Chapter 6
Revenue Management
The Role of the Revenue Manager
Revenue Manager Tasks
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Maximize RevPar
Hotel Operations Management, 2nd ed. Hayes/Ninemeier
2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458
RevPar is a part of every employees job
Housekeeping Restaurant Server Desk Staff Maintenance Bell Staff Food & Beverage
Hotel Operations Management, 2nd ed. Hayes/Ninemeier 2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458
RevPar
The Role of the Revenue Manager: Revenue Management
Groups Traditionally Eligible for Negotiated Rates
National Associations (Like AAA)
Negotiated Rates
Military and Clergy Personnel
Government Employees
Hotel Operations Management, 2nd ed. Hayes/Ninemeier 2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458
The Role of the Revenue Manager: Revenue Management (cont.)
Length of Stay (LOS) Promotions and stay-over business
Room nights sold divided by rooms sold to guests = LOS
300 / 100 = 3
Hotel Operations Management, 2nd ed. Hayes/Ninemeier
2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458
The Role of the Revenue Manager: Revenue Management (cont.)
Shared Room Rate Management Responsibilities Revenue Manager Tasks
Room Rates FOM Tasks
Hotel Operations Management, 2nd ed. Hayes/Ninemeier
DOSM Tasks
2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458
The Role of the Revenue Manager: Room Rate Economics
Short-term economic supply and demand:
In the short-term, hotel room supply will stay the same; demand will increase and decrease depending on the timeframe examined.
Perishability of hotel rooms. Economic supply: In the long-term, hotel room supply may increase as new hotels are built. Revenue managers will be able to assess an increase or decrease in hotel room supply in their respective markets.
Hotel Operations Management, 2nd ed. Hayes/Ninemeier 2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458
The Role of the Revenue Manager: Room Rate Economics (cont.)
Rate Type:
A single (unique) rate for a specific type of room
Hotel Operations Management, 2nd ed. Hayes/Ninemeier
2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458
The Role of the Revenue Manager: Room Rate Economics (cont.)
Sample Hotel Rack Rates Room Type Standard Double Standard King Executive Double Executive King Executive Double (Concierge Level) Executive King (Concierge Level) Rack Rate $ 109.00 $119.00 $149.00 $164.00 $199.00 $214.00
Double Parlor Suite
King Parlor Suite
Hotel Operations Management, 2nd ed. Hayes/Ninemeier
$269.00
$289.00
2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458
The Role of the Revenue Manager: Room Rate Economics (cont.)
Other rate types:
Seasonal rate Special event rate Corporate rate Government rate Group rate Package rate American plan (AP) or modified American plan (MAP) rate All-inclusive plan rate European plan (EP) rate Day and half-day rates Fade rate
Hotel Operations Management, 2nd ed. Hayes/Ninemeier 2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458
The Role of the Revenue Manager: Room Rate Economics (cont.)
Traditional Pricing Strategies Step 1 Step 2 Hubbart Room Rate Formula
Calculate the hotels target profits Calculate all fixed expenses
Step 3
Step 4 Step 5
Calculate all operating costs
Calculate nonrooms profits Determine room revenue needed to meet obligations/goals
Step 6
Step 7
Forecast rooms to be sold based on estimated occupancy
Calculate the hotels required ADR
2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458
Hotel Operations Management, 2nd ed. Hayes/Ninemeier
The Role of the Revenue Manager: Room Rate Economics (cont.)
Web-Influenced Pricing Strategies Competitive Pricing Follow-theLeader Pricing Prestige Pricing
Charge what the competition charges.
Charge what the dominant hotel in the area charges. Charge the highest price, and justify it with better product and/or service levels. Reduce rates below those of competitors without considering operating costs.
2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458
Discount Pricing
Hotel Operations Management, 2nd ed. Hayes/Ninemeier
Revenue Management Essentials: Making Forecasts
Rooms available to sell for the forecast period Estimated rooms to be sold for the period
Estimated occupancy rate for the period
Rooms Revenue Forecast
Estimated ADR for the period RevPar for the period
Hotel Operations Management, 2nd ed. Hayes/Ninemeier
2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458
Revenue Management Essentials: Managing Occupancy
MLOS: Minimum Length of Stay CTA: Closed to Arrival Overbooking: A situation in which the hotel has more guest reservations for rooms than it has rooms available to lodge those guests; sometimes referred to as oversold. Walk(ed): A situation in which a guest with a reservation is relocated from the reserved hotel to another hotel because no room was available at the reserved hotel.
Hotel Operations Management, 2nd ed. Hayes/Ninemeier 2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458
Revenue Management Essentials: Yield Management
Philosophy
Hoteliers often change pricing based on demand (perishability) Not all companies can operate this way; few consumers would condone an emergency medical supply companys significantly increased product prices immediately following a disaster that caused a surge in product demand
Implementation
Varies by day of week, time of month, season, or in response to local special events
Techniques
Forecast demand, eliminate discounts in high demand periods, increase discounts in low demand periods, use MLOS and CTO maximize revenue, and implement special event rates
Hotel Operations Management, 2nd ed. Hayes/Ninemeier 2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458
Revenue Management Essentials: Measures of Effectiveness Occupancy Index
A ratio measure computed as:
Occupancy Rate of a Selected Hotel ________________________ = Occupancy Index Occupancy Rate of That Hotels Competitors
Hotel Operations Management, 2nd ed. Hayes/Ninemeier 2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458
Revenue Management Essentials: Measures of Effectiveness (cont.)
ADR Index
A ratio measure computed as:
ADR of a Selected Hotel ________________________ ADR of That Hotels Competitive Set
Hotel Operations Management, 2nd ed. Hayes/Ninemeier
ADR Index
2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458
Revenue Management Essentials: Measures of Effectiveness (cont.) RevPar Index
A ratio measure computed as:
RevPar of a Selected Hotel ________________________ RevPar of That Hotels Competitors
Hotel Operations Management, 2nd ed. Hayes/Ninemeier
RevPar Index
2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458
Distribution Channel Management
Historical Distribution Channels
Step 1 Step 2 Step 3 A hotel sells rooms to a travel wholesaler The wholesaler sells rooms to a travel agent The travel agent sells rooms to an individual guest or group
Step 4
The guest stays at the hotel
Hotel Operations Management, 2nd ed. Hayes/Ninemeier
2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458
Distribution Channel Management (cont.)
Current Distribution Channels
Walk-ins Telephone Fax
Email
Regular Mail GDS
Chain or Brand Central Reservation System (CRS) Internet
Hotel Operations Management, 2nd ed. Hayes/Ninemeier
2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458