Revenue Management Week 5

2. Revenue Management Week 5 Subject : V0206 – Administrasi & Operasional Kantor Depan Year : 2009

3. Subject Occupancy percentage Average daily rate RevPARComponents and use of revenue management Applications of revenue management

4. 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

5. 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

6. Occupancy Percentage 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?

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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)

13. Revenue Manager • Reports to general manager • Works closely with marketing and sales department • Consults with front office manager

14. Use of Yield Management To maximize profit for hotel services To maximize profit for guest room sales

15. YIELD FORMULA Yield = Revenue realized Revenue potential

16. 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.

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

18. Occupancy Percentage Comparison

19. Yield Comparison *500 rooms x $95 (rack rate) = $47,500

20. 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

21. Optimal Occupancy and Optimal Rate Optimal Room Rate A room rate that approaches the rack rate, work together to produce the yield Optimal Occupancy Achieving 100% occupancy With room sales, which will Yield the highest room rate

22. 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

23. Yield Management Strategies

24. Forecasting • Importance of daily accuracy in forecasting. • Accurate forecasting of transient demand will assist hoteliers in developing strategies to maximize sales to this group

25. 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

26. 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

27. Channel Management • Reservation Channels • Central Reservations • GDS • Third-party reservation system • Toll-free phone reservation • Travel Agent

28. Management Challenges In Using Revenue Management • Alienation of Customers • Minimum stay requirements • Price gouging