CHAPTER 6: REVENUE MANAGEMENT

Revenue mgmt is the technique of planning to achieve

maximum room rates and most profitable guests,
using yield mgmt concept/theory

Yield mgmt was adopted in the hotel industry in the late

80s.

It was borrowed from the airline industry as a mean for

better decision making processes

It forced hotel managers to develop reservations policies

that would build a profitable bottom line.
OCCUPANCY PERCENTAGE

Historically, occupancy percentage reveals the success of a

hotels staff in attracting guests to a particular property.
This traditional view of measuring the effectiveness of the
general mgr, marketing staff, and front office staff is
commonly used to answer questions such as the following:
1. How many rooms were sold due to the director of sales
efforts in creating attractive and enticing direct mail, radio
and TV ads, billboard displays, or new paper and magazine
displays ads?
2. How effective were reservation agents in meeting the room
and amenity needs of the guests?
3. Did travel agents book a reservation?
4. How competent were front office staff members in making
the sale?
OCCUPANCY PERCENTAGE, cont...

Nowadays, with better and advance technological usages,

questions such as the followings are assessed:

1. Did the director of sales choose the right website to

advertise the hotels excess room inventory?
2. Did the revenue manager price the rooms at the correct
rate for the correct period?
OCCUPANCY PERCENTAGE, cont...

Based on single occupancy;

Number of Rooms Sold divided by Number of Rooms Available then

multiply by one hundred

Double occupancy is a measure of a hotel staffs ability to

attract more than one guests to a room.

Number of Guests minus Number of Rooms Sold divided by Number

of Rooms Sold then multiply by one hundred
OCCUPANCY PERCENTAGE, cont...

Average Daily Rate (ADR) is a measure of the hotel staffs

efforts in selling available room rates.

Total Room Sales divided by Number of Rooms Sold

ADR is used in projecting room revenues for a hotel

RevPAR (revenue per available room) is determined by

dividing room revenue received for a specific day by the
number of rooms available in the hotel for that day.

Room Revenue divided by Number of Available Rooms

Or, Hotel Occupancy multiply by Average Daily Rate

HISTORY OF YIELD MANAGEMENT

Started in the airlines industry after deregulation in the late

1970s

The concept is that flight seats, which are priced at certain

level, are blocked on certain period, giving potential
passenger either to book/buy the flight at the price quoted
or look other means of transportation.
This type of marketing policy gives no option for passengers,
which to some found to be problematic but established the
economic structure of airfares.
USE OF YIELD MANAGEMENT

The importance of yield management for hotel

managers to understand in terms of the following
basic factors:
- room rate categories, room inventory and group
buying power

in order to guide them in revenue management.

The goals of revenue management are to maximise

profit for guest room sales and to maximise profit for
hotel services.
These goals are important for future hoteliers to
understand, because if they set out only to maximise
room sales, the most profitable guest may not stay in
the guest room
USE OF YIELD MANAGEMENT, cont...

According to International Hotel Association, Yield

management is the must-have business planning tool for
hoteliers in the 1990s and beyond. The computerised
functioning [mathematical model] of yield management is
complex, but the concept is simple: By using a combination
of pricing and inventory control, a hotelier can maximise
profits from the sales of rooms and services

Revenue Manager reports to the general manager, work

closely with the marketing and sales department, and
consults with the front office manager. The job of the
revenue manager is to oversee the room inventory and
room rates that are offered throughout the year to groups
and individuals and through the various channels. He or she
also identifies trends and methods to match those trends.
REVENUE MANAGER
Monitor, analyse, and report on demand patterns,
sales and losses.
Develop, implement daily, and improve sales
strategies as needed
Work with Sales, Catering, and Conference Planning
to balance transient and group business. Provide
feedback about potential new customers.
Analyse no-shows, cancellations, early departures,
and unexpected stay-over patterns
Direct weekly revenue meetings
Assist with product development and marketing of
transient packaging
Adjust all rates and restrictions on property and
through all transient channels
Provide weekly reports about business pace and
changes in customer behaviour that affect revenue
COMPONENT OF REVENUE MANAGEMENT

DEFINITION OF YIELD

- Yield is the percentage of income that could be secured if

100% of available rooms were sold at their full rack rate

- Revenue Realised is the actual amount of room revenue

earned (number of rooms x actual rate).

- Revenue Potential is the room revenue that could be

reviewed if all the rooms were sold at the rack rate.

Yield = Revenue Realised divided by Revenue Potential

COMPONENT OF REVENUE MANAGEMENT

Optimal Occupancy is achieving 100 percent

occupancy with room sales, which will yield the
highest room rate.

Optimal Room Rate is that a room rate that

approaches the rack rate, work together to produce
the yield.

Strategies are adopted when there is a high demand,

maximise rates with minimum stays. Whereas, during
low season (demand), maximise room sales and open
all rate categories
COMPONENT OF REVENUE MANAGEMENT, cont...

Forecasting
Block-Out Periods
Systems and Procedures
Channel Management
Feedback
Management Challenges in Using Revenue
Management
Considerations for Food and Beverage Sales
Tutorial 1:
One of the control of reservations is
overbooking. Explain what is overbooking
in the context of hotel industry. Discuss
the advantages and disadvantages of
overbooking.