Chapter 8 Yield Management Revenue Management

1
Chapter 8 Yield Management(Revenue Management)
2
Ticket Fares to Las Vegas!
3
Yield Management

• A set of strategies used in the service industry
  to maximize revenue from operations.
• Core Concept of Yield Management
• The right service / product
• To the right customer
• At the right time
• For the right price

4
Yield Management

• History
• - Late 1970s Deregulation of the Airline
  Industry
• - Late 1980s Hotel Industry

• Goal of Yield Management
• Maximize profit for Guest Room Sales
• Maximize Profit for Hotel Services

• Often used with the perishable commodity.

5
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

6
Yield Management

• Perishable Commodity
• Airplane Seats
• Hotel Rooms
• Rental Cars
• Cruise Ship Cabins

7
Yield Management Strategies
As demand exceeds supply
Increase Rates to Maximize Profits
As supply exceeds demand
Decrease Rates to Maximize Occupancy
8
Yield Management Threshold Curve
Reservation
Threshold Curve
9
Yield Statistic


actual rooms revenue potential rooms revenue
Yield
(Every room sold at full rack rate)
Yield is the percentage of income that could be
secured if 100of available rooms were sold at
full rack rate
10
Yield Exercise

• Hotel ABC has 500 rooms available, it sells 200
  rooms at 85 with a rack rate of 100.
• Whats the yield of Hotel ABC?

actual rooms revenue potential rooms revenue
Yield
(Every room sold at full rack rate)
11
Occupancy versus Yield

number of rooms occupied number of rooms available
Occupancy Rate

actual rooms revenue potential rooms revenue
Yield
(Every room sold at full rack rate)
12
Occupancy versus Yield

• Hotel ABC has 500 rooms available, it sells 275
  rooms at 80 and 125 rooms at 120 rack rate.
  What is the occupancy rate? What is the yield?
• Hotel XYZ also has 500 rooms available, it sells
  125 rooms at 80 and 275 rooms at 120 rack rate.
  What is the occupancy rate? What is the yield?

13
Lecture Review

• Core Concept of Yield Management
• Goal of Yield Management
• Yield Management Strategies
• Yield Management Threshold Curve
• Yield Statistic