Market Sizing question - number of hotels

Market sizing
Anonymous A asked on Jan 10, 2019

Hi guys, I recently had a first round interview and the case focused on the hotel industry. In the first parte I got asked to calculate the market size for hotels in Spain and I would like to check if you guys agree with my approach:

1. I asked the interviewer if he had any data on number of tourists that go to Spain per year. He did not provide me with this information. Therefore I assumed 20 million tourists. I explained the reason for this number was due to a recent article I had read on # of passengers going through Barcelona/Madrid airports. I also explained Spain was particularly popular summer destination for the Brits and Germans (Barcelona, Ibiza, Seville, etc..)

2. I then explained not all of these 20m stay in hotels especially with the growth of platforms such as AirBnB and assumed 3/4 stayed (15m) in hotels and the remainder in other forms of accomodation

3. Then assumed on average poeple stay in rooms of 2 (hence 7.5m groups of 2 need rooms= and assumed the average stay is of 3 days and explained why. Hence 22.5 million nights a year.

3. Then assumed that on average hotels have 100 rooms

4. By dividing the 22.5m/100, this gave me 225k hotels which I thought was a very large number.

I went on to explain that my approach focussed on calculating demand and see how many hotels there are to serve this demand, and that the approach assumed these 225k hotels were operating at full capacity.

The interviewer seemed happy with my approach and liked my explanations to assumptions. I still haven't heard back and would like to know if you guys agree with the approach?

Thanks a lot

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on Jan 17, 2019
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Anonymous B replied on Jan 14, 2019

I'd probably have rated you as 3.5/5 if I were the interviewer. This is purely my opinion:

  • There were 80M tourists in Spain in 2017. It's fine not to know the number, but referring to an article and then ending up with a 4x margin of error is somewhat unsound. At least I hope you are not from Spain :) 50M passangers went through Barcelona airport in 2017.
  • You could have added internal tourism (leaisure and business from Spain residents). I don't think this would be a high number compared to external tourism, but it would have shown you are MECE and have good business judgement.
  • I think you got the number wrong even if we accept your assumptions. If there are 22.5m tourist nights a year and each hotel has 100 rooms, then in total you have 100 rooms * 365 nights = 36,500 room nights a year. Assuming 75% utilization, you'll arrive at 22.5m / (36,500*0.75)=822 hotels.
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Agree with Vlad! Using factual data knowledge from an external source is a no-go in MBB case interviews. It doesn't matter if the article is right or not - the interviewer wants to test your ability to derive such information in a logical fashion.

Cheers, Sidi

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Hi,

I only don't like the explanation "I read in the article". This is a very weak explanation. I would rather try to assess the airport turnover and the % of tourists myself.

Best

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Anonymous B replied on Jan 17, 2019

What was the final feedback?

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