Revenue Management Week 5

Subject : V0206 – Administrasi & Operasional Kantor Depan Year : 2009

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Subject

• Occupancy percentage• Average daily rate• RevPARComponents and use of revenue management• Applications of revenue management

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Objectives:

On completion of this lesson, the students

will be able to:- apply revenue management as a

means of maximizing the room revenue to produce a profit

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Occupancy Percentage

• Occupancy percentage is a traditional view of measuring the effectiveness of the general manager, marketing staff and front office staff

• For investors: to determine the potential gross income of a lodging establishment

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It is used to answer such questions:• How many rooms were sold?• How effective were reservation

agents in meeting the room and amenity needs of the guests?

• How competent were front office staff members in making the sale?

Occupancy Percentage

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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

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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 SalesNumber of Rooms Sold

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Definition of RevPAR

• RevPAR – ability of a hotel to produce income and how many dollars each room is producing.

Room RevenueNumber of Available Rooms

orHotel occupancy % x ADR

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Discussion Question

Utility of Occupancy percentage, ADR, and RevPAR?Answers:

• Used to project room revenues• Demonstrate how room revenue is

calculated• Leads into Revenue Management

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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

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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)

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Revenue Manager

• Reports to general manager• Works closely with marketing and sales

department• Consults with front office manager

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Use of Yield Management

To maximize profit for guest room

sales

To maximize profit for hotel services

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Yield = Yield = Revenue realizedRevenue realizedRevenue potentialRevenue potential

YIELD FORMULA

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Determining Yield

• The Times Hotel has 300 rooms available for sale and sold 200 rooms at $85 with a rack rate of $110

• How many % is the Yield?• The Yield is 51,51%

200 x $85 = $17,000 x 100 = 51.51% 300 x $110 = $33,000• The 51% yield means the staff’s effort in

achieving maximum occupancy could have been improved by using effective strategies to sell more $110 rooms.

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• Thus, the goal of yield management is to sell all available rooms at the highest rate (rack rate)

Determining Yield

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Occupancy Percentage Comparison

Hotel No. Rooms Available

No. Rooms Sold

Rate Income Occupancy %

ABC 500 200200400

$80$95

$16,000$19,000$35,000

80%

XYZ 500 100300400

$80$95

$ 8,000$28,500$36,500

80%

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Yield Comparison

Hotel Revenue Realized

Revenue Potential

Yield %

ABC $35,000 $47,500 73.68

XYZ $36,500 $47,500 76.84

*500 rooms x $95 (rack rate) = $47,500

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Which Hotel has Achieved the Highest Yield?

• Both hotels have achieved an 80% occupancy, but hotel XYZ has achieved a higher yield while selling the same amount of rooms

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Optimal OccupancyAchieving 100% occupancy With room sales, which willYield the highest room rate

Optimal Room RateA room rate that

approaches the rack rate,work together to produce the yield

Optimal Occupancy and Optimal Rate

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Optimal Occupancy & Optimal Rate

• Situation 1:• A 300-room hotel has

sold:– 100 rooms at $76– 150 rooms at $84– 35 rooms at $95

(rack rate)• The yield = 83

• Situation 2:• A 300-room hotel has

sold:– 200 rooms at $90– 85 rooms at $95(rack rate)

• The yield = 91%• Additional revenue =

$2,550

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Yield Management Strategies

Demand Strategy

High Maximize rates, require minimum stays

Low Maximize room sales, open all rate categories

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Forecasting

• Importance of daily accuracy in forecasting.

• Accurate forecasting of transient demand will assist hoteliers in developing strategies to maximize sales to this group

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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

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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

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Channel Management

• Reservation Channels– Central Reservations– GDS– Third-party reservation system– Toll-free phone reservation– Travel Agent

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Management Challenges In Using Revenue Management

• Alienation of Customers• Minimum stay requirements• Price gouging