Rooms Division Basic Theories II
Transcript of Rooms Division Basic Theories II
By Eugene Win CRDE
Copyright. Eugene Win CRDE 2009
Revenue Revenue Management... Management...
Marriott International Lodging Revenue Management
Copyright. Eugene Win CRDE 2009
Where is it originated?
It is originated in the airline industry.
Seats on airplane divided into different products base on
different restrictions.
$1,000 Y Class: Can be purchased at any time, refundable.
$ 200 Q Class: Required 3 weeks advanced purchase. Penalties on
cancellation or amendment.
Revenue Revenue Management...Management...
Marriott International Lodging Revenue Management
Copyright. Eugene Win CRDE 2009
“Selling the right product
to the right customer
at the right time
for the right price.”
Revenue Management Revenue Management is ….is ….
Copyright. Eugene Win CRDE 2009
Revenue Management is concerned with
maximization of revenue
by allocating fixed capacity (room-nights)
to different customer segments
with different rates.
Revenue Management is…Revenue Management is…
Marriott International Lodging Revenue Management
Copyright. Eugene Win CRDE 2009
BASED ON SUPPLY AND DEMAND.
Prices tend to rise when demand exceeds supply; prices tend to
fall when supply exceeds demand.
Revenue Management Revenue Management is ...is ...
Copyright. Eugene Win CRDE 2009
Desire is to Focus on REVPARDesire is to Focus on REVPAR
REVPAR = Rate x Occupancy
Rate Occupancy
Copyright. Eugene Win CRDE 2009
How Does a Property Increase How Does a Property Increase REVPAR ?REVPAR ?
SAFEST
• Increase restrictions on lower rates
• Eliminate last room availability for Special Corporate accounts
• Eliminate non-producing Special Corporate accounts
MODERATE
• Close out lower rates on peak days
• Raise rates for smaller Special Corporate accounts
• Raise prices on discount rates
RISKIEST
• Raise the Corporate Rate
• Eliminate discount rates
Copyright. Eugene Win CRDE 2009
Revenue Cycle Revenue Cycle
CREATE
DEMAND MAXIMIZE
REVENUE SUPERIORSERVICE
EXPERIENCE
Copyright. Eugene Win CRDE 2009
Revenue Management
How we
Control and
Limit the room
supply
How we sell
our product
How we protect
sufficient space for
longer stays
MAXIMIZING REVENUE
Capacity
Management
Discount
Allocation
Duration
Control
Copyright. Eugene Win CRDE 2009
Revenue Cycle
MAXIMIZING REVENUE
PRICING
How we price
our product
SELLINGSTRATEGY
How we sell
our product
INVENTORYALLOCATIO
N
What we put on the shelf
Copyright. Eugene Win CRDE 2009
Revenue management is designed to measure revenue achievement.
Yield Statistic is the ratio of actual room revenue to potential room revenue.
Copyright. Eugene Win CRDE 2009
We will illustrate the new formulae by using a particular scenario:
Tower Hotel has 300 guest rooms with an average room rate of $35.00. It is currently operating at 70% average occupancy. The hotel has 200 standard double bedrooms, and 100 double deluxe rooms. At rack rate, the standard rooms sell at $40.00 at single occupancy and $50.00 at double occupancy, whilst the deluxe rooms sell at $50.00 at single occupancy and $60.00 at double occupancy.
Copyright. Eugene Win CRDE 2009
Formula 1: Potential Average Single RateThe hotel has varied its single rate by room type,
so we need to calculate the potential average single rate:
Room type- Number of rooms- Single Rack rate- Revenue at 100% occupancy
Standard 200 $40 $8,000 Deluxe 100 $50 $5,000
Total 300 $13,000
Potential Average Single Room Revenues at Rack Rate
Single Rate = Number of Rooms Sold as Singles
= 13,000/300 = $ 43.33Copyright. Eugene Win CRDE
2009
Formula 2: Potential Average Double Rate Since we also have varied rates by room type
the potential average double rate must be calculated:
Room type- Number of rooms- Double Rack rate- Revenue at 100% occupancy
Standard 200 $50 $10,000 Deluxe 100 $60 $6,000
Total 300 $16,000
Potential Average Double Room Revenues at Rack Rate
Double Rate = Number of Rooms Sold as Doubles
= 16,000/300 = $ 53.33Copyright. Eugene Win CRDE
2009
Formula 3: Multiple Occupancy Percentage
This is the proportion of a hotel’s rooms that are occupied by more than one person. This percentage indicates sales mix and helps balance room rates. If 168 rooms from the total of 210 rooms sold (70% of 300 rooms) are sold at double occupancy then the computation is as follows:
Multiple Occupancy 168Percentage = 210
= 80%Copyright. Eugene Win CRDE 2009
Formula 4: Rate Spread The determination of a room rate spread
among various room types can be essential to the use of yield decisions in targeting a hotel’s specific market. The mathematical difference between the hotel’s average single rate (Formula 1) and potential average double rate (Formula 2) is known as the rate spread.:
Rate Spread = Potential Average Double Rate – Potential Average Single Rate
= $ 53.33 - $ 43.33= $ 10.00
Copyright. Eugene Win CRDE 2009
Formula 5: Potential Average Rate This is a collective statistic that effectively
combines the potential average rates, multiple occupancy percentage, and rate spread.
Potential = ( Multiple x Rate Spread ) + Potential Average
Average Rate Occ % Single Rate
= (0.8 x $10.00) + $ 43.33
= $ 51.33
Copyright. Eugene Win CRDE 2009
Formula 6: Room Rate Achievement Factor The percentage of the rack rate a hotel
actually receives is contained in the hotel’s achievement factor, also referred to as the rate potential percentage.
Achievement Factor = Actual Average Rate x 100Potential Average Rate
= $35.00/$51.33 x %= 68%
Copyright. Eugene Win CRDE 2009
Formula 7: Yield Statistics This is perhaps the most important element in
yield management. We have already seen how to express and calculate this statistic. Here we will use the following computation:
Yield Statistics = Occupancy % x Achievement factor
= 0.7 x 0.68= 0.476= 48%
Copyright. Eugene Win CRDE 2009
Formula 8: Identical Yield Statistics This is the point where we can ask “What if
…?” questions to determine how discounting will affect our revenue. If we were to decrease or increase our rate, what occupancy percentage would we need to achieve to produce the same yield? Let’s suppose that our hotel wants to decrease its rate by $2.00 to $33.00.Identical Yield = Current x Current RateStatistics Occ % Proposed Rate
= 70% x ($35/$33)= 0.742 = 74%
To achieve the same yield the hotel must have an occupancy of 74%.Copyright. Eugene Win CRDE
2009
Copyright. Eugene Win CRDE 2009