Chapter 6 Revenue Management Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved

Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Chapter 6 Focus Points Review occupancy percentage and its effectiveness Review average daily rate and its effectiveness Review RevPAR and its effectiveness Discuss history of revenue management Discuss use of revenue management Outline components of revenue management Demonstrate applications of revenue management Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved

Review Definition of Occupancy Percentage Occupancy Percentage - reveals the success of a hotel’s staff in attracting guests to a particular property Number of Rooms Sold x 100 Number of rooms available Double Occupancy Percentage – measure of a hotel staff’s ability to attract more than one guest to a room; thus a higher room rate and additional income Number of Guests – Number of Rooms Sold x 100 Number of Rooms Sold Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved

Definition of Average Daily Rate ADR Average Daily Rate (ADR) - A measure of the hotel’s staff efforts in selling available room rates Total Room Sales Number of Rooms Sold Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved

Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Definition of RevPAR RevPAR – ability of a hotel to produce income and how many dollars each room is producing. Room Revenue Number of Available Rooms or Hotel occupancy % x ADR Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved

Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Discussion Question Utility of Occupancy percentage, ADR, and RevPAR? Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved

Discussion Question Answer Used to project room revenues Demonstrate how room revenue is calculated Leads into Revenue Management Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved

History of Yield Management Airline industry’s use of yield Management Deregulation of airlines in late 1970s “Take It or Leave It” Certain periods, certain seats, certain flights… Compare similarities of the airline industry and hotel industry Volatile product Demand periods which places the producers in a favorable position Indicate differences of the airline industry and hotel industry in using yield management Hotel groups can spend large amounts of money on-site for food and beverage Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved

Use of Yield Management Goals of yield management Maximize profit for guest room sales Maximize profit for hotel services (food, beverage, and convention services) Discuss yield management software example in chapter (p. 170-171) maxim® Revenue Management Solutions (MaximRMS) RevenueDASHBOARD™ OPERA Revenue Management Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved

Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Revenue Manager Reports to general manager Works closely with marketing and sales department Consults with front office manager Job duties – refer to job listing (p. 171) Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved

Components of Revenue Management Yield – the percentage of income that could be secured if 100% of available rooms are sold at their full rack rate (highest room rate posted for a room in a hotel) Revenue Realized Number of Rooms Sold x Actual Rate Revenue Potential Number of Rooms Available for Sale x Rack Rate Yield = Revenue Realized (# Rooms Sold x ADR) Revenue Potential (# Rooms Available x Rack Rate) Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved

Components of Revenue Management (cont’d.) Yield = Revenue Realized (# Rooms Sold x ADR) Revenue Potential (# Rooms Available x Rack Rate) See p. 172 in text for demonstration of Yield formula Compare and contrast the concepts of yield and occupancy percentage (refer to Tables 6-1) p. 172 and (6-2) p.173 Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved

Optimal Occupancy and Optimal Rate Optimal occupancy- Achieving 100% occupancy with room sales which will yield the highest room rate. Optimal Rate - A room rate which approaches the rack rate. Review scenario p. 173 to consider possibilities! Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved

Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Strategies Discuss components and strategies to employ when using yield Management (refer to Table 6-3) p. 174 High demand for rooms = Maximize room rates Low demand for rooms = Maximize room sales Carol Verret’s comments on establishing target numbers sales, manipulation of rates in the electronic distribution channels as well as revenue drivers within the organization (central reservations, property-level reservations, and sales department, and web site) p. 174 Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved

Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Forecasting Importance of daily accuracy in forecasting. Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved

Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Block-Out Periods Block-out periods - Tagging certain dates in a time period when rooms have to be sold at a certain rate and/or certain number of minimum room rental nights Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved

Automated Systems and Procedures Discuss the importance of using computers and standard operating procedures when using yield management Discuss the importance of training to use a yield management system Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved

Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Channel Management Reservation Channels Central Reservations GDS Third-party reservation system Toll-free phone reservation Travel Agent Managing the Channels Rebecca Oliver’s article – pp. 176-177 Advanced systems to manage central reservations offices and electronic reservation channels available That now combines the maximization of yield with a revenue management system which is connected to a PMS Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved

Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Feedback Discuss the importance of feedback on turn-a-way business in a yield management system (refer to Table 6-4; p. 177) = “Dollars Lost” Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved

Management Challenges In Using Revenue Management Alienation of Customers Minimum stay requirements Price gouging Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved

Considerations for Food and Beverage Sales Review Table 6-5 p. 178 Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved

Applications of Revenue Management p. 179 Scenarios #1 – Determine Yield Scenario #2 – Homecoming Weekend Scenario #3 – Governor’s Conference vs. Jazz Weekend Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved