Table of Contents
Q.1. Define yield. “Revenue Management is an effective tool to maximize profit”. Justify the statement in approx. 600 words.
Definition
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.
A commonly accepted definition of revenue management is 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 behavior 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”.
Benefits of revenue management
There are a lot of benefits associated with the use of revenue management in the hospitality sector, especially in hotels.These benefits included the following:
- Improved forecasting: Revenue management helps improve forecasting.
- Improved seasonal pricing and inventory decisions: It helps in deciding the season and off-season pricing for accommodation products and also in making important inventory decisions like renovations.
- Identification of new market segments: Newmarket segments can be identified on the basis of revenue management.
- Identification of market segments demands: The demand of the targeted market segments can be identified with yield management.
- Enhanced coordination between the front office and sales divisions: As the two-division work together to forecasts and manage revenue and yield, it helps enhance coordination between them.
- Determination of discounting activity: Yield management helps determine the amount of discount to be offered, depending on the dates and periods.
- Improved development of short-term and long-term business plans: Revenue management helps develop business plans as the management can forecast the revenue that can be generated and take measures to generate those figures.
- Establishment of a value-based rate structure: It helps define rates structures, based on perceived values.
- Increased business and profits: Good revenue management helps increase revenue and profits.
- Savings in labor costs and other operating expenses: As most of the revenue management tools are computerized, it helps in saving labour costs and other operating expenses.
Benefits :
- Improved forecasting
- Improved seasonal price and inventory decision.
- Identify new market.
- Identity market demand
- Increase co-ordination in FO and sales
- Better discount
- Better business planning
- Value based rates
- Reduced guest complaints and help guest query.
Q.2. Explain the potential high and low demand techniques.
Potential high demand techniques:
- 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
Potential 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.
Implementing revenue strategies:
Once all the strategies are organized and analyzed the management determines what rate will be used on any given day. Rack rates are always left open whether demand is high or low. Then the manager set the lowest rate for a given date. Rate below this minimum rate will not be offered, these are known as HURDLE RATES. These are fed in the system. Hurdle rates can fluctuate from day to day depending upon the hotel’s desired yield and market conditions.
Sometimes incentives are offered to the front office and reservation agents for selling rooms above the hurdle rates. Incentive may also be provided for longer guest stays e.g. guests staying for 3 days may get lower rates than the guest staying for 1 night. This is called sensitive hurdle rates.
In order to implement these Tactics, Management needs to establish the Hurdle Rate (The Lowest Rate for a Given Day) below which it is impossible to sell any Room
Q.3. Explain the five elements of yield management.
Elements of yield management
- While developing a successful Yield Strategy, the following Elements are very important:
- Group Room Sales
- Transient (FIT) Room Sales
- Food and Beverage Activity
- Local and Area-wide Conventions
- Special Event
- Group Room Sales
- Group Booking Data- Determines whether the Group blocks already recorded in the Reservation File should be modified or not and adjusts expectations by reviewing the Group’s Booking History- Wash factor
- Group Booking Pace– Watches out for the Rate at which Group Business is being booked (Consider Historical Trends)
- Anticipated Group Business– Watches out for repetitive Group Patterns and act accordingly in order to forecast the Pressure on the Market, and hence adjust Selling Strategies
- Group Booking Lead-Time– Measures how far in advance of stay Bookings are made. This is very important in determining whether to accept an Additional Group and at what Room Rate to book the New Group
- Displacement or Transient Business Occurs when a Hotel accepts Group Business at the Expense of Transient Guest. This might engender Profitability Problems and Bad Reputation
- Transient Room Sales:
- The Front Office Management shall monitor the Booking Pace and Lead-Time of Transient Guests in order to understand how Current Reservations compare with Historical and Anticipated Rates
- Food and Beverage Activities:
All local Food and Beverage Functions should be viewed in light of the Potential for Booking Groups that need Meeting Space, Food and Beverage Service, and Guest Rooms
- Local and Area-wide Activities: Even when a Hotel is Not in the immediate Vicinity of a Convention, Transient Guests and Smaller Groups displaced by the Convention may be referred to the Hotel (as an Overflow Facility) and this may have a tremendous Impact on Hotel’s Revenue
- Special Events:
In Special Events (Concerts, Festivals, and Sporting Events), Hotels might decide to benefit from High Demand by restricting Room Rate Discounts or requiring a Minimum Length of Stay
OR Explain any five different forms of a timeshare.
Resorts offer timeshare in a variety of formats. Over 90% sell interval interests in increments of one week of use each year or as point offerings. Various forms that timeshares are available in or methods that can be used when using timeshares are:
1. Fixed week method/Fixed Week Ownership: The most basic timeshare unit is a fixed week; the resort will have a calendar enumerating the weeks roughly starting with the first calendar week of the year. An owner may own a deed to use a unit for a single specified week. If an owner owned Week 26 at a resort, he or she could use that week every year.
2. Floating week method/ ownership: Sometimes a timeshare is sold as floating weeks. The ownership will be specific on how many weeks the owner owns and from which weeks the owner may select for the owner’s stay. An example of this, a timeshare may be a floating summer week where the owner may request any week during the summer season generally weeks 22 through 36.
3. The Split Week method/ Split in time share: is also now available where the owner can split his/ her week/period into smaller units, provided the cancellation of timeshare use has been made well in advance. A week’s holiday can be split in two parts for two different properties and locations for a period of 3-4 days each. In fact, a two weeks holiday can also be clubbed if the owner has not availed his vacations during the last year and he had intimated about his desire to club two weeks vacations during the year.
4. Rotating week method/timeshare: Some timeshares are sold as rotating weeks. In an attempt to give all owners a chance for the best weeks, the weeks are rotated forward or backward through the calendar, so one year the owner may have use of week 25, then week 26 the next year, and then week 27 the year after that. This method does give each owner a fair opportunity for prime weeks but it is not flexible.
5. Points- based Programs: Under a point-based system, consumers at chain timeshare properties purchase a number of points that are redeemed each year for a number of accommodation nights that vary depending on the season, day of the week, size of the unit, and location. These points can be redeemed in any of the hotels and timeshare product base.
The number of points required to stay at the resort will vary based on a points chart. The points chart will allow for factors such as:
• The popularity of the resort;
• The size of the accommodations;
• The number of nights;
• The popularity of the season; and
• The specific nights requested.
Resort- based points programs are also sold as deeded and as the right to use. Points programs annually give the owner a number of points equal to the level of ownership. The timeshare owner in a points program can then use these points to make travel arrangements within the resort group. Many points programs are affiliated with large resort groups offering a large selection of options for the destination. Many resort point programs provide flexibility from the traditional week’s stay. Resort point program members, such as World mark, may request from the entire available inventory of the resort group.
Q.4. Explain four different types of timeshare contracts.
Deeded vs. Right to Use: A major difference in types of timeshare ownership is that between deeded and right to use contracts.
A. With deeded contracts the use of the timeshare resort is usually divided into week long increments and these are sold as fractional ownership and are real property. As with any other piece of real estate the owner may use his or her week, rent his or her week, give it away, or leave it to his or her heirs. While this form of ownership can offer additional security to the owner as a form of physical ownership, deeded timeshare ownership can be as complex as outright property ownership in that the structure of deeds varies according to local property laws
B. With right to use contracts, the timeshare purchaser has the right to use the property in accordance with the contract but at some point of time the contract ends and all rights revert to the property owner. In other words, the right to use contract grants the right to use the resort for a specific number of years.
C. Timeshare ownerships (fee simple): here, the purchasers jointly invest in a property, allocate interests to each owner, and employ a manger to run the unit which has attached amenities, services and recreational facilities.
D. Club agreement: this involves the ownership through purchases of shares of which shareholders receive points in proportion to the value of the investments. These points entitle them to the use of any apartment at any time of the year. This concept is very popular in Switzerland (Hapimag) and France (Club hotel Timeshare Group which is part of Club Mediteranee).
Q.5. What is AIRDA? How AIRDA helps in the growth of timeshare industry in India?
In India, in 1998, RCI and a group of leading resort developers got together and set up AIRDA – All India Resort Development Association, a national body that would work keeping in mind the long-term interests of the consumer and the Vacation Ownership (Timeshare) industry. This Association has systematised and implemented a code of ethics that arc all-pervading and govern the vacation ownership industry in India.
So the AIRDA is a self-regulatory body. The primary responsibility for AIRDA is to increase the share of timeshare in the hospitality industry-
- by getting more committed players
- by regulating consumer rights
- by getting more families to holiday
- by getting more families to holiday longer
All this has increased consumer satisfaction that nearly reaches 855 at present. AIRDA also ensures that the activities of its member resorts are ethical, fair and conducted with transparency.
Towards this goal, AIRDA has streamlined the Indian timeshare business practises along global guidelines and has been actively involved in resolving consumer issues to the mutual satisfaction of the vacation owner and developer. It has also introduced the Sales Contract- a formal document that captures the key aspects of the sale contract between the resort company and the buyer- to bring in more transparency to the proceedings as it offers a clear understanding of the terms and conditions to both parties.
Two major developments in 2005 were:
- The approval of guidelines for project approval and classification of timeshare resorts in the country by the Ministry of Tourism. Under this, the timeshare resorts were to be classified in the category of 3/4/5 star and heritage properties. This would give the developers an opportunity to avail of the incentives and tax benefits which were currently applicable to approved hotels.
This move was to catalyse the growth of the timeshare industry as consumers would be more ready to accept the product.
It would also enable timeshare resorts to achieve benchmarking and standardisation of services for various categories of members and guests. It would also bring transparency to the consumer- he would know the value he is getting for his money.
- AIRDA has successfully secured the approval of the Mixed-Use concept of timeshare resorts and hotels. This will allow timeshare resorts and hotels to co-exist and optimize the services available to the leisure traveler.
At present AIRDA has 16 members who, among themselves, own 32 resorts located across the country. The average cost of timeshare ownership works out to Rs. 1 lakh for a 30-year period. In lieu of that, timeshare owners can enjoy a week’s stay every year in any one of the affiliated resorts. The revenue generated by the industry in India is stated to be Rs. 200 crores annually.
The AIRDA Advantage
AIRDA works towards promoting the timeshare industry, build its credibility & brand image through education, communication, and public relations, and facilitating its growth and development by catering to consumers and members alike, ensuring fair practices and ethical business policies that work to the advantage of both stakeholders.
OR What is RCI? Explain in detail the importance of RCI in the timeshare industry.
Resort Condominiums International (RCI) is a subsidiary of the firm Wyndham Worldwide (previously Cendant).
Founded in 1974, RCI has grown to become one of the larger brokers of timeshare trades. RCI has over 4,000 affiliated resorts in over 100 countries around the world. Its membership base is just over 3 million members worldwide. It has 30 vacation accommodation brands including vacation ownership condominiums, villas, cottages, city apartments and second homes, fractional interest and private residences clubs, etc. and 50 worldwide offices. It has 37, 922 rooms worldwide and more than 7, 50,000 owners worldwide.
Currently, RCl’s biggest competitors in the timeshare market are Interval International and Trading Places International. RCI provides the following services:
- a. Exchange services
- b. Rental programmes
- c. Club services
- d. Global advisory services
RCI Weeks
RCI Weeks is RCI’s traditional exchange system. Vacation exchange adds flexibility and variety to vacation ownership by allowing timeshare owners to trade their Vacation Week for another similar unit.
a. owner buys seven day period to a specific home resort
b. owner buys a fixed week or floating week booked within a certain season based on the resort
c. owner deposits time with RCI each year
d. week exchanged for comparable week at another resort
To use the services of RCI it is necessary to hold a membership of the company which is valid for one to 5 years up to a maximum of 5 weeks at each affiliated resort. In order to process an exchange, a deposit has to be made in advance. Then an exchange request has to be made.
This request can be confirmed immediately depending on availability. If unavailable, the request keeps pending for a stated period and if nothing comes up later as well, the deposited week remains in the space bank and the member can add another request for future use.
For the exchange, the trading power of the unit depends on the size of the unit, the popularity of the location of the resort, the quality of the resort, and the popularity of week or season.
RCI keeps records of seasons and demand and usage of a resort to appreciate its value. Bonus weeks may be offered when there is a surplus in the space bank and the members can enjoy an extra week as a bonus without depositing any week.
RCI Points
The RCI Points program is RCl’s global points-based vacation exchange system when you join the RCI Points program you’ll have the flexibility to customize the vacation that is perfect for you. As an RCI Points Subscribing Member you automatically gain access to the RCI Weeks affiliated resorts which include more than 3,700 resorts around the world plus, with the RCI Points Partner program, you can exchange Points toward other travel products and services such as airline tickets, cruises, hotel stays and much more.
With the RCI Points program you have the flexibility to:
• Choose how many days you want to stay and where you want to stay
• Vacation at your home resort
• Stay at other great RCI Points affiliated resorts
Reserve a variety of resort unit types and seasons:
• Save or borrow Points to create your dream vacation
•Use Points to book airline tickets, hotel stays, rent a car or book cruises, and more through the RCI Points Partner Program
• Use Points to exchange into RCI Weeks affiliated resorts
Q.6. Write five advantages and disadvantages of a timeshare?
Timeshare business is fast developing in the developed as well as developing world. In our country’, it has started late but the concept is catching up with the world.
Advantages of timeshares:
a. Vacation ownership – a fast growing tourism brand
b. Promotes all types of tourism -inbound, outbound and domestic tourism
c .Theme-based leisure tourism that satisfies consumer needs
d .High potential for employment opportunities
e. Domestic tourism- the catalyst for India’s tourism growth
f. Full potential of domestic tourism—to be exploited by industry and government partnerships
Advantages of timeshare can be broken down to benefits to:
- Community
- Developer
- Owners
a. To community –
- Employment opportunities for locals
- Repeat visits, if not of the same guest, then of exchange guests
- Improved economy- increased spending by visitors
b. To developer-
- Increased level of occupancy
- Overall profitability – through renting out
- Annual maintenance fee from each owner – each property being able to be sold 52 times (in 52 weeks)
c. To Owners–
- Options of new destinations every year
- Payment of maintenance fees guarantees that all community areas will be well maintained
- Enjoy spacious accommodation
- Can get friends & relatives without extra costs or ‘per head basis as is valid in hotels
- Can sell their interests when they want
- Limits costs and expenses associated with ownership such as taxes, insurance, etc.
- Costs of maintaining the property are distributed over a larger number of owners
- reducing the worries and costs associated with it can have world-wide “Bonus Time” available – these are extra weekends through Exchange Companies. These weeks require no payment of maintenance fees and can be used often and can be absolute bargains.
Disadvantages of timeshares:
The biggest disadvantage of the timeshare business is that it is still not well organised and the major portion of its cost is being spent on marketing.
There is a rough estimate that of the actual cost/price of the timeshare unit, 18-20 % is the actual cost of the unit and the remaining is divided among sales and marketing (33%), maintenance, upkeep and other costs (27-30%) and the remaining 20 % is the profit. That means that a customer who buys the unit gets only 20% of the price value and is required to pay an yearly maintenance fee as well as daily service charges for actually staying in his own unit and using services like telephone, cable, swimming pool, common areas, etc.
- Marketing, since it is not an essential requirement of the buyer and it is an unconventional package holiday product not easily available for viewing, the marketing and sales techniques of the resort developer may be and have been aggressive, causing a lot of opposition in the market.
- Damage to local societies and the environment especially in overcrowded and undeveloped destinations.
- Maintenance fees have to be paid annually and can keep increasing every year, the customer ends up paying more than he wants or had assumed.
- Resale of timeshare units is not very easy because the value of the unit depreciates quickly because of the volatility of the real estate market. So, the owner may cover his costs with no profits when he decides to sell his interests in the unit.
- There may exist fierce competition for the most desirable locations and certain periods of the year so the client may be disappointed very often.
- The client’s/owner’s money gets tied up in something he can’t use for the moment.
Q.7. Hotel XYZ has total rooms – 100, double occupancy rooms – 40, occupied rooms –80, ARR – Rs.1,400/-, potential average rate – Rs.2,000/-. Calculate:(a) Multiple Occupancy Percentage(b) Yield
Given,
Total Room : 100
Double Occupancy Room:40
Occupied Room: 80
ARR:1400
PAR: 2000
Multiple Occupancy % = (Number of Rooms Occupied by more than 1 Person)/ (Total Number of Rooms Sold)
=40/80 =1/2
=0.5
= 50%
Yield Statistic = Occupancy Percentage x Achievement Factor
Therefore,
Occupancy % = (Number of Rooms Occupied ) / (Total Number of Rooms Sold)
=80/100 = 80%
Room Rate Achievement Factor = (Actual Avg. Rate) / (Potential Avg. Rate)
=1400/2000 = 0.7
=70%
Yield Statistic = Occupancy Percentage x Achievement Factor
= 80% * 70%
=0.56
= 56%
Q.8. Differentiate between any two:
(a) Vacation ownership and fractional ownership.
(b) Floating and rotating timeshare ownership.
(c) Closed to arrival and minimum length of stay strategies.
(d) Booking pace and booking lead time.
Fractional ownership vs timeshares
There is another term ‘fractional ownership’ which is often used in the same manner as timeshare. The concepts of both are quite similar though there are some differences between the two and these differences are given below:
The difference between fractional ownership and timeshares:
Here’s a quick summary of the salient differences between these two vacation options:
1. Luxury: Fractional ownership vacation homes are much bigger and usually a lot nicer.
Timeshares tend to be small, cheap, cookie-cutter housing. They are typically pawned off to unsuspecting tourists by pushy salespeople that don’t take no for an answer.
2. Size: Fractional ownership vacation homes are usually larger and much nicer than those in timeshares.
3. Real Estate Professional Sales Experience: Timeshares are typically pawned off to unsuspecting tourists by pushy salespeople who don’t take no for an answer. Fractional ownership properties are normally very classy and are actually worth the combined total of the investment from each investor.
4. Easier Financing: Banks and lenders consider fractional ownership homes to be similar to a second home, is easier to finance a fractional over a timeshare, therefore again proving its distinction from the dreaded timeshares.
5. Investment: Fractional ownership is an actual investment. With fractional ownership, the real estate property value increases and so does your investment.
Timeshares, on the other hand, arc like buying a new automobile, but never owning the physical equipment. These investments tend to plummet in price as soon as you sign the paperwork, and you couldn’t liquidate the asset for its residual value even if you had to. The Internet at any time will show hundreds of people trying to sell their timeshares. The price is usually a very small portion of what they paid for it just a few months prior, and almost never experiences appreciation over time.
6. Investment Quality: Comparing timeshares to fractional ownerships, timeshares are normally more expensive for a lower class and smaller property with less (if any) appreciation, and no real property equity.
Floating and rotating timeshare ownership.
| Floating timeshare ownership | Rotating timeshare ownership |
| A floating timeshare too is only for a particular period of time fixed. | This combines the benefits of both the fixed and the floating type of timeshares. |
| there is no specification of dates and that is the advantage of floating timeshares, say the owner is eligible to stay for a week of summer, it can be defined by the owner, which week of summer he would like to holiday. | The rotation of holiday stay can go either backwards or forward on the season and calendar, giving opportunity to all owners on a rotational basis. |
In this ownership it allows a guest to buy a week within a specific period |
Weeks are rotated forward or backward in the calendar to give owners a chance for the best week |
| 15 days in January and 10 in some other month | One-year owner may use 1st week of January then 2nd week the week year |
| Plan suitable where there are no seasonal variations | Gives owner an opportunity for prime weeks |
Q.9. Write short notes (any five):
(a) 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. The room Achievement factor is calculated by dividing the Actual Average Rate (ARR or ADR) by the Potential Average Room Rate.
Room Rate Achievement Factor = (Actual Avg. Rate) / (Potential Avg. Rate)
(b) Displacement
The objective of hotel revenue management strategies is to maximize revenues from selling hotel rooms and ancillary hotel services in an environment with supply capacity constraints. Displacement is defined as accepting one type of customer business and displacing (not accepting) another type of customer business.
(c) Identical yield
Calculations of different combinations of occupancy and actual average room rate may result in identical room revenue and yield statistics. Identical yields do not generally represent identical operating situations, however. Therefore, Identical Yield Occupancy % = Current Occupancy % x Current rate/ Proposed rate Clearly, identical yields should not be assumed to reveal equivalent operating positions. When identical yields are computed, judging which scenario is best often requires property specific criteria and management evaluation
(d) Referral hotels
Referral Groups / Chains: Referral groups consist of independent hotels which have grouped together for some common purpose. Though the properties in the referral group may be different from each other but there is sufficient consistency in the quality of service to satisfy guest expectations. The member hotels / timeshare recommend guests to other member hotels / timeshare. Best Western International, one of the largest hotel chains, is the best example of referral groups. The referral groups also extend benefit of more extensive reservation and expanded advertising through pooled resources.
(e) Purple season
Typically the following color code is used:
PURPLE: peak season
RED: best season, vacation time
WHITE: Mid-season (shoulder period)
BLUE: Off season
(f) Capacity management
Capacity management refers to the act of ensuring a business maximizes its potential activities and production output—at all times, under all conditions. The capacity of a business measures how much companies can achieve, produce or sell within a given time period.
- It involves :Controlling and limiting Room Supply
- It is also called as selective overbooking. It reduces the risk of overselling or no selling. Generally, overbooking is done on the lower category of rooms and then upgraded. Overbooking prices depends on the level of demand for rooms.
(g) Discount allocation
Discounting means selling rooms at a price lower than rack rates. The room is a perishable product. It is better to sell it at a discount than to keep it vacant. Moreover, a room sale will also increase the food sale
(h) Wash factor
The wash factor is the hotel’s estimate of no-shows plus cancellations and early departures. This means that a guest has a guaranteed booking at a hotel but the hotel will not be able to accommodate the guest for that night. Therefore, the guest is “walked” to an alternative hotel facility.
Q.10. Match the following:
(a) Turn right side (i) une seule chambre
(b) One room only (ii) combien de personnes
(c) Thank you sir (iii) tourner à droite
(d) At the reception (iv) laisser les bagages
(e) How many people (v) venir demain
(f) Leave the luggage (vi) merci monsieur
(g) Coming tomorrow (vii) appeler un taxi
(h) Rs.2000 only (viii) deux mille roupies seulement
(i) Monday market is closed (ix) a la reception
(j) Call a taxi (x) marche du Lundi est ferme
- Turn right side– Tourner à droite
- One room only – Une seule chambre
- Thank You Sir- Merci, Monsieur
- At the reception – à la réception
- How many people – Combien de personnes
- Leave the luggage – Laisser les bagages
- Coming tomorrow – à venir demain
- Rs 2000 only – Deux mille rouples seulement
- Monday market is closed – Marché du lundi est fermé
- Call a taxi – Appeler un taxi