EXECUTIVE SUMMARY
The purpose of this white paper is to analyze the costs for a hotel to own and run its own hotel shuttle service and to determine if outsourcing is a better alternative. Using data from different credible sources, we will examine the various costs of purchasing and operating a hotel shuttle, and establish whether this is a good option from a fiscal and operational perspective.
In today’s world, reducing costs has become a fundamental hurdle to businesses and requires careful handling in order to achieve positive returns while still stimulating growth. Failure to regulate costs can be catastrophic for any business irrespective of its industry. This paper, therefore, provides one of the best ways to save time and money, not only for hotels but for other businesses as well.
After thorough research and analysis, we established that outsourcing has become a growing trend, both as a way to help reduce these costs, as well as a means to increase bottom line profits. In the hotel industry, transportation is not one of the core operations of their business profile; hence it’s beneficial to outsource to transport companies in order to focus on their key services such as guest accommodation, event hosting, and catering.
INTRODUCTION
Many hotels consider shuttle facilities a great asset to their operations. In fact, many customers have made the availability of shuttle services a key factor when deciding on which hotel to book. This is especially common for people traveling to foreign countries or new cities; hotels provide courtesy transportation for their customers to and from an airport or other local destinations as a convenience and as a means to support their primary business, and guests choose that hotel for those reasons.
Despite their benefits, shuttle services have significant financial burdens on the hotel, which forces the hotel to choose between running an in-house shuttle or outsourcing to a transportation company. The costs of running a hotel shuttle are enormous and continue to increase with time as the bus or van ages. While some proponents of having a hotel shuttle service argue that owning a shuttle bus helps a hotel to differentiate its services from its competitors, and others focus on the convenience, ultimately all of these proponents fail to factor the most critical element: how much it costs.
This paper is an in-depth examination of the cost of owning and running a hotel shuttle service and the various challenges that come with it. It will also propose a cheaper and efficient alternative, which is outsourcing.
BACKGROUND
Hotels are striving to provide courtesy shuttle services to entice potential customers and make themselves stand out from the competition. Unfortunately, this service comes with extra costs to the hotel, and the costs are even higher when the bus or van belongs to the hotel. Spending money on the necessities such as food, drinks, and accommodation is important, but spending a significant amount of money on items that are not among a company’s core elemental services is not wise. Transportation is not a core service in the hotel industry, and although shuttle services are vital to many customers, the cost is not indispensable to hotels. Therefore, before incurring substantial costs regarding transportation, they need to reconsider their approach since the offering can affect the profitability and performance of the hotel.
Costs such as purchase, fuel, insurance, driver’s salary, parking, maintenance, and wear and tear are just too heavy for a hotel, and there is no point of incurring such costs if there is a better and cheaper alternative. Let’s break it down.
Capital Costs
According to MacKechnie (2016), the cost of purchasing a bus or van makes up the vast majority of all capital costs for a hotel. This price is determined by several factors such as size, propulsion system, and the manufacturer. On average, a new 14-passenger shuttle bus costs about $50,000 according to Northwest Bus Sales Inc.
Operating Costs
In addition to paying for the shuttle bus, the hotel has to endure operating expenses which include maintenance costs, driver’s salary, and insurance. Below are the average annual maintenance costs for a shuttle bus, though they may vary slightly by region.
| Service | Gas Engine | Diesel Engine |
|---|---|---|
| Oil Changes (4x) | $360 | $550 |
| Air Filters (1x) | $40 | $75 |
| Fuel Filters (1x) | $65 | $125 |
| Tire Rotations (2x) | $100 | $150 |
| A/C Service (1x) | $95 | $100 |
| Brakes | $450 | $500 |
| Miscellaneous | $1000 | $1000 |
| Total | $2,110 | $2,500 |
Source: Carpenter Bus Sales (one can expect maintenance costs to increase 10-20% in subsequent years as the shuttle ages)
The average monthly insurance cost is $280-$500, which amounts to about $3,360 – $6,000 annually. The driver’s pay is based on the national average hourly pay, which is about $15 – $20.67. In addition to drivers, hotels have to employ other personnel such as mechanics, crew, supervisors, and other human resource staff who are also included on the payroll. Considering the average cost of operating a hotel shuttle, the cost of transporting each customer when the vehicle is empty can be quite high. For instance, if the average cost is $90 per hour and in the course of one hour a shuttle carries four people, it could easily cost the hotel $22.50 for every customer. On the other hand, a full-capacity shuttle carrying 14 customers will only cost the hotel $6.42 per passenger.
Compiling the capital and maintenance expenses, it becomes apparent that the cost of buying and operating shuttle buses is very high. In addition, these values are always fluctuating with the rate of inflation every year.
The question then for hotels then is the following: how to cut costs while still offering a service that clients have come to expect from them? Addressing this matter will not only help the hotels to realize additional profits, but also allow them to avoid spending huge amounts of money that they can inject into other more important areas. This can be achieved through contracting out to other private providers.
SOLUTION
Outsourcing is the best way to provide efficient shuttle services and reduce hotel costs. Jaume (2015) defines outsourcing as “subcontracting a service provided by a third-party company whereby the first company entrusts another to do a particular job in order to save money, time and resources.” The biggest advantage of outsourcing is that it turns fixed costs into variable costs. This means that hotels can avoid costs such as purchasing a shuttle bus, insurance, maintenance, and salaries. According to Papile (2005), firms outsource transport services as means to liberate capital and minimize overhead. They delegate such operations to other providers who have more purchasing power for fleet, more effective fleet utilization and efficient maintenance.
The General Manager of the Crowne Plaza Atlanta Airport Hotel, Andre Martin, says that the hotel outsources their shuttle service because it’s a 24-hour operation, including shuttles running on a fixed schedule: every 30 minutes at off-peak times, and every 15 minutes at peak. He argues that the main reason for outsourcing is to avoid dealing with a fleet of buses to maintain, the stresses of hiring, and the maintenance of the staff. According to him, outsourcing enables them to focus and allocate all of their resources on their own operations.
Outsourcing also reduces the risk liability on the hotel. Through outsourcing, the hotel transfers the risks of transportation operations to the private provider. This protects the hotel from all the extra costs that can result from risks such as accidents. Outsourcing helps to eliminate the hotels’ financial responsibility for costly claims such as passenger injury and property damage claims.
Research shows that more companies and institutions are outsourcing services that do not form the core elements of their operations. For instance, schools are outsourcing non-instructional services such as transportation, food, and janitorial duties. This enables them to have more control as they can meet various necessities using the funds saved through outsourcing. Consequently, the state of Pennsylvania has embraced the idea, with more than 200 school districts outsourcing non-instructional transportation.
CONCLUSION
The aim of this paper has been to discuss the issue of the costs associated with a hotel operating their own hotel shuttle and to explain why it’s cheaper to outsource to a transportation company. In the recent past, there was a movement within businesses to keep everything in-house; from payroll to human resources to janitorial services to transportation, companies kept their services in-house as much as possible to maintain quality control. But the costs of these in-house services don’t make sense if the quality of the service they are providing, not to mention the liability that comes with providing it, fails to match up with what an outside company can provide for a fraction of the cost.
It is clear that in today’s business world, many companies and institutions are embracing the idea of outsourcing various services that do not form the primary operations of their businesses, and as a result, outsourcing is becoming increasingly popular. By outsourcing shuttle services, hotels can:
- Improve performance by focusing on other operations
- Save time, money and other resources
- Eliminate financial risks
- Promote sustainability
Despite the tradition of hotels keeping their shuttle service in-house, they should seriously consider outsourcing as a means of cutting financial costs, as well as freeing up their time to focus on their core business.