Hotels and the Perils of Bad Credit

Aside from mismanagement, one of the things that saddle hotel enterprises is too much debt. Probably one of the best examples that will illustrate the perils of bad credit is Donald Trump’s previously owned hotels and casinos. As we go along, we will give you an overview of what went wrong to some of his businesses.

In general, the primary goal of hotel enterprises is to make the most revenues on every hotel room. To do this, hotel owners should first amplify the value of their hotels by generating higher cash flow and returns. Consequently, cash flows can be maximised through financial management, revenue management and improving the hotel’s operation standards and performance. This may involve increasing labour productivity, outsourcing and minimising expenditures.

With regards to revenue management, it is important that hoteliers understand market dynamics, local drivers and key market drivers. Moreover, employing competitive analysis and market segmentation will greatly help the hotel in generating profits. 

Trump-Style Management

Republican presidential nominee Donald Trump asserted that he will make America great again by enforcing his Trump-style management. But contrary to his claims, he gorged his businesses with debts that eventually led to their failure. As put by Fortune, Trump’s model for his casino ventures can be described by high debts and scarce cash flow. Let’s take a look at his Plaza Hotel and the Trump Hotels and Casino Resorts.

  • Plaza Hotel

Trump purchased the Plaza Hotel at a whopping $390 million during the late 1980s. Due to procurements and hotel renovations, Plaza Hotel accumulated a debt of $550 million. Soon after, Trump declared that the hotel is bankrupt. In an effort to refinance bad credit, he gave up 49 percent of his ownership and a payment plan was restructured. 

  • Trump Hotels and Casino Resorts

Trump Hotels and Casino Resorts had an accumulated debt of $1.8 billion at an interest rate of 15 percent. As a result, Trump relinquished 20 percent of his stakes at the company in return of letting off $500 million on the hotel’s debts. Even if Trump Hotels kind of survived the bankruptcy, it still struggled paying off its remaining debts due to insufficient cash flow.