HAMG 1313 Front Office Procedures Revenue Management

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HAMG 1313-Front Office Procedures Revenue
Management
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Yield Management

• A technique used to Maximize Room Revenue
• Used where reservations are taken for a
  Perishable Commodity
• - Hotel Rooms
• - Airplane Seats
• - Rental Cars
• - Cruise Ship Cabins
• Hotels are shifting from High-Volume to
  High-Profit bookings

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Yield Management

• As Demand exceeds Supply
• Increase Rates to Maximize Profits
• As Supply exceeds Demand
• Decrease Rates to Maximize Occupancy

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Yield Management Threshold Curve
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Yield Statistic

• Actual Rooms Revenue
• Potential Rooms Revenue
• Potential Rooms Revenue
• - Every room sold at full rack rate

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Capacity Management

• Selective Overbooking
• Control room supply
• Overbooking and Walk-ins
• Balance overbooking and lost room revenue
• Overbook lower priced rooms first
• Consider the availability of rooms in the area

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Yield Management Tools

• Discount Allocation
• Manage discounted room rates
• Encourage upselling
• Duration Control
• Place time constraints on reservations
• May reject reservation requests
• Combination
• Discounts for 3 nights, but rack for 1 night

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Duration Control

• Minimum Length of Stay
• Reservation for a certain number of nights
• Close to Arrival
• Guest must arrive before a certain date
• Limit number of check-ins on a given day
• Sell-through
• Similar to minimum stay
• Sell days around a peak day

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Yield Management Terminology

• Hurdle Rate
• Minimum room rate for a given day
• Displacement
• Occurs when a hotel accepts group business at the
  expense of transients
• Wash Factor
• Deletion of group room blocks

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Characteristics of Yield Management

• Perishable Inventory
• Relatively Fixed Capacity
• High Fixed Costs, Low Variable Costs
• Advance Reservations
• Time Variable Demand
• Appropriate Cost and Pricing Structure
• Segmentable Markets

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Hotel Examples of Yield Management

• High season rates differ from low season rates
• Leisure customers who make their reservations far
  in advanced usually pay lower room rates
• Business travelers who make their reservations 4
  to 7 days from arrival pay higher rates

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Business vs. Leisure Reservation Trends
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Elasticity of Demand

• How sensitive is demand to a change in price?
• ELASTIC
• - Demand is very sensitive to price
• INELASTIC
• - Demand is not sensitive to price

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Revenue Management Strategies

• Ethical business practices
• Group room sales
• Transient (or FIT) room sales
• Food and beverage activity
• Local and area-wide conventions
• Special events