ch06
DESCRIPTION
revparTRANSCRIPT
Chapter 6Revenue Management
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
The Role of the Revenue Manager
=
Revenue Manager Tasks
Maximize RevPar
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
RevPar is a part of every employee’s job
RevPar
Housekeeping
Restaurant Server
Desk Staff
Maintenance
Bell Staff
Food & Beverage
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Negotiated RatesNational
Associations (Like AAA)
Military and Clergy
Personnel
Government Employees
Groups Traditionally Eligible for Negotiated Rates
The Role of the Revenue Manager: Revenue Management
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
The Role of the Revenue Manager: Revenue Management (cont.)
Promotions and stay-over business
Length of Stay (LOS)
Room nights sold divided by rooms sold to guests = LOS
300 / 100 = 3
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Revenue Manager Tasks
DOSM Tasks
FOM Tasks
Room Rates
Shared Room Rate Management Responsibilities
The Role of the Revenue Manager: Revenue Management (cont.)
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
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.
Short-term economic supply and demand:
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.
Economic supply:
The Role of the Revenue Manager: Room Rate Economics
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Rate Type:
A single (unique) rate for a specific type of room
The Role of the Revenue Manager: Room Rate Economics (cont.)
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Room Type Rack Rate
Standard Double $ 109.00
Standard King $119.00
Executive Double $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
Sample Hotel Rack Rates
The Role of the Revenue Manager: Room Rate Economics (cont.)
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Other rate types:
Seasonal rateSpecial event rateCorporate rateGovernment rateGroup ratePackage rateAmerican plan (AP) or modified American plan (MAP) rateAll-inclusive plan rateEuropean plan (EP) rateDay and half-day ratesFade rate
The Role of the Revenue Manager: Room Rate Economics (cont.)
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Step 1 Calculate the hotel’s target profits
Step 2 Calculate all fixed expenses
Step 3 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
Traditional Pricing Strategies
Hubbart Room Rate Formula
The Role of the Revenue Manager: Room Rate Economics (cont.)
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Web-Influenced Pricing Strategies
Charge what the competition charges.Competitive Pricing
Charge what the dominant hotel in the area charges.
Follow-the-Leader Pricing
Charge the highest price, and justify it with better product and/or service levels.
Prestige Pricing
Reduce rates below those of competitors without considering operating costs.
Discount Pricing
The Role of the Revenue Manager: Room Rate Economics (cont.)
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Revenue Management Essentials: Making Forecasts
Rooms Revenue Forecast
Rooms available to sell for the
forecast period
Estimated occupancy rate for the period
RevPar for the period
Estimated ADR for the period
Estimated rooms to be sold for the
period
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier 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. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Revenue Management Essentials: Yield Management
Varies by day of week, time of month, season, or in response to local special events
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
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
Philosophy
Implementation
Techniques
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Occupancy Index
A ratio measure computed as:
________________________Occupancy Rate of a Selected Hotel
Occupancy Rate of That Hotel’s Competitors=
Occupancy Index
Revenue Management Essentials: Measures of Effectiveness
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
ADR Index
A ratio measure computed as:
________________________ ADR of a Selected Hotel
ADR of That Hotel’s Competitive Set=
ADR Index
Revenue Management Essentials: Measures of Effectiveness (cont.)
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
RevPar Index
A ratio measure computed as:
________________________ RevPar of a Selected Hotel
RevPar of That Hotel’s Competitors=RevPar Index
Revenue Management Essentials: Measures of Effectiveness (cont.)
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Distribution Channel Management
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
Historical Distribution Channels
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Walk-ins Regular Mail
Telephone GDS
FaxChain or Brand Central
Reservation System (CRS)
Email Internet
Current Distribution Channels
Distribution Channel Management (cont.)