Table of Contents
Q.1. Revenue Management software can integrate room demand and room price statistics to stimulate high revenue producing scenarios. Explain the working of revenue management software and list the advantages.(10)
The most effective way of handling data and generating yield statics is through a computer. Sophisticated revenue management soft-wares are available that can integrate room demand and room price statics and can stimulate high room revenue producing scenarios.
Software provides information and supports the managerial decisions. Computer store, retrieve and manipulate large data and can help management create models that produce probable result of decision. Decision models are based on historical data forecast and booked business.
Working Of Revenue Management Software
- RMS helps management to create models that produce probable results of decisions
When different data is processed into revenue management software, then based on the data , it creates a model that produce probable results of decisions which help managers to take decisions.
- Decision models are based on historical data, forecasts and current business
The different model that Revenue Management software suggests are based on the historical data for the same period, future forecasting & also the current situation of the business.
- RMS stimulateshigh revenue producing product scenarios
Revenue management software also helps the management to find out which products/areas is producing high revenue and helps them in taking decisions about the product.
Advantages of Revenue Management Software
1. Best available rate : RMS helps management to decide best available rate according to the situation i.e high demand, low demand.
2. Continious monitoring : RMS also hepls the management to have a continuous monitoring of its products & find out what can be improved.
3. Consistency : RMS is an established technology that guarantees database consistency and durability.
4. Organized information : Using of RMS helps us in getting the information in an organized manner, which leads in saving time and make the decision making process easy.
5. Budgeting : RMS also helps in the budgeting process, as it keeps the record of the expense and revenue. It also provides us information that on which area we have to focus more.
6. Performance tracking : RMS also acts as an performance tracker, which keep the record the product’s sell & because of this record the management is able to know about their products performance.
Q.2. Too much revenue management can be ineffective as no revenue management at all. Applying restrictions rigidly can actually discourage business. Discuss & justify the statement with the help of different revenue management strategies.(10)
Too much revenue management can be ineffective as no revenue management at all. So , with the following Revenue management strategies we can learn the following :
1. Demand Calendar : A hotel needs an extensive revenue management demand calendar show multiple demand indicators to appropriately analyze market situations. But , strictly following this may even lead to loss in case of global pandemic or NO show’s.
2. Market Segmentation: It allows you to target and market to a variety of consumer groups with different behavior with an offer that matches their needs and budget level. But , The price does not decide of the market segmentation. Clear distinction must also be achieved between individual and group business , or else hotel might end up loosing the revenue.
3. Forecasting: It is the path to market and customer knowledge. It reinforces the hotels pro-activeness in terms of inventory and rate management. But , Forecasts are not perfect. It is a strategic management tool . The hotel might have a great business or less one based on the previous one. This can only be assumed , there is no surety.
4. Booking Curves: A booking curve graph will help you visualize the booking pace of your hotel. But , it does not show the chances or frequency of walk in and upgraded guests as well as the effect of rate change on that particular time.
5. Stay Control : The hotel refer to the Guest In House list same period previous year including the denials/regrets. Check the patterns on the future on the books. But , it can not give the hotel idea about the under stay or overstay as it depends to guest to guest individual.
6. Displacement Calculations: A displacement calculation or analysis should be regularly performed on the main accounts to evaluate the revenue gain. But, it does not give the guarantee that the displacing revenues , can be generated by selling public transient rates.
7. Bench marking: Bench marking the competitors means bench marking on the following criteria:
- prices
- product
- level of service
- location
- distribution channels
But , A competitor may be competing only on few segments and at different time . and , focus on only one segment may lead to the diplition in other one which is not good in customer point of view.
8. Unconstrained Demand: The unconstrained demand of a hotel is the total demand for a particular date irrespective of the capacity. Hotels should identify when unconstrained demand is above the capacity of the hotel . But , strictly following this may result of loss of revenue due to end moment no show and cancellations.
9. Incentives For Direct Bookings : If the same rules are followed for every booking , it will be a great mess , because of the discount allocation to different section of the customers. So , the need to be very care full about the room rates based on the category of the reservation.
10. The revenue management strategies says that the more the occupancy is the more will be the revenue . but , this is the high time to analyse that a profitable hotel business is not the high occupancy , rather it is more revenue.
Q.3.What are the several tactics that may be appropriate to take when room demand is high and when the room demand is low ?(10)
Revenue Management strategies during High Demand period–
- Try to define the Right Mix of Market Segments in order to sell out the Highest Possible Room Rates
- Monitor New Business Bookings and use these changed Conditions to reassign Room Inventory (As Occupancy increases, consider closing out Low Room Rates and open them Only when Demand decreases)
- Consider establishing a Minimum Number of Nights per Stay
- Select the Group that offers the Highest Total Revenue
- Try to displace Price-sensitive Groups to Low Demand Days
High Demand Tactics includes:-
1. Close or restrict discounts – Analyze discounts and restrict them as necessary to maximize the average rate. You may offer discounts to those who book longer stays, or restrict bookings to shorter stays.
2. Apply a minimum length of stay restrictions carefully – A minimum length of stay restriction can help a property increase room nights. For groups, study the groups’ patterns and decide how many days they are likely to add to their stay.
3. Reduce group room allocations is another great tactics– Communicate with group leaders on a regular basis. Make sure the group actually needs the number of rooms identified in its contract. If not, make adjustments.
4. Reduce or eliminate 6 P.M holds – Reduce or eliminate the number of unpaid rooms that are being held until 6 p.m. When demand is high, you need rooms available to fill.
5. Tighten guarantee and cancellation policies tactics– Tightening guarantee and cancellation policies helps to ensure payment for room nights. Charge credit cards for the first night’s stay on the day the reservation is made.
6. Tactics on raise rates to be consistent with the competitors – Charge rates consistent with the competition, but limit rate increases to those rates published in the central reservations systems and listed in brochures for the period.
7. Consider a rate raise for packages – If you are already offering a package discount, consider raising the rate for that package.
8. Apply full prices to suites and executive rooms – In a high-demand situation charge full price for suites and executive rooms.
9. Reserve close to arrival dates – By allowing the reservations to be taken for a certain date as long as the guest arrives before that date, a property is able to control the volume of check-ins.
10. Evaluate the benefits of sell-throughs – With a sell-through, the required stay can begin before the date the strategy is applied. This is often used when one day has a peak in occupancy and management does not want the peak to adversely affect reservations on either side of the peak day.
11. Apply deposits and guarantees to the last night of stay – For longer lengths of stay, make sure the deposits and guarantees apply to the last night of the stay, minimizing early departures.
Low Demand Techniques:
- Carefully design a flexible Rating System that permits Sales Agents to offer lower Rates under Certain Situations
- Strive to accurately project expected Market Mix
- Management shall closely monitor Group Bookings and Trends in Transient Business
- Do Not close off lower Rate and Market Segments arbitrarily As Low Occupancy Periods become inevitable, open Lower Rate Categories, solicit Price Sensitive Groups, promote Corporate, Government, and other Special Discounts, and Develop New Rate Packages
- Consider maintaining High Room Rates for Walk-in Guests.
- A Non-Financial Technique involves upgrading Guests to nicer Accommodations than they are entitled to by virtue of their Room Rate
Low-Demand Tactics includes:-
1. Sell value and benefits tactics– Rather than just quoting rates, make sure guests know you have the right product for them at the best value. Sell the various values and benefits of staying on your property versus others that the guests may be considering.
2. Tactics on Offer packages – To increase room nights, one tactic is to combine accommodations with a number of desirable products and services into a single package with one price. Mention any additions, renovations, or new amenities. Non-room revenue can be included, for example – free movies, discounted attraction tickets, and shopping coupons.
3. Keep discount categories open – Discounts are directed toward particular markets or are instituted during a particular time or season. During low-demand time, it is important to accept discounts to encourage room nights.
4. Encourage upgrades is another great tactics– Move guests to a better accommodation or class of service to enhance their experience and encourage them to come back to the property again and again.
5. Offer stay-sensitive price incentives – A stay sensitive price incentive provides a discount for guests who stay longer. For example, a guest staying 3 nights might get an additional Rs.2000/- per night discount, while a guest staying one night might not.
6. Remove stay restrictions – Remove any stay restrictions so guests are not limited as to when they can arrive or depart. Guests who can stay only one night will be encouraged to stay as well as those who are staying for a week. This will help to maximize occupancy.
7. Involve your staff – Create an incentive contest to increase occupancy and room nights. Make sure to involve all members of revenue department as well as central reservations staff.
8. Establish relationships with competitors – Having a cordial relationship with competitors can help with referrals and can help to carry out cross-marketing efforts.
9. Lower rates tactics– There is great value in keeping guests at the property as long as you are at least covering the cost of occupancy. You may want to lower your rates as low as possible. Identify the hurdle rate, which is the lowest rate acceptable at that given date.
Q.4. Write Short Note on any four (2.5×4=10)
a. Capacity Management
- Capacity Management involves a number of methods of controlling and limiting room supply.
- For example, hotels will typically accept a statistically supported number of reservations in excess of actual room availability in an attempt to offset the effects of early check-outs, cancellations, and no-shows.
- Capacity management (also called selective overbooking) balances the risk of overselling against the potential loss of revenue arising from spoilage (rooms going unoccupied after reservations were closed out).
- Other forms of capacity management include determining how many walk-ins to accept on the day of arrival based on expected cancellations and no-shows.
- Capacity management usually varies with room type. That is, it might be economically advantageous to overbook more in lower-priced rooms because upgrading to higher-priced rooms is an acceptable solution to an oversell problem.
- The amount of such overbooking depends, of course, on the demand for the higher-priced rooms. In sophisticated computerized yield management systems, capacity management may also be influenced by the availability of rooms at neighbouring hotels or competing properties.
b. Identical Yield
- Identical yield means obtaining the same yield as the past even when the room rates are increased or decreased on the given occupancy percentage.
- The formula for calculating Identical Yield –
Identical Yields Occupancy = (Current Occupancy %) × (Current Rate / Proposed Rate)
c. Multiple occupancy
- Multiple Occupancy Percentage is used to determining the double occupancy ratio of the hotel and to forecast food and beverage revenue, identify clean linen requirement and also to analyse average daily room rates.
- The Formula for calculating Multiple occupancy % –
Multiple Occupancy Percentage = (Number of Rooms Occupied by more than one Adult or Pax) / (Total Number of Rooms Occupied) × 100
d. Discount allocation
- Discounting involves restricting the time period and product mix (rooms available at reduced prices (prices below rack rate). For each discounted room type, reservations are requested at various available rates, each set below rack rate.
- The theory is that the sale of a perishable item (the guestroom) at a reduced price is often better than no sale at all. The primary objective of discount allocation is to protect enough remaining rooms at a higher rate to satisfy the projected demand for rooms at that rate; while at the same time filling rooms that would otherwise have remained unsold.
- This process is repeated for each rate level from rack rate on down. Implementing such a scheme requires a reliable mechanism for demand forecasting.
- A second objective of limiting discounts by room type is to encourage upselling. This technique requires a sound estimate of price elasticity and/or the probability of upgrading. (Elasticity refers to the relationship between price and demand.)
e. Achievement Factor
- The Room Achievement factor is also known as Rate Potential Percentage of a hotel, is defined as the percentage of the Rack Rate that the hotel actually receives by selling their rooms. Room Achievement factor is calculated by dividing the Actual Average Rate (ARR or ADR) by the Potential Average Room Rate.
- Additionally, depending upon the hotel’s management policy the Actual Average Rate is either divided by the total Rooms Sold or Occupied Rooms.
Room Sold = (Occupied Rooms – Complimentary and House use)
- The Formula for Room Achievement Factor AF:
Room Achievement Factor = Actual Average Rate / Potential Average Rate
Q.5. What is forecasting? Explain the benefits of forecasting. What are the key success factors in forecasting?(10)
Forecasting is the process of making predictions of the future based on past and present data and most commonly by analysis of trends.
Forecasting is an important part of any revenue management strategy, because it allows hotel managers to make vital decisions regarding pricing, promotion and distribution, based on anticipated demand and performance.
Benefits of Hotel Room Forecasting
1. Marketing Strategy
- A reliable room forecast is critical in the effective execution of a hotel’s marketing strategy. As hoteliers use forecasting mechanisms to plan their promotion offers (period, targeted territories, etc.), the interrelation between room forecasting and marketing strategy is quite obvious.
- This is a key trigger for the hotel’s Sales and Marketing team to activate sales & marketing initiatives to attempt and create demand, at the same time promotions are introduced for the same effect.
- On this strategy table, hotels identify the market segment that can be targeted to make up for the drop expected from the other segment.
- For example for a forecast of low occupancy for an upcoming period, hotels can decide to run a promotion on all online channels to create an incremental demand as well hotel sales team can run customized promotions for their offline customers to fill up the hotel.
2. Yielding across various channels
- An accurate forecast of occupancy and room revenue empowers a revenue manager to yield across various channels.
- For example, if a property is forecasted for a high occupancy owing to high unconstrained demand then the revenue manager can choose to yield and sell on low cost/high rate channels to maximize profits.
3. The Rooms forecast is a forerunner to Financial Forecast
- Hotel Financial Controller needs information on forecasted room revenue for multiple purposes; to understand cash/credit flow for the hotel as that needs to be considered for multiple expenses that will be generated in different departments including rooms.
- For example for next month hotel revenue manager makes a forecast that Corporate Groups & Corporate FITs will be dominant in occupancies and Transient segment will be below expectations, a financial controller will have to adjust the outflow of cash since most corporate bookings tend to be realized much later than actual check out when payment from these corporate offices hits the hotel’s bank.
- Also, additional revenue that will be generated from other departments like F&B, Laundry, etc., is proportional to Room occupancy.
- As discussed, Hotel Financial Controller creates a cash flow forecast (a forecast of cash coming into and going out of business) on this forecast by revenue manager and this forecast is periodically compared with the hotel budget to track deviation.
4. Forecast for other Revenue generating departments
- Though hotel rooms might be the biggest contributors to revenue, but there are other revenue-generating departments too which have their forecast dependent on room forecast, for example, room occupancy will help F&B to know how many resident guests are expected at Breakfast and other meals, similar forecast for other departments like Laundry, Mini Bar, etc.
5. Purchase Decisions
- The purchase of perishable as well as non-perishable improves by a good forecast. For Example during a low occupancy period, a hotel may decide to cut down its buffet offerings in the coffee shop and thus need to purchase a lot of perishable food items that will not be there.
6. Action Plan for Near Future
- This is base on which hotels plan their course of actions in all areas for the near future, say 3 months, and move accordingly.
7. Expansion Plans
- Maybe not relevant for every forecast but a demand forecast of unconstrained demand might be referred to by hotel management to plan an expansion if needed.
- For Example, on a regular basis, the unconstrained demand forecast for a hotel is high which may lead the management to a decision to expand the size of the hotel, if possible, and increase its inventory owing to observed regular high unconstrained demand.
8. Decision about staffing
- Room occupancy forecast will also be referred by all departments for their staffing purposes as well as, if needed, for hiring too.
- For Example; hotels generally encourage their staff to take their annual leaves in the low season of occupancy so that during their high occupancy period they have staff at full strength to ensure smooth operations.
9. Hotel Maintenance
- Hotels tend to utilize low occupancy forecasted time for periodical maintenance.
- For example; the annual renovation of rooms and other areas in a hotel is generally carried out when the forecast is for a low occupancy for a long period.
Key Factors in Forecasting
1. Past economic performance : It is one of the main important factor which helps in forecasting as the base of the forecasting of the data is based on the the past economic performance of the organisation.
2. Current global condition : Forecasting also depends on the global conditions i.e. what is happening in and around the world , the current global economic behaviour .
3. Current industry conditions : It is also an important factor for the forecasting as if there is craze for the industry, then the forecasted data will be different & vice versa.
4. Rate of inflation : Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. So inflation rate also plays a major role in forecasting.
5. Internal organisational changes : Forecasting is done in keeping in mind about the internal organisation chances i.e. the renovation work, staffing change ,etc
6. Seasonal demands: It is one of the main factor to be considered while forecasting as the seasonal demands plays the major factor in hotel industry business.
OR
How ten day & 3 day forecast helps ensure efficiency in front office operations? What is the relationship between these forecast? What departments in hotel rely on these forecast other than front office?(10)
Ten-Day Forecasts
- At most lodging properties, the ten-day room availability forecast is developed jointly by the front office manager and the reservations manager, perhaps in conjunction with a room availability forecast committee.
- A ten-day forecast usually consists of: daily forecasted occupancy figures, the number of group commitments (with details about the groups), and a comparison of the previous period’s forecasted and actual room counts and occupancy percentage.
- A special ten-day forecast may also be prepared for food and beverage, banquet, and catering operations.
- To help departmental managers plan their staffing and payroll levels for the upcoming period, the ten-day forecast should be completed and distributed in advance of the coming period.
- Most automated systems have programs to help managers accurately forecast business.
Three-Day Forecasts
- A three-day forecast is an updated report that reflects a more current estimate of room availability.
- A three-day forecast details significant changes or events not highlighted on the ten-day forecast.
- Three-day forecasts are intended to guide management in fine-tuning labor schedules and adjusting room availability information.
- In some hotels, a daily revenue meeting is held to focus on occupancy and rate changes for the next several days; the results of this meeting are often reflected in the three-day forecast.
Relationship between these-
- Ten days forecast Helps departments with staffing and payroll, housekeeping,
- Three day forecast fine tunes labour schedule, room availability
- The ten day forecast is a forecast with an estimate of rooms that are going to be available and the 3 day is an updated report of this original report that is more accurate since it will have changes that may have occurred between the 10 and 3 days. Housekeeping, everything else for their scheduling and payroll.
Q.6. Explain the concept of fair market share forecasting and the procedure to calculate RevPAR index.(10)
Fair Market Share Forecasting
- Fair market share forecasting involves understanding how well the hotel is doing in relation to the competition.
- Fair market share (FMS) is percentage of hotel’s inventory against the competitive set of hotels inventory. This is a variable used to derive a key performance indicator called Actual Market Share that further helps to understand the market penetration level for a hotel against the competition set of hotels.
- Fair Market Share is an indication that a hotel’s overall performance stacks up against its immediate competitors.
- A hotel within a competitive set can work out if it’s getting its Fair Market Share through a simple calculation:
Fair Market Share = Total number of rooms at the hotel / Total number of rooms in the comp set
- However large or small the comp set, a hotel trying to make itself more competitive can use a Fair Market Share tool to compare its individual percentage to their comp set.
- During peak times, a hotel can gather important info about the performance of the other hotels in their comp set. Then, using a Fair Market Share tool, it can discover how it compared to other hotels during those busy times. This can help when planning ahead. There are several ways to measure your fair market share.
RevPAR Index
The reasons why we want to calculate the index are important to know.
- The first reason is this calculation will allow you to see how well you are executing your sales and revenue management strategies relative to your competition.
- The second reason is the index shows you what your variance is relative to your competitors and what the gap is worth.
- The third reason is to continually be aware of how your hotel is positioned relative to its competitors, so you can see if your rate and occupancy strategies are working.
It’s important to understand RevPAR and RevPAR Index are not the same thing. While RevPAR is the straight forward calculation to understand how well you are selling and profiting from your rooms, the RevPAR Index measures the performance of your RevPAR relative to a grouping of other hotels, such as a competitive set, market, or sub-market.
- The RevPAR Index, or revenue generating index (RGI) should be 100. This indicates your hotel is getting the expected, or fair, market share amongst the particular group of hotels. Naturally an RGI of greater than 100 represents more than the expected market share, and less than 100 represents you are not getting as much of the share as you should.
To calculate RGI:
(Subject hotel RevPAR / Aggregated group of hotels’ RevPAR) × 100 = RevPAR Index
- For example, if the subject hotel’s RevPAR is ₹5,000, and the RevPAR of its competitive set is ₹5,000. the subject hotel’s RGI is a total of 100. If the subject hotel’s RevPAR totals ₹6,000, its index is 120, indicating the hotel has captured more than its expected share. If the subject hotel’s RevPAR totals ₹4,00, its RGI is 80, indicating the hotel has captured less than its expected share.
Q.7. What are the front office manager’s key responsibilities in budget planning? How are they performed?(10)
Front Office Budget
- A front office budget is a formal financial statement of a future period.
- The front office budget planning process for front office is done by the front office manager and mainly includes forecasting rooms revenue and estimating related expenses.
- The accounts department is responsible for coordinating the front office budget plan of individual department managers into a comprehensive hotel operations budget for top management’s review.
- The hotel general manager and controller review the departmental budget plans and prepare a budget report for approval by the property’s owners. If the front office budget is not satisfactory, elements requiring change are returned to the appropriate division managers for review and revision.
- Rooms revenue is forecasted with the input from the reservations manager and expenses are estimated with the input from all department managers in rooms division.
Front Office Manager’s responsibility-
1. Forecasting Rooms Revenue
- Historical financial information is very important for the front office managers to forecast the rooms revenue. One method of rooms revenue forecasting involves an analysis of rooms revenue from past years.
- Another way is revenue projection on the basis of past room sales and average daily rates.
Forecasted Rooms Revenue = Rooms Available × Occupancy % × Average Daily Rate
- A more detailed approach would consider the variety of different rates according to room types, guest profiles, days of the week, and seasonality of the business. These are some factors which affect room revenue forecasting.
2. Estimating Expenses
- Most expenses for front office operations are payroll and related expenses, laundry, guestroom laundry, guest supplies, hotel merchandising (in-room guest directory and promotional brochures), travel agent commissions and direct reservation expenses, and other expenses. When these costs are totaled and divided by the number of occupied rooms, the cost per occupied room is determined.
3. Refining Front Office Budget Plans
- Departmental budget plans are commonly supported by detailed information gathered in the budget preparation process and recorded. These documents should be saved to provide an explanation of the reasoning behind the decisions made while making departmental budget plans. Such records also help to solve issues that arise during the budget review. The documents may also provide valuable assistance in the preparation of future budget plans.
OR
What are the key areas of measurement in business plan? Explain giving examples(10)
As new technologies give the hospitality industry new ways to measure and optimize its performance, it’s more important than ever that hotels closely monitor their KPIs, and use that intelligence to optimize their operations and increase profitability.
On the one hand, new technologies are making it possible to measure hotel performance in ways that were previously beyond our reach. On the other hand, there also remains a number of core KPIs that are still fundamental indicators of how profitable a property actually is.
Indeed, the more a business can measure, the more it can improve its efficiency, and hotels are now in a position to quantify and measure KPIs that go beyond the traditional occupancy-based metrics. And these KPIs extend from daily operations to financial performance to marketing and customer service.
1. Gross Operating Profit
- At the highest level of a hotel’s financial performance is Gross Operating Profit (or GOP). Simply put, GOP is a KPI that measure a hotel’s profits after all operating expenses have been subtracted.
- The formula for calculating GOP is simple:
Gross Operating Revenue – Gross Operating Expenses
- GOP is great for getting a quick, birds eye view of a hotel’s financial performance. But when you want to understand why it might be fluctuating or what can be done to improve it, you have to a few layers deeper into more specific aspects of a hotel’s financial performance.
2. Occupancy Rate
- Occupancy Rate, can be simply put as “the ratio of rented or used space to the total amount of available space.” And for the hospitality business, that means the percentage of available rooms over a specific period of time.
- It’s also going to be one of the most important hotel KPIs available because it provides
i. a high-level overview of a hotel’s occupancy performance.
ii. the foundation on which to measure a number of other KPIs.
3. Average Daily Rate (ADR)
- Average Daily Rate (or ADR) is another useful metric that hotels can use to measure and calculate their profitability. It provides insight into the average rate a room can earn on any given day during any given period It’s also particularly useful for demand forecasting and predictive marketing.
- Indeed, ADR helps hotels predict seasonal trends, adjust their pricing accordingly, and maximize revenue per room.
4. Average Room Rate (ARR)
- Similar to ADR, Average Room Rate (or ARR) is a hotel KPI that average rate that hotel is charging per available room. The main difference is that while ADR measure the average rate on a daily basis, ARR can be used to measure the average room rate over longer periods of time (such as weekly or monthly periods).
- The formula for calculate ARR:
Total Room Revenue (for a period) / Total Rooms
5. Revenue per Available Room (RevPAR)
- Revenue Per Available Room (or RevPar) can be calculated in one of two ways: either “by multiplying a hotel’s average daily room rate (ADR) by its occupancy rate, [or] by dividing a hotel’s total room revenue by the total number of available rooms in the period being measured.”
- This number can fluctuate according to seasonality, economic climate, and consumer trends, which can make it difficult to track. But RevPAR remains crucial to understanding the success and profitability of a hotel property at any given time of year.
- Indeed, it’s incredibly useful for planning and preparing for both high and low seasons.
6. GOPPAR
- GOPPAR, or gross operating profit per available room, provides even greater insight into the actual performance of a hotel than RevPar does because it considers not only revenues generated, but also the operational costs incurred to generate that revenue. It’s calculated by subtracting hotel expenses from the hotel’s total revenue, and dividing the difference by the number of available rooms.
- It doesn’t, however, take into consideration the revenue mix of the hotel. So while GOPPAR does not allow an accurate evaluation of the room revenue generated, it does demonstrates the profitability and value of a hotel property as a whole.
Q.8. Hotel ABC has 500 rooms of same type with rack rate of ₹8,000/-. On a certain day it solds its hundred room at ₹6,000, 150 at ₹5000, 200 at ₹4000. Calculate yield of the property.(10)
Given,
Total room – 500
Rack Rate – ₹8,000
Room sold – 100 at ₹6,000
– 150 at ₹5,000
– 200 at ₹4,000
Yield = Actual Revenue/ Potential Revenue
Hence ,
Actual Room Revenue = Room sold x ADR
=(100×6,000)+(150×5,000)+(200×4,000)
= 6,00,000+7,50,000+8,00,000
=21,50,000
Potential Room Revenue = Total Available room × Rack Rate
= 500×8,000
= 40,00,000
Yield = 21,50,000/40,00,000
= 0.5375 or
= 53.75%
OR
Explain the concept of yield management and its application in hospitality sector with examples.(10)
Revenue Management (RM) is the art and science of maximizing revenue under variable conditions. It is a management tool that has the objective of increasing sales revenues by manipulating the prices at which fixed products are made available for sale in relation to the current and forecasted demand.
The essence of this discipline is in understanding the customers’ perception of product value and accurately aligning product prices, placement and availability with each customer segment.
Revenue management can be also defined as to sell
- The Right Product
- To the Right Customer
- At the Right Time
- For the Right Price
- Through the Right Channel
The terms revenue management and yield management are often confused, yet there is a key distinction between the two disciplines. Whereas revenue management involves predicting consumer behaviour by; segmenting markets, forecasting demand and optimizing prices for several different types of products, yield management refers specifically to maximizing revenue through inventory control.
Thus, yield management is a tactical application within the broader field of revenue management.
THE CONCEPT OF REVENUE MANAGEMENT:
- Revenue management is a Technique used to Maximize Room Revenues
- Revenue Management is based on Demand and Supply- demand high- price high and vice versa. When the demand exceeds supply- then prices increase, when supply exceeds demand- prices decreases.
- The Hotel Industry’s Focus is shifting from High Volume Booking to High Profit Booking. So increase price when demand exceeds supply (a high demand day) and increase booking on low demand day
- RM (Revenue Management) presents a more Basic Measure of Performance because it combines Occupancy Percentage with Average Daily Rate (ADR) and other factors effecting the revenue earned, into a Single Statistic called the Yield Statistic.
- Revenue management is an evaluative Tool that allows the Front Office Manager to use Potential Revenue as the Standard against which Actual Revenue can be compared.
HOTEL INDUSTRY APPLICATIONS:
Revenue management increase revenue front office by controlling forecasting information in 3 ways:
1. Capacity Management
2. Discount Allocation
3. Duration Control
a. CAPACITY MANAGEMENT– involves:
- Controlling and limiting Room Supply
- Hotel accepts statistically supported room reservation in excess of actual number of rooms to offset loss because of early check out, no show and cancellation. It is also called as selective overbooking.
- It reduces the risk of overselling or no selling. Generally overbooking is done on lower category of rooms and then upgraded. Overbooking price depend on the level of demand of rooms.
- Determining how many Walk-ins to accept keeping in mind no show.
b. DISCOUNT ALLOCATION– Involves
- Restricting the Time Period and Product Mix (rooms) Available at reduced or discounted Rates. The objective of discount allocation is to protect enough high rate rooms to meet the demand mean while filling all rooms.
- Limiting Discounts by Room Type through encouraging up selling. For this staff needs to have a reliable estimate of price elasticity and probability of upgrading. (Elastic price means slight increase in prices decreases the demand, inelastic price means slight increase in price does not change the demand.)
c. DURATION CONTROL–
- Places Time Constraints on accepting Reservations in order to protect Sufficient Space for Multi-Day Requests on high price – A Reservation for a One-Night Stay might be rejected, even though Space is Available that Night.
Strategies dealing with room availability are as follows:
Also known as AVAILABILITY STRATEGIES:
- Minimum length of stay: requires that a reservation must be for at least a specific number of nights. Some resorts use the approach during peak occupancy or hotels during special events or high occupancy period.
- Closed to arrival: strategies allow reservation to be taken for certain date as long as the guest arrives before those date e.g. 100 arrivals on 30th July therefore any arrival on 28th and 29th is accepted that will stay till or after 30th July.
- Sell through: strategy works like a minimum length of stay requirement except that the length of the stay can begin before the date the strategy is applied e.g. if a 3 night sell through is applied on Wednesday, then the sell through applies on Monday, Tuesday and Wednesday. Arrivals on each of those days must stay for 3 nights in order to get accepted. It is effective when 1 day is peak and management does not want the peak to affect the either side reservation.
All the three strategies may be combined together e.g. Duration control can be combined with discount allocation and so on.
Q.9.Discuss the importance of break even analysis for an efficient revenue management.(10)
A break-even analysis is a financial tool which helps you to determine at what stage your company, or a new service or a product, will be profitable. In other words, it’s a financial calculation for determining the number of products or services a company should sell to cover its costs (particularly fixed costs). Break-even is a situation where you are neither making money nor losing money, but all your costs have been covered.
Break-even analysis is useful in studying the relation between the variable cost, fixed cost and revenue.
A break even analysis involves calculating or estimating:
- The net change in room revenue due to room rate changes
- The amount of net non-room revenue needed to offset any reduction in net room revenue (when room rates are discounted) or the amount of net room revenue needed to offset any reduction in net non-room revenue (when room rates are increased)
- The average amount each guest spends in non-room revenue centers
- The change in occupancy likely to result from room rate changes.
Breakeven analysis is useful for the following reasons:
1. It helps to determine remaining/unused capacity of the concern once the breakeven is reached. This will help to show the maximum profit on a particular product/service that can be generated.
2. It helps to determine the impact on profit on changing to automation from manual (a fixed cost replaces a variable cost).
3. It helps to determine the change in profits if the price of a product is altered.
4. It helps to determine the amount of losses that could be sustained if there is a sales downturn.
5. Additionally, break-even analysis is very useful for knowing the overall ability of a business to generate a profit. In the case of a company whose breakeven point is near to the maximum sales level, this signifies that it is nearly impractical for the business to earn a profit even under the best of circumstances.
Therefore, it’s the management responsibility to monitor the breakeven point constantly. This monitoring certainly reduces the breakeven point whenever possible.
Benefits of Break-even analysis
1. Catch missing expenses: When you’re thinking about a new business, it’s very much possible that you may forget about few expenses. Therefore, if you do a break-even analysis you have to review all your financial commitments to figure out your break-even point. This analysis certainly restricts the number of surprises down the road.
2. Set revenue targets: Once the break-even analysis is complete, you will get to know how much you need to sell to be profitable. This will help you and your sales team to set more concrete sales goals.
3. Make smarter decisions: Entrepreneurs often take decisions in relation to their business based on emotion. Emotion is important i.e. how you feel, though it’s not enough. In order to be a successful entrepreneur, your decisions should be based on facts.
4. Fund your business: This analysis is a key component in any business plan. It’s generally a requirement if you want outsiders to fund your business. In order to fund your business, you have to prove that your plan is viable. Furthermore, if the analysis looks good, you will be comfortable enough to take the burden of various ways of financing.
5. Better Pricing: Finding the break-even point will help in pricing the products better. This tool is highly used for providing the best price of a product that can fetch maximum profit without increasing the existing price.
6. Cover fixed costs: Doing a break-even analysis helps in covering all fixed cost.
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Why is it important to maintain rate parity? Discuss(10)
Rate parity is the process of keeping your room rates consistent across all distribution platforms.
- This means that a traveller who discovers a property on a search engine should see the same price on B&B website as they do on an OTA website.
- Rate parity is not only good for your prospective guests, but it helps you attract more distribution partners as well.
Importance–
- Rate parity prevents business complications
When room rates are inconsistent across platforms, the hotel runs the risk of upsetting the customers and angering the distribution partners. Travellers who begin to notice that the rates are cheaper on different platforms will get mad if they booked through a more expensive channel.
The distribution partners will begin to feel like the hotel are favouring one agent over another, and they won’t want to work with your brand anymore. Inconsistency in room rates also leads to overbookings, which is a customer service nightmare for any travel brand.
By achieving rate parity, you will find that daily operations at your B&B run much smoother than if you had inconsistent room rates across your distribution network.
- Rate parity can boost revenue
Rate parity is a basic requirement in most agreements with OTAs. As a small accommodations provider, you need to partner with the major players, like OTAs, to increase your visibility and attract travellers from across the globe. When you make rate parity a priority, you’ll be able to easily connect with agents who will help boost your revenue. In addition, prospective travellers will recognise that they can book your rooms in any way they prefer, and still get the same rate. This also will drive bookings at your property, and subsequently increase the revenue you generate.
- Rate disparity can be prevented
Achieving rate parity is sometimes the easy part, it’s not always as simple to maintain it. However, when you implement an effective communications strategy across your distribution network, you can prevent rate disparity from occurring.
With a channel manager in place, you can instantly update your live rates and availability across your entire distribution network. This ensures that every agent has the best, most reliable information on hand at all times. The right technology is critical when it comes to preventing rate disparity.
The bottom line is, rate parity matters. It is important that both organisation & distribution agents make an effort to achieve rate parity, and to maintain rate parity even as room rates fluctuate throughout the year.
Q.10. Discuss a few strategic & tactical restriction controls in transient business.(10)
The Transient business in the hospitality industry : At most hotels, guests fall into two main categories: group and non-group. Amongst the non-group category are Transient Travellers: these are guests who are predominantly on-the-move and seek short (and often urgent!) hotel-stays.
Transient travellers include:
- Walk-in guests
- Guests with a last-minute booking, and/or
- Simply individual guests requiring a short stay at the hotel
The strategies and tactical restriction control in transient business are :
1. Adopt a healthy market segmentation for the hotel: The revenue management team should do a research well in advance about the revenue sources and decide thr percentage if group and FIT booking.
2. Assist with budgeting and develop a forecasting model adapted to the market segments and based upon the data or the forecast control the duration and displacement of guest.
3. Increase revenue by stimulating demand and use existing demand for the revenue generation .If it is peak season then definitely the room sold to FIT guest will bring more revenue hen the groups.
4. Optimize direct sales and distribution via website and phone: The hotel should not always depend on the OTA and TA , as direct business will bring more revenue .
5. Set strategic pricing in terms of public and negotiated rates, so that the transparency in the rates should be easily managed and hence the good will of the hotel will not get effected.
6. Handle all Revenue management tasks on a daily, weekly and monthly basis,as the occupancy of the hotel will definitely differ from the previous one , therefore it is helpful in planning the revenue management task for short as well as long duration’s.
7.Competitor Evaluation: The hotels will study the main competitors in the market to assess their price positioning in relation to their products offering. Therefore based on this the hotel will build a report comparing the strengths and weaknesses of the main competitors and the hotel.
8. Rate strategy sheet : The sheet will provide the following information.
- Day by day pricing strategy for one year will be shown (price value per length of stays day by day will be recommended)
- Pricing strategy per channels of distribution
- Yield strategies with L.O.S. restrictions on peak periods
9. Predict consumer behaviour : While taking the check in of FIT guest the hotel must have an idea for the length of stay and buying capacity of the guest. This will ensure the a good revenue to the hotel .
10. Optimize the prize and inventory available to each customer segment, That is:
- Discounts must be allocated with reference to the guest history.
- Packages should to sold to guest as it will encourage the guest for the revisit as once a guest is always a guest for a hotel.
- Apply rack rates, to get the maximum revenue for the room.