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Professor Queenan

La Quinta Hotels Regression-Based Site Selection Analysis

Introduction

La Quinta Motor Inns, Inc. is a mid-price range brand of hotels that appeals to the frequent business
traveler, concerned more about convenient location than amenities. In 1988, following an economic
downturn in Texas, La Quinta executives identified 12 potential locations in an effort to open a new inn in
an effort to expand past their 191 existing inns. After the selection committee narrowed the potential list
down to 6 options, our group has been commissioned to advise the committee and executives on which site
will ultimately be the most successful in the future, while simultaneously accounting for patrons
preferences for local amenities and accessibility to local restaurants and an interstate.

Selection of the Dependent Variable

The selection committee suggested that the best measures of success for the hotels were the occupancy
ratio, profitability, and operating margin. We chose to select the operating margin as our primary dependent
variable, as it standardizes the variety of data that may affect a business success. The operating margin
accounts for profit, depreciation, interest and total revenue. With these factors in mind, we viewed it as the
most comprehensive option for the dependent variable. Furthermore, operating margin indicates a business
sustainability and health.

Within the data set, 1983 proved to be a high profit year for the La Quinta Inns, while 1986 witnessed an
economic downturn in Texas, negatively affecting the success of the inns. With this in mind, we decided to
select the data from 1983 to use for our dependent variable in the analysis. The Selected Financial and
Operational Data from the case also supports this choice. In 1986, ROA (return on assets) was .93%,
whereas for all represented years (excluding 1987) the average return on assets was 3.04% and the standard
deviation was 1.01%, meaning the 1986 ROA falls more than two standard deviations from the mean.
While insufficient data points fail to convey normality to the distribution, such a decline strongly indicates
an abnormality. In a good year, proximity to these locations may make up for poor performance in the
occasional bad year. The ROAs above indicate that 1986 was an abnormally bad year to a greater degree
than 1983 was good. So long as the poor performance seems indicative of the momentary oil crisis as
opposed to the long term trend, the healthier year is more reasonable for consideration. By choosing the
good year, one may more clearly demonstrate the correlation between various independent variables and the
dependent variable, as a larger number of the independent variables were performing normally.

Selection of Independent Variables

The data provided outlined independent variables in five categories: competitive qualities, demand
generators, demographic information, market awareness, and physical qualifications. Within these
categories, we selected individual characteristics that we believe would provide us with the greatest insight
to justify our choice in location. However, due to the lack of statistical evidence and the basis of the chosen
locations relying on the experience and gut feel of the La Quinta executives, some variables only
require theoretical analysis to understand the level to which they may potentially affect a location.

We first looked at college enrollment in the area to justify that the Dallas/Ft. Worth area is a valuable
place to reinvest. All of the proposed locations are close to Southern Methodist University. With this in
mind, there is little way to differentiate between the locations once discovering if there is significance, but it
is indicative of a profitable initial choice.

Secondly, we looked at office space within 4 miles of the proposed inn. La Quinta positions itself to
capture a large percentage of business travelers. According to a 1981 survey, 83% of La Quintas guests
were business travelers. By offering fewer amenities, while still providing clean rooms and courteous
service, La Quintas services meet the needs of business travelers, who spend limited time at the hotel.
Consequently, proximity to office space allows La Quinta to serve its primary market. With all of this in
mind, we wanted to see how strongly it influenced operating margin.

Next, we chose to look at the number of annual tourists. As La Quinta often positions itself near local
attractions, it may be an emerging competitor for tourists on a tight budget, who are more concerned with
local attractions than resort-style amenities. While La Quinta primarily caters to business travelers, data
also suggested that individuals saw at least one local attraction during their stay at a La Quinta Inn.

Furthermore, we chose distance from the nearest established La Quinta Inn, as the case indicated that
locating inns within the same metropolitan area guided the expansion strategy. Ideally, the data will prove
that this cluster strategy increases the overall controlled market share and operating margin of the locations.

We then chose to look at accessibility ratings, which is crucial to a hotels success. Regardless of quality,
if potential customers cannot reach a location easily, then they will turn to more conveniently positioned
competitors. Such an issue compounds at night, as visibility is hindered and customers are less willing and
able to find a location which requires winding away from the main thoroughfare.

We chose the airport passengers category as an independent variable since it indicates that a steady
stream of visitors and tourists may be in need of accommodations in the area. It was listed as a major
consideration for site expansion and is closely related to some of the potential site credentials.

Many drivers in the evenings likely select La Quinta Inns without prior consideration or a reservation.
Thus, La Quinta Inns in high traffic areas will garner more business. Additionally, those customers with
reservations likely prefer hotels along main thoroughfares.

In metropolitan areas, a large percentage of business and recreation occurs near the city center. For this
reason, we believe many customers will choose to stay in a hotel within close proximity of downtown. This
assumed popularity will perhaps correlate with improved operating margins for hotels thus located.
 Sign visibility likely aids in the acquisition of impromptu customers, as these customers look for a place
to spend the night. Visibility may also limit cancellations, as customers with reservations may more easily
locate the hotel, rather than turning aside to more visible competitors.

Lastly, another important independent variable we examined is the new locations relative
proximity(within three miles) to competitors. One may presume that close proximity to established
competitors can affect the new locations ability to obtain a larger market share of the area in which it is
being built.

Data Analysis

We first began by examining the data for the presence of any outliers. We did this by finding the 1st and
3rd quartile values, then using the equation 1.5*(Q3-Q1) and adding and subtracting third value to the
quartiles, we determined the upper and lower control limits. We conducted this process for all independent
variables being considered before running regression. As no outliers were identified, we ran all 56 data
points through the analysis. We then used regression analysis on excel to find the p-values and r-squared
values for each to consider for significance, thus determining which variables proved the best deciding
factors for La Quinta Expansion.

We found that, college enrollment, traffic count, distance to the nearest hotel, distance to downtown, and
accessibility were significant (p value<.05), and office space was marginally significant (with p value<.1).
With these significant p-values, we were able to reject the null hypothesis that there is no significant
difference in the means of the independent and dependent variables. Please see the output information in the
appendix. Thus, we then looked to see which of the potential inn locations possessed the qualities that we
found to be significant in our analysis. We concluded that Option B, the Dallas - Oak Lawn location
should be selected by the selection committee for the newest hotel location.

Recommendations For Expansion

For this data, distance to nearest hotel and distance to downtown are both negatively correlated with OM
(Operating Margin), as one might expect. As expressed in the case, grouping hotels stands as a primary
expansion strategy, and the data indicates greater distance between hotels correlates to decreased OM.
Similarly a greater distance from downtown correlates to decreased OM. College enrollment is significant,
but this is not a differentiating factor between the different locations, nevertheless, it is an important
consideration for the future and justifies La Quintas decision to build another hotel in the Dallas/Ft.Worth
metroplex. With consideration of all of these factors Dallas Oak Lawn seems the most favorable of the
potential locations, scoring well on access, office space, traffic, and nearest La quinta inns.
Graphs and Supplementary Information

Significant Relationships:
Marginally Significant Relationships:

Insignificant Relationships: