good

service is about customer care.
 Many companies today feel that the key to service is offering a quality product efficiently
and quickly. Many scientists believe that when a new technological advancement is made,
it must be counterbalanced by a human response. Thus we are a high tech/high touch
society. We want the greater service delivered by new systems, but at the same time we
still need the human element.
 The service culture focuses on serving and satisfying the customer. The service culture
has to start with top management and flow down.
 A service culture empowers employees to solve customer problems. It is supported by a
reward system based on customer satisfaction. Human beings generally do what is
rewarded. If an organization wants to deliver a quality product the organization’s culture
must support and reward customer need attention.
 The core product is the food to be served, however: “Location, ambiance, décor,
atmosphere, cleanliness, music, variety of dishes, menu presentation, Chef involvement,
prices, speed of service, friendliness of service,” as we see a good part is intangible. The
intangible service is as important to the customer as the product itself: Attention to the
customer, Courtesy, An atmosphere of hospitality, Employee’s knowledge of the product,
Helpfulness / assistance to customers, An interest in customers' opinions and feedback,
Complaints resolution, Company policies that work for customers and not against them,
Order and cleanliness.

The customer expect the product to: answer customer needs + have a reasonable price + have
a good appearance/outlook

Customers: groups/individuals who buy or use a particular product, service or facility.

4 Ps of customer care: Product, Process, Price/Payment, People (staff)

How to develop a customer service approach?

 Identify customer needs
 Develop the right products, services
 Measure customer satisfaction
 Develop internal systems
 Training the staff

Developing customer service program

Why: the factors which drive a customer centered approach are either internal or external
to the organization.

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 o Internal factors: Organizational benefits; Implementing an improved
customer service strategy can bring considerable benefits to a hospitality
and catering organization. Other tangible benefits of introducing excellence
in customer service are likely to include: Lower staff turnover, Fewer
complaints, Improved co-operation between departments, Reduced
absenteeism by staff, Reduction in marketing budget (by retaining more
existing customers), Improved security, Less waste (of materials, time,
money), Improved quality in other aspects of the organization’s work
o External factors: The rise in consumerism, Changing customer
expectations, Competition, The importance of existing customers.

Necessary strategies of customer service program:

 Management commitment – it is essential and needs constant reaffirmation
 Staff involvement – training for the whole staff is important. Quality circles: staff is
given time to consider how to improve the quality of the operation. – a japanese idea
 Program evaluation in practice – 3 main elements:
1. Setting performance standards/criteria
2. Measuring to see if the standards are being met
3. Implementing measures to rectify any shortcomings

Measuring to see if the standards are being met - Implementing measures

 Setting performance standards – employees need to know the standards, they need
clear job description, and performance standards for the tasks they are responsible for.
 Measuring to see if the standards are met – some techniques: surveys, observation,
checking financial data, analyzing customer data
 Surveys – if designed and carried out effectively it could be important to management.
Surveys can be directed at: customers, staff, internal customers, management, non-
users...
 Rewarding service: As the new training program is over, the new behavior is taught to
employees must be reinforced. Many companies in the hospitality industry use
incentive programs to accomplish this. But to be effective, the program must reward
the desired behavior.

Competence
One of the central values of a good employee is to be professionally competent, thus be able
to perform the required tasks in an acceptable manner regarding quality.
Thus responsibilities and competences are strongly related. They build the backbone of job-
descriptions. These are pre-defined tasks, responsibilities, competences and prequisitives
( physical, mental, educational ) of a position.
Competence and responsibility are not just “given” to the employees, but designed for
individuals, as we are all different. The employees and managers on the other hand have to be
ready for being competent and responsible, otherwise the responsibilities might be taken as
a burden, and this will result in conflict.
One of the usual mistakes is when we make a list of desirable qualifications and traits, we try
to create a perfect employee. But in the reality it is very difficult to select a perfect candidate
who performs the required quality. If we do not consider the individual factors of the
employees, this will result in frustration.
To be competent means to accept responsibility and be self-confident based on our skills and
qualifications, and experiences. This can be developed only personally, and if exercised too

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rigidly by the organisation bureaucracy will prevail. In a positive interpretation it is taken
voluntarily, and is desirable.
To accept responsibility and to feel to be competent we need to be self confident. This is
strongly related to the personal quality, which means to meet our expectations and of our
environment ( try to close the gap between ). A related concept is the self-esteem, which is
simply the evaluation we make and hold about ourselves.
Levels of competence:
- Unconsciously incompetent ( Don’t know what I don’t know )
- Consciously incompetent ( I know what I don’t know – I can improve )
- Consciously competent ( I know that I know – self confidence )

Commitment
Means to be willing to do the tasks imposed by the organisation on the required level of
quality. One of the central values of a good employee is the total commitment and effort. For
this an employee needs to:
- Recognise the importance of the individual within the company
- Be an active part of an organisation
- Aim to do the best we can
- Match the goals of the organisation to the personal goals
- To enjoy the work and find the tasks challenging
- Personally choose our workplace

Commitment is not only important for the employees, but an organisation wide matter,
since if the employees are not performing on the required levels, the producivity and level of
quality will drop (especially in the labour intensive industries, such as the hospitality
industry ). This is strongly related to the profitability of the organisations. The managers need
commited employees, since their duty is to get the tasks done by their subordinates (who are
willing and able to accomplish those ).
For this the organisations should:
- Make the employees understand their importance in the organisations as a system.
- Individually design the tasks and responsibilities of employees
- Evaluate the employees performance on a permanent basis ( positive reinforcement
– behaviour modification ).
- Motivate the employees individually ( not only with money – spoken word can be
important )
- Provide a nice working-environment

People make the difference

One of the most important assets in hotel and travel businesses are THE PEOPLE.
Why? As the competing firms have more or less the same resources, the only winning factor
is the working force, which can make the difference.
Important factors to be considered when talking about the quality of workforce: Competence,
Enthusiasm, Flexibility, Commitment
The “people” are selling services: which is a feeling that a service recipient has when he/she
is with the service provider. Good service not only meets, also exceeds the expectations,
people’s needs.
The two most important assets of a company are: 1. Satisfied customers + 2. Satisfied employees

Importance of front line staff: empowerment, meeting employee’s expectations, work climate,
appraisal, employee fluctuation. Motivation of employees!!!!!!!!!

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The cycle of failure: Low wages → poor quality staff → no training → poor delivery of
services → low return → reduced profit levels → lower wages /managers/

The cycle of success: Incentives → high quality staff → regular training → good delivery of
services → high return → high profit levels → skilled managers

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37. Senior management has set as an objective of raising the quality level in a hotel or
TA. How do you define standards, what is the purpose of standards, what quality
assurance systems would you recommend? Explain your proposal. What are the
differences between the main quality assurance systems? What would you do if you
intend to obtain the European or the national quality awards.

Quality is something is that you feel the presence of and you definitely feel when it is
missing. Nowadays it is not good enough to fulfil customer expectations but we have to
exceed these expectations. Totality of features of service satisfying a need.
Quality is one of the main success factors, it is closely linked to expectations, good quality is
if the product or service meet or exceeds client expectations. Poor quality is the opposite. We
have experienced many examples of poor quality, like spelling mistakes, computer errors, late
delivery and sloppy work.
Quality is no longer simply the lack of defects in a product, but involves providing goods and
services that meet customer expectations.
Quality creates confidence in people.

Why is it important in service operations? – To gain competitive advantage by providing

excellent quality. How can we do this?
- By designing meaningful standards for quality
- Enforcing these standards ( make the employees understand the importance of
these )
- Design and define controll points
- Control and evaluate on a permanent basis
- Implement change where necessary ( improvement )

In the service industry the quality is the only differentiating factor, since the range of services
offered by the various companies are more or less the same. “ The people make the
difference”, so the standards are related to the activities of people.

Dimensions of service quality: reliability, security, knowledge, responsiveness, assurance –

courtesy, empathy – individual attention, tangible elements

Customer perceived quality: experience, word of mouth, advertising, needs

Service Gaps – what causes customer dissatisfaction:

Gap 1. – Promotional gap: problems with marketing
Gap 2. – Understanding gap: managers and staff not understanding customer needs
Gap 3. – The Procedural gap: if customer expectations are not translated into appropriate
operating systems
Gap 4. – The Behavioural gap: insufficient training of staff
Gap 5. – Perception gap: customer perceptions about the hotel differ from reality

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TQM – Total Quality Management – Deming, Duran
Basic principles and concepts:
 quality through people – quality defined by customer
 quality is measured to requirements
 clear quality values
 Process orientation
 continuous improvement
 everyone’s involvement
 Supportive leadership – working for the success of employees
 Customer focus
 PDCA cycle – plan, do, check, act
 beating the competition
 getting to market faster
 doing it right by the first time
 overcoming resistance to change
 global competition in a global environment
 labour with a new face
Benefits of TQM
 improved employee relations
 improved quality an lower costs
 greater customer satisfaction
 improved market share and profitability

EFQM - European Foundation for Quality Management

EFQM, a not for profit membership foundation, is the primary source for organisations in
Europe looking to excel in their market and in their business. Founded in 1989 by the CEOs
of prominent European businesses, EFQM is now the hub of excellent, globally-minded
organisations of all sizes and sectors, and both private and public.
EFQM – 9 elements of self assessment: Leadership, Policy and Strategy, People
management, Resources management, Processes, Customer satisfaction, Employee
satisfaction, Impact of society, Results
The EFQM Excellence Award is Europe's most prestigious award for organisational
Excellence.  It is open to every high performing organisation in Europe and focuses on
recognising Excellence and providing detailed, independent feedback to all Applicants to help
them on their continuing journey to Excellence.  The EFQM Excellence Award sits at the
pinnacle of dozens of regional and national quality awards and Applicants have often been
successful in these before applying for European recognition.  2006 marks the fifteenth cycle
of the EFQM Excellence Award.
There are special Prizes in each category in the following areas: Leadership and Constancy of
Purpose, Customer Focus, Corporate Social Responsibility, People Development and
Involvement, Results Orientation, Management by Processes & Facts, Continuous Learning,
Innovation and Improvement, Partnership Development

The EFQM Excellence Model - Regardless of sector, size, structure or maturity, to be

successful, organisations need to establish an appropriate management framework.

The EFQM Excellence Model was introduced at the beginning of 1992 as the framework for
assessing organisations for the European Quality Award. It is now the most widely used

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organisational framework in Europe and it has become the basis for the majority of national
and regional Quality Awards.
The EFQM Excellence Model is a practical tool that can be used in a number of different
ways: As a tool for Self-Assessment, As a way to Benchmark with other organisations, As a
guide to identify areas for Improvement, As the basis for a common Vocabulary and a way
of thinking, As a Structure for the organisation's management system
The EFQM Excellence Model is a non-prescriptive framework based on 9 criteria. Five of
these are 'Enablers' and four are 'Results'. The 'Enabler' criteria cover what an organisation
does. The 'Results' criteria cover what an organisation achieves. 'Results' are caused by
'Enablers' and 'Enablers' are improved using feedback from 'Results'.

Measuring service level

Standards are uniform levels of performance that you can coach people toward. Having clear
standards means, that someone can be performing below the target and still be productive
members of the team as long as they are making progress towards meeting the standards.
Standards help your staff know what you expect and help them measure how they are doing.
Standards make the quality measurable. Two dimensions of the standards: operation and
human attitude.

Benchmarking is the process of determining who is the very best, who sets the standard, and
what that standard is. If you don't know what the standard is you cannot compare yourself
against it. Process used in management and particularly strategic management, in which
companies evaluate various aspects of their business processes in relation to best practice,
usually within their own industry. This then allows companies to develop plans on how to
adopt such best practice. Benchmarking may be a one-off event, but is often treated as a
continuous process in which companies continually seek to challenge their practices.

I.S.O. standards.
International Standard Organisation is a business model of excellence, built on internationally
accepted merits ( create order, systemize ).
The main purpose of these standards is to assertain that all demands in respect of quality are
fulfilled.
The systems are standardised – using a questionnaire for assesment of quality:
- Is the quality assurance in place- according to which standard?
- How is quality organised? ( Quality manager, internal audits, trainings regular ? ).
- How is the customer service organised – production process ?
- Level of written instructions? Documentation ?
- Corrective actions – establish procedures for investigating, analysisng non-
conformances, and implement change.

Problems: Designed for manufacture-operations. Standards are not quality alone ( especially
in the case of services-subjective evaluation ).

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ISO 9002 is a quality assurance model made up of quality system requirements. This model
applies to organizations that produce, install, and service products. ISO expects organizations
to apply this model, and to meet these requirements, by developing a quality system.

Management responsibilities: Define a quality policy, attitude towards quality, organizational

structure that you will need in order to manage your quality system.

Quality system requirements: quality system and a manual that describes it, consistent with
your quality policy, quality plans for products, processes, projects, and customer contracts.

Contract review requirements, Product design (not used by ISO 9002), Document and data
control, Purchasing requirements, Customer-supplied products, Product identification and
tracing, Process control requirements, Product inspection and testing, Control of inspection
equipment, Inspection and test status of products, Control of nonconforming products,
Corrective and preventive action, Handling, storage, and delivery, Control of quality records,
Internal quality audit requirements, Develop internal quality audit procedures which, Training
requirements - quality training procedures, Servicing requirements, Statistical techniques

H.A.C.C.P. standards.
Designed for organisations with gastronomic activites ( handling food ), to provide the
necessary hygienic standards, in order to prevent any hazardous situation arising from the lack
of hygienic circumstances endangering the health and safety of the people involved in the
production-service-consumption procedures.
Any activities fall under the prescriptions and standards of this systems regarding the process
of food preparation ( from the aquisition of raw materials till the service of the end product ).
Main phases to controll :
- Packaging and transportation of raw materials, and partly-prepared products
- Receipt of raw materials
- Transportation within the organisation ( designing the routes )
- Storage ( conditions, temperatures, dates, times )
- Preparation ( cleaning, portionning, cooking, design of separate areas )
- Service ( Hygienic rules, holding times )

Main areas concerned:

- Design the routes of raw materials from the point of receipt to the storage and to
the cleaning and portionning areas ( separate corridors and elevators for hazardous
raw materials and “clean end-products” to avoid cross-contamination )
- Separate stores for various items ( dry storage, vegetables, refrigerators for diary
products, egg, meets, end products....).
- Set the conditions and rules of these storages ( temperatures, humidity, best before
dates, holding times ).
- Appoint and indicate ( using tags, posters, signs ) those areas that are considered to
be hazardous ( eg. : washing hands after handling used plates ).
- Set the personal hygienic rules and procedures for those handling food, and
indicate those in the appropriate areas. ( gloves, uniforms, detergents, wahsing
hands )
Separate the kitchen areas (preparation- cooking, black wash-white wash ... ).

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38. Please investigate the expected results of BBB Hotels Kft. for year 2001
Start with GOP, then look into the departments? What is your opinion about the
company’s financial controlling? Having the attached figures only is it possible to value
company and can you indicate any comprehensive methods? Explain them briefly.

 Great increase in GOP (84%), GOP margin increase 24,4% What does it show?
 Room profit increased by 12% due to 8% revenue increase + 4 percent cost savings
(no savings on payroll)
 F&B loss is smaller
 Medical dept higher loss as revenue increase 3%, cost 8%
 Administration and marketing and Sales – great savings
 Total overhead payroll saving – reason: headcount decrease
 Financial controlling quite good, efficient cost/expense management
 More info needed to value the co. - Occupancy rate, guest satisfaction index, customer
profile, effect of marketing

Other methods to measure:

1) TQM – see Q37.
2) The Balanced Scorecard is a conceptual framework for translating an organization's
vision and mission into a set of performance indicators set around four perspectives:
 Financial,
 Customer,
 Internal Business Processes, and
 Learning and Growth.
The BS is a program that focuses on generating long term economic value. The main
difference is that the balanced scorecard focuses on the "drivers" or lead indicators of future
performance. Most traditional measures such as return on capital, operating profitability or
economic value added are financial measures. Financial measures describe yesterday's
strategy as a cornerstone of the strategic management system. The key first step is building
the scorecard This essentially is where you want to take the company.
3) Benchmarking – see Q33.

Profit maximization is one of the main goals of an organisation. This means making the most
amount money in the shortest possible time.
All of the various readers of financial statements (managers, owners, investors, and creditors)
have an interest in analysing and interpreting the financial statements. Managers are very
concerned about the internal operating efficiency of the organisation and will look for
indications that things are running smoothly, that operating goals are being met and the
various departments are being managed as profitable as possible. Stockholders, on the other
hand, are more interested in the net income and about future dividend prospects and in many
cases would not be concerned about the internal departmental results.
Investors may be interested in the net income, but they are even more interested in the dept-
paying ability of the company. A company may have good earnings, but because of a shortage
of cash, may not be able to meet its dept obligations.
Comparative analysis involves putting two balance sheet or income statements side by side,
showing the differences between each pair of comparable figures in both currency and as a
percentage change.
Comparative, common size statements apply the same technique of putting two sets of
balance sheet or income statement figures side by side, but in this case one figure is given the
value of 100 percent (total assets and total liabilities plus stockholders’ equity on the balance

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sheet; total revenue on the income statement), and all other figures are expressed as a
proportion of that 100 percent amount.

Ratio Analysis
A method of analysing balance sheet information, in conjunction with some income statement
information, is known as ratio analysis. A ratio is a comparison of two figures.
The most important ratios are:
 Current ratio: Current assets/Current liabilities: It is indicative of a company’s ability
to pay off its short-term depts (current liabilities) without difficulty. Creditors
generally prefer to see a high current ratio because it assures them that the operation
will be able to meet its current payments due on loans made or credit extended. On the
other hand, owners prefer a low current ratio because a high ratio generally means that
too much money is tied up in working capital and not being used as profitably as it
otherwise could be.
 Profitability ratio: this shows the relationship between the net income of the company
and other items. The most important is the Net Income to Revenue Ratio, which is
known as the profit margin. This measures management’s overall effectiveness in
generating sales and controlling expenses. Calculated as follows: (Net income after
income tax/Revenue)×100. Means that out of each $1.00 of revenue, how much the
net income is.
 Turnover ratio is calculated to determine the activity of certain classes of assets, such
as inventories, working capital. The ratio expresses the number of times that an
activity (turnover) is occurring during certain period of time and can help in measuring
management’s effectiveness in using and controlling these assets. Working capital:
Current assets minus Current liabilities. It is another name for the Shareholder’s
Equity.
 Working Capital Turnover: Revenue/Average Working Capital. This ratio can vary
widely from as low as ten times per year (for a restaurant) to as high as fifty times or
more a year (for a hotel). Too much working capital means ineffective use of funds.
Too little working capital may lead to cash difficulties if revenue begins to decline.
 Operating ratio includes calculations of labour cost, average room rates, occupancy
percentage and average checks. These are important elements which needed to value
the operation of a company.

Costs
 Direct cost: depending on the degree of revenue. They are considered to be
controllable. (food, beverage, linen, laundry)
 Indirect cost: not affected by revenue increase or decrease. Cannot be charged to any
specific department.
 Controllable cost: are those which management has the capacity to restrain (casual
labour and food)
 Joint cost: is shared by and thus the responsibility of two or more departments or
areas.
 Fixed cost: over a short period of time (one year or less) do not vary with revenue.
(rent, insurance)
 Variable cost: varies on a linear basis with sales or revenue. (food, beverage, laundry)
 Total cost: the sum of variable and fixed costs
 Semifixed or semivariable cost: not always variable directly to sales (maintenance,
utilities)

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Breakeven analysis
The break even point is that level of revenue at which there will be neither net income nor
loss.
This is a technique used in advance planning of the business’ operations. It is a means of
estimating the amount of sales needed in order to cover expenses and make a given amount of
profit.
The first step is to find out the amount of sales required to cover expenses only or “break
even”. At first sight this may seem pointless, but it is in fact a necessary step to understand the
whole process. It is obvious that in such a break-even situation, total sales must be equal to
total costs. However, there are two sorts of costs. Fixed, which must be paid regardless our
revenue and variable which are costs of the products.
LIMITATION OF THE BREAK EVEN ANALYSIS
 It is difficult to allocate fixed and variable costs
 It assumes that variable cost vary directly with the sales volume
 It assumes that fixed cost will remain fixed during the period
 It is limited to individual situations or departments
 It is only a guide to decision making to show from which point the operation should not
continue

Labour cost
% of Revenue to Wages shows what is the percentage of revenue was spent on labour. The
cost of labour generally accounts for considerable amount of money. As a percentage of sales,
labour cost typically ranges from 15% to 35%. There are many factors can be considered
which can affect the labour costs, such as sales volume, location, equipment, training, and
management.
Labour turnover rate, a ratio relating the number of departing employees to the total number
of employees and usually expressed as a percentage, which tend to range between 10 and
20%.

146
39. You are asked to give a presentation in Parliament about the benefits, the results and
importance of tourism in the Hungarian economy in order to get an increased budget
for future development of Hungarian tourism. Provide set of notes for this presentation
and your arguments.

Importance and benefits of tourism

A properly planned, developed and controlled tourism industry will positively affect the
society and the economy as:
- it can increase economic performance, improve economic balance,
- helps the less developed regions to join up,
- helps to preserve cultural and natural heritage of the country,
- through tourism the life standard of the population can be improved
Despite this fact governments continually fail to recognise its economic impact and exclude
the industry from the policy and infrastructure investment planning process.
Tourism has become one of the major socio-economic sectors in the world and one of the
leading components of international trade since it has been steadily expanding at an average
rate of about 4-5 % annually since the latter half of the 20 th century. By now, tourism is
widely acknowledged as the world’s ‘largest industry’:
 number one generator of jobs
 one of the world’s biggest exports
 major stimulus for investment and growth.

World Tourism in numbers (2005)

 808 million international tourist arrivals for the first time ever (+5.5%)
 total demand of over USD 6200 billion in foreign exchange receipts
 74.2 million jobs worldwide (2.8% of the total)
 USD 1712 billion GDP (3.8% of the total)
 Direct and indirect economic effects altogether: 221.6 million jobs (8.3% of the total),
USD 4754.7 billion GDP (10.6% of the total), USD 1512 billion export (12% of the
total), USD 918 billion capital investment (9.4% of the total) and USD 285 billion
government expenditures (3.8% of the total).

European Tourism in numbers (2005)

 18 million more international tourist arrivals (+4.3%)
 leading role: 54.6% of all international tourist arrivals (reaching 717 million in 2020)

Tourism in Hungary (2005)

 guest nights at commercial accommodations has exceeded 19 million for the first time
 altogether 6.9 million guest arrivals (+4.8%)
 income from public accommodation fee increased to a higher degree than the inflation
(total of HUF 112 319 million (+13.2%).
 Balance of tourism payments: following a continuous decline after the record in 2001,
the income started to increase again (€ 1085 million, +5.2%)
Balance of Tourism Payments, 1995-2005
Euro million
5 000

4 500

4 000

3 500

3 000
Credit
2 500 Debit
Net
2 000

1 500

1 000

500

147
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Year
 Economic importance of tourism in Hungary, 2005
Government Capital
GDP Employment
Expenditures Investments
Direct Indirect Direct Indirect
billion USD thousand people
4.7 10.6 0.6 2.3 213.8 345.0
%
4.2 9.3 5.2 7.4 5.5 8.9
Source: WTTC
Benefits of tourism
• Direct benefits: are realized through direct tourist expenditures for goods and services
in the destination. Forms:
• Business receipts
• Income
• Employment
• Government receipts from the sectors that directly receive the tourism expenditure
• Indirect benefits: are generated by the circulation of the tourism expenditure in the
destination through inter-business transaction in the domestic economy (i.e.:
investments and spending by businesses benefit directly from tourism expenditures)
- Direct business receipt are re-spend as investments or used to purchase other goods and
services from domestic suppliers
• Induced benefits: some of additional personal income (related to the change of
tourism expenditure) is spent within the destination and this results higher level of
income an jobs in the local good and service sector.
(Induced + indirect benefits = secondary effect)

Multipliers: measure the effect of expenditure introduced into an economy

 Tourism Multipliers: are used to determine changes in output, income, employment,
business and government receipt and balance of payments due to a change in the level
of tourism expenditures in an area.
 Leakage: refers to the process through which tourism receipt leave the destination’s
economy
• payments for import (repatriation of profits to foreign corporations, salaries paid to
non-resident managers, payment for imported goods and for promotion and advertising by
companies based outside the county)
• money saved without re-investments
 Multiplier effect: the net effect of the successive rounds of spending and leakage of
the added tourism expenditure
 Some commonly used multipliers:
– Tourism Income Multiplier (TIM)
– Tourism Employment Multiplier
– Government Multiplier
 Multipliers can be calculated:
– For a county
– For a region
– For a community
 Multipliers can be calculated on different ways – be careful with comparisons!

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TOURISM, SUMMARY DATA

YEARS INTERNATIONA HUNGARIANS TOURISTS TOURISM TOURISM

L ARRIVALS TRAVELLING ARRIVALS NIGHTS RECEIPTS AND
(THOUSANDS) ABROAD (THOUSANDS) (THOUSANDS) EXPENDITURES
(THOUSANDS) (MILLION EUR)
1998 33 624 12 317 5 440 16 916 1 934
1999 28 803 10 622 5 552 17 327 1 909
2000 31 141 11 065 5 941 18 369 2 245
2001 30 679 11 167 6 073 18 648 2 596
2002 31 739 12 966 6 173 18 450 1 629
2003 31 412 14 283 6 315 18 611 1 241
2004 36 635 17 558 6 616 18 899 962
2005 38 555 18 622 6 933 19 335 1 085

Characteristics of Hungarian Tourism

Unfortunately, Hungary is not endowed with spectacular world-famous features but has a
wide variety of other tourism resources, such as hot springs and spas, cultural establishments,
traditional events, natural resources, national parks, and popular sports. Based on the
favourable situation of the country (Central Europe has the largest amount of tourist traffic in
the world) and the recent developments taken place in tourism, the quality of both natural and
man-made attractions is being improved in order to be able to offer highly competitive tourist
products.

The attractions which play the most significant role in the Hungarian tourism are health,
congress and incentive tourism; cultural, wine, gastronomic, village (rural tourism), active,
youth, green (ecotourism), sport and recreational tourism.

Major Factors Influencing Tourism in Hungary

As in every other sector of national economies, both incoming and domestic tourism are
affected by several positive, negative or even neutral features. In case of the Hungarian
inbound tourism, the improving global economy, the EU membership, the increasing
popularity of Central and Eastern European destinations, the growing preference of
second/third trips and short breaks, the favourable changes in foreign exchange rates and the
focused tourism marketing communication in the international market have positive impacts.
Considering negative factors, terrorism and natural disasters, high energy prices, the lack of
economic stability on European source markets, reduced per trip spending and the stronger
competition between destinations must be taken into account.

In the field of domestic tourism, the improving financial position of the public, the higher
popularity and wider scope of acceptance of holiday checks, the larger number of second/third
trips and short breaks, the increasing demand for quality added services and the focused
marketing communication have a positive impact, while the growing popularity of foreign
trips and the siphon effect of low cost airlines negatively affect this sector. The limited
number of national holidays close to weekends can have both positive and negative effects on
domestic tourism.

149
Results in the Hungarian tourism
Incoming tourism:
 38.6 million foreign arrivals in 2005 (+6.9%),
 Europe generated 97.7% of the arrivals including 56.1% from EU member countries
 Main source markets: Germany, UK, Austria, Italy, USA, Nordic countries (Denmark,
Finland, Norway and Sweden) and the Netherlands.
 Emerging source markets: France, Spain, Japan, Russia, China, Poland, Israel and
Romania.
 Dynamic increase of incoming tourism in higher category (45% of foreign guest
nights at 4 and 5 star hotels) → shift in demand for higher quality services
 Strong seasonality and geographical differences (three most popular region – 85%)

Domestic tourism:
 Even more dynamic increase: guests +5.3%, nights +3.5%
 Total of 3.5 million domestic guests spent altogether 8.7 million guest nights at
commercial accommodations in 2005, which is a record for the past 15 years!
 Shift in demand for hotels (60%), growing demand for 4 and 5 star hotels
 5, 4, and 3 star hotels recorded 46.9% of the total domestic guest nights
 Wellness hotels: guest nights doubled, spa hotels: an above average rise (+13.1%)
 Seasonality is less strong (summer months: 29% in case of Budapest)
 Three most important regions: Lake Balaton (23.1%), Budapest and Central Danube
Region (15%), Northern Hungary (13.3%).

Strengths:
- Domestic tourism is steadily growing
- Government recognises importance and takes role in the development of tourism
- Hungary takes 12th position in world tourism in 2003
- Number of international arrivals is increasing. More visitors from Austria and increase
in English, France and Czech guest nights representing new source market potentials
- Hungary’s good location in the central part of Europe (Europe in 2005 had 55 % of
international arrivals and 50% of world tourism receipts.)
- Although in the territory of Hungary no world famous attractions can be found it
possesses more special tourism products of regional importance, which can satisfy the
latest demand and trends in tourism. (eg. thermal and healing waters, cultural heritage
and events, natural fundamentals like national parks, or popular sporting facilities like
riding hunting, and tourism development regarding business life.)
- Existence of traditional image elements (Gulyas, Puszta)
- Increase in tourism receipts following the continuous decline since 2001

Weaknesses:
- international tourism receipts are well below European and world average
- High seasonality (75% of guest nights in June, July and August main season)
especially at Balaton and lake Tisza
- Regional concentration of international tourism (Balaton and Bp 73% of guest nights)
- Missing quality and quantity of basic and tourist infrastructure (especially in the
countryside), lack of proper country image
- security and safety is bad according to foreigners
- lack of education and language skills of Hungarians and industry workers is a major
barrier to quality tourism

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Opportunities:
- EU competitions and financial support will make it possible to create and offer quality
tourism products and exploit Hungary’s tourism fundamentals fully
- Closing up with the west and improvement of life standards will project a better
country image and security for international tourists and will allow residents of
Hungary to spend more on travel and holidays
- If quality tourism will dominate in Hungary, the country’s economy can harness the
industry’s benefits and fully profit from it. (If focus is not on mass tourism and trying
to enlarge visitor numbers but on the creation of quality tourism that would attract
high spending tourists, result would be higher tourism receipts and consequently GDP
growth.)
- With the close up of the countryside (providing proper quality and quantity of basic
and tourist infrastructure) Hungary’s tourism offer can be enriched with new unique
and attractive tourist elements and regional concentration of tourism can be reduced
- With the development of new tourism segments (eg. health and conference tourism)
seasonality can be decreased
- Usage of IT and internet in the tourism industry
- Discounted airlines
- Through proper education and good communication with the public the opinion of
residents towards tourism can be positively changed and Hungary can be presented as
a friendly and open-minded destination
- WTO and WTTC figures project that the most rapid development can be expected in
Eastern European countries in the future (2010) and increased demand is expected to
stay constant for these countries

Threats:
- restrictions on the borders (Romania, Yugoslavia) and increasing prices upon EU
membership can reduce visitor numbers from neighbouring countries
- increasing salaries and the possibility of travelling with an ID as EU members will
decrease domestic tourism
- other EU members will mean a bigger competition than ever and if other new
countries make tourism developments faster or in a wiser way it can result in further
decreasing international tourist numbers for Hungary
- on macro environment level recession of the world economy
- problems in world politics and security
- slowing down of infrastructural developments
- not fully or wisely exploiting European competition possibilities

Summary:
Although it takes approximately the 12th position in the world’s most favoured destinations,
Hungary’s share in tourism receipts is very low. This shows that Hungary still can’t fully
exploit its fundamentals in tourism and the possibilities that tourism has to offer for its
economy. Major reasons for this are:
- the lack of proper infrastructural background (not only basic infrastructure is
missing, traffic and environmental problems, but the tourism infrastructure too, proper
quality and quantity of tourism products),
- Hungary not yet fully exploits its tourist attractions and fundamentals
- lack of program offers and complex tourist products that attract tourists with high
income

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 - seasonality and regional tourism concentration
- Most of the Hungarians, because of low salaries can’t afford the tourism products, at
the same time the few who can, often choose in favour of holidays abroad.
Tasks: (see opportunities in the SWOT)
- Only if domestic tourism is highly developed, can foreign tourism be sustained
- Hungary should try to attract tourists with high spending (quality tourist)
- increase average length of stay
- decrease time and regional tourism concentration
- increase tourism incomes and create a favourable and unique country image

Solutions:
- improve basic tourism infrastructure and tourism service supply
- Creation of quality tourism and tourism supply in Hungary, because quality is the
key factor to be able to attract target groups to Hungary who have high income and
high spending
- Proper and constant promotion and marketing!!!
- Development is not the task of just one organisation, the private sector, local
governments and the State should all participate in it
- Further support for tourism developments should be given through providing
competition possibilities and projects eg. from 2004 in the framework of the National
Development Plan from the European Regional Development Fund

Revenue and guest night targets in 2006 (HNTO)

 A year on year increase of tourism receipts at 3-4% above inflation
 A 3.2% rise in the number of guest nights at commercial accommodation units
 A 3.6% increase in domestic guest nights
 A 3.0% increase in foreign guest nights
Achieving these targets of the HNTO is based on the following assumptions:
- transparent and easy-to-use statistical indices
- general economic growth in Hungary
- optimum operation of the global economy
- internal and international political stability

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40. Please describe the changing in management organisation and mgmt methods in the
practise of Hungarian enterprises dealing with tourism and the development of their
market flexibility in the 1990’s. How has the airline business developed in Hungary
during the last ten years? What has been the impact of the September 11th terrorist
attack on the tourism industry? What would you recommend to meet new challenges?

1.Managing:
- Focus on task accomplishment, business control and leading people
- Features structured organisational setting
- Creates aims and objectives
- Creates policy what is the framework for business conduct
- Controls system and procedures

2.Mgmt functions:
1. Planning (setting objectives, defining how, setting standards)
2. Organising (delegation, letting someone doing sg, resource allocation and coordinating)
3. Leading (guidance, motivation, integration)
4. Control (monitoring, correction, supervising)

3.Mgmt methods:
1. Scientific-Taylorism: believed in scientific analysis of work and economic rationality
in work behaviour (motions study to raise productivity by eliminating unnecessary
motions)
2. Bureaucracy-Weber: rules, procedures, standards, specialisation and hierarchies
should be elaborated and kept
3. Structure and design-Fayd: major organisational activities: finance, production,
commerce, security and mgmt this is how a big co has to be divided (specialised
activities) mgmt functions are: planning, organising, co-ordination, control, command

4.Change:
- nowadays nothing stable but the change
- what is new about change is that nowadays it is more rapid than before eg.
changing world order, globalisation, new economy, information system
- rapid development and changes demand companies, institutions, individuals to
keep changing their strategies and the way in which goals are achieved
- change is threat and opportunity at the same time
- we have to change all the time (gradual change is good, rapid change can cause
conflicts)
- organisations operate in an increasing volatile changing environment

Factors influencing change:

- Uncertain economic conditions
- Competition-market forces
- Government legislation
- Changing technology-knowledge
- Changing attitude to quality
- Aging of material and hr

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Identifying forces driving changes:
1. Political dimension- regulation, law, stability
2. Economic dimension- key indicators, (GDP and income) monetary policies, taxation,
customs
3. Socio-Cultural dimension- demographics, behavioural of social classes, lifestyle,
education, believes
4. Technological dimension- innovation, safety, transport, communication
5. Ecological dimension- natural resources,
6. Operational dimension- competition, customers, suppliers, new entrances

Implementing change
Phase 1. – assessment
- form a team for change
- climate analysis – SWOT
Phase 2. – planning
- involve everybody
- align change plan with the strategic plan
- parallel processes
Phase 3. - implementation
- assess skills
- engage coaches, mentors in learning
- carry out planned actions
Phase 4. – evaluation – controlling
- validate change factors
- recognise individual and team success

3 types of companies according to change:

1. They don’t understand what is happening around them
2. They are aware of the changes and signals from the environment
3. The best companies are changing the environment and take initiatives to influence the
development of their industry

HRM
In Hungary, Human Resource Management has no real tradition. Employers don’t realize the
importance of the human factor in achieving their goals. Employees are not motivated. Today,
there are more and more companies who pay careful attention to HRM issues within the
company.

Corporate governance
It is to ensure that the interest of top level management is aligned with the interest of
shareholders of the company.

Agency relationship
The separation bw owners and managers creates an agency relation,in which the principal
hires specialists to perform a service. ( owner – management company relations)

Owners and Managers:

1. In private companies: managerial control is not separated from ownership
2. In public co’s: managerial control is separated from ownership

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 Ownership and affiliation

Hotel Franchise Relationship

 Franchise: An arrangement whereby one party (the brand) allows another (the hotel
owners) to use its logo, name, systems, and resources in exchange for a fee.
 Franchise Agreement: The legal contract between the hotel's owners (the franchisee)
and the brand managers (the franchisor), which describes the duties and
responsibilities of each in the franchise relationship. It is important to note that, unlike
some other franchise industries, the majority of hotel brand managers (franchisors) do
not operate hotels. They operate franchise companies. Hotel owners (the franchisees)
and their GMs are the operating entities in nearly all hotel franchise relationships.
 For the franchisee, franchising helps reduce risk. Proven operational methods,
developed by the franchisor, are used to manage the business. The franchisee gives up
the freedom of being completely independent to become part of a group committed to
building a brand and increasing their group's market share. A franchise system can
(but may not) also provide group-buying power to reduce the franchisee's operating
expenses. The trade-offs for the franchisee are the fees paid to the franchisor for the
operating license and the restrictions that are imposed by the franchisor. For the
franchisor, franchisees and their financial capital expand the brand faster than it would
ever be possible for the franchisor to do so alone.
 Types:
o Retail franchise – walk-in retail premises
o Investment franchise – mngt team to operate on his behalf
o Management franchise
o Single operator franchise – job franchise (cleaning, repair/security)
o Executive franchise – communication at board level, cost mngt., accountancy
o Sales and distribution franchise
o Master franchise licensee - region

Franchising is abusiness entity to use the logo, trademarks and operating systems of another
business entity for the benefit of both. As a result, these firms can share brand identification,
and a strong marketing and distribution system.
A hotel franchise relationship exists when the owners of the hotel choose a flag and enter into
a franchise agreement with that specific brand.
 Flag: A term, used to refer to the specific brand with which a hotel may affiliate.
 Conversion=Reflagging:The process of changing a hotel’s flag from one franchisor
to another
 Franchise agreement: The legal contract bw. The hotel’s owners (franchisee) and the
brand managers(franchisor) which describes the duties and responsibilities of each.

Advantages of franchisee:
 A brand name with recognition
 Connect the hotel to GDS
 Increase in sales,
 Secure financing – banks consider these relationships when giving a
loan
 On-site training, purchase of furnitures, equipment in bulk

Advantages of franchisor:

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Increase in fee payments, the value of the brand name is growing with every joining
organization
Management contracts
Def: An agreement between a hotel’s owners and a hotel management company, under which,
for a fee, the management company operates the hotel. It is also called management
agreement.
A management company is an organization formed for the purpose of managing one or more
hotels.

Hotel Management Company Structures:

 The Management Company is neither a partner,nor an owner of the hotel(the hotel hires
it)
 The M.C. is a partner in the ownership of the hotel
 The M.C. only manages the hotel it owns (they are both investors and managers)
 The M.C. owns some hotels to manage and manage others where there is no partnership
(a variety of ownership participation)

Advantages of hotel owner:

 Improved management quality
 Targeted expertise can be obtained to solve a certain problem
 Documented managerial effectiveness – adding credibility to hotel for banks
 Payment of services upon performance – revenue-based fee
 Partnership opportunities – many hotel owners are involved in more properties as well

Disadvantages of hotel owner:

 Owner cannot control who is the GM
 Talented managers leave frequently
 Interest of owners and management sometimes can conflict
 Errors made by the M.C. effect the owners
 Transfer of ownership may be complicated

Buyout: An arrangement in which both parties of a contract agree to end the contract early as
a result of one party paying the other an agreed financial compensation.

3 stages in the development of mgmt:

1. managers as stewards of assets
2. managers as agents-representing somebody’s interest, there can be a problem that the
interest of the agent is confronting the interest of the owner
3. stakeholders approach- stakeholders have interest and power to influence the co and
they are responsible for the co’s operation. Highest stakeholder is the owner.

5.Notes:
Concerning the history of companies, we have to mention privatisation, therefore the change
in the ownership of the companies. Foreign investors could bring the western type of
management to Hungary into their business (eg. strategic hr, marketing, research and
development). In public companies the sate doesn’t have managerial control on the operation
of the company, while in private companies the manager is the owner at the same time and
pays attention to the managerial operation of the co. Depending on the size of the company
one manager can take more departments under his control while in big companies different
departments with different leaders are needed.

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As in Hungary big wholesaler companies are ruling the market the structure of the
organisation must be separated into different departments (structure and design
managerial method).
As a new phenomena quality mgmt has appeared. The aim of this is achieving competitive
price value ratio at lower cost. In quality mgmt for long time the tangible materials technical
facilities were more important lately the soft factors, intangible, such as service, competence,
the human side became important. This type of mgmt is not a question of size of a company
but a question of quality consciousness. Further development was the total quality mgmt, its
5 concepts: improve continuously, process orientation, everybody’s involvement,
supportive leadership, customer focus. (For mgmt of tourism enterprises see 2nd theme
(legal form of tourism organisations).

6. Developments of the aviation industry since 1990’s :

1. Liberalisation in Europe as a result of the
- Full freedom in the aviation as EU established
- Increased competition
- Lower fares
2. Number of airlines increases 232 in 1999 and 404 in 2002 and overcapacity created
3. Rise of low cost carriers
4. world-wide alliances ( star alliance 1997, One-world in 1998, Sky Team in 1999,
Qualifire 99-2001, Wing 98-2002) greater market asses, joint operation,
improving service quality
5. Importance of e-business and direct selling on the internet

7. Aviation industry in Hungary:

After MALÉV's transformation in 1992, Alitalia and the Italian state investor company,
Simest won the right to buy 30 and 5 per cent of the company's raised share capital,
respectively. The former owner, the State Property Handling Co. (ÁPV Rt.) kept 50 per
cent of the stock plus 1 share, the remaining shares went to the ownership of local
governments. A few months after the deal, MALÉV launched its first overseas flight to New
York, through Rome. The two companies also agreed in harmonising their respective
schedules and frequent flyer's programmes.
More investment, development of its fleet and membership of a global alliance are
necessary for Malév’s further development. Becoming a partner in a global alliance would
expand Malév’s network and significantly increase its traffic. The advantages of joint
marketing and branding could significantly increase sales potential while joint procurement
could significantly reduce costs. Malév could also become part of a coordinated global route
as a result of joint route planning. Joining any of the global air alliances is better for Malév
than staying independent in the long term.
Recently the low cost airlines had appeared in Hungary too, and are experiencing a
revolution on the market. These airlines are trying to save money by not using famous
airports, don’t have offices, use direct distribution through the internet and don’t provide
catering or in some of them no luggage services are provided either. Their disadvantage is
that tour operators make their reservations on the net too so they don’t get commission and
here no group prices are provided. One can make reservation for groups but not at the same
rate.
In order to stay competitive in the airline market, airlines had to face the fact, that low-cost
companies are expanding, and more and more people use them. Today, these airlines also
offer tickets on reduced prices, packages put together for passangers and they try to attract

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customers with quality services on acceptable prices.This is the way the fight against low-cot
carriers.

8.Effects of September 11th on the tourism industry:

a) Airline industry:
- 20% decline in the number of passengers/km flow
- Heavy price discounting (airlines lost their business and were fighting for more
customers so they tried to pay more and more commission to agencies but this
resulted in less and less profit)
- Bankruptcies for the above mentioned reason (eg. Sabena, Swiss Air, Ansett)
- Fewer employees
- Security regulations strengthened at airports so waiting time increased
resulting in unwillingness of travel
-
b) Accommodation industry:
- more concern about security infrastructure of hotels
- declining number of guest nights
- airport hotels will be in worse position
- sharp reduction in the revenues of certain hotels
- labour levels being cut to eliminate cost

c) Travel and tourism industry:

- many bankruptcy ( reason: some travel agencies share override commission
with customers but as a result of September 11th they didn’t reach target in the
numbers so didn’t get the commission from the airline and went bankrupt)
- no basic commission is paid to travel agents, only override commission given
to agencies (after amount of tickets sold)
- reduction in the number of conferences and conventions
- less leisure travellers
- more domestic tourism, decrease in international tourism
- postponing tours
- Crisis Committee of World Tourism Org has been formed
- All travellers booking scheduled flights should have insurance

d) Meeting new challenges:

- competitive and efficient operation is needed
- measures must be taken to make radical structural changes
- efficient, new production platform has to be built
- strong focus on costs is nothing new but now it must be taken seriously-
reducing labour costs (personal costs accounts for 30% of total costs of
airlines)
- crisis mgmt (situations have to be taken seriously in order to manage survival
and finding and effectively using the potential success factors

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41. Critically evaluate the ways in which the management of change can and does affect
orgnaisations and their personell. Why should we change? What are the reasons for
change? Why do people resist to changes and what is the usual reaction to change? Give
positive and negative examples from your own observation and experience.

Management of change
Nowadays the companies are subject of rapid and often unpredictible changes. The
reasons are:
- Changes in the political circumstances ( Central and Eastern Europe )
- Globalisation ( standardisation, bigger competition )
- Economical changes – rise of GDP, taxation policies, monetary policies
( integration ), labour market ( interest representation, personal rights, more
educated )
- Changes in customer expectations (more open, more educated customers)
- Technological changes ( Information technology, robots )
- Sociocultural dimensions ( new classes – shifting demographies, lifestyle and
educational changes – more healthy way of living, nationalism – protectionism )
- Ecological forces – new energy sources, pollution
- Higher competition
- Legal framework ( consumer protection, protection of employees’ interest,
enviromental protection, monopoly law, trade blocks ... ).
There are three types of companies :
- Who don not understand what is going on around them
- They are aware of the changes and are adopting
- The best companies are shaping the enviroments

The companies must consider these forces when adapting to the changing environment in
order to be competitive.
How? The key word is continuous change and improvement. In general an organisation
should plan and allocate the necessary resoures, design the organisational structure, and
manage the change.
We have to plan well before it is necessary, and the organisation should be aware of the
reactions for the change.

There is a wide range of human reactions to change:

- Active resistance ( spoilage, sabotage )
- Passive resistance ( slowing down, not learning )
- Indifference ( doing only what’s ordered )
- Acceptance – enthusiasm and cooperation ( the most desired reaction )

In general people are afraid of changes, because:

- financial risks
- creates insecurity ( loss of status )
- fear of criticism
- loss of job, authority, collegues
- large organisations prefer stability
- sticking to old practices, not aware of personal benefits
- increased workload
- client confusion

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Companies should overcome these fears by making the people understand the necessity of the
change. The reasons might be :
- Increased competition
- Profitability improvement
- Win more business
- Retain customers
- Corporate image – expansions
- Improve client focus

Stages of implementing organisational change:

- Unfreeze: Current ways of doing things are not longer working. If we don’t do
something we have to close.
- Change: Safe circumstances for experimentation. Opportunities for train and
practice. Support and encourage
- Refreeze: Support mecanism. Reward, appraise, train

Organisations operate in an increasing volatile, changing environments. We are all subject to

continual changes and cannot escape from them.

Factors influencing change

 uncertain economic conditions
 competition – market forces
 changing technology – knowledge
 government legislation
 changing attitude to quality
 ageing of material and human resources
 changing the nature of the business
We must be prepared to face the demands of changing environment.

How?
 we should plan a continuous change activity to improve our effectiveness and
competitiveness
 modify the behaviour of the colleagues
 improve the ability to cope with changes

“In order to improve we have to change. In order to become perfect you have to do it often.”
(Churchill)
Three types of companies
1) they don’t understand what is happening
2) they are aware of changes and the signals from the environment
3) the best companies are changing continuously. They are taking initials to develop within
their industry
Consider the threats as an opportunity

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Why are people resist to change?
 it creates in security (status, job, etc.)
 fear of criticism
 loss of colleagues
 difficulty of learning new skills
 loss of job interest, loss of freedom
 habit
 economic implications
 change might require large investments
 threats to power or influence
 large organisations prefer stability to old rules, established procedures…

Implementing change
Phase 1. – assessment
- form a team for change
- climate analysis – SWOT

Phase 2. – planning
- involve everybody
- align change plan with the strategic plan
- parallel processes

Phase 3. - implementation
- assess skills
- engage coaches, mentors in learning
- carry out planned actions

Phase 4. – evaluation – controlling

- validate change factors
- recognise individual and team success

Some advices in personal crisis situation

 be prepared for a change or crisis
 if we are suffering, withdraw yourself for a while
 don’t explain to others

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42. „Tourism is as much an aspect of foreign policy as it is a commercial activity” (Hall,
1994). To what extent is there truth in this statement? Please expose and analyze the
situation and recent developments of the Hungarian tourism including its renaissance,
the Széchenyi Plan and the National Development Plan. Expand on Hungary as a tourist
destination, product offerings, main attractions and how to position Hungary.

History and development of tourism in Hungary in the past years

In Hungary, tourism has been playing an important economic role since the 70’s, it
significantly contributes to the GDP, has a role in the currency creation, and creates jobs and
stimulates demand in more sectors of the economy.

1978-1985: To create the frameworks of quality tourism and increase the standard of tourist
services and products the government between 1978 and 1985 signed an agreement with
Austria for 300 million USD about common investments. Thanks to this project, during a
few years, bed capacity increased with 7500 beds (45%) especially in the category of 4 and 5
star hotels and in some cities swimming pools, tennis courts were built. This was the first
hotel building boom in Hungary. All of these hotels were in the ownership of the Hungarian
government but had an agreement for the use of the name with various international chains.

1985-1989: the phase of investments slowed down with the use up of the money available.
Because of no governmental investments and the debt towards the Austrian government
mainly pensions campsites were built from private investments. The tourism in Hungary
actually consisted of 3 main parts at this time:
1. Tourism that was happening on the real international market, which was mainly
embodied by the 4 and 5 star hotels found in the capital city and in smaller parts those by
Lake Balaton.
2. Domestic tourism, which took form in the organised holidays by the trade unions.
3. Guests coming from the Varsauer Treaty inside the KGST, which was based on
bilateral agreements with circumstances, prices, dictated by the State and government. It
was told how much a country can spend in another, how many people can travel from one
country to the other. This part provided very big numbers in statistics but at the same time
it ruined the Hungarian hotel capacity and quality. So this was the segment that private
industry had to take over in 1990-91 hotels and tourism enterprises were among the first to
be privatised (IBUSZ, Pannon).

1990: Changes after the privatisation:

1. Tourism Industry:
- the growth of small- and medium-sized private enterprises,
- the transformation of the system of social tourism (before 1989, social tourism
played a significant role all over the country, trade union holiday resorts offered
vacations to people for small payment, these holidays were subsidised by the state)
- the disappearance of the traditional monopolies in the tour operation and
accommodation sectors.
- The number of joint ventures has also been growing and most of the former state-
owned companies have been privatised.
- The supply has been becoming increasingly varied and more and more participants
have been sharing in the declining market demand.
- Between 1990 and 1991, close to 2000 new travel agencies were opened in Hungary
without any sort of licences. (After a few dozen bankruptcies and thousands of

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 cheating on tourists, the supervising authority, the Ministry of Industry and Trade
decided to bring the sector under regulation and now travel agencies are required to
obtain preliminary permits based on financial and professional guarantees. According
to the figures of the National Tourist Board, at the moment 874 tour operators and
travel agencies operate in the country.)

2. Catering industry:
Before 1989, the restaurant trade was mainly owned by catering companies or by companies
also involved with managing hotels, for instance Pannonia. However, in the 80's, the smaller
establishments were transferred to the private sector and a wholly private restaurant and
catering sector emerged, especially in Budapest and in the main tourist areas. International
fast food franchises, like McDonald's also opened their outlets in the country, first in
Budapest, then in the bigger cities. In the last few years, many new private restaurants,
coffee-shops and confectioneries have been opened and by now, the whole hospitality sector
is in private ownership.

3. Hotel industry:
Progress in the privatisation of hotel companies was rather slow. Before 1989, the
accommodation sector of Hungarian tourism consisted of three state-owned hotel chains:
Pannónia, Danubius and Hungar Hotels. Though in the 80's, international chains /like
Hilton, Intercontinental, Hyatt, Penta or Forum/ opened hotels in Budapest, these
establishments were jointly owned with the Hungarian state, were managed by Hungarian
companies and profits were shared. The three hotel companies were transformed into
public limited companies in 1989-90, but their further privatisation in the autumn of
1991, in the framework of the First Privatisation Programme, ended in failure. But,
despite of the difficulties experienced in privatising the large chains, the largest part of the
Hungarian accommodation capacity became private quite quickly, as smaller family and
private enterprises were expanding all over the country, mainly around Budapest and in the
Lake Balaton area. Additionally, many hotel investments were formed with considerable
foreign capital. The greatest attraction for foreign capital investments was Budapest,
especially within high category accommodation and spa hotels (Corvinus, Aquincum).
Foreign and joint-owned hotels and tourism establishments have been advantageous not only
because they have increased the quantity of supply but - and this is even more important -
the quality as well.

“The second privatisation”- recent developments:

After the changing of the system Hungary came into the centre of attention and visitor
numbers were continuously growing (in 1989 17 million guests than grew year by year ) At
that time Hungary was not ready for receiving such mass tourism and to exploit this
possibility as our infrastructure was completely missing. By the end of 90’s we can
experience a second capitalisation:
- This was the time for second hotel building boom. The number of 5 star hotels in
2000 grew from 7 to 11 (9 to be found in Bp) developments were mainly concentrated
in the capital, but 4 star hotels were built in the county too.
- Large amount of FDI flew into the country because of favourable taxation and stable
economical, political and financial background.
- The institutional system reform, the Parliament’s Tourism Committee exists since
1998, HNTO since 1994, The National Tourist Committee was set up in 1996, and as
a lobbying group, is winning on importance, the deputy secretary of State for tourism

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 at the ministry of Economy and Transport was reorganised and its employee numbers
increased. Regional Tourism Committees are also winning on importance because in
the EU the focus will be on the regions not the countries and the regions get more and
more support from government. Tourinform network for public information and
service is constantly growing.
- The Széchenyi Development Plan was a financial help from the government to boost
the economy and tourism in part (HUF 50 billion) and to introduce Hungary to EU
competitions during the 2001-2002 period. The most important goal was to increase
the efficiency of foreign tourism. The Government also intended to boost domestic
tourism with special regard to the country’s natural and cultural environment. Efforts
were to be made to change the traditional “Puszta, Gulash, Paprika” picture of the
country, mainly by popularising the country’s cultural heritage. 6 areas of
development (spa tourism, conference tourism, theme parks, fortress and castles,
information technology, other quality tourism products- eg: gastronomy and
wine).
- PHARE, which could have been used up until end of 2003 is a programme is a pre-
accession instruments financed by the European Union to assist the applicant countries
of Central and Eastern Europe in their preparations for joining the European Union
- Between 2004-2006 in the framework of the National Development Plan’s regional
operative programs, 130-150 milliard HUF from the European Regional
Development Fund is provided for Hungary. The programme’s aim is to develop
tourist attractions, through creating internationally significant attractions based on
cultural and natural heritage of Hungary, and improving tourism capacity potentials of
the country.

Reneissance of the Hungarian tourism

To understand and prove that Hungarian tourism is reborning and reviving in our days we
have to consider both outside and inside factors.
a. Outside factors:
- It is a world tendency that people travel more and spend more on recreation
and holidays
- tourism industry is rapidly growing and by today is one of the world’s largest
industries.
- Europe represents almost 60% of the world’s tourism.
- The major tourist organizations (WTTC, WTO) forecast that Eastern Europe
will be one of the most dynamically growing tourist destinations in the world,
for which the increased demand is expected to stay constant in the future.

b. Inside factors:
- In the past years it was recognised that tourism is a major contributor to the
Hungarian economy and today the government is highly supporting it. The
State’s role increased in the financial aspects, today also local governments
start to realise that they can benefit from tourism.
- growing Hungarian economy and the economical joining up of the Eastern
countries to the EU will facilitate tourism developments and attract FDI
- The restructuring of foreign visitors, the growing domestic tourism and the
increasing demand for quality tourism
- The role of tourism in the economy is increasing

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Hungary as a tourist destination
Tourism in numbers:
a) guest nights at commercial accommodations has exceeded 19 million for the first time
b) altogether 6.9 million guest arrivals (+4.8%)
c) income from public accommodation fee increased to a higher degree than the inflation
(total of HUF 112 319 million (+13.2%).
d) Balance of tourism payments: following a continuous decline after the record in 2001,
the income started to increase again (€ 1085 million, +5.2%)
Incoming tourism:
 38.6 million foreign arrivals in 2005 (+6.9%),
 Europe generated 97.7% of the arrivals including 56.1% from EU member countries
 Main source markets: Germany, UK, Austria, Italy, USA, Nordic countries (Denmark,
Finland, Norway and Sweden) and the Netherlands.
 Emerging source markets: France, Spain, Japan, Russia, China, Poland, Israel and
Romania.
 Dynamic increase of incoming tourism in higher category (45% of foreign guest
nights at 4 and 5 star hotels) → shift in demand for higher quality services
 Strong seasonality and geographical differences (three most popular region – 85%)
Domestic tourism:
 Even more dynamic increase: guests +5.3%, nights +3.5%
 Total of 3.5 million domestic guests spent altogether 8.7 million guest nights at
commercial accommodations in 2005, which is a record for the past 15 years!
 Shift in demand for hotels (60%), growing demand for 4 and 5 star hotels
 5, 4, and 3 star hotels recorded 46.9% of the total domestic guest nights
 Wellness hotels: guest nights doubled, spa hotels: an above average rise (+13.1%)
 Seasonality is less strong (summer months: 29% in case of Budapest)
 Three most important regions: Lake Balaton (23.1%), Budapest and Central Danube
Region (15%), Northern Hungary (13.3%).

Hungary in the following years could be a fine destination for spending second or third
holidays at. Our natural and cultural heritage (Budapest one of the most beautiful capitals
of the world, gastronomy and wine culture), our supply of thermal water and spas gives us
an advantage because they are unique attractions not only in respect of Europe but in the
world too. These attractions can stimulate constant solvent demand on the old and on the new
markets too. If we look at the world trends in tourism (see below eg. health and cultural
tourism is winning on importance and the demand for special and unique products increasing)
we can see that Hungary will have good opportunities in tourism in the future.

As we became members of the EU, Hungary came into the centre of attention again and
incoming tourism started to grow so Hungary has to work to develop basic and tourism
infrastructure to be able to exploit new possibilities. We should attract real tourists who
spend here not 3,3 days but 1 week or 2 weeks and spend a lot of money too. Hungary’s
success depends on what type of quality tourist it can attract. So, first of all Hungary should
create a tourism offer of high quality and in the next phase it should organise promotion
and marketing well. For these reasons, Hungary’s repositioning and the revival of domestic
tourism became important tasks for the country. We don’t have to abolish the already
existing exotic picture on Hungary (Gulyas, Puszta) but add something new to it. When it
comes to this point we have to emphasize security, stability and our growing economy,
because tourists will have different attitude towards a country that is successful.

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Recent development of the Hungarian tourism
I. Hungarian National Development Plan (2004-2006)
 Improving the quality of life (long-term objective)
 Reducing the lag in the per capita income
 Specific objectives: more competitive economy, promotion of a better quality
environment and regional development, improved use of HR
 Five operational programs: OPRD – ROP 1.1, ROP 1.2 (tourism-related)

II. National Development Plan (2007-2013)

→ National Tourism Development Strategy (NTDS)
Situation analysis: per capita spending is low/average, strong territorial concentration (Bp +
Balaton > 50%), strong seasonality

Tourism supply: health, water/aquatic, ecotourism, bike, gold, rural, cultural, equestrian,
religious, wine culture and gastronomy, MICE.

Strategic direction objectives:

1) people-oriented and long-term profitable development
2) development of attractions (product development: 1. health, 2. heritage, 3. congress; tourist
information system, development of priority destinations (Budapest, Balaton)
3) improvement of tourist reception conditions (accessibility of tourist attractions, market-
conform accommodations and catering, comfort feeling of visitors)
4) development of human resources (transformation of the educational system, stable
environment for employment, changing attitudes)
5) creating an efficient operational system
6) horizontal objectives (experience chain, sustainable development, equal opportunities,
cross-border tourism relations and market segments – youth tourism)

Product priorities:
1) health tourism (medicinal + wellness tourism)
2) heritage tourism (ecotourism – world heritage sites + natural heritage preservation (national
parks), equestrian, rural, gastronomy, special events – traditions, folklore, artistic values etc.)
3) congress tourism (better facilities, improved competitiveness, lobby for international
conferences)

Planned development:
 Destination Management Companies (DMC) – non-profit organisations to prepare
plans and promotion of a certain destination
 Further priority tourism target areas: Budapest + 4 priority resort areas (Lake Balaton,
Lake Velence, Lake Tisza and the Danube bend); natural and cultural heritage sites;
health and holiday resorts, rural tourism, cross-border tourism development.

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43) Please define tour guiding. What is the job of a tour guide and what are the
requirements to become a tour guide?
Identify the following: city guide, on-site guide, tour escort or tour director and step-
on guide. Name five personality traits that are common among tour escorts/guides.
Budapest is heavily promoted as a centre of culture and heritage. Recommend a city
tour package including cultural events for the leisure travellers in the city on a 3-day
break.

Tour Guide:
Job: to acquaint tourists with the country’s touristic, historical and cultural values.
Requirements: should be able to organize programs, give information, should have
psychological knowledge and good communication skills.
City guide: a type of guide who points out and comments on highlights of a city.
On-site guide: a person who conducts tours at a specific building.
Tour escort/tour director: a person who manages a group movement over a multi-day tour.
Step-on guide: operates independently, freelance specialist hired for a short period.
Specific personality traits: an outgoing personality, decisiveness, people skills,
organizational skills, research skills, correct, well-groomed, high quality knowledge, patient,
helpful, healthy, confident, etc.

Requirements to become a tour guide:

 Foreign language exam at least intermediate level (oral or written)
 Tour guide license

3-day city tour package:

Day 1
10.00 – 3-hour sightseeing tour by bus including 3 photo-stops: on Heroes’ Square, in the
Castle District and on the Gellért Hill
13.30 – Lunch in a Restaurant in the city centre (e.g. Restaurant Kárpátia)
Afternoon – free time (recommendation: do shopping in the Váci Street – not far from
Kárpátia or optional tour to the Gödöllő Palace)
19.00 – Performance in the Hungarian State Opera House

Day 2
10.00 – Walking tour in the Castle District including a coffee and a cake in the famous
Confectionary Ruszwurm, inside visit in the Matthias church and the National Gallery
13.00 – Lunch in a restaurant is the Castle District area (e.g. Pest-Buda Restaurant)
Afternoon – free time (recommendation: visit the exhibitions in the Palace of Arts or
walking on the Margaret Island)
20.00 – 2 hour sightseeing tour by boat on the Danube including dinner and folk show
22.00 – Travelling up to the Gellért Hill to look at the illuminated city

Day 3
9.00 – Optional tour by boat to Szentendre
14.00 – Lunch in a restaurant in Budapest in the city centre (e.g. Restaurant Fatál)
15.30 – Visiting the Museum of Fine Arts
Evening free time (recommendation: dinner in the Anonymus Restaurant in the City Park)

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44. Describe the responsibility of a restaurant manager. What type of organizational
tasks should be solved by the manager?

The tasks of the restaurant manager depend on the size of the establishment. In a small hotel,
the restaurant manager is responsible for all the F&B related tasks while in large hotels, he
works under the F&B manager and is responsible only for the restaurant.

Restaurant managers are responsible for overall operation of their establishment.

Their tasks are: - purchasing food
- select and plan menus
- staffing
- organizing
- sheduling
- maintain health, safety, sanitation levels
- establish standards for personnel
performance
- service to customers
- menu rates
- advertising and publicity (or supervise
a sales and advertising staff in large
establishments)
- job descriptions
- administration
- budgeting
- pricing
- controlling facilities
- purchasing service quality
- taking inventory
- evaluate cash-flow
- handling problems
- coping with the unexpected daily tasks
What are the main characteristics of restaurant controlling focusing food and beverage
operations?

F&B controlling is one of the most imp. task of the Restaurant Manager.

The 4 steps of food cycle in a restaurant:

 Ordering – which supplier to choose?, if we order more we get discounted price,
some suppliers provide extre services, free items,etc.
 Receiving – we must check: quantities, quality, price. Receiving and ordering forms
must be compared
 Storing – all purchases and requisitions must be recorded, limited access to storeroom,
inventory control, turnover can be calculated
 Selling – setting prices:
1.market oriented pricing - depending on market and competitors
2.cost oriented pricing – depending on the expenses

Describe the objectives, special problems of food and beverage controls!

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Beverage control is easier than food control because:
 Beverages are usually non perishable items
 It’s enough to purchase them periodically
 Qualities are standard – bottles

The main aim of F&B control is to be aware of the actual invntory in order to order items that
are missing in advance. Also, employee mistakes can be seen if proper control is made.
One of the biggest problems in hotels and restaurants is employee thefts. With efficient
controlling systems managers can realize these thefts.
Food control is more difficult. They are perishable items, so at ordering we must be careful
with the quantity.

What are the new trends in eating out in Hungary?

Reasons for eating out: Earlier, eating out was for travelers, in inns and taverns where the
customers were served more or less what would have been on the domestic table anyway.
Nowadays, people eat out because: - they don’t want to cook for themselves
- they have a special occasion (birthday,
engagement, dating)
- they want to meet other people (friends,
family)
- they want to live social life
- they want to discover new tastes in special
- ethnic restaurants (Chinese, Japanese,
Thai etc.)
- business talks

Present, past and future situation of the Hungarian hospitality: ?

change of customers behavior: customers today are more conscious, there is more and more
need for healthy eating services, advices. Restaurants must consider these changes and find
new ways to satisfy guests.

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45. What is the correlation of the different TA activities - how can activities support
each other and from the management point of view, how would you set up your travel
agency to avoid liquidity problems? What new regulations have been published
influencing the TO and TA operation to secure consumer protection and consumer
satisfaction?

Travel Agencies (Travel Retailers)

 they sell the services and packages of other organisations
 sell the product at an agreed retail price for which they are paid commission and/or fee
 don’t purchase product for resale to their customers it means that travel agencies never
purchase before the consumer/s have paid for the product/services
 do not change the product, do not create new ones, they sell as it is by the suppliers
 do not stock products (lower investment in set up, less loyalty towards
products/suppliers)
 provide convenient location for purchase of travel
 offer wide range of products for commission to satisfy the demand of catchments area
with certain specialisation
 act on behalf of suppliers or of customers - sell products as a representative/counsellor
 they are the final link in the consumption process connecting the receiver and the
sources of various tourism goods and services
 visible intermediary in the travel distribution system – sell directly to the public
 maintain a delicate balance between serving the client and promoting the interest of
the principal they represent
 add values to the products: advices, convenient location, gather information, help to
book, pay etc.
 Revenue: commissions (from suppliers), service charges (from customers), selling
travel related goods, investing customers’ money till the time they pay it to the TO

Phenomena and definitions

1. to retail: to sell in small quantities directly to the ultimate consumer.
2. travel retailing: to sell travel related products and services to the consumers on retail basis.
3. agency: legal category. It is a relationship between two companies/persons where one (the
seller), known as agent is authorised by the other (the supplier), known as principal to deal
with third person/s (the costumer)

Major goal:
The travel agency is a business enterprise and as such its major goal is to be profitable or
increase the profitability. For temporary period the major goal may be to survive current
difficulties. Tools of being profitable:
• Keep costs under control (overhead costs and cost of sales)
• Increase revenue (good services  more clients  more sales  more repeat sales)
→ Key: right combination of products and services offered/sold

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Travel Agency Services and Products
Agency appointment policy
 Exclusive: suppliers agrees to sell only through one travel agent - typical at cruises
 Selective: the supplier appoints only those agencies who meet certain criteria - IATA
agencies, TUI agents
 Intensive: suppliers use all known agency outlets - no formal application or
appointment system

Travel agency services

Basic services:
 Selling tours and packages – outbound, domestic
 Booking accommodation (hotel rooms)
 Booking and issuing transportation tickets (airline, train)
 Foreign currency exchange
 Selling insurance policies

Additional services:
 Selling theatre tickets
 Organising events
 Selling programs (sight-seeing, restaurant etc.)
 Operating buses, rent-a-car, conferences

Transportation tickets
Airline ticket sales
- Used to be a profitable activity
- It was the major source of a regular travel agencies revenue but today new business model
- Highly responsible job, special education is needed
- Every travel agency can sell, but only the authorized ones must issue flight tickets.
- Selling flight tickets
- Airline reservation (availability, booking, PNR – Passenger Name Record, confirmation)
- Revenue – commission varies: basic: 1 % but some airline give more, override
commission based on sold quantity

Issuing flight tickets

Requirements:
1. IATA approval (education: special IATA diploma, office, GDS contract, bank
guarantee: deposit on the BSP bank account, one year in operation)
2. Agency Identification Plate (comes with IATA approval – name, IATA number, address)
3. Tickets (neutral and dedicated ticket stocks, other documents – MCO (Miscellaneous
Charges Order), PTA (Prepaid Ticket Advice)
4. Ticket printer (provided by the GDS used in the travel agency)
5. Airline contracts/agreements:

Train ticket sales

- based on selective appointment
- international and domestic tickets
- strong requirements
- low profit rate

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Hotel room reservation
- no special requirements
- various options (directly – phone, e-mail, fax, call centre, internet, GDS etc.)
- payment methods: credit card, voucher, bank transfer
- revenue: commission: 10 % as an average

Tour Booking
- no special authority is needed
- methods of reservations: phone, TO reservation system, GDS system, internet
- payment methods: bank transfer, cash (must be made before the documents are issued)
- revenue: commission: 5-12 %, override or other promotional payment exist

Types of travel agencies

1. By size: - multinationals (representations worldwide: CWT, Amex)
- national multiples (more offices in the country: Vista, Tensi Tours)
- regional multiples (more offices in a region: Neckermann)
- independents – single shop agencies
2. By the type of business:
• Full service travel agency - mixed travel agency
Provide services for leisure and business travellers as well.
– Advantages:
• Able to meet „all” customers’ need
• More knowledgeable staff
• Highly appreciated by the industry
– Disadvantages:
• Problem of handling low revenue products
• Staff is unable to specialize
• Leisure travel agency (small independents usually)
– Advantages:
• High level of revenue per sale
• High commission in short time
• Well known local staff
• Lower overhead costs – minimal staff, lower salaries
– Disadvantages:
• Does not meet all needs
• Is not highly respected
• Suffers from recession and seasonality
• Business travel agency:
– Advantages:
• No peaks (relative)
• Dependency on recession is relative
• High item prices - high cost product, higher commission or service charges
• Relatively easier revenue planning

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• Is highly regarded by the industry

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– Disadvantages:
• Competitive market
• Credit and discounts are needed
• Higher rental fee (relative), high staff cost
• High investment in technology
3. By appointment:
• IATA approved travel agency (IATA agent)
Can issue and sell flight tickets under its own name – based on the appointment of
International Air Transport Association

• Agencies without IATA approval (non-IATA agent)

The range and the type of the services in a travel agency

• The type and quality of products and services must meet the customers’ needs
– Basic needs:
• Safety
• Reliability
• Accurate information
– Other needs:
• Desire for comfort,
• Convenience
• Novelty
• Status
• Variety…
• Range and type of products/services offered by certain travel agency depends on:
– The commission what the travel agency can get (commissions, overrides, incentives)
• Result of a negotiation process
• Highly confidential
• Question of market position
– The demand within the catchments area:
• Size of the catchments area is important. The catchments area is not (always) equal
with the geographic area. It can be:
– Tourist area
– Shopping area
– Residential area
– Business area – business centres
– (on-line agency?)
• Customers in the catchments area: (Target market selection!!!!)
– Residents of the geographic area
– Shoppers of the area
– Workers of the area
– Visitors of the area

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– Preferences and marketing policy of the proprietors

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– Degree of specialisation
• By product they sell
• By the market they serve
• By sales method (traditional, on-line, mixed)

Revenue of travel agencies

1. Commission (paid by suppliers).
• Basic commission:
– Basic financial agreement between suppliers and agents
– Relatively static level
– Must cover the cost of the purchase and sale (communication, paperwork, overhead)
and must assure profit
• Override commission/Incentive deal
– Extra commission – a for of performance bonus
– % vary widely and can be complicated – based upon performance and that is linked to
a growth factor on previous year’s business
– Paid retrospectively upon achievements
– Based on promises (booking level)
– Are not the same for every agency
• Combination of basic commission and incentive deals

2. Service charges (paid by consumers):

• Are paid on the services/products with zero (or low) commission and on value added
services
• Based on the
– Number of activities ordered
– Price of the services/products

The successful travel agency:

The success of a retail travel agency is dependent upon its ability to provide services that
meet travellers' needs better than the services already available directly from suppliers
and other travel agencies.

The travel agency must meet the needs better

• With perfect operation
– Techniques
– Quality of sales - skills
– Products and services
– Environment

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177
In order to design the operation the service concept must be defined first
Service concept of a travel agency
– How to serve the consumers
– What to offer to the consumers
– How to be different (and better) then the other travel agencies
– How to add value added services (suppliers!)
There are factors which are in strong relationship with the service concept so these items must
be taken into:
• Tangible features of the agency
– Physical location, accessibility
– Size of the facilities
– State of technology (equipment)
– Hours of operation
– Staff (size, experiences, qualification)
– Product line
– Information, sales material (sources, availability)
• Intangible features of the agency:
– Image
– Atmosphere created by the facilities
– Atmosphere created by the staff
– Reputation
• Range of services:
– Travel counselling
– Itinerary development
– Reservation capability
– Mailing, delivering process
– Billing and analysis of travel costs
– Special travel related services (ticket delivery, giveaways, books, complimentary
services)
– Post sale services, follow-ups (travel club, questionnaires, brochures, frequent flyer
programs)

INGREDIENTS OF SUCCESS
– The owner is a successful businessperson
– The owner, manager and employees like people and willingly meet customer
demands.
– The business meets unsatisfied market demands and charges rates commensurate with
the quality of facilities and services offered.
– The owner's attitudes and financing permit a 2-5 year development period
– The business generates enough income
– Financial reserves and insurance are sufficient
– Advertising and promotion are effectively used.

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 – The owner is concerned with environmental quality and the appearance
– The owner continually tries to improve his or her management skills and keeps up
with business trends and the changing recreation market.
– If the enterprise is a part-time or sideline business, its location, operation and technical
demands fit into existing operations.

BUSINESS PLAN
Planning is a major key to success.
Business plan is essential for several reasons:
 bankers, investors require to accept the risk
 forces the entrepreneur to analyze the opportunity from a business perspective
 forces both the entrepreneur and the investors to be faced to the problems and the risk

Some important components of a business plan

- name of the agency
- ownership
- location, building
- philosophy/mission statement
- organizational chart
- industry/market analysis (competition, market trends and segments, barriers to entry)
- strategic plan (objectives, assumptions, tools, product-market matrix, environmental and
sales forecast)
- licenses and certifications
- appointments

Competitiveness of a travel agency is determined by the services to be „added” to the

product: location, knowledge/information, ability to sell.

• Location
Location is a very important factor of competitiveness as the TA’s target market is determined
by the catchments area – TO can be more flexible in choosing target market as TO’s
catchments area is based on the well established distribution.
The catchments area determines the range and type of the products as the demand is
determined by the type of the catchments area (type of consumers).

• Information/knowledge
Data: are undigested facts and figures that are collected and innumerable subjects. You may
gather data yourself, or use data that has been selected by others)

Information: comprises data that has been selected and processed for specific purpose.

Knowledge: the understanding that results from bringing together and interpreting different
pieces information)

Competitiveness depends on providing quality information to consumer in order to assist

him/her in making right decisions. When the travel agency assists the consumers in selecting
the product the agent pushes the consumer to make a decision. Consumers will make the
decision if they get, or they think they get the knowledge and this is based on the information
TA provides.

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The agency is competitive if the consumer will be satisfied with the selected product. If the
consumer is satisfied it means that the product was right for him/her, so he/she got the right
information.
Basics of being able to give quality information:
- gathering data
- being informed (being able to select and process data)
- understanding information = knowledge

Source of knowledge (where to collect data from, how to be informed):

o education,
o self-education
o data and information provided by the suppliers (information materials, study
tours)
o personal experiences

The TA can be efficient in providing quality information if only:

o has product knowledge
o and knows how to use it, knows how to provide
 the right information
 on the right way
 in the right time – has the knowledge

(Quality information: fit for purpose. The purpose is dictated by the decision the
consumer is going to make.)

General characteristics of information:

- relevant
to the criteria is used to make decision,
should tell you what you need to know should not tell you what you do not need to
know
- current
to the existing situation
should be obtained from data that is as up-to-data as possible
- adequate
covers all the criteria will be used to make the decision
- timely
provided at the point is going to be used
- reliable
trust on source
- cost-effective
balance between the benefit of getting right information and its costs

• Ability to sell
Communication skills, language skills, personal and social skills, sales skills. Besides the
skills they must know the sales techniques. The skills are usually inherited, the techniques
are learned. Nut both of them can be learned and improved by experience and practice.

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Regulations of TO and TA operations in Hungary- See the other question.

181
46) What are the regulations of opening and operating travel enterprises and what
are the conditions of the registrations of the different travel companies?
How could you define the strengths and the weaknesses of the travellers’ protection
in Hungary?
Please analyse the travel contract from the customer’s protection point of view!
What are the latest amendments of the Government Decree 1996 regarding Travel
enterprises?

Legal aspects of tour operating: See Question 5 and Question 6

(Directive 90/314/EEC. 13 June 1990 - 214/1996. Decree)

The activities of tour operation are strictly regulated in the European countries. Directive
90/314/EEC issued on 13 June 1990 regulated tour operation the first. The purpose of the
directive is to approximate the laws, regulations and administrative provisions of the Member
States relating to packages sold or offered for sale in the territory of the Community.
The structure of the Directive:

 List and definition of the phenomena used

 Requirements of brochures
 Lists the written information must be provided
o Before the contract is signed
o Before the journey
 List of contract requirements
 Options to revise the package price
 Options to cancel and the consequences
 Failures
 Complaints

The following phenomena used in the Directive are defined.

„Package means the pre-arranged combination of not less than two of the following services:
transport, accommodation; other tourist services not ancillary to transport or accommodation
and accounting for a significant proportion of the package. The combination of the services is
sold or offered for sale at an inclusive price. The service covers a period of more than twenty-
four hours or includes overnight accommodation.” (The separate billing of various
components of the same package shall not absolve the organizer or retailer from the
obligations under this Directive)

Defining the package is very important, as the package is a new product, and it is owned by
the producer, who takes all the legal consequences comes from product creation. The
definition standardises the meaning of the package, and the products do not fit into these
standards are not packages.

„Organiser means the person who, other than occasionally, organizes packages and sells or
offers them for sale, whether directly or through a retailer.”
The organisers are who put together the packages, operate them and offer them for sale. They
not necessarily sell the packages to the public themselves, but they are allowed to do it. The
Directive does not call the organisers tour operator, because everybody who creates
(organises) packages must follow the directive

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„Retailer means the person who sells or offers for sale the package put together by the
organizer”

„Consumer: means the person who takes or agrees to take the package ('the principal
contractor'), or any person on whose behalf the principal contractor agrees to purchase the
package or any person to whom the principal contractor or any of the other beneficiaries
transfers the package”

It is clearly stated here, that the Directive does not make difference between the person, who
buys the package and pays for it and the person who will „consume” it. The most important is
here, that an agreement is made to take the package. The person who agreed to buy the
package is agreeing in all the future consequences, but the person who’s behalf the package
was bought has to take the same consequences.

„Contract means the agreement linking the consumer to the organizer and/or the retailer. „

Quality of information:

The next basic statement of the Directive is that the information provided by organisers must
not contain any misleading information. All information related to descriptive matters
concerning a package and supplied by the organizer or the retailer, all information regarding
the price of the package and all information regarding any other conditions applying to the
contract must be clear.
The next part details, what kind of information
o about the products must be in the travel brochure, if there is brochure issued,
o information must be provided in written format always – so if there is no
brochure issued, some information must be provided in written format
Information about the product in the travel brochure:

The organisers not necessarily issue brochures. This is left on their decision. But if organisers
decide to publish their products and to promote them in brochures, the directive prescribes
what kind of information must be provided in the brochure.

The followings should be published in „legible, comprehensible and accurate manner” in the
travel brochure:
 the price
 the destination and the means, characteristics and categories of transport used;
 the type of accommodation, its location, category or degree of comfort and its main
features, classification under the rules of the host Member State concerned;
 the meal plan;
 the itinerary;
 general information on passport and visa requirements for nationals of the Member State
or States concerned and health formalities required for the journey and the stay;
 either the amount or the percentage of the price which is to be paid on account (deposit),
and the timetable for payment of the balance;
 whether a minimum number of persons is required for the package tour to take place
and, if so, the deadline for informing the consumer in the event of cancellation.

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The above mentioned details contained in the brochure are binding on the organizer or
retailer, unless:
 changes in such details have been clearly communicated to the consumer before
he/she stepped into contract,
 changes are made later following an agreement between the parties to the contract.
It means that no changes are allowed to make in the brochure information without informing
the consumers. The consumer must accept these changes and the organiser must have a
written document of the fact that the consumer was informed.

Other information must be provided in written format always:

The Directive clearly defines what kind of information must always be given to the consumer
in written format – in the brochure or in another way.

Before the contract is concluded the consumer should be informed about passport, visa, health
regulations, and the obtaining periods of gathering them.

There are information and details of the package(s), which must be given to the consumer in
good time before the journey. The directive does not oblige the organiser to put these details
into the brochure, because these are the details of the package that are usually finalised in a
short time before the departure. These are:
 the times and places of intermediate stops and transport connections as well as details
of the place to be occupied by the traveller;
 the name, address and telephone number what a consumer in difficulty could call and
gets assistance(organizer's and/or retailer's local representative or local agencies) – minors:
direct contact!!!!
 information on the optional conclusion of an insurance policy
• cover the cost of cancellation by the consumer,
• the cost of assistance in the event of accident or illness

The travel contract:

One of the major part is the directive talks about the travel contract. The travel product is
special. It is information at the moment of purchase, so the consumer must have guarantees,
that the „promises” come thru, and the product is the one, what he or she has bought. This is
why the travel contract is not valid without the product description. The details of this
description are strictly regulated, just in order to provide guarantees to the consumer.
It is up to the organiser, who she/he provides these information – in the brochure, in the a
document called „Terms and conditions”, or in a document called „Travel contract”. It can
happen that some informartion of the list below are in the brochure, some others are in the
„Terms and conditions”, and the remaining ones are on the invoice. But if any of them is
missing from the written documents, there is no valid contract between the organiser/retailer
and the consumer.

 travel destination(s) and, where periods of stay are involved (the relevant periods and
places with dates);
 the means, characteristics and categories of transport to be used, the dates, times and
points of departure and return;
 where the package includes accommodation, its location, its category or degree of
comfort, its main features, its compliance with the rules of the host Member State

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 concerned and the meal plan;
 whether a minimum number of persons is required for the package to take place and, if
so, the deadline for informing the consumer in the event of cancellation;
 the itinerary;
 visits, excursions or other services which are included in the price;
 the name and address of the organizer, the retailer and the insurer (if any);
 the price of the package. An indication of the possibility of price revisions and an
indication of any dues, taxes or fees chargeable for certain services where such costs are
not included in the package;
 the payment schedule and method of payment;
 special requirements which the consumer has communicated to the organizer or retailer
when making the booking, and which both have accepted;
 periods within which the consumer must make any complaint concerning failure to
perform or improper performance of the contract

All the terms of the contract must be set in writing and must be communicated to the
consumer before the conclusion of the contract. The consumer is given a copy of these terms
(same are musts for last minute sales).

About the prices

The prices ofthe package(s) shall not be revised unless the contract allows the
possibility, and defines the way of re-calculation and the situations may cause
revision:
 transportation costs
 dues, taxes or fees chargeable
 the contracted (!) exchange rates. (The consumer must be informed about the
employed exchange rates whe he/she steps into contract. Otherwise there are no contracted
rates.)

During the 20 days prior to the departure date, the price stated in the contract shall not be
increased.

About changes:
The organiser must inform the consumer about the changes of essential terms as
quickly as possible

About cancellation:
If the consumer withdraws the contract referring to those changes or if organiser
cancels the package before the agreed date:
 The consumer must get another package or higher quality (or refund for the difference)
 Or the price must be re-paid, except of:
• There is no minimum required number applied
• Force maior

About failures:
If a significant part of service is not provided after the departure:
 Alternative arrangement must be provided and compensation must be paid
 If the provision of an alternative arrangement is impossible., transport must be
provided back to the departure place/or another return point agreed
About liability:

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Both the organiser and/or the retailer is liable for the performance of the obligations arising
from the contract (does not matter who’s obligation it was) except of:
 The failure is attributable to the consumer
 The failure is attributable to third party unconnected with the provision of services
contracted
 Force maior
Both organiser and retailer must provide immediate assistance in all of the above hcases. The
consumers obligation is to communicate any failure immediately,
The travel contract is regulated in Hungary as well. The number of this decree: 214/1996.

Travel Contract

1§ The 416§ of Civil Code and the 214/1996 governmental act should be followed.

2§ Travel contract – in written form (1 copy to the passenger)

Travel contractor is obliged to provide at least 2 services

3§ If the travel contractor gives out brochures it must contain:

 Name of the contractor, headquarter, telephone
 Number of operational permit
 Destination, date & place of departure
 Accommodation type & category
 Price
 Means transportation
 Information about meals
 Information about programmes & facultative programmes
 The minimum number of participants
 Insurance
 Information about visa, health requirements

4§ If the contractor does not give out brochures, he/she is obliged to provide all the
information stated in 3§ in a written form.

5§ Minimum 7 days before the journey the contractor must give information about the
representatives

6§ Travel contract must also include:

 Name & address of the passenger
 Date & place of the journey
 Required services
 Extra charges
 Deadline until the passenger can cease (stop) contract without extra payment
 Whether includes insurance

7§ Contractor is responsible for its partners

8§ Price indicated in the travel contract must not be increased.

Exceptions: change in transportation costs, increase in tax, change in exchange rate.
But: 20 days before the journey it can be increased for no reason.

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Maximum 40% of the price can be required as deposit.

9§ The passenger has the right of transfer his/her travel to another person

10§ Till 15 days before the journey the contractor has the right to cease (stop) the contract in
case: the tour is endangered the number of applicants does not reach the minimum.
The passenger has the right to demand another service or the full price immediately.

11§ The passenger can stop the contract at any time

12§ The contractor is responsible for all services, even if the foreign partner breaks the
contract

13§ In case of break the contract, compensation

14§ The contractor is obliged to bring the attention to this governmental act

Travel Intermediary Contract

15§ The intermediaries have the right to make contracts between the tour operator and the
passenger and have the right for intermediary fee.

16§ About the law harmonization of the EU (valid from 1997)

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47. A former state run hotel with 150 rooms and other facilities for catering and leisure
activities on the southern side of Lake Balaton was privatised. Together with the new
owner you worked out a development concept, present concept (?), and you are asked as
the market manager to identify the target market(s) and prepare an integrated
communication plan.

Development Concept
The main idea can be to develop new services and facilities within the hotel. Spa facilities
today are very important and can attract customers to the hotel. Refurbrishment and
renovation can also be planned.
Beacuse of the very short season at Lake Balaton, conference facilities should be built in the
hotel. MICE business is not depending on weather so this could be a good opportunity for the
hotel to combat the low season.

Target market
-analysing the market for product development: MASS,
-to target by knowing well our marketing mix (4P + people, process, personal setting,
physical evidence)
-segmenting by BPDOGS
-offering a new developed hotel (refurbishing, reconstruction? Etc.) for leisure and business
travellers (seasonality) in a well known (valued, recognised) touristical area.
-target special tours (sport, gastronomy, and other events, incentives)
-check competition and demand
-create positioning statement: what we want to achieve, what we want people think about us
(e.g.: exceptional quality, exceptional experience in an exceptional area of Lake Balaton)

Integrated communication plan

Delivering the marketing by using the most economic forms of marketing and connecting
them. Internal communication is first (especially now when there are changes).This means
that First our employees must be aware of the changes

 AIDA- to be achieved: awareness-by communication mix + interest + desire + action

 Communication mix-give concrete examples

-what to say (advantages of the hotel-location, services, quality etc),
-to whom to say (target market, locals, industry etc-advantages for them)
-how to say it- depending on the above (the promotional mix: above the line-advertising /TA,
TO, newspaper, Internet etc/, below the line- personal selling /TA, reservation etc./ sales
promotion /special offers/, pr, sponsorship /balatonátúszás, sailing championships etc./, direct
marketing /letters to corporations, returning guests/)
-how often to say it and when to say it (seasonality-summer leisure, other time business)
-where to say it-media (print, broadcast, outdoor, tourism exhibitions, Internet, sponsorship)

 Advertising accomplishments
-Tangibilize the service elements, promise benefits that can be accomplished, differentiate the
product from the competition (USP-unique selling proposition), positive effect on employees-
service delivers, take advantage of word of mouth

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48. You are working as a Marketing Consultant for a town municipality. The town is the
centre of a famous wine district and has spa facilities. As a part of the marketing plan
make an audit of the situation and give your input on the best ways of using the
marketing and promotional mixes to increase the number of visitors.

Checklist for the audit:

 study competitive history and current position
 check alteration and enhancement opportunities for the product
 analyze sales and profit history, if any
 check customer feedback and repeat business ratio
 check competitive growth and decline
 offer new competition, new concept introduction
 make SWOT analysis for competition
First determine the product in its life-cycle:
Exploration / Involvement / Development / Consolidation / Stagnation / Decline

 Characteristic for this life-cycle: sales are low, costs are high per customer, no profit yet,
few competition

 Marketing objective: create product awareness and trial

The first two stages of the marketing plan:

1. Where are we now? - current situation analysis
SWOT: internal & external analysis – Strengths, Weaknesses, Opportunities, Threats
SLEPT: outside environment, uncontrollable factors
=> socio-cultural, legal, economic, political, technological
3 C’s: customers (the market: features, needs, trends, growth),
competitors,
cash (overall financial environment, resources)
+ products & services, sales, employees, management

2. Where do we want to be? - setting of goals + objectives

Product life-cycle: introduction stage  growth  maturity  decline
Different products’ lifecycles have to overlap!
Ansoff’s matrix
BCG matrix

The Marketing Mix (only 4P’s):

Product: offer a basic product with few options in price
Price: introductory
Place: distribution: build selective distribution
Promotion: - advertising: build product awareness
- sales promotion: use heavy sales promotion to enhance trial

The Promotional Mix:

1. above the line (ATL): advertising in media – characteristics: not personal, paid
2. below the line (BTL): non-media advertising or promotion
- no commission is paid for the advertising agency
- involves personal selling, sales promotion, PR, sponsorship, direct marketing

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 SEGMENTATION & targeting-Rationale & methodology

Why segment?
Meet customer needs (basics of marketing)
use differentiation
stretch budgets (limited budget is useless)

BPDOGS
Behavioral
Consumer interaction with the product (biz/leisure)
What is the product used for? (internet connections)
What benefits are sought? (efficiency/luxury)
What is the rate of usage? (regular flyer vs holiday flyer)
Psychographic
Lifestyles (20+ men buy motorbikes coz they couldn’t afford it when young)
Activities
Interests (black tourism-site of twin towers, concentration camps…)
Beliefs & attitudes
Demographics (unreliable)
Easily measurable (however massive crossover nowadays)
Descriptive
age, sex, race, income etc
Occupational imp.!
Varying needs according to job, industry etc
English hospitality workers (guest houses, hotels, owners), May-October, reach them!
In the US a hotel discovered biz women (proper hairdryer, lights for make-up, special are for
them)
Geographic (unreliable)
Important for travel & tourism
easy to obtain information
good for distribution
BUT:
There are no such thing like German/French market
Instead of making a brochure to a country try to target a segment (and print it in 3 languages)
Socioeconomic
Earnings (GDP-bad measure coz in India avrg. GDP $200 but there are lot of rich ppl)
disposable income (in England high incomes but low disposable incomes-advertise the
product how to buy it in installments)
a, b(managers), c1,…,F(unemployed) etc
‘Middle class’: wrong, coz in EU teachers and doctors are well paid but in Hungary they are
poor

Finding a worthwhile segment-Targeting MASS

Measurable (significant on the world)
Accessible (is it easy to the target market to reach?)
Substantial (ca they afford the product?)
Sustainable (many fashion products that fade away, eg: tourism products)

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THE MARKETING PLAN
Leads the ‘functional’ plans - production, finance, HR (Part of a strategic planning and
management of a firm)
1. Starts w/ what market demands for
2. create product, hire staff for that, set the finance plan

7Ps are the outcomes of a marketing plan, however a SWOT is only a tool.

Like a journey
Where are we now? (position, relation to others)
Where do we want to be? (directions, destination, time scale)
Which way is best? (plane, train, car…)
How do we get there? (decision)
Getting there! (how much time, route…)
Ensuring arrival

Auditing (where are we now?)

Tools:
SWOT (Strengths Weaknesses Opportunities Threats)
SLEPT (Socio-cultural Legal Economic Political Technical)
If domestic market-1 SLEPT only, if int’l-a SLEPT for each country
3C’s (Customers Competitors Cash)

Objectives (where do we want to be?)

Product life-cycle, Boston matrix, Ansoff’s matrix

Product life-cycle
Introduction Stage (Product, Pricing, Distribution, Promotion)
Growth Stage (Product, Pricing, Distribution, Promotion)
Maturity Stage (Product, Pricing, Distribution, Promotion)
Decline Stage (Product, Pricing, Distribution, Promotion)
When decline co. will either re-brand the product without changing the content or put it on to
a different market. However it’s not really valid for touristic products.
How useful is this?

The BCG matrix - developed by Bruce Henderson of the Boston Consulting Group in the
early 1970's
?
STAR
(cash usage) Market growth

grow rapidly-
high growth-
consume large cash
High

consume cash
low market share-
strong position-
no generate much
generates cash
cash

Cash cows DOGS

Low

(milk it) (liquidate)

High Low

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 Market share/Relative position
(cash generation)
“?” why under performing on a growing market?

Limitations:
Market growth rate is only one factor, overlooks many other factors

Ansoff’s matrix

Product development
Market penetration
Existing

(low risk, push it

(improved or new
Markets

hard)
products)
Market development Diversification
New

(find new end-users) (highest risk)

Existing New

Market share

Strategy (which way is best?)

The big picture!

Tactics (exactly how do we get there?)

The ‘hands-on’ approach

Implementation (checks along the journey)

Plan to stay on track

Control (have we arrived?)

Critical success factors

Q49 – same as 48.

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50. As a result of a merger a new hotel company with 30 hotels or a new travel company
with 30 sales outlets has been established. The board of directors decided to introduce
new service products and corporate identity. The management structure has to be
changed as well in order to decrease staff by 10%. Please outline an activity plan with
the main priorities in the different areas. How would you communicate the new
corporate identity to the market?

Mergers: two or more companies merge together and create a new company. The
shareholders of the original companies are getting the shares of the new company.

1. The new structure could be different:

Ownership and affiliation - contract forms:

1. the owner operates the hotels
2. owner leases the hotels to operating companies
 agreement under which a tenant pays a fixed monthly amount to a landlord
for the complete use of a specific hotel or hotels.
3. management contract
The hotel is operated by a company that is legally completely independent of the
owner. The operator, in acting as a manager of the hotel on behalf of the owner,
receives certain fees for the managerial services. (Properties Handling Co. and
Hotels Managing Co.)
4. franchise agreement
 the hotels operate as a member of the chain, utilizing the name and obtaining for a
fee certain services of marketing and operational nature.
 the franchisor sells the right to market a proven product.
Franchisors should have established operating procedures, provide training programs,
technical assistance, marketing, reservation system, sales network.
Franchisee should meet the standard of the chain + pays fixed monthly fee + per
reservation through system. Protection against competition.

In case of a merger, the activities of the different departments of a hotel or travel company are
standardised, e.g. common reservations system, financial and accounting, purchasing system,
common marketing, sales network, standard operating procedures, training programmes, etc.
This is advantageous for the individual hotels as it reduces their costs and a known name is
behind them, which improves image and reliability.

2. Decreasing staff:
- by avoiding parallel functions, jobs (Head office – Hotels)
- outsourcing: delegation of non-core operations or jobs from internal production
within a business to an external entity (such as a subcontractor) that specializes in that
operation. (Outsourcing is a business decision that is often made to lower costs or
focus on competencies.)

3. centralization or decentralization?
Decentralization (or decentralisation) is the process of redistributing decision-making closer
to the point of service or action. The more decentralized a system is, the more it relies on
lateral relationships, and the less it can rely on command or force.

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4. Service products differentiation could be different:
Business hotels / Resort hotels / Spa hotels or according to hotel categories: 2-3 star - 4-5 star
Grading hotel is a kind of measurement in which the total hotel product performs in relation
to a set of customer expectations. Two questions arise at this point. Firstly, what is our core
(hotel) product and what is the total (hotel) product.
The core product is in our case:
 a room with bed(s),
 one or two chairs,
 a table and may be
 hot and cold running water.
The total product encompasses anything and everything contributing to how it is perceived
by customers, like:
 location,
 ambiance,
 cleanliness,
 décor,
 speed and friendliness of service,
 atmosphere and so on.
All hotels, boarding houses, holiday homes, tourist hotels, and paying guests’ service rooms
have to be graded according to the criteria contained within the Decree.
Hotels of four and five star category are graded by the Ministry for Internal Trade (UK), any
other accommodation, will be graded by the trade department within the respective county
councils. Three basic rules apply to the operation of the grading system.
 Grading will be done on the basis of a local visit;
 All commercial accommodation should be regarded every five years;
 Should the standard of any accommodation not fulfill the requirements of its particular
category, it has to be immediately graded in a lower category
Hotels of 4 and 5 star category are graded by the Ministry for Internal Trade (UK). Any other
accomodation is graded by the local trade departments. Grading is done through a local visit
every 5th year. If the requirements are not fulfilled, the hotel is graded in a lower category.

Commercial lodging facilities in Hungary:

 Hotels – spa hotel, wellness hotel, garni hotel(without restaurant)
 Apartment hotels
 Campings
 Holiday homes
 Tourist hotels
 Youth hostels
Hotel: property that provides accommodation in more than 10 rooms

1* hotel requirements:
 Room size: min 8sqm sgl, 12sqm dbl
 Safe, messages, wake-up calls, lift if more than 4 floors, hot and cold running water in
rooms
 Telephone, heating, serving breakfast, change of linen/week
 24-h reception service
 lobby/public room, luggage storing, safe deposit facilities
 at least 1 bathroom and 2 toilets for men and women/floor
 emergency exits, room rates, other info shown to guests

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2* hotel requirements:
 Room size: 12sqm sgl, 16sqm dbl , but min. 5sqm/bed
 Min. 33% of rooms with own bath, toilet
 Lift (if more than 3 floors), public phone in lobby, breakfast sevice, room service for
breakfast
 Min. 1 pax at reception/shift speaking min. 1 foreign language

3* hotel requirements:
 Room size: 14sqm sgl, 18sqm dbl
 Min. 75% of rooms with own bath
 Lift if more than 3 floors, telephone in each room+in lobby, 2 catering units, day-time
room service
 Fax, safe, sewing-kit, suite possibilities, min. 1 person at reception always who speaks
languages
 Special staff entry
 Linen change 2/week and before arrival

4* hotel requirements:
 Room size: 16sqm sgl, 24sqm dbl, 80% of rooms should be double
 Own bathroom in each room
 Lift if more than 1 floor, linen change after 3 days, 24-h laundry, phone+radio/room
 TV refrigerator in rooms, fax if requested
 24-h reception, local, international newspapers, car park, doorman
 2 restaurants, 2 other catering units, á la carte, min. 12 Hungarian wine
 conference rooms
 suites / 50 room
5* hotel rquirements:
 Room size: 18 sqm sgl, 26sqm dbl, 34-40 sqm suite
 Bathroom, phone, radio, fridge, TV, air-conditioning, safe /room
 Linen change: every 2nd day
 1 Suite/ 30 rooms
 2 restaurants, 3 other catering units, 24-h room service
 conference rooms, elevators (separate for luggage)
 fax, bell service 24-h, car park/garage
 min 3 foreign languages spoken at reception

A hotel inspector’s checklist:

 external appearance of building, staff friendliness, welcome – at booking too!
 Security – key cards, personnel
 Bed size, comfort
 High standard maintenance, cleaning
 Amenities
 Curtains, lighting
 Clean bathrooms, ventillation, hot water always available
 Efficient services – message delivery, room service...
 Good food quality
 Friendly staff
Different signs at grading: stars, diamonds, keys, sunflowers, letters, etc...France-étoiles

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5. Definition of Corporate Identity – Brands, Logos

Corporate identity
It shows to the public how we are and what our culture is, what is our logo. The
differentiation is important, because it has to be recognisable.

In marketing, a corporate identity or "CI" is the "persona" of a corporation which is designed

to accord with and facilitate the attainment of business objectives, and is usually visibly
manifested by way of branding and the use of trademarks.

Corporate identity comes into being when there is a common ownership of an organisational
philosophy which is manifest in a distinct corporate culture - the corporate personality. At
its most profound, the public feel that they have ownership of the philosophy. (Balmer, 1995).

In general, this amounts to a logo (logotype and/or logogram) and supporting devices
commonly assembled within a set of guidelines. These guidelines govern how the identity is
applied and confirm approved colour palettes, typefaces, page layouts and other such methods
of maintaining visual continuity and brand recognition across all physical manifestations of
the brand.

Branding:
Single-form or Multi-form (e.g. Accor – Novotel, Sofitel, Mercure, Ibis)

A brand: An aura of beliefs and expectations about a product, which make it relevant and
distinctive.
A name, term definition, symbol, sign, design or unifying combination of these, intended to
identify goods or services of one seller or group of sellers and to differentiate them from those
of competitors.

Logo: a brand name or company name written in a distinctive way (short for logotype)

Branding decisions:
1. Selection of corporate symbols
-company name
-trade characters (logos)
2. Creation of a branding philosophy
-manufacturer, dealer, and/or generic branding
-family and/or individual branding
3. Selection of brand names
-extension, dealer’s names, new names, and/or licensing
4. Decision on weather or not to seek trademark protection

What’s in a brand? – graphics, logo, typefont, colours, music, personalities, events,

buildings, ecology, fauna, flora etc…

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Priorities:

Priority 1. Creating new Corporate Culture

Good positioning is essential:

Defining the competitive advantage of the company, special features, image, advantages of
the product (according to customer demand), compared to competitors.

Organisational culture
One of the most important tasks of the management is to create a good organisational culture.
Organisations are subject of larger socio-political culture.
Organisational culture is a set of values, beliefs, norms, artefacts and patterns of behaviour
that are used as a frame of reference for the way we look, work, communicate within an
organisation.
- artefacts are material and non-material objects, patterns that communicate information
about beliefs, assumptions and ways of doing things.
Culture can be defined as a set of shared values, beliefs, norms, artefacts, that are used to
interpret the environment and as a guide for all hinds of behaviour.

The importance and role of culture

- culture is an important element of effective organisational performance. We cannot be
better for the outside world, that we are inside.
- it helps to explain why people perceive things in their own way and perform
differently from other groups.
- it provides a consistency in outlook and values, working like compass in the
globalised business world.
- it enables people to work together in the same direction
- it differentiates the firm from the others on the market
- it is expressed in the corporate identity
- it creates the right corporate climate which is an indication of employees’ feelings
toward the organisation. Organisation climate will influence the level of morale and
attitudes and performance.

Common cultural characteristics are:

Geographic origin, migratory status, race language, religious faith, ties with neighbourhood,
shared values, traditions, symbols, literature, folklore, music, food preferences, employment
patterns, special interest in regard politic, institutions.

The components of corporate culture (shared values):

1) shared vision
2) mission
3) strategies
4) declared values: those values, that are important for us
5) leadership philosophy: about people, quality
6) philosophy
7) working climate
8) internal marketing: information activity within the company – the focus: colleagues
9) corporate identity
10) creed (hitvallás) – express some basic values that are extremely important eg. care about
the employees and customers.

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Strategy means the way, the method you realise your goals, visions, aims and objectives. To
realise strategy, you have to realise activities, techniques. You have to know how to realise,
fulfil the aims.
Values are what are important for us. It depends on our possibility, personality.

Priority 2. Market Communication, Promotion:

- intensive promotion to familiarise people with the new company, new product
- Marketing Plan (Journey)
- importance of feedback
- emphasize on the brand name, standard services
- concentrate on the different target groups – segmentation, therefore no need to
lower price, marketing is more effective (BPDOGS)
- targeting: MASS (measurable, accessible, substantial, sustainable), marketing
mix
- use the promotional mix – have a consistent message
1. above the line: advertising in media – characteristics: not personal, paid
2. below the line: non-media advertising or promotion
- involves personal selling, sales promotion, PR, sponsorship, direct
marketing

51. There is a trend to viewing the entire world as one economy. Please, outline the key
components characteristic of the so called global economy and their impact on the
Hungarian economy and especially Hungarian tourism.
Please outline the different foreign investment concepts.
Discuss the positive and negative effects of globalization.

Intro: Transformation of international business:

• By the end of the 20th Century intra-company trade has exceeded 40 % of total
foreign trade of the World
• The traditional players of international economy has been profoundly transformed
during the last century
• The names of the game: globalization, foreign direct investments and transnational
companies

Globalisation is the growing economic interdependence of countries worldwide through

increasing volume and variety of cross-border transactions in goods and services, free
international capital flows, and more rapid and widespread diffusion of technology

1. History of Globalisation:
19th century: one-pole world
- center: Western Europe (GB, F, Ne)
End of 19th century: two-pole world
- new pole: USA
- western Europe: GB, Be-Ne, F, CH, D
Causes of FDI in the 19th century:
• Resource seeking (raw materials)
• Logistic development to serve international trade (railways, harbors, logistic centers)
• After 1880 the increasing protectionism in Europe incites FDI in order to enter into a
closed (protected) market

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 • Developing local industry (like in Hungary food processing, rolling stock production,
steel production, etc.)

Migration was also important at the turn of century: The target countries were mainly the
USA, Canada, and Latin America. The peak of migration was at the beginning of the WWI

The glorious century of globalization:

• From 1830 (end of Napoleonian Wars) till 1914 World Export, FPI, FDI, and
migration has increased dramatically – these were the years of the First Globalization
Period

The set-back of globalization between the two WW (1918-1939)

After the war Globalization has slowed down
• Because of war reparation in Germany, Austria and Hungary hindered economic
recovery
• Small nationalist countries have emerged in Central Europe
• The Big economic crisis of 1929 caused the collapse of gold standard system
• Protectionalist measures were introduced in the industrialized countries
• Russia has started an autarkic development with thigh FDI inflow controll and strict
state planning

The cold war: multi-pole world

• USA, Western Europe, Socialist Europe and Soviet Union, Japan
• During the Cold War the investment map became more complex: some former
colonies have nationalized FDIs and controlled FDI inflow
• The Socialist Countries nationalized foreign ownership and controlled FDI inflow
(practically have blocked FDI inflow)
• The Socialist Countries had no FDI outflow but rather ODA (official development
assistance – aid)

New wave of globalization after the oil crisis - 1973

• After the Oil Crisis and the following Debt Crisis developing countries had difficulties
to find resources for their development efforts: bank credits were not available any
more
• Thus more and more developing countries started to partially liberalize their FDI
legislation in order to attract foreign direct investments – at least to their Special
Economic Zones or Export Processing Zones

New wave of globalization after 1980

• Rapid development of transportation and communication (satellites, internet,
computers) made possible after 1980 to transfer labor intensive activities from the
developed countries to cheap labor countries
• More and more company have decided to set up affiliates in the developing countries
in order to delocalize some parts of their activities

After 1988-1990
• The Socialist Countries have collapsed and started to import FDI massively
• In the „developing countries” after the economic crises in Latin America and Asia
foreign portfolio investments were regarded too risqué, so FDI became the most
important resource source of these countries

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21st century: three-pole world
- Western Europe, USA, Japan

The most important target countries of FDI today

• Developed countries (60 %)
• Developing countries (40%)
• The most important target countries are the USA, the UK, France, Germany
• The latest development: in 2004 more FDI arrived to China than to the USA!!!!!!

2. Development of FDI:

a) Colonial type of investment (16-17. cent.)=natural resource seeking investment

Capital : Rich country (R) >>> Poor country (P) back: products/goods/raw material
(mother company) (filiale)
- gold, rubber, tobacco
- Today: oil

b) Market buying investment=trade substituting investments

Capital: R >>> R back: goods

enter into a closed market to jump over barriers
end of 19th cent. and 20th

c) Delocalisation=cheap labour seeking investment=Kojima

Capital: R >>> P back: consumer goods

- end of 20th cent.
Conditions: infrastructure, trained labour force, communication (satellites), legal framework,
political stability

d) Subsidy hunting investment

- government support (tax reduction, infrastr., training, etc.)
- in H.: GFC – Gazdasági Fejlesztési Céltámogatás
- e.g.: Nissan invested in USA to road access, training

3. Transnational companies = Multinationals

How do TNC-s realize tech. transfer?

- Spread of new techn. inside the TNC-s
- techn. transfers to subcontractors (e.g.: outsourcing, franchise)
- joined problem solving with local independent R&D and acedemic centres
- spillover (átmész másik céghez és viszed a know-how-t) & externalities
- copying (China)

Toyotism: just in time (no storage, no stock)

Fordism: just in case (huge stock)

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Advantages of TNC-s:
- easy access to financial resources
- exchange infos bw. departments
- bigger techn. development
- more effective marketing
- optimise labourforce

Disadvantages of TNC-s:
- difficult to control, too complex structure
- need higly.educated managers
- high transportation cost >>> polluting environment

3. Forms of FI:
• Portfolio investment: an investor purchases foreign public government securities or
securities issued by companies, without making efforts to use his ownership rights to
bring the foreign company under his control.
• Foreign direct investment: the investor wishes to use his ownership rights acquired
in a particular company for taking control of it. Statistically an investment are
regarded FDI if the owners possess more than 10 % share in a company assets
Thus portfolio investments are driven primarily by a mere pursuit of a profitable
investment of savings, while by gaining partial or total control over foreign enterprises,
direct investments tend, in a number of cases, to reach further goals – in addition to
making a profitable investment, of course.
Such goals may include, among others, the utilization of cheap local labor, the
establishment of firm supplier relations, or in other cases, penetration to a closed market

FDIs:
- establishment of a new enterprise abroad,
- purchase of ownership share in quantities to provide control over an already existent
foreign company,
- re-investment of a foreign company's profit,
- loan extension or the increase of capital stock, transacted between a parent company
and its affiliated firm abroad (inter-company loan).

60% of FDI goes to rich countries

Technology transfer: appropriate or suitable technology from a developped country to a less
developped one
FDI-s and TNC-s (trans.national companies=multinational companies) as the vectors of
techn.development. 80% of non-military R&D is realized by TNC-s.

Important factors for a country FDI:

taxation, labour cost/force, subsidiaries, market, technology, fluctuation of exch.rates,

political stability, legislation, infrastructure, transportation cost

Most important FDI exporting countries: USA, Germany, Japan, France, UK

Most important FDI importing countries (60% of the world): USA, Germany, Japan, France,
UK+China

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4. Hungary:

- 19th cent.: 80% of export went to Austria

- mid 20th cent.: 80% to Germany
- later: 80% to Russia and COMEGON
- agriculture was not industrialized, now: good technology
- H is too small for bioproducts, genetically modifies organs

FDI in Central Europe from the 2. half of the 19th century till the communist takover:
- foreign investments have flown from GB and France to the colonies
- French and German investments were realised in Central European region
- mainly agricultural investments
- transportation needed
- food industry
- weapon industry
- most important investors companies : Rotschild Bank, Credit Mobilier
- in H FDI played more important role after 1873 (education, legal system,
infrastr.conditions started to develop), gvnmt gave out bond for transportation
- entrepreneurial activity : Jewish entered to thisd market niche (nobles lent out plants to
them and to other foreign entrepreneurs)

Austrian FDI-s in H in the 19th century:

- Ausrian State Railways – Hu Railways Co.
- Austrian Danube River Steamship Co. – coal mines
- Austrian sugar companies – filiales in H
- Rothschild Bank – Hungarian General Credit Bank
- Wiener Bankverein – Pest Hungarian Commercial Bank

Share of foreign investments (mainly FDI) in gross capital formation in H:

- 1867-73: 30%
- 1873-1900: 45%
- 1900- : 20%

OECD: (Organisation for Economic Co-operation and Development)

The OECD groups 30 member countries sharing a commitment to democratic government
and the market economy. With active relationships with some 70 other countries, NGOs and
civil society , it has a global reach. Best known for its publications and its statistics, its work
covers economic and social issues from macroeconomics, to trade,
education, development and science and innovation.

Privatisation: dismantling state (or municipal) property and transfering it to private

ownership
• In the 19th century FDI contributed to open Hungarian economy to Western EU
• Between the World Wars Hungarian export was orientated to Germany
• Agter 1945 Hungarian export has turn toward the COMECON countries
• After 1990 – because of FDI inflo – Hungarian export has again turned toward
Western Europe
• Large part (more than 80 %) of Hungarian export after 1990 is coming from foreign
owned companies ...like Suzuki
• But the TNCs in Hungary are importing more than their export

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Why do FDIs cause foreign trade deficit?

Export-orientated delocalizing, cheap labor seeking investments:

• In the investment phase these companies import machineries and equipments
• Later on these companies start to export, but their value added is often low
• At the same time new investors arrive and they also import machinery and
equipments... and so on...

Market buying investments

• These companies import in their investment phase
• But they generally continue to import later on...
• And they sell their products in Hungary...so they don't export at all!!!

Global companies in Hungary

Transnationality index (TNI) in the World in the year 2000 had the highest scores in car and
car parts industry (15 %) in the production of electric and elctronic appliances (12 %), in
crude oil production and distribution (12 %), in the pharmaceutical industry (9 %), food
industry (8 %), and in the telecommunications (6 %)
• The biggest global companies are not only present in Hungary but dominate
Hungarian economy
• The biggest Hungarian companies are affiliates of global companies
• More that 80 % of Hungarian export and import is due to global companies working in
Hungary

The banking sector

• The banking sector was essential for economic take off in the 19th century an during
the transformation at the end of the 20 century in the Central European countries
• In the 19th century foreign banks have created affiliates and invested in other branches
of industry in the region
• After 1990 the most important step was modernization of banking system: need of
capital, knowledge, and reliability
• In Estonia foreign ownership is 100 %,
• In the Czech Republic, Slovakia and Croatia 90 %
• In Hungary 81 % in the banking system
• The smallest share of FDI in the banking system of the CEE countries is in Slovenia,
30 %, because in Slovenia ESOP methods were used during the privatization

Pros and cons:

• Good, because foreign banks brought in expertise, knowledge, capital, reliability
• Bad, because very often state budget was used to consolidate state owned banks before
privatization
• Bad, because banking activity is highly profitable in the region and profit flows out...
• Local SMEs have difficulties to get credits...or it is expensive for the budget

Research and development

• Formerly R+D was important – but not efficient – in Hungary
• Some TNCs – mainly global companies as GE, Knorr-Bremse, pharmaceutical
companies – have established R+D centers in Hungary...
• But lot of TNCs have closed down their R+D centers in Hungary and they import
technology from their mother company

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 • R+D expenditure in Hungary has declined during the last decade

6. Privatization in Tourism

• Before 1990 Hungarian government first was afraid of tourism because of the danger
of ideological infection – but the government at the same time needed hard currency
what could be produced by inward tourism
• Tourism became more and more important as Hungarian foreign trade deficit has
increased
• From the late 70s Hungarian Spring Festival and other cultural events were organized
• Government borrowed money for luxury hotel development to accommodate foreign
guests
• Hungarian state owned hotels have joined to international hotel chains
• Tourism marketing office (IPV - TPC) was founded to incite inward tourism

Hungarian hotels in the 1970’s

• In 1978 Hungarian government signed a bilateral credit agreement with Austria about
the utilization of 300 million dollars for hotel development
• Accommodation capacity in mostly 4- and 5-star hotels increased by nearly 7500.
• Each of these hotels was the property of the Hungarian state, but co-operation
agreements on the use of names had been signed with various European hotel chains.
• In addition to the new hotels, the USD 300 million was also used to build extra
facilities (swimming pools, tennis courts) in a few hotels in the country.
• In the 1970s total accommodation capacity was increased by 45%.

Privatization in the tourism industry

• After 1990: The first privatization package included IBUSZ, Hungexpo, and the three
large Hungarian hotel chains: HungarHotels, Pannónia, and Danubius Hotels. These
companies – each with a considerable loan portfolio – were privatized with the
assistance of 18 international consultancy firms once the SPA had announced the bid
• Acting on the recommendations of E. Rotschild, London consultancy company, the
first Hungarian company to be listed on the stock exchange was IBUSZ. In a short
period of time, IBUSZ shares made a spectacular success, but later the prices fell
below the issue price.
• Nomura, the consultancy company for Danubius, suggested the introduction of
Danubius’ shares to the stock exchange as the best available method for privatization.
• Danubius was first listed on the stock exchange in 1992. The company, which had a
capital of HUF 19.8 billion back then, was 100% privatized in 1994. In 1996 the
owners were 55% foreign investors, 29% Hungarian small investors, 6.75%
employees, 6.22% brokerage houses, and 3.03% of insurance funds.
• HungarHotels privatization was a failure, so first the best hotels of the company was
sold to foreign investors
• Hunguest Rt. was established in 1993 with HUF 3.5 billion capital and was running 36
properties in the hands of the National Holiday Foundation – a company taking over
the organization of workers’ holidays from the trade union. The primary goal of the
hotel group is to provide cut-rate domestic holiday opportunities, In addition to this,
the hotels welcome an increasing number of foreign guests year after year, as well.
• Within the company group, one of Hunguest’s subsidiaries, the Hunguest Hotels Rt. is
responsible for running the hotels. The primary goal of Hunguest was to renew and
modernize the hotels. The renewal is funded from two sources: earned revenue on the

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 one hand, and the involvement of outside capital from the Hungarian Investment and
Development Bank, on the other.
• The second privatization program was announced in 1995. Two further hotel chains –
Eravis and Hunguest – were put up for sale in this package
• In mid-February 1996, HB Westminster II. acquired majority ownership in Eravis Rt.,
however, the management of Eravis was not replaced this time. The strategic alliance
with Hunguest Rt. proved to be a profitable endeavor. Within the frameworks of the
established consortium, Eravis owned 50% of Hunguest’s share, i.e. the majority of
Hunguest’s middle category country hotels.

New investments in the hotel industry in Hungary

• The second boom in hotel construction started in 1999. Between 1999 and 2003, a
great number of hotels were renewed, and capacities were increased by 3097. With
this, the number of 5-star hotels increased from 7 to 11 in 2000, 9 of these located in
the capital. The investment value of 5-star hotels opened in 2000 was nearly 100
million, while that of 4-star hotels amounted to 70 million dollars. Developments were
primarily concentrated in the capital, but the country also saw six new 4-star, and one
5-star hotels, e.g. in Hévíz, Szeged, and Tokaj.
• The second large-scale hotel investment project is hallmarked by the Italian Boscolo
Group, which won the bid for the New York Palace. Hailed as one of Budapest’s most
spectacular buildings, the New York Palace has been closed for a long time and its
present condition leaves a lot to be desired. After complete reconstruction, the Italian
company is planning to run the building as a luxury hotel.

Present and future

• Investors continue to invest in hotels, mansions
• New investments arrived to „health tourism”: construction of medicinal baths,
wellness centers
New investment possibilities:
• Convention and conference centers
• Thematic parks

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52. Compare and contrast the impacts (positive and negative) that art festivals in the
countryside and Budapest have on the tourist inflow of the host town and surrounding
countryside, the indigenous population, the local economy, the business economy at
large.
What are your proposals to improve the offerings of the festivals and what activities
would you propose in the marketing plan to increase the revenue from the events?

Definitons:

Festival: 1. religious celebration which comes at the same time each year
2. artistic celebration, entertainment, which is put on at regular intervals

Arts festival: performances, exhibitions and competitions in music, drama, painting,

handicrafts, etc.

Present important festivals in Hungary:

Budapest Spring Festival: The Budapest Spring Festival takes place in the last two weeks of
March. Its main emphasis is on those symphony orchestra concerts, opera and ballet
performances which will appeal to the widest audience, but the program includes open-air
events and an operetta festival. The performances take place in the capital’s most important
concert halls and theatres - and often in historic monuments. Over the years a number of
regional towns hare been included in the Budapest Spring Festival - Debrecen, Gödöllő, Győr,
Kaposvár, Kecskemét, Sopron, Szentendre and Szombatbely - and thus it has more or less
expanded into a national festival

The first event in this series was a celebration of the 100th birthday of Béla Bartók and the
works of this composer, famous well beyond the boundaries of his homeland, and again this
time works of this great composer will be performed by the Budapest Festival Orchestra and
the Franz Liszt Chamber Orchestra. The Budapest Spring Festival is one of the city´s most
appealing events. The programme features traditional, classical and innovative productions
starring national and international artists, folklore, dance, opera and music and is enhanced by
the unique festival ambience.

Sziget Festival: There is an island in the River Danube in Budapest that once served as a large
ship building facility. A couple of years ago a group of young people began to organize an
annual festival, like Woodstock – spending the nights in tents, lots of mud and very few
hygienic facilities. There are lots of concerts, theatre performances, shows, dance houses, etc.
Last year 350 thousand people attended the week-long festival.

Sziget Festival over a decade of development and improvement has built its character and
among the festivals of the old continent, now, in many aspects, it is recognised as a unique and
outstanding event. For its natural environment, the colourfulness of the programmes, the high
standard services and last but not the least for its low prices the Festival has become very
popular not only among local audiences but in Europe and even Overseas. Based on the results
of the research done last year at Sziget 81.3% of the foreign, 92.5% of the Hungarian visitors
indicated that they would be back to Sziget the following year, where the main attractions are
the atmosphere and cultural plurality.

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For the twelfth times this year Sziget Festival will welcome the visitors between August 4th
and 11th. The international Culture-camp - with Hungary's joining to the EU - is an integral
part and a determinative multicultural event of the cultural circulation of Europe. This year the
Festival offers - as the audience of Sziget is already used to it - over a thousand programmes at
60 venues including 5 big stages of different genres.

Valley of Arts: One of Hungary’s biggest multicultural festivals at North of Lake

Balaton /Kapolcs, Vigántpetend, Taliándörögd, Monostorapáti, Öcs, Pula/. This valley
comprising of half a dozen villages and the natural area in between them serves as the venues
for 800 different programs during a 10 day festival every summer /July or August/. The
programs include a variety of concerts, as well as shows of the local crafts. Since the 19 th
century the region has been famous for its potters, tanners, brewers, button-makers, boot-
makers, embroiderers and cobblers. Cultural enthusiasts may enjoy art exhibits, evenings of
literary readings, theatre productions, films, and classical, jazz, and folk concerts in addition.

There are Valley of Arts packages available nearby including accommodation, meal coupons,
1-2 entrance card /valid for any dates of the festival, for a whole day, for each programmes,
concerts organised in the five involved villages in the scope of the festival/, and a tourist map
of the lake Balaton and surroundings.

Other important events:: the Budapest Film Festival (February), which premieres new
Hungarian films; Busójárás (Mohás; February), the nation's top Mardi Gras; Sopron Festival
Weeks (Sopron; June/July), showcasing ancient music and dance performances; the Folk Arts
Festival (Nagykálló; August), one of the biggest and best events of the year; and Jazz Days
(Debrecen; September), which is Hungary's top jazz festival, etc.

Impacts of arts festivals:

Advantages: attracting tourists /both domestic and foreign/; attracting publicity for the
organizing sites like resorts, museums, theme parks, etc.; may attracting worldwide media
attention; expansion of tourist season /off season events/; helping to spread the tourism into
outlying regions; promoting the country as a whole – shaping the image of the host community;
more expenditures + longer stays of visitors; financial benefits; contributing to sustainable
development, etc.

Disadvantages: hygiene problems; traffic problems; drug + alcohol danger; environmental

impact - ruining the environment; no festival spirit; financial difficulties for organisers;
difficulty in obtaining volunteers; dissenting community merchants and residents; inadequate
planning may lead to financial setbacks; too many visitors - restaurants, hotels, streets; successful
festivals require time to develop, etc.

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A successful event

Marketing of festivals is similar to service marketing.

Promotion: advertising, sales promotion, publicity /good logo, visual graphics/, PR,
interviews, TV, information leaflets, etc.
Sponsorship is very important: the event’s theme & image must fit the sponsor’s; the sponsor’s
and the event’s key target market has to be the same; sponsors want to sell their products, to get
their name associated with an attractive event, etc. <= these issues have to be taken into account
Place – the setting: good atmosphere, crowd control, security, accessibility + traffic control,
essential services, easy orientation - signs, information sources
Distribution: attracting tourists and groups by e.g. package tours
Interactive marketing: interaction of visitors with the host community; of visitors with staff; of
visitors with the environment; and among visitors themselves.
Internal marketing: ensuring that all staff understand the roles, policies, instructions, etc. =>
personnel training; communication as part of internal marketing is usually a common management
problem
Mobilising of inhabitants of the place: managing the host population requires good public relations
and strong community support
Improve facilities

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53. Why is Direct Marketing so important in the promotional Mix? What makes
relationship marketing essential in the hospitality and travel industry, how is top
management involved in that? As a marketing director how would you adopt direct
marketing principles in building customer loyalty? What are the advantages and
disadvantages of the loyalty programs and how can you solve the problems?

The Promotional Mix:

1. above the line: advertising in media – characteristics: not personal, paid
2. below the line: non-media advertising or promotion
- no commission is paid for the advertising agency.
- involves personal selling, sales promotion, PR, sponsorship, direct
marketing

Direct Marketing:
- = a strategy used to create a personal, intermediary-free dialogue with customers.
- overall, long-term strategy
- the database of customers should be constantly updated, info collected constantly – by
contacting, sales promotion, e.g. for voucher with name & address of friends you get a
free packet of cigarettes
- DM Medias: direct mail, telemarketing, inserts, door-to-door, internet, media links.

Relationship Marketing:
It is part of Direct Marketing.
Defined as marketing to protect the customer base. It sees the customer as an asset. Its function
is not only to attract customers, but also maintain and enhance long-term customer relationship.
The market is considered as individual customers; the product is surrounded by complex
services; constant development of the company’s competences.

RM is applicable, where:
- there is an ongoing and periodic desire for service by the customer
- the customer controls the selection of the service suppliers
- there are alternative supplier choice
- customer loyalty is weak and switching is common and easy word of mouth is an especially
potent form of communication of the product.

Recognition or Reward?
 It appears that larger hotel chains depend largely on reward schemes - to motivate the
return of their frequent guests, medium and smaller chains have turned to recognition
programs with no direct reward elements. Their recognition programs are built around
a combination of personalization and convenience.
 Here is how it works: A frequent guest who is identified as being very valuable by
either a hotel or corporate management is targeted for this program.
 The guest arrives at the hotel and finds a preferred room preassigned, a key ready and
no need to fill in any registration documents. He arrives in his room to find jazz-music
playing, two bottles of his favourite beverage. There are magazines about sailing and
windsurfing, his favourite summertime hobbies.
 On his bed, he finds one feather pillow and one foam pillow – his preferred
combination- and a note from the general manager thanking him for being a loyal
guest to the hotel (or in some cases to the chain).

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  He notices members of the staff all seem to recognize him as they use his name often.
He stays two nights and before his departure, he receives his bill under the door so he
need not stop at the front desk or cashier.
 He then receives a letter in his office from the hotel company’s vice president of sales
and marketing thanking him again for choosing their hotel(s) and giving him an
upgrade certificate to a suite during his next stay as a token of their appreciation.
 Many companies and chains do not standardise the amenities offered to their best
guests, but rather let each hotel locally customize these offerings.
 Guest usage with “creative comforts” and convenience. They are building personal
relationships by implementing their tactics at the hotel level rather than directly
between the guest and the corporate office. It is much tougher, the hotel companies
report, to get consistency in customer service within each hotel. It may be riskier to
give most benefits during each stay rather than rewarding with miles or hotel stays that
can be used later for leisure purposes. But, it provides for the guest’s personal needs
and sends a strong message that someone is thinking about the guest before he or she
arrives and someone cares that the stay is successful.

Elements for a Successful Guest Recognition Program

 One of the most important is training - recurring training of the entire hotel staff.
 Guest recognition effort was kicked off by a group of top executives visiting all hotels
in the system.
 Management’s commitment to the initiative was evident -lace guest recognition and
loyalty at the centre of their thinking
 Once the program is implemented to have dedicated guest recognition staff members.
Their job is to ensure that the guest information is kept current in the database as well
as overseeing the service delivery aspect of the program.
 Regularly scheduled conference calls between the hotel staff assigned on the guest
recognition initiative and corporate staff responsible for the overall program success.
 Promote it as a club.

Metrics - A way to measure success

 Guest satisfaction scores are often one measurement used.
 Others include benchmarks for the number of guests to be touched by these services,
repeat guest percentage, and targeted new guest acquisition. Spending levels and
lifetime customer’s values help to quantify the incremental revenues generated by this
approach.
 Other measurements can be geared to gathering of usable and useful data on targeted
guests and benchmarks can be applied for acquiring this guest information as the
relationship develops.
 The lifetime value of a customer is a function of the customer’s average spend with
the hotel, multiplied by the length of time the hotel will retain the customer. Thus, if
the average spending is USD 15.000 per annum, and remains loyal for 5 years, the
lifetime value to the hotel is USD 75.000.

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What Benefits to Offer?
 Vary from company to company - convenience for the guest and easing the travel
hassle - quick and easy check-in and out procedures and getting the guest to the right
room quickly.
 Guest recognition and customisation. The elements that fall into this category revolve
around personalization of room amenities, welcome gifts, thank you offers, and
personal contacts by staff during the stay.
 Unexpected amenities or rewards or to have published list of awards earned?
 Customizing the type of music playing in the room on arrival, personalizing
magazines and other reading material based on the guest’s known interests.

How do Hotels Compare to Other Industries?

Anyone who has worked with customer relationship management (CRM) programs in
hotels would be interested to see how their programs compare to other industries that invest a
lot more money in them like retail, airlines, casinos and financial services.
 Retail Sector - Overall customer service initiatives, aligning their online and off-line
strategies, and customized offerings based on individual shopper preferences have
defined the retail approach to customer recognition.
 Financial Services - The financial services industry has most successfully combined
personalization and convenience of customer service at the time the product is
purchased with customized promotional campaigns to generate incremental business.
 Other Travel Companies: In the casino and gaming world, the practice of guest
recognition has been refined to a high art form, especially for the lucrative “high
rollers. To that end, they introduced a loyalty card that helps them monitor amounts
gambled and time spent at both machines and tables. The airline industry, as stated
before, is definitely entrenched in the mileage-based loyalty programs.
The Bottom Line
 In several recent studies, it has been estimated that 60-80 percent of Customer
Relationship Management (CRM) initiatives do not succeed. One of the main reasons
for this astounding number of failures is that companies do not fully grasp that CRM is
a strategic process, not just a product or a technology. There is often a lack of
understanding on the part of management teams as to the magnitude of what they are
attempting to “buy”. The problem is not CRM, but inadequate vision, focus and
implementation.
 A guest-recognition initiative is not a program, not a separate department, and not
something in a manual kept on the shelf. Rather, it is a philosophy, part of a larger
CRM strategy and ultimately ingrained thoroughly into the corporate culture.
Training, implementation, measurement and enthusiastic management support seem to
be common elements for success in guest-recognition programs, which will lead to
increased customer retention and loyalty.

Types of loyalty:

- emotional: very powerful, will transcend generations. Bad service and bad attitude can
burst the “emotional bubble”.
- Price: bad move to buy on price
- Incentivised: extra services offered
- Monopoly: only product. Need to be building relationship with customer before monopoly
ends.

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- Inertia: keep going back to the same place from fear of unknown (low risk). Important not
to make drastic, dramatic changes
Customer loyalty arises from the following ingredients
 Thus customer delight creates an emotional tie to a product or service, not just a
rational preference, and this creates high customer loyalty. And the ingredients:
o Not single minded pursue of market share. Provide valuable solutions for
customers exceed expectations and create other positive reasons to stick with
you.
o Build brand equity rather than selling a commodity.
o Concentrating on turning first-time buyers into second- and third-time buyers
and then into raving fans. Customers love personal attention! Unexpected extra
services or products make a big difference.
o Cultivating fans who haven't themselves bought from you but eagerly spread
the word on your behalf.
o Confronting complaints constructively and thoroughly. If you don't receive
complaints, you can still be certain some customers are silently fuming.
o Pursuing lost customers - highly profitable source of future business.

The Nature of the Customer Relationship: The customer relationship is fundamentally

based on the exchange of value for money between two parties. The relationship can be
expected to continue only so long as both parties benefit.

The Difference Between Loyalty and Captivity

o Loyal customers are those that choose a company's product or service even though a
reasonable competitive alternative exists.
o Captive customers are those that have no choice, either because no alternative exists or
because they are "locked-in" for some reason

CRM
o CRM is a way of doing business. It is about knowing who they are as individuals and
having dialogs with them that recognize them as such. 
o CRM means different things to different companies. Just as customers are unique,
companies are unique.
o Five crucial elements required for a successful CRM initiative in any service
organization - strategic concepts as universal:
1. Guest recognition – by training reception staff, frequency programmes
2. Data capture and maintenance - information about a guest’s preferences to a guest
service agent – capture and scrub data, standardized data
3. Channel integration and consistency – conduct transaction over Internet, ensure guest
receives the same recognition no matter what channel they prefer, availability of all
channels
4. Ranking and discrimination – worth more to business, valuable customers, toxic
customers, black list,
5. Two-way personalized dialogs – segmentation, personalized communication,
customer’s preferences, provide opportunities for more information and sales with the
customer.

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The biggest loyalty programs:
o Marriott Rewards - 2400 Hotels (435.983 rooms) worldwide - 13 million members.
o Intercontinental Worldwide – 3274 Hotels (511.072 rooms) worldwide - (3 level
system) 10 million members.
o Executive Card
o Ambassador Card
o Priority Club - A lower level loyalty program to be applied in all Six Continents
Hotels
o Hilton Hhonors - 6.5 million members.

Advantages of Loyalty Programmes:

client is returning, bringing new clients

Disadvantages: It might become expensive. If there are no rooms or seats, the customer becomes
disappointed.  Pre-advise client!

54. What is the importance of branding a product in the hospitality industry? How can
different brands support each other’s sales effort? Compare the guest cycle in a resort
and in a business type city hotel operation with particular reference to operational
similarities and differences. Compare and analyze some hotel brands.

A brand: An aura of beliefs and expectations about a product, which make it relevant and
distinctive. It stretches beyond the physical and into the psychological and is extremely
powerful. (Lewis 1991)

Benefits of branding:
- to the customer: easier identification (logos brands, images)
features and benefits (helps the decision making)
reduces risk
creates interest
-to the producer creates loyalty
defends against competition (differentiates products)
premium pricing (people feel safe because it is expensive)
aids targeting

“Brands belong to the people who use them not the manufacturers” (Leo Burnett)

What’s in a brand? – graphics, logo, typefont, colours, music, personalities, events, buildings,
ecology, fauna, flora etc…

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Types of branding:
Single-form brand: company image and product are the same, e.g. Nikon, Coca-Cola, Gillette
Multi-form brand: brands are not related to the parent company, different product areas, e.g.
Accor – Novotel, Mercure, etc., Unilever, Procter& Gamble
Balanced form: each brand related to the corporate body, e.g. Ford: “Focus” is known as a
separate brand
Variety form: as the circumstances demand, e.g. Bosch – owns companies where they don’t
use the original name

Brand names, logos or trademarks encourage people to buy particular products because they
give the customer the benefits they are seeking. These benefits may range from familiarity
and safety, to status and self-esteem. Branding offers particular advantages to organisations
that are marketing services.
Given the intangible nature of services and the potential difficulty of differentiating one
service from another, branding provides a significant method for achieving a degree of
product differentiation.

Methods of brand mngmt: (Sipos)

1, Brand extension - we use one brand and add an extra characteristic, modify the product
(Marlboro & Marlboro light).
2, Flanker brand - an associated brand, different name but comes together with the original,
2nd supports 1st (Cola & Fanta).
3, Family branding - several elements of a brand, many brand extensions, the old brand
name is known, attracts the customers.
4, New brand policy - introduce new brands, new name, nobody knows what’s behind it.

The guest cycle: Pre-arrival, Arrival, Occupancy, Departure

Target markets:
Resort: Planned destinations! Vacation, sport activities, longer stay, relaxation, fitness,
swimming… Group activities, golf, dancing, conference destinations…
Business city hotel: business clients, downtown or business centre, shorter stays.
Pre-arrival: choosing the hotel: depends on many factors. Advertisement is an important one,
and it is different for the two target markets. The location is important for business customers
(easy access, proximity of business centres,…). Facilities are decisive in both cases. Resort
customers are more price dependent.
Arrival: quick check-in and method of payment important for business (usually credit card or
billing to the company). Location of the room: view for leisure, quiet for business cust.
Occupancy: business and leisure facilities, personal attention
Departure: ease and rapidity important for business customers, usually pay only extras

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Branding in the Hospitality Industry:

Hospitality companies develop multiple brands for growth purpose. This means either a
new concept or through acquisition or through both. Multiple brands provide protection
from competition against single brands.
Different brands to reach different goals.
2 examples: Marriott, Ritz Carlton, Marriott Hotels Resorts and Suites, Executive
Apartments, Courtyards, Fairfield Inns, Conference Hotels, etc.
Accor: lbis, Novotel, Mercure, Sofitel
Key word is the positioning of the brand, not to kill each others brand clientele.
Brand awareness, loyalty, image, compare to competition.

55. The quality of pricing strongly influences the customer’s choice and the company’s
profitability. What is the role and importance of pricing. You are the director of
Marketing and Sales department of a Service company (hotel / TA / Airline / TO) and in
this position , please develop:
1. your company’s overall pricing strategies and practices
2. the overall and guiding principles for pricing
In order to meet the challenges of the above statement. What is the objective of yield
management and please discuss the ways and practical requirements to secure
maximum revenue for a service company. What are the implications of yield
management?

Each room in a hotel will almost always have more than one room rate. Rate categories
generally correspond to types of rooms that' are comparable in square meterage and
furnishing. Differences are based on room size, location, view, furnishing, and amenities. The
rack rate is the standard price determined by the front office management and accepted by the
GM. The rack rate is listed on the room rate schedule to inform colleagues of the selling)
price of each room in the hotel. Often, rack rates must be reported to local and or state
authorities.
Today often applied rack rates:
 Premium Rates
 High Season Rates
 Shoulder (or Mid) Season Rate-s
 Off or Law Season Rates

Special room rate categories are as follows:

 Corporate or commercial rate offered to companies that provide frequent business for
the hotel
 Group rate offered to groups, meetings, conventions etc.
 Promotional rate used among others during low occupancy period
 Incentive rate offered for agencies, airlines, tour operators, meeting planners
 Family rate spec for families (family plan)
 Package rate
 Complimentary rate

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Fair Rating
A sound room rate structure is fundamental to a sound hotel operation; every manager is
sooner or later faced with the question of what is the proper room charge. It is a matter of
exceeding complexity because room rates reflect markets and costs; investments and rates of
return supply and demand; accommodations and competition; and not least of all, the quality
of management.
Divided into its two major components, room rates must be large enough to cover costs
and a fair return on invested capita1, and reasonable enough to attract and retain the
clientele to whom the operation is being marketed. The former suggest a relatively objective,
structured approach, which can be analysed after the fact. The latter is more subjective,
involving many factors from the amount of local competition to the condition of the economy
at large. There is a little sense in charging a rate less than what is needed to meet the first
objective; there is little chance of getting a rate more than that limit established by the second.

Double Occupancy
Double occupancy refers to the use of the room by a second guest. Traditional rate making
increases the single-occupancy rate by a factor (normally not twice) whenever the room is
double occupied. However, the price spread between single and double occupancy has been
narrowing. One rate is being used more frequently because the major costs of a hotel room are
fixed (debt service, taxes, depreciation). Having a second or third occupant adds relatively
few incremental costs (Linen, soap, tissue). Although far from universal, one charge for both
single and double occupancy is gaining favour.
Several arguments support the movement toward a single (flat) room price. The fewer the
rate options, the less the confusion, and the more rapidly the telephone reservationist can
close the sale. Price is critical issue in package plans and tour sales. Rates can be shaved
closely because the second occupant represents a small additional expense. The surcharge
is almost unnoticed if the extra persons share existing beds. That is what makes family-
plan rates attractive. An extra charge is levied if a rollaway bed, which requires extra
handling and linen, is required. Suite hotels are popular because the extra hide-abed is
permanently available.

Influences upon pricing decision-making:

Controllable factors: Over, which the marketers has a large amount of, control Costs,
marketing-pricing objectives, product offering, company resources.

Uncontrollable factors: Over which there is little control, but which still influence the
pricing decision.

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Controllable factors:

Costs

Fixed costs: Irrespective of occupancy, do not vary with changes in sales volume. (Rents,
rates, salaries, insurance and depreciation)

Variable costs: Vary in proportion to sales (food, beverages, and laundry)

Semi fixed-costs: Vary in sympathy with, but not in proportion to sales volume. (Power,
telephone and wages)

Total costs: are the aggregated fixed, variable and semi-fixed costs in a specified budgetary
period.

Average costs: are total cost divided by number of units sold (room, guest night, covers), also
known as unit cost or average total cost.

Marginal costs: is the increase in total cost caused by one more unit of output. (ie.
accommodating 1 more guest)

Direct cost: are those, which are traceable to a department or unit.

Indirect costs: are also known as joint or common costs; are not traceable to particular units or
departments. (general management).

Controllable costs: are those which management has the capacity to restrain. (casual labour
and food).

Uncontrollable costs: such as rates and insurance, cannot be restrained by the management.

Discretionary costs:are incurred at the discretion of a particular person (gm) (refurbishment of

a room etc).

Relevant costs: are those, which are pertinent to a given decision.

Opportunity costs: are not taking a particular course of action.

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Uncontrollable factors

Demand, Competition, type and structure of the industry (Competition: monopolistic,

oligopoly).

Price: The summation of all sacrifices made by a consumer in order to experience the benefits
of a product or service.

1. Cost oriented techniques:

1.1 Cost-plus pricing:

Is used largely in the catering operations. The cost-plus method is widespread. Either a
percentage mark-up is added to the cost or a set amount.
C=costs, f=percentage mark-up, P=price
P=C+f (C)

1.2. Factor pricing

Similar to cost-plus pricing, here food costs are multiplied by a standard factor to produce a
retail price. Factors vary by style of food service. From 1 or to 2 but a factor of 4 also not
uncommon in a highly fashionable restaurant. A coffee bar could apply a factor of 30 for tea
or coffee but a factor of 2,5 to a ham-sandwich.

1.3. The break-even method: (fedezeti pont számítás)

This has relevance to the not-far-profit sector of the hotel industry (students hostels etc.) It is
necessary to establish what level of volume will result in total costs being met by the income
available. It is usual to assume that variable costs are the same for each unit of output so that
there is a linear relationship between variable costs and sales volume:

TC=FC+VC (TC - total costs, FC- fixed costs, VC- variable costs)
TR= QxP (Total revenue = quantity multiplied price.
Break-even occurs when TC=TR
In our example break-even occurs when as follows:
Fixed costs are 500.000
Variable costs are USD 5 /bed night
Price: USD 30
BEP occurs at 20.000 bed nights
Any further sales would create a profit.

A faster method:
UC=P-VC (UC- unit contribution) 30-5=25
BEP= FC 500000 = 20.000 UC 25

2. Profit oriented techniques:

2.1. Target rate of return or the Hubbart formula approach (Bottom-up)

The target rate of return method starts with the level of return required from the investment.
The particular approach adopted for hotels is known as the Hubbart formula. By taking an
estimate of the total investment cost, both fixed and working capital, stating the target rate of

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return and estimating (ROI- return on investment) the fixed and semi fixed operating costs, it
is possible to calculate the required gross operating income. If the profit from non-rooms is
estimated, the required rooms profit can be calculated by taking non-rooms profit away from
the gross operating income. By taking non-rooms profit away from the gross operating
income, the required rooms revenue per annum is established. By dividing this by the
estimated number of room nights, the average room rate is determined.

The advantage of this method is that it focuses on profit, it takes into account and integrates
costs, revenues and prices, and it is relatively simple to calculate. Its major weaknesses are
that it ignores price elasticity of demand and the impact of local competition, it requires
forecasts of future costs and occupancy rates which are difficult to establish with any
accuracy, and it regards pricing as independent of the rest of the market mix. '

2.2. Rule of thumb or pro mille approach:

Until recently it was the method hoteliers kept using. This approach sets the rate from each
invested USD 1000 less USD 1 proportionally for the room rate Le. Assuming that the
construction costs of the 100 room hotel amounted USD 8.000.000 so the average per room
cost should be USD 80.000;
Thus the minimum room rate is USD 80 at a 70% occupancy rate. The calculation laid on the
hotel construction costs and fails to consider the desired profitability, depreciation or
mortgage payments etc.

3. Sales oriented techniques:

3.1. Marketing oriented pricing (MOP):

This method is suitable for pricing decisions on new products or new hotels. The technique is
considering of costs, competition, and the nature of demand, company objectives and the form
of distribution channel through which a product passes before reaching the consumer.
Steps or flow-chart:
1. Define the target market
2. Identify competitors
3. Decide product position and set rack rates
4. Design alternative channel configurations
5. Set channel sales objectives
6. Research margins necessary to achieve company and channel sales objectives
7. Calculate hotel revenue
8. Apply target profit statement

The hotel has 100 rooms i.e. 36.500 room nights per annum and sales targets are achieved
then the hotel revenue will be USD 996.450 and average rate USD 27,30 50 % direct sales to
guests, 30 percent through travel agents and 20 percent through tour operators.

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MOP calculation:
Customer pays (US D) travel agent receives tour operator rec. Hotel receives
30 30
30 3 27
30 9 21

Hotel revenue:
Channel, Direct, TA, TO

Total:

Channel Room night (%) Achieved room rate Revenue

Direct 50% 18.250 30 547.500
TA 30 10.950 27 295.650
TO 20 7.300 21 153.000
Total: 100 36.500 27,30 996.450

Step 8 returns the question of target profit.

If the target profit for the hotel was set at USD 300.000 we can compute total costs of running
the hotel for 1 year, given the sales mix, must not exceed USD 696.000

996.450
-300.000
696.450,-

If total costs exceed this ceiling, profits will be below target and the hotelier must look for
ways increasing achieved room rate (perhaps by reformulating channel sales objectives or
examining the discount structure), investigating new channels, reducing costs, or raising rack
rates. The hotelier can also calculate the effect of underachieving sales targets through each
channel.

3.2. Prestige pricing:

This involves taking advantage of the way in which price and quality are perceived by
consumers to be interrelated. For some products a high price reflects the subjective prestige
value of the product.

3.3. Leader pricing:

Some companies feel that of the mix of products they market, one in particular acts as an
attraction and creates sales for the other, less attractive items. (Also called as bait-pricing in
which a law priced article is promoted with a view to trading up the customer).

3.4. Psychological pricing:

This pricing is more important where products are intangible or difficult to evaluate.
Some consumers buy only between maximum and minimum prices, which they find
economically and psychologically comfortable. An American survey revealed that 58% of
menu prices ended up in 9, 35% in 5 and 6 % in 0. The numbers 1,2,3,4,6 and 7 were never
used as terminal digit.

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4. Competitor oriented techniques:

4.1. Price follower-ship:

In the hotel business price follower-ship is common place, particularly where price
differentials have been established. One 3 star hotel sells rooms at USD 99,95 the second at
95,95, the third at 89,95 etc. The lower priced hotel following any price changes instituted by
the price leader. Prices are generally reviewed twice per annum (April and October). That is
to say a hotel establishes its price based on what a competitor is charging. It is particularly
likely where independent operators are in competition with a chain hotel. Its advantage that it
is inherently competitive and very easy to calculate. But it is dangerous approach as it takes
no account of costs or profit objectives, which may different from the leader.

5. Miscellaneous:

5.1. Mixed pricing:

This a combination of cost oriented and competition oriented versions.
Advantage: always monitoring the cost structure and competition.

5.2. Rate upon room-size

Rate establishing upon room size is also possible:
We have a 50-room hotel and on 70% average occupancy
We need an USD 1505 daily income.
Our room measures are as follows:
Room type A 20 rooms 15 m2 ttl: 300 m2
Room type B 20 20 m2 ttl: 400 m2
Room type C 10 25 m2 UI: 250 m2
Ttl: 950 m

At 70 % occupancy we use daily 950x0,7= 665 m2

Requested daily income should be USD 1505 1505:665= USD 2,26
Our room rates should be: Room A 15x2,26= 33,90
Room B 20x2,26= 45,20
Room C 25x2,26= 56,21

Or our in our case with Hubbart:

We have 200 rooms each approx 20 sqm, the total daily space are 4000 sqm,
Considering our 68,5 % occupancy in sqm 4000x68,5%=2740 sqm daily;
Our required room revenue USD 500000/year and 500000/365=1.369,86/day
Price for 1 sqm 1369,86/2740= 0,4999 0,50
0,50 x20 sqm= USD 10

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Other types:

Product-Mix Strategy: .....

Flights: Business Class, First Class, Economy Class
Supplement Strategy:
Room rate incl. breakfast or HB, Open Bar etc.
Package rate:
For travel acys group rate with HB
Discount-offer:
discount on cash payment at cashier
Discount or rebate on bulk order
Discriminated pricing:
Student 50% discounts
Yellow room has higher rate than red one
Situation:
Danube side room is more expensive
Timely related:
happy hour from 18-19 hours all drinks for half price
Market value pricing .
To promote later sales offering very low rates sometimes
Special event price:
Gourmet-week, game-dishes

Yield Management Pricing

Why Discount?
Many variables affect the lodging-purchase decision. Price is only one of those variables.
In an ideal world, price would take a back seat to product value and service attributes for most
businesses. For example, at Marriott, one of the corporate values is our commitment to deliver
exceptional customer service. No one wants to discount, but hotels are discounting. Moreover,
hotels need to discount to satisfy as many guests as possible and maximize revenues from
existing demand. To make matters worse, the current economic environment and supply
levels are causing hotels to discount even more aggressively than in the past.
Desperate to increase rooms revenue, hotel general managers make discounted rooms
available. By selling rooms at a discount, the hotel attempts to bring in incremental revenue
from price-sensitive guests.

Yield-management Pricing
The concept of controlling discounted inventory has evolved into yield management,
which gained prominence when the airlines started using it. The following are the ideal
conditions for implementing yield management:
1. Low variable costs;
2. High fixed costs;
3. Perishable inventory;
4. Variable demand patterns;
5. Ability to forecast future demand , and
6. Ability to segment customers on their varying needs, behavior, and willingness to pay.
While most of those conditions are straightforward, the last characteristic – segmenting
customers – is both the most difficult to achieve and the most important. To maximize

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revenues, most hotels need to separate customers and charge them different rates based on
their differing needs and behavior. Its is essential both to segment the customers initially and
to keep them segmented. That is, not only do hotels need to segment customers, but the hotels
also need some way to prevent customers from trading down from one price category to
another.
A theoretical demand curve can be drawn for each product or service, showing the
trade-off between price and volume. If only one price were to be offered, we would set that
price at the point that maximizes revenue. However, the one-price approach for a perishable
product like hotel rooms leaves a substantial amount of unrealised revenue.

Price segmentation:
A more rational approach is, in which different customers are charged different prices,
thereby, capturing more revenue, abut also satisfying more customers. That concept is the
cornerstone of pricing in many industries, including airlines, long-distance telephone service,
and movie theaters. The key to the concept is to have meaningful segmentation strategy in
place (e.g., telephone companies’ business rates versus weekend discounts) that differentiates
customers who are willing and able to pay higher prices from those who are willing to change
their behavior in exchange for a lower price point.
The market for hotel rooms is anything but homogeneous. Hotel guests have a wide range
of needs. But most hoteliers are well aware that the transient market (i.e. non group market)
can be split into two major components- namely business travelers and leisure travelers. (see
Exhibit 3.)

Market segments compared:

Leisure travelers Business travelers
 Are able to make advance  Are unwilling to make
commitments commitments far in advance
 Accept various quality levels  Desire high quality
 Will be flexible regarding  Insist on particular destination
destination.  Insist on a particular location at a
 Are indifferent to specific location destination
at a given destination  Are concerned about the prestige
 Are indifferent to issues related to a value of their hotel
hotel’s prestige  Are price inelastic
 Are price elastic  Book relatively brief stays
 Book extended stays

Within those two categories are guests displaying a wide range of objectives, but again
guests can be grouped according to their buying traits (a comparison of general buying traits
is shown in Exhibit 3.). Any guest’s purchase decision will be based on the particular
circumstances of time, place, and purpose of the trip. For example, a vacationer at a
destination resort may be prestige conscious and quality oriented, but can be flexible about the
specific destination and exact timing. By the same token, a business traveler might have to be
in a particular place at a particular time, but be flexible about the exact hotel location.
Taking advantage of those characteristics, recent hotel marketing strategies have
attempted to expand the price-elastic market segments (leisure traveler) through innovative
rates and packages, while protecting the price-inelastic business revenues from dilution or
trade down. That approach has resulted in increased efforts to differentiate markets based on
the perceived needs of the target market. Until recently, those efforts have been aimed at

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clearly identifiable groups (e.g., AARP, gov’t employees). Such programs, based the
individual’s status , have been widely accepted and implemented.
In contrast, segmentation practices that employ restrictions based on the booking
characteristics of the guest (e.g., timing of purchase) rather than the status or group
membership have stirred controversy. The strategy of matching different rates against
different purchase behavior is not new. Airlines have refined the practice with their
nonrefundable, advance-purchase, Saturday-stay bookings. Theatres use time of day and
person’s age to segment customers. Telephone companies’ differential rates, based on time of
day and day of the week, have been in place for many years.
The Negotiation Problem
What phone companies, airlines and theatres do not do is negotiate rates individually with
their customers. The rules for, say, telephone service are clearly structured and logical. For
many hotels, the procedure seems to be one quoting the highest rate allowing the customer to
talk it down. The strategy has had two outcomes. First, hotels have seen an erosion of their
rack-rate and corporate-rate room-nights over the last several years, while the number of
discount room sales has increased substantially. Hilton president Carl Mottek, for instance,
reported a decline in rack-rate sales to just 15% in 1991, down from 55 percent of the
company’s business five years earlier.
The second outcome is more difficult to document. It is the perceived lack of integrity in a
hotel’s interactions with its customers. In the case of telephone conversation that we
mentioned, the caller was presented with four different rates. Customers who pay one room
rate and later realize they could have negotiated a lower room rate might think ill of a hotel.
What emerges is a picture that paints lodging as the used-car business of the American service
industry.
Moreover, customers are becoming more aware of hotels’ willingness to cut a deal in
room rates. Articles with titles like “How to get cheap rates at good hotels,” are common in
the popular press. Few of the strategies outlined in such articles have anything to do with a
rational segmentation of the market.
A Strategic Approach to Rate Setting
As customers become sophisticated in manipulating the current pricing system, hotels will
eventually forced to modify their pricing structure. Rather than allow that modification to be
made at random, we tested a strategic approach to room-rate structures. Exhibit 4 compares
three possible future pricing strategies. We discuss the positive and negative aspects of each
one. No doubt different hotel chains and independent hotels will choose different options.
Given the fragmentation of the hotel industry, it is unlikely that we will see the kind of
uniform pricing structures found in other industries.
Before we begin our comparison of the three strategies, we should interject that there is a
fourth approach, the status quo. That approach is not particularly strategic. Based on the
industry’s current direction, we don’t believe it is viable.

A single rate.
The first approach is to offer a single rate for all transient inventory (non-group, non-
contract). That rate can change according to the season or the day of the week. Such an
approach is easy to administer and easy to explain to customers. Sophisticated yield
management systems would not be necessary. The one price strategy, however fails to
respond peaks and valleys of demand and does not respond to customers’ ability or
willingness to pay. Some guests will be playing less than they are willing to pay. Some guests
will be paying less than they are willing to pay while others will find the rate too high and go
elsewhere; leaving the hotel with rooms it may have filled by using another strategy.

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Rates by room type.
A second approach is to set rates according to differing room characteristics (e.g., size,
view, floor level). This approach is currently used by many hotels. It, too, is easy to explain to
customers, because there may be a perceptible difference in the rooms offered at different
rates. It improves on the one-rate approach by allowing the hotel to offer different rates on the
same day, thereby realizing more revenue. But setting rates by room type also has several
disadvantages. It certainly wouldn’t work for a hotel that comprises just one type of room.
Even if it had different kinds of rooms, a hotel would be limited by its actual physical
inventory in the number of high-price rooms it can sell, so that potential revenue is limited by
product levels and not demand levels. This approach to segmentation won’t work in markets
where customers are unwilling to pay for upgraded rooms, and it is operationally difficult for
the front desk clerks and reservations sales agents to manage.
Good Fences make Good Profits
The third approach is to erect “fences” – logical, rational rules or restrictions that are
designed to allow customers to segment themselves into appropriate rate categories based on
their needs, behavior, or willingness to pay. Such fences include advance reservations and
nonrefundable advance purchases. Those policies allow, for instance, price sensitive
customers to gain a lower rate in exchange for reduced flexibility. On the other hand,
traditional full rate customers can have a room whenever they please. The important aspect of
fences is that they allow a hotel to sell discount rooms to one segment of customers without
allowing higher-rate customers to trade down.
Rates with fences are easy to explain, and every rate has a rationale. Using a rate-fence
system, hotels can use yield management for 100 percent of their inventory, opening up
discounts when demand is weak and closing off discounts during strong-demand periods.
The down side of rate fences is that they are more difficult to manage than other
approaches are. Rate fences require sophisticated reservation and yield-management systems.
Moreover, a hotel must have regular rates that are correctly positioned for the marketplace.
By introducing fences and other rate restrictions, a hotel can penetrate its intended markets as
deeply as possible without allowing higher-paying market segments to trade down. The
airlines’ Saturday-stay requirement is an excellent example of a fence that separates leisure
travelers (who generally willing to stay over) from business travelers (who generally don’t
want to linger once their business is concluded).
Fences must be combined with inventory-control procedures to maximize revenues. That
requirement goes beyond the yield management currently practiced by many hotels. While
yield management is effective in selling high-rate rooms during periods of strong demand, it
has limited effectiveness in preventing a guest who normally pays rack rate from trading
down during times of weaker demand, when discount rates are open. Therefore, the inventory
control of yield management needs to be combined with the segmentation control of “fences”
to maximize revenues.
A study of airline yield management showed why both inventory control and rate
restrictions are mandatory for an effective revenue-management program. When full-fare
passengers were asked why they did not purchase a discount fare, 38 percent responded that
the discount inventory was unavailable, and 42 percent stated that they could not meet the
restrictions. Only a tiny percentage claimed that they would not have traded down without
those inhibiting controls.

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Exhibit 4.
Lodging –pricing options compared
One rate for all rooms Rates set by room type Rates with “fenced”
discounts
Pros Pros Pros
 Easy to administer  Achieves greater  Rationale for every
 Easy to explain revenue than one rate
rate  Easy to explain
 Easy to explain  Approaches
maximum revenue
potential
Cons Cons Cons
 Can’t respond to  Limited to product  Requires
daily demand availability sophisticated
swings  Won’t work for reservations and
 Doesn’t hotels with a single yield-management
accommodate room type systems
customers’ price  Operationally  Operationally
sensitivity challenging challenging
 Won’t maximize
revenues

What elements are necessary for successful yield management:

First of all we should establish a yield management team. A yield team should consist of the
hotel's general manager, director of sales & marketing, reservations manager, and rooms
division (or front office) manager. This team will develop a yield management plan
encompassing five areas that play a critical role in the hotel's yield success: historical data,
sales mix-analysis, forecasting, demand procedures, and evaluation.

1. Historical data
help identify market and occupancy trends that will lead to more accurate forecasting. The
management team records the actual number of rooms used on a daily basis by each major
market segment for a minimum of two years.

2. Sales Mix Analysis

identifies the most profitable market segments for a particular hotel in terms of rooms, food,
beverage, and other revenue sources. According to professor Bill Quain (Florida) we have to
develop an average daily contribution margin to identify a hotel's proper market segment mix.
The traditional way of evaluating business is simply computing the average daily rate (ADR)
does not give the marketer a true net worth. Although it is important and part of our mix-
calculation. To compute the average daily contribution margin we need the three following
items for each market:
21. The purchase habit of the market segment-
we have to take the following questions:
Does this segment have a loyal customer base?;
How often does the segment use the hotel?,
How far in advance do members of this segment book rooms?,
Do individuals make their own reservations or are they made via rooming list or travel
agent?,

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 Do they use restaurants, lounges, and other outlets?,
Do they need meeting space?
22. The average sales per Revenue source
How many does the typical customer of each segment spend in the hotel profit centers?
23. The cost of sales for each revenue source
What are the costs associated with room sales, food and beverage sales, labor, and other
revenue sources?
Once the margins are complete for each market segment, the results will suggest the most
profitable sales mix for the hotel and subsequently imply where future sales and marketing
efforts should be directed. The yield management team should re-evaluate the contribution
margins every three months to verify their accuracy and make the necessary adjustment.

3. Forecasting
Combines information relating to historical data with future group and volume room-night
commitments. The yield management team projects each segment's daily contribution based
on this known information and the contribution margins. The range of the forecast will
depend on the hotel's principal markets. It can vary from two to three months for corporate,
transient hotels, and up to one or more years for group oriented hotels.
Action dates must also be established for each segment based on purchase habits. These dates
function as a checkpoint to adjust room allotments and will vary per market to trigger high- or
low-demand procedures.

4. Demand procedures
Such as restricting lower rate categories during high-demand periods and providing
reservations agents with special promotional rates during low-demand dates, are not new.
However, to maximize revenue, a set of action steps must be in place to accommodate
circumstances.

5. Evaluation
allows the opportunity to review the results of previous forecasts, fine-tune the
methodology, and share feedback on the various successes and failures of the demand
procedures. It also reinforces the team's commitment to achieving the profit objectives.
What could be the benefits collected by yield management:
 Improved forecasting
 Improved pricing and availability decisions
 Identification of new market segments
 Determination of discounting policy
 Improved development of revenue plans
 Establishment of better rate-structure

Yield management tries to maximize revenue by controlling forecast information by the

following ways:
Capacity management: Overbooking if possible
Discount allocation:
the theory of that is that selling room at discounted rates is even better then remains unsold.
With discount allocation the hotel thinks to protect enough remaining rooms for selling at
higher rate.
Rate elasticity: If a small increase in rates produces drop in demand then the market is price
elastic, if to the contrary no drop price inelastic.

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 Duration control:
in a demand period one-night bookers either will be refused or multi-night stay will be offered
at a lower rate
Hotels practicing yield management also discover organizational benefits. The yield
management team works closely together and plays a unified role in yield-related decisions,
so better interdepartmental working relationship result. In addition, clearly defined plans and
action steps allow decision making to be shared, leading to heightened job satisfaction and
greater efficiency.

Controlling material:

PRICING STRATEGIES FOR ROOM PRICING

Accomodation pricing
• Managing the room resource in hotel operations requires achieving a careful balance between
monitoring room rate and achieving maximum occupancy.
• Hotel pricing strategies can take advantage of the different market characteristics of the leisure and
business travellers.
• Leisure travellers:
– Advance bookings
– Quality required varies
– Destination flexible
– Highly price sensitive
– Stays longer
• Business travellers:
– Short booking lead times
– Tend to require high quality
– Destination predetermined
– Relatively less price sensitive
– Short term stay avoiding weekends

Room pricing options

Basic options:
– all room at one rate
– rates are by room type depending on the room characteristics
– price segmentation
Alternative options:
– rule of thousand method
– profit based pricing: „bottom up”
– market based pricing
- yield management
Alternative pricing options
„Bottom up” pricing: or „Hubbart formula” is based on accurate forecasts for operating costs
and for room occupancy. Sales = Profit target + fixed costs + variable costs Sales is than
subdivided to arrive at different rates for different room types.
Market based pricing: pricing tactics are designed to increase occupancy and revenues of the
business taking the sales instability , the seasonal fluctuation into consideration. Offers are set
in the off-peak periods to increase overall demand and provide a more satisfactory sales
volume. Yield Management: the process of YM involves controlling rooms inventory to
maximise sales by adjusting room rates in response to the level of rooms booked for a future
arrival date.
YIELD = REALIZED REVENUE/POTENTIAL REVENUE

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56. An important part of the Marketing and Sales Plan is an AUDIT of the marketing
activities, which has to take place from time to time.
You are working as an independent marketing consultant for a 4 star hotel or a tour
operator and you are asked to provide a list of questions for undertaking the audit.
Please give reasons for the questions.

ELEMENTS OF THE MARKETING PLAN:

The ~ leads the “functional” plans – production, finance, HR (you have to know what you are
going to sell, your budget, and employees needed). Production plan should start later than the
marketing plan. The return on capital should not drive a company. First we have to know the
market and the needs of the guests, in order to find the right employees for that market. The
marketing plan should be filtered through the other plans.

Like a journey:
1. Where are we now? - current situation analysis
SWOT: ineternal & external analysis – helps to create recommendation, they are just tools
Weighted value should be given to each element only a number of element is not
enough. You can run swot on your cometitors, which brings good info for you.
Things are changing, so swot must be continuously update.
SLEPT: outside environment, uncontrollable factors
=> socio-cultural, legal, economic, political, technical
Must be done for each target market, do it for each country (If you have more sources
of tourists)
3 C’s: customers (the market: features, needs, trends, growth) – look at who they are
(existing) and who not (non-existing).
Competitors – do you really know all of them – existing and potential – once u start
something it will generate interest of others and it will attract them to do the same. Ask
yourself what if I do this, what will they do??
cash (overall financial environment, resources) – cash that we have, that comptitors
and customers (disposable income) have.

+ products & services, sales, employees, management

2. Where do we want to be? - setting of goals + objectives

Product life-cycle: introduction stage  growth st.  maturity st.  decline st. 
reinventing product, repackaging, finding new markets (less sophisticated).
Different products’ lifecycles have to overlap!

Ansoff’s matrix

existing
Market Product
penetration development
Markets
Market
Diversification
development
new
existing new
Products

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BCG matrix :
high
Star Question

Market growth
Cash Cow Dog

low

low high
market share

3. Strategy - which way is best?

- Brief description of Strategy
- Target Market
- Positioning Statement
- Branding Strategy
- Product Strategy
- Pricing Strategy
- Distribution Strategy
- Promotional Strategy
- Services Marketing

4. Tactics - how will we get there?

Resource Requirements: budget, expenses, sales forecast, etc.
The “hands-on approach”
- converting our ideas to other people’s actions
- show them how to do the job, training

5. Implementation (getting there)

 activity plan
 checks along the journey – plan to stay on track: introduce standards, guidelines to check
performance, constant info flow is necessary
money isn’t everything: financial success doesn’t mean you are doing good and the other
way around – exterior factors

6. Ensuring arrival - control,monitor

 critical success factors
 it is a continuing, circular process
 feedback

The questions for the marketing and sales plan audit should address all elements of the plan. It
should evaluate the mission, the objectives, strategies and the effectiveness of the marketing
activities. Isolate problems to improve performance.

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Main question categories could be:
- Selecting target markets was correct?
- The marketing objectives?
- Action plans?
- Customer and market: Who are our customers, what is our share? (Marketing audit)
- Is our service product appropriate to the market? Trends of demands?
- Are our marketing and distribution channels suitable?
- Are our advertising, media, promotion and sales activities integrated?
- Competition - their share?
- Pricing and profitability?
- Reasons of not reaching the goals?

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58. You were appointed to General Director of a hotel, which had been stagnating for a
long time and facing financial difficulties, including bankruptcy risk. How would you
carry out the task of crisis management?
Please outline factors, tasks to be considered in the fields of operations, marketing, HR
and finance to save the situation and to meet the owner’s expectation.

Tasks to be considered: Structural renewal for consolidation and strong new leadership.
Saving plan on all fields.

Financial:
Analyzing revenue, gross and net profit, decide about saving to secure cash flow. Reasons for
problems.

Marketing:
Market research to find out what is required by customers, adjust operations and services
including facilities in hotel/restaurant, etc. Competitive prices? More focus on customers.

Operations:
Short and long term strategy and business plan: Better services? Eliminate over capacity.
Improve efficiency. Cost savings, outsourcing.
Preparing SWOT.
Make decisions regarding activities.
Concentrating on strengths.

Human resources:
Check possibilities to reduce jobs to decrease operating costs.
Improve competence of remaining staff on payroll. Radical changes in staff. Clean house.
Cultural changes.

Areas of activities are linked.

Ez szerintem nem jo:

Organisational crisis is the result of an unfavourable process caused by various factors. This
process can be very slow or extremely rapid, but when it occurs the companies should be
prepared for it. The nature and cause of crisis can be several:
- Financial difficulties ( loss of source – trust issues, inability to fulfill expectations
or liabilities, inability to satisfy suppliers and creditors ... )
- Changes in economics ( taxation, labour market, interest rates, money supply,
inflation, exchange rates ).
- Government policies ( social, taxation, trade blocks, changed foreign policies )
- Legal changes ( environment prot, product liabilities, consumer protection,
competition law, legal actions against certain products and sercives )
- Political Circumstances ( limiting competition, conflicts, wars, riots )
- Environmental changes ( protection, loss of resources )
- Social changes ( public opinion, demand patterns, public resistance, social
tension ...)

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The emphasis is on the preparation. The organisations should have a well constructed Crisis
Plan, that is based on the various forecasts that may cause the crisis. All the possibilities
regarding the nature and cause of crisis should be considered, and the consequences as well
( financial, operating, human resources and communicational problems ).
A Crisis Comitee should be set up to handle the various challanges ( usually consisting of
financial controller, GM, HR manager, Dir. Of sales and marketing, Communicational dir. – if
any, Operational Dir. – if any, revenue manager ).

The legal consequences: Depend on the nature, the level of crisis. Areas should be covered:
- Consumer protection : rights, information, responsibilities, compensations
- Product liability: defective products, responsibilities, information, compensation
- Compensation of suppliers, distributors, creditors
- Violating advertise law ( illegal goods, children’s rights, personal rights )
- Violating competition – unfair use of business secrets, taking advantage of
dominant position, using competior’s name
- Effects of dissolution ( liquidation, bankruptcy, voluntary dissolution )
- Effects of dismissal ( large scale, extraordinary, regular )
- Compensation payment and severance pay (végkielégítés ).

Financial consequences.
Compensation payments ( customers, creditors, suppliers, state )
- Liabilities ( creditors, suppliers, customers, employees, management, state-taxes )
- Sales of company assets to fulfill obligations
- Wages, bonuses, severance payments
- Penalties, fees, cost of legal procedures ( representation, dissolution )

Communicational issues
- Press conferences ( prepared answers ) – do not hide facts, do not say if not sure
- Communication to owners, suppliers, creditors, distributors, state ( court of
registry ), customers, clients, broad publics
- Do not differentiate between medias
- Make it short
- Disclaimer
- Update news

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59. In the competition that company (team) will win, which has better team members
than its competition. What does teamwork mean? What are the secrets and features of
succesfull team? What is the criteria for selecting team members? What are the stages of
forming good teams? Different characters in teams? Please list the personal
characteristics of members of executive and management team. Give positive or negative
examples from your practice and experience in connection with teamwork.

The success of any group of human beings really depends on how well they can work
together.
Teams are group of people having same interests and goals within an organisation. These
goals and interests should be harmonized with the goals of the organisation. The members are
individuals with various personalities, but they accept each other as equal team members
working for the same goal. In an ideal case the working climate of a team is pleasurable,
which is the basis for co-operation, innovativeness and efficiency. In a negative interpretation
a strong team with individual goals, which are different of the organisation’s can be very
destructive and harmful.

There are two type of groups within an organisation: Formal, and Informal ones. Formal
groups are formed by the organisations to achieve the objectives, and are not necessarily
effective just because they are cohesive. The informal groups (or teams) are formed by the
individual members to satisfy their psychological and social need in common. By employing
the individuals with the required traits and interests an organisation can influence the
formation of individual teams.
The difference between teams and groups is that the co-operation among the team members to
achieve a common goal or result is usually much stronger, and the result is not only the sum
of individual goals, but the synergie of them.

What kind of people are needed in a team? First of all a team needs a leader who has the
traits and abilities to influence the other members towards the desired goals. The goals are set
by the company, but the work is organised by the leaders and managers. A team needs at
least four characters that are dependent on each other:
- Worker (diligent)
- Initiator (innovative)
- Reliable (loyal, punctual)
- Organisor (leader)

Criteria for selecting members: technical skills, other attributes to reach the objectives
Recruitment:
 Eligibity: the candidate has the right CV, right diploma, right papers
 Suitability: right type of person, right attitude, good team player

Stages of team development:

- Forming (people get together formally or informally)
- Storming (fighting for positions and responsibilities)
- Norming (clarification of roles, duties and responsibilities)

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Maintaining positive climate
 Value and respect your staff
 Support your staff – encourage and support their development personally
and professionally
 Honesty, openness, consistency, fairness, justice
 Immediate feedback, equal treatment, intellectual ability, result orientation,
interpersonal skills
 Planning, organisational skills, positive impression, maturity, integrity
 Recognition and rewards
 Teambuilding: outside events, tuition assistance, personal development
 uniforms

Personal characteristics: managerial skills, technical skills, human skills, good

communicators, sense of leadership, fair treatment.

Negative examples: lack of recognition and reward, lack of teamwork, incompatible

management style, ongoing conflicts, quality of life issues, lack of control, poor
communication, poor recruiting, lack of orientation, lack of training, ineffective supervision,
lack of leadership, lack of job security, lack of management understanding, lack of standards,
lack of feedbacks.

60. What are the basic and specific success factors in the service industry and discuss the
links and relationship between them with specific attention to marketing.
Consider and list the success criteria for promotion to retain increase and reactivate
your clients.

Service organisation: When two or more people are engaged in a systematic effort to provide
services to customers. It exists in order to interact with the customers and satisfy their service
needs. The degree of interaction depends on the type of service offered.

What is service? Is a feeling that the service recipient has when he/she is with the service
provider. Good service means to meet people’s needs and expectations, excellent service
means to even exceed those.
Characteristics of the service: intangible/ emotional/ subjective/ difficult to measure/ difficult
to standardize/ incorporates material and physical elements.

We need to understand that the hospitality operations are more complex, because the
product incorporates tangible and intangible elements.
- Inputs: Land, building, machinery, labour, management
- Conversation process – operations ( affected by external, internal factors )
- Outputs – Occupied rooms, meals, drinks, programs, satisfaction, joy, pleasure...

After all the whole operations are designed to meet the customer’s needs and expectations.
This means that a service oriented organisation has to constantly research the needs and
expectations of the target markets, and tailor-made the services accordingly.
This means that the operations of a service firm are the heart of the product, which is an
experience. This experience is created by the operating system interacting with the customer,
therefore the op. sys. is the product.

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The service process according to the open systems view of the service business is affected by
the marketing and the operations that interact with the customers. This (the services, facilities,
benefits) has to be modified according to the evaluation of the demand and communicated
back to them.

The operations and thus the quality of are highly affected by the employees attitude and
performance. The service firm has to be aware of the personal traits, skills, and experiences
that affect the nature of the product, thus the quality of the services. “It is the peoples’
business, and they make the difference”. An effective human resources management can
make the product different of the competitors’ by selecting, training and motivating the
employees who provide the excellent services.
The constant supervision and quality assurance are also inevitable for a service firm to be
profitable. For this performance standards are necessary.

Cornerstones of success: profitability, efficiency, quality, relations, innovations

Other success factors: leadership, committed people, customer policy, clearly defined
strategies, right service product with strong brand, concentrating on core business, developed
information systems, right pricing, yield management, cost structure.

Success factors: there are basic pillars that you have to accept to be successful
1)
 Efficiency – being effective
 Productivity
 Profitability – money has one function, to produce profit. If a company doesn’t produce
profit, it will parish, but all of us should have other aims and goals – we have to create
values, these should be more than just producing profit (eg.: love)
2)
 Quality – it doesn’t mean luxury, it means that it should be suitable for the purpose
personal quality to be competitive
4)
 Relations with the people on the market + interaction of people
If you can’t establish good relations, you are lost!
- you should have good relations within the company, better relations than the competitors
- trademarks are competing nowadays – you have to have educated and skilled personnel
- you have to have the best people, they cost money, but they also earn much
- helping each other especially in the service industry
 Innovation – in all the success factors you always have to improve/change. This is done
by creativity, imagination, flexibility, continuously renewing, improving all the time

We have to create values, that lead our way, not just capital and profit. You should have a
good system of values (értékrend)
Competitiveness – we will join the EU, there will be several competitors on the market, that’s
why competitiveness is becoming more and more important.
managing – working for the success of the others
management/leadership – to get the best out of people

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There are some common factors in any organisation
They are:
- people – they are doing their jobs according to a structure
- objectives/aims/goals (on the top of these is vision – it is the mental picture in the
future) – the structure is created according to the aims
- structure – realising activities within a certain organised structure

The quality of these factors determines the effectiveness of the organisation.

1. the interaction and efforts of people – emotional intelligence is decisive
2. in order to achieve objectives
3. channelled and co-ordinated through the structure
4. directed and controlled by management – doing jobs according to reach the goals – the
management is to organise it

Further success factors should be added:

- the quality of resources and outputs All these 3 factors is one.
- relations
- innovation in all areas of activity
- flexibility – when we have many goals, we have to defend them, but if we get goals,
we have to change our strategy → we have to be flexible! The market is changing all
the time, the needs are changing as well, that’s why flexibility of the organisations is
needed
strategy – a way how you want to reach your goals
In order to create results, it is necessary to:
- define the goals
- determine tasks to reach the goals (when you have the goal, you have to mobilise all
your energy)
- define the tasks of the employees – create responsibility – define the employees’ task.
An expert to define the job is the Human Resources Management
- determine when and who will complete the tasks
- utilise human resources, time and energy
mobilise all your energy to reach the goals, do the outmost

Promotion
It is a short term initiative designed to address a specific market problem or opportunity based
on customer needs and preferences. It will be successful if the core service / product is
competitive.
Tactical aspects to be analysed: basic concept and purpose of the promotion, communication
channels, possible competition and customer reaction.

Marketing mix - the four p-s- factors influencing sales/promoting products and services
Product:
 Development of the product or service
 Attributes – quality, style, brand, positioning, product perception, packaging, cost,
service support
Price:
 Cost of producing the product or service
 Attributes - price level, discount policy, credit terms, and payment methods

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Promotion
 All methods of communicating the product or service, offering to the target market
Place
 Task of getting the goods to the market = Distribution
 Distribution channels, distribution coverage, sales territories, inventory levels and
locations, and transportation.
3Ps of tourism industry
People
 Important asset in the travel and tourism industry - focus on HR (skills, knowledge,
motivation)
 Attributes - friendliness, presentation, helpfulness, politeness and competency
Physical evidence
 The customers see a certain product or whole establishment (decoration, environment,
and ambience)
 Attributes - size, premises, corporate image, ambience, comfort, facilities and
friendliness.
Process
 How easy the staff of a company is to deal with – evaluated by efficiency and
performance
 Attributes - speed, efficiency, service time, waiting time, forms, and documents

4Ps of E-marketing: partnership, people, packaging, and programming

Communication mix (advertising, merchandising, promotion, public relations, publicity)

Five promotional mix elements: Advertising, Personal selling (sales), Public relations and
publicity, Sales promotion, Merchandising

The Promotional Mix:

Above-the-line (ATL)
is an advertising technique using specific channels to promote products, services, etc. ATL
strategy makes use of current traditional media: newspapers, magazines, radio and TV.
Below-the-line (BTL)
is an advertising technique. It uses less conventional methods than the usual specific channels
of advertising to promote products, services, etc. than ATL. Below the line advertising
typically focuses on direct means of communication (direct mail and e-mail), often using
highly targeted lists of names to maximize response rates.
Eg: Packaging, Sales Promotion, Telemarketing, Sponsorship, Event Marketing, Special
Activities, Exhibitions

The Difference between Explicit and Implicit Communications

 Explicit communications: definite messages given to customers through the use of
language, either oral or written (i.e., through the five promotional mix elements)
 Implicit communications: promotional cues or messages conveyed through body
language or by another non-verbal means.

Three Principal Goals of Promotion: To inform, To persuade, To remind

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Rip acronym = remind - inform - persuade

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