Chapter 6 Revenue Management Hotel Operations Management 2

Chapter 6 Revenue Management Hotel Operations Management, 2 nd ed. Hayes/Ninemeier © 2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458

The Role of the Revenue Manager Tasks = Maximize Rev. Par Hotel Operations Management, 2 nd ed. Hayes/Ninemeier © 2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458

Rev. Par is a part of every employee’s job Housekeeping Restaurant Server Desk Staff Rev. Par Maintenance Bell Staff Food & Beverage Hotel Operations Management, 2 nd ed. Hayes/Ninemeier © 2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458

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, 2 nd 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, 2 nd 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, 2 nd 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, 2 nd 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, 2 nd 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 Rack Rate $ 109. 00 $119. 00 $149. 00 Executive King $164. 00 Executive Double (Concierge Level) $199. 00 Executive King (Concierge Level) $214. 00 Double Parlor Suite $269. 00 King Parlor Suite $289. 00 Hotel Operations Management, 2 nd ed. Hayes/Ninemeier © 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 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, 2 nd 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 Hubbart Room Rate Formula Step 1 Step 2 Step 3 Calculate the hotel’s target profits Calculate all fixed expenses Calculate all operating costs Step 4 Calculate nonrooms profits Step 5 Determine room revenue needed to meet obligations/goals Step 6 Forecast rooms to be sold based on estimated occupancy Step 7 Calculate the hotel’s required ADR Hotel Operations Management, 2 nd ed. Hayes/Ninemeier © 2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458

The Role of the Revenue Manager: Room Rate Economics (cont. ) Web-Influenced Pricing Strategies Competitive Pricing Charge what the competition charges. Follow-the. Leader Pricing Charge what the dominant hotel in the area charges. Prestige Pricing Charge the highest price, and justify it with better product and/or service levels. Discount Pricing Reduce rates below those of competitors without considering operating costs. Hotel Operations Management, 2 nd ed. Hayes/Ninemeier © 2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458

Revenue Management Essentials: Making Forecasts Rooms available to sell for the forecast period Estimated occupancy rate for the period Rooms Revenue Forecast Estimated rooms to be sold for the period Estimated ADR for the period Rev. Par for the period Hotel Operations Management, 2 nd 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, 2 nd 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 company’s 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, 2 nd 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 Hotel’s Competitors Hotel Operations Management, 2 nd 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 Hotel’s Competitive Set Hotel Operations Management, 2 nd ed. Hayes/Ninemeier ADR Index © 2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458

Revenue Management Essentials: Measures of Effectiveness (cont. ) Rev. Par Index A ratio measure computed as: Rev. Par of a Selected Hotel Rev. Par Index ____________ = Rev. Par of That Hotel’s Competitors Hotel Operations Management, 2 nd ed. Hayes/Ninemeier © 2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458

Distribution Channel Management Historical Distribution Channels Step 1 A hotel sells rooms to a travel wholesaler Step 2 The wholesaler sells rooms to a travel agent Step 3 The travel agent sells rooms to an individual guest or group Step 4 The guest stays at the hotel Hotel Operations Management, 2 nd ed. Hayes/Ninemeier © 2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458

Distribution Channel Management (cont. ) Current Distribution Channels Walk-ins Regular Mail Telephone GDS Fax Chain or Brand Central Reservation System (CRS) Email Internet Hotel Operations Management, 2 nd ed. Hayes/Ninemeier © 2007 Pearson Education Pearson Prentice Hall Upper Saddle River, NJ 07458